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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant [X]
Filed by a party other than the registrant [_]
Check the appropriate box:
[_] Preliminary proxy statement
[X] Definitive proxy statement
[_] Definitive additional materials
[_] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
NATIONAL HEALTH LABORATORIES HOLDINGS INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NATIONAL HEALTH LABORATORIES HOLDINGS INC.
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of filing fee (Check the appropriate box):
[_] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(i) Common Stock, par value $0.01 per share, of the Registrant ("NHL
Common Stock") to be issued in connection with the transaction, and
(ii) Common Stock, without par value, of Roche Biomedical Laboratories,
Inc. ("RBL Common Stock") to be acquired by the Registrant in the
transaction.
(2) Aggregate number of securities to which transaction applies:
(i) 61,341,742, being the number of shares of NHL Common Stock expected
to be issued to the stockholder of RBL in the transaction and (ii) 100,
being the number of shares of RBL Common Stock expected to be acquired
in the transaction.
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
The filing fee of $162,229 is calculated in accordance with Rule 0-
11(c)(1) under the Exchange Act as follows: one-50th of one percent of
the sum of (A) the total net cash consideration expected to be paid to
holders of NHL Common Stock ($474,700,000) and stock options
($5,747,469) in the transaction plus (B) the value of the NHL Common
Stock to be issued to the holder of RBL Common Stock in the transaction
($330,700,000). The value of the NHL Common Stock was determined in
accordance with Rule 0-11(a)(4) under the Exchange Act based upon the
value of the RBL Common Stock to be acquired by the Registrant in the
transaction. The value of the RBL Common Stock to be acquired was
determined based upon the book value of the RBL Common Stock computed as
of September 30, 1994, as adjusted to give effect to the RBL Stand-Alone
Adjustments described in the Proxy Statement.
(4) Proposed maximum aggregate value of transaction: $811,147,469.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1)Amount previously paid:
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(2)Form, schedule or registration statement no.:
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(3)Filing party:
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(4)Date filed:
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[Letterhead of]
NATIONAL HEALTH LABORATORIES HOLDINGS INC.
March 31, 1995
Dear Stockholder:
You are cordially invited to attend a special meeting of the stockholders of
National Health Laboratories Holdings Inc. ("NHL") to be held at the Sheraton
New York Hotel, 811 Seventh Avenue, New York, NY 10019, at 9:00 a.m., New York
City Time, on April 28, 1995.
At the special meeting, you will be asked to consider and vote upon the
approval and adoption of an Agreement and Plan of Merger (the "Merger
Agreement") among NHL, HLR Holdings Inc. ("HLR"), Roche Biomedical
Laboratories, Inc. ("RBL") and (for the purposes stated therein) Hoffmann-La
Roche Inc. ("Roche") providing for, among other things, the merger of RBL with
and into NHL. In the merger, subject to certain exceptions described in the
enclosed Proxy Statement/Prospectus, each outstanding share of NHL common stock
will be converted into (i) 0.72 of a share of NHL common stock and (ii) the
right to receive $5.60 in cash, without interest. In addition, all shares of
common stock, no par value, of RBL issued and outstanding immediately prior to
the effective time of the merger (other than treasury shares, which will be
canceled) will be converted into, and become, that number of newly issued
shares of NHL common stock as would, in the aggregate and after giving effect
to the merger and the NHL common stock owned by HLR, RBL and their subsidiaries
immediately prior to the effective time of the merger, equal 49.9% of the total
number of shares of NHL common stock outstanding immediately after the
effective time of the merger (after giving effect to the issuance of NHL common
stock in respect of the NHL employee stock options in connection with the
merger as described in the Proxy Statement/Prospectus).
In connection with the merger, NHL currently intends to declare a dividend,
payable to holders of record of shares of NHL common stock as of April 21,
1995, consisting of 0.16308 of a warrant per outstanding share of NHL common
stock. Each such warrant will represent the right to purchase one newly issued
share of NHL common stock for $22.00 (subject to adjustments) on April 28,
2000. In addition, the Merger Agreement provides for the purchase by Roche, for
a purchase price of $51,048,900, of 8,325,000 warrants to purchase shares of
NHL common stock, which warrants will have the terms described in the preceding
sentence.
The consummation of the proposed merger is subject to, among other things,
the obtaining by NHL of financing for a portion of the cash consideration to be
paid in the merger.
At the special meeting, you will also be asked to consider and vote upon a
proposal to change the name of National Health Laboratories Holdings Inc. to
Laboratory Corporation of America Holdings in connection with the merger.
The Board of Directors of NHL believes that the merger is in the best
interests of NHL and its stockholders and unanimously recommends that you vote
FOR the approval and adoption of the Merger Agreement at the special meeting.
The NHL Board also recommends that you vote FOR the proposed change of the name
of the corporation to Laboratory Corporation of America Holdings. The enclosed
Notice of Special Meeting of Stockholders and Proxy Statement/Prospectus
explain in detail the proposed merger. Please carefully review and consider all
of this information. In considering the recommendation of the NHL Board with
respect to the merger, stockholders should be aware that certain directors and
executive officers of NHL have interests in the merger which may be different
from, or in addition to, the interest of NHL's stockholders, including rights
under employment contracts, employee stock options and other interests. See
"CERTAIN CONSIDERATIONS" and "THE MERGER--Interests of Certain Persons in the
Merger" in the enclosed Proxy Statement/Prospectus.
It is especially important that your shares be represented and voted at the
special meeting. Although you may currently plan to attend the special meeting,
please complete, sign, date and promptly return the enclosed proxy card. If you
attend the special meeting and vote in person, your vote will supersede your
proxy.
We have authorized NHL's proxy solicitor, D. F. King & Co., Inc., to answer
questions and provide assistance for NHL stockholders. Please feel free to call
D. F. King & Co., Inc. at 1-800-769-7666.
Sincerely,
James R. Maher
President and Chief
Executive Officer
<PAGE>
NATIONAL HEALTH LABORATORIES HOLDINGS INC.
4225 EXECUTIVE SQUARE, SUITE 805
LA JOLLA, CA 92037
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
A special meeting of the stockholders of National Health Laboratories
Holdings Inc. ("NHL") will be held at the Sheraton New York Hotel, 811 Seventh
Avenue, New York, NY 10019, at 9:00 a.m., New York City Time, on April 28,
1995.
The special meeting is being held for the purpose of considering and voting
upon the approval and adoption of the Agreement and Plan of Merger dated as of
December 13, 1994 (the "Merger Agreement"), among NHL, HLR Holdings Inc.
("HLR"), Roche Biomedical Laboratories, Inc. ("RBL") and (for the purposes set
forth therein) Hoffmann-La Roche Inc. ("Roche") providing for, among other
things, the merger of RBL with and into NHL with NHL as the surviving
corporation (the "Merger"), and pursuant to which, subject to certain
exceptions described in the enclosed Proxy Statement/Prospectus, each
outstanding share of common stock, par value $0.01 per share, of NHL ("NHL
Common Stock"), will be converted into (i) 0.72 of a share of NHL Common Stock
and (ii) the right to receive $5.60 in cash, without interest.
In addition, all shares of common stock, no par value, of RBL issued and
outstanding immediately prior to the effective time of the Merger (other than
treasury shares, which will be canceled) will be converted into, and become,
that number of newly issued shares of NHL Common Stock as would, in the
aggregate and after giving effect to the Merger and the NHL Common Stock owned
by HLR, RBL and their subsidiaries immediately prior to the effective time of
the Merger, equal 49.9% of the total number of shares of NHL Common Stock
outstanding immediately after the effective time of the Merger (after giving
effect to the issuance of NHL Common Stock in respect of the NHL employee stock
options in connection with the Merger as described in the enclosed Proxy
Statement/Prospectus).
In connection with the Merger, NHL currently intends to declare a dividend,
payable to holders of record of shares of NHL Common Stock as of April 21,
1995, consisting of 0.16308 of a warrant per outstanding share of NHL Common
Stock, each such warrant (a "Warrant") representing the right to purchase one
newly issued share of NHL Common Stock for $22.00 (subject to adjustments) on
April 28, 2000. In addition, the Merger Agreement provides for the issuance to
and purchase by Roche, for a purchase price of $51,048,900, of 8,325,000
Warrants to purchase shares of NHL Common Stock, which Warrants will have the
terms described in the preceding sentence.
The special meeting is also being held for the purpose of considering and
voting upon the amendment of the Certificate of Incorporation of National
Health Laboratories Holdings Inc. to change the name of the corporation to
Laboratory Corporation of America Holdings at the effective time of the Merger.
The close of business on March 10, 1995 has been fixed as the record date for
the determination of stockholders entitled to notice of, and to vote at, the
special meeting and any adjournment thereof. Only holders of record of NHL
Common Stock on the record date are entitled to notice of, and to vote at, the
meeting.
ALL STOCKHOLDERS WHO ARE ENTITLED TO VOTE, EVEN IF THEY NOW PLAN TO ATTEND
THE SPECIAL MEETING, ARE REQUESTED TO EXECUTE THE ENCLOSED PROXY CARD AND
RETURN IT WITHOUT DELAY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. STOCKHOLDERS
PRESENT AT THE SPECIAL MEETING MAY WITHDRAW THEIR PROXY AND VOTE PERSONALLY ON
EACH MATTER BROUGHT BEFORE THE SPECIAL MEETING.
By Order of the Board of Directors,
Alvin Ezrin
Secretary
March 31, 1995
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE DATE AND SIGN
THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE. IF YOU ATTEND
THE MEETING, YOU MAY REVOKE THE PROXY AND VOTE YOUR SHARES IN PERSON. PLEASE DO
NOT SEND IN ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME.
<PAGE>
NATIONAL HEALTH LABORATORIES HOLDINGS INC.
PROXY STATEMENT/PROSPECTUS
This Proxy Statement/Prospectus is being furnished to the stockholders of
National Health Laboratories Holdings Inc. ("NHL") in connection with the
solicitation of proxies by the Board of Directors of NHL for use at the special
meeting of stockholders of NHL to be held at the Sheraton New York Hotel, 811
Seventh Avenue, New York, NY 10019, at 9:00 a.m., New York City Time, on April
28, 1995, including any adjournments or postponements of the meeting (the "NHL
Meeting").
At the NHL Meeting, the holders of common stock, par value $0.01 per share,
of NHL ("NHL Common Stock") will consider and vote upon the approval and
adoption of the Agreement and Plan of Merger dated as of December 13, 1994 (the
"Merger Agreement"), among NHL, HLR Holdings Inc. ("HLR"), Roche Biomedical
Laboratories, Inc. ("RBL") and (for the purposes specified therein) Hoffmann-La
Roche Inc. ("Roche") providing for, among other things, the merger of RBL with
and into NHL (the "Merger"). NHL will be the surviving corporation in the
Merger (the "Surviving Corporation"). Pursuant to the Merger Agreement, each
outstanding share of NHL Common Stock (other than shares of NHL Common Stock
owned by RBL, HLR or any subsidiary of RBL or HLR and other than Dissenting
Common Shares (as hereinafter defined)) will be converted, upon the
effectiveness of the Merger (the "Effective Time"), into (i) 0.72 of a share of
NHL Common Stock and (ii) the right to receive $5.60 in cash, without interest.
In addition, all shares of common stock, no par value, of RBL issued and
outstanding immediately prior to the Effective Time (other than treasury
shares, which will be canceled) will be converted into, and become, that number
of newly issued shares of NHL Common Stock as would, in the aggregate and after
giving effect to the Merger and the NHL Common Stock owned by HLR, RBL and
their subsidiaries immediately prior to the Effective Time, equal 49.9% of the
total number of shares of NHL Common Stock outstanding immediately after the
Effective Time (after giving effect to the issuance of NHL Common Stock in
respect of the NHL employee stock options in connection with the Merger as
described herein).
In connection with the Merger, NHL currently intends to declare a dividend
(the "Warrant Distribution"), payable to holders of record of shares of NHL
Common Stock as of April 21, 1995, consisting of 0.16308 of a warrant per
outstanding share of NHL Common Stock, each such warrant (a "Warrant", and
together with the Roche Warrants (as defined below), the "Warrants")
representing the right to purchase one newly issued share of NHL Common Stock
for $22.00 (subject to adjustments) on April 28, 2000. In addition, the Merger
Agreement provides for the issuance to and purchase by Roche, for a purchase
price of $51,048,900 (the "Roche Warrant Consideration") of 8,325,000 Warrants
to purchase shares of NHL Common Stock (the "Roche Warrants"), which Roche
Warrants will have the terms described in the preceding sentence.
The aggregate cash consideration of $474,700,000 to be paid to stockholders
of NHL in the Merger will be financed from three sources: a cash contribution
by NHL of $288,000,000 (the "NHL Cash Contribution") out of the proceeds of
borrowings by NHL in an equal amount, a cash contribution to be made by HLR in
the amount of $135,651,100 (the "HLR Cash Contribution") and the Roche Warrant
Consideration.
At the NHL Meeting, the holders of NHL Common Stock will also consider and
vote upon a proposal to amend the Certificate of Incorporation of NHL to change
the name of the corporation to Laboratory Corporation of America Holdings at
the Effective Time (the "Name Change Amendment").
The Merger is presently anticipated to be consummated on or about April 28,
1995.
This Proxy Statement/Prospectus also serves as a Prospectus of NHL under the
Securities Act of 1933, as amended (the "Securities Act"), relating to the
shares of NHL Common Stock issuable in connection with the Merger.
This Proxy Statement/Prospectus and the accompanying proxy card are first
being mailed to stockholders of NHL on or about March 31, 1995.
---------------
IN CONSIDERING WHETHER TO APPROVE AND ADOPT THE MERGER AGREEMENT,
STOCKHOLDERS OF NHL SHOULD CAREFULLY EVALUATE THE MATTERS SET
FORTH UNDER "CERTAIN CONSIDERATIONS" AND "THE MERGER--
INTERESTS OF CERTAIN PERSONS IN THE MERGER".
---------------
THE SECURITIES TO BE ISSUED IN THE MERGER HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
The date of this Proxy Statement/Prospectus is March 31, 1995.
<PAGE>
NO PERSON IS AUTHORIZED BY NHL TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/ PROSPECTUS,
IN CONNECTION WITH THE SOLICITATION AND THE OFFERING MADE BY THIS PROXY
STATEMENT/PROSPECTUS. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE THE
SOLICITATION OF A PROXY OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
PURCHASE, ANY SECURITIES IN ANY JURISDICTION IN WHICH SUCH SOLICITATION OR
OFFERING MAY NOT LAWFULLY BE MADE.
AVAILABLE INFORMATION
NHL is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). In accordance with the Exchange
Act, NHL files proxy statements, reports and other information with the
Securities and Exchange Commission (the "SEC"). This filed material can be
inspected and copied at the public reference facilities maintained by the SEC
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following Regional Offices of the SEC: Midwest Regional Office (Suite 1400,
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661) and
Northeast Regional Office (7 World Trade Center, 13th Floor, New York, New York
10048). Copies of such material can be obtained by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. In addition, the NHL Common Stock is listed on the New
York Stock Exchange, Inc. (the "NYSE") and such material can be inspected at
the offices of the NYSE, 20 Broad Street, New York, New York 10005.
NHL has filed a Registration Statement on Forms S-4/S-3 (the "Registration
Statement") with the SEC under the Securities Act with respect to the NHL
Common Stock to be issued upon consummation of the Merger and with respect to
the reoffering by National Health Care Group, Inc. ("NHCG"), a corporation
indirectly wholly owned through Mafco Holdings Inc. by Ronald O. Perelman, of
shares of NHL Common Stock to be received by NHCG in the Merger and the
Warrants to be received by NHCG in the Warrant Distribution. This Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits thereto, certain portions of which have
been omitted as permitted by the rules and regulations of the SEC. Copies of
the Registration Statement are available from the SEC, upon payment of
prescribed rates. For further information, reference is made to the
Registration Statement and the exhibits filed therewith. Statements contained
in this Proxy Statement/Prospectus or in any document incorporated by reference
in this Proxy Statement/Prospectus relating to the contents of any contract or
other document referred to herein or therein are not necessarily complete, and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement or such other
document, each such statement being qualified in all respects by such
reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated by reference in this Proxy
Statement/Prospectus: (i) NHL's Annual Report on Form 10-K for the year ended
December 31, 1994 (the "NHL 10-K"), (ii) the description of NHL Common Stock
set forth in NHL's Registration Statements filed pursuant to Section 12 of the
Exchange Act and (iii) the Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1994 of Allied Clinical Laboratories, Inc. ("Allied").
2
<PAGE>
A COPY OF THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE (EXCLUDING EXHIBITS
UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO THE
INFORMATION INCORPORATED HEREIN) THAT ARE NOT PRESENTED HEREIN OR DELIVERED
HEREWITH WILL BE PROVIDED BY FIRST-CLASS MAIL WITHOUT CHARGE TO EACH PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM A PROXY STATEMENT/PROSPECTUS IS
DELIVERED, UPON ORAL OR WRITTEN REQUEST OF ANY SUCH PERSON. REQUESTS SHOULD BE
DIRECTED TO JAMES G. RICHMOND, EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL,
NATIONAL HEALTH LABORATORIES HOLDINGS INC., 4225 EXECUTIVE SQUARE, SUITE 805,
LA JOLLA, CA 92037 (TELEPHONE (619) 550-0600). IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS IN ADVANCE OF THE MEETING TO WHICH THIS PROXY
STATEMENT/PROSPECTUS RELATES, ANY SUCH REQUEST SHOULD BE MADE BY APRIL 13,
1995.
All reports and definitive proxy or information statements filed by NHL
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent
to the date of this Proxy Statement/Prospectus and prior to the date of the NHL
Meeting shall be deemed to be incorporated by reference into this Proxy
Statement/Prospectus from the dates of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated in this Proxy
Statement/Prospectus shall be deemed to be modified or superseded for purposes
of this Proxy Statement/Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference modifies or supersedes such statement.
All information contained in this Proxy Statement/Prospectus relating to NHL
has been supplied by NHL, and all information relating to RBL (other than the
information set forth under the caption "THE MERGER--Opinion of NHL's Financial
Advisor") has been supplied by RBL.
3
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
AVAILABLE INFORMATION..................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 2
SUMMARY................................................................... 5
The NHL Meeting.......................................................... 5
Vote Required............................................................ 5
The Merger............................................................... 5
The Stockholder Agreement................................................ 13
Plan of Financing........................................................ 14
Market Price Data........................................................ 14
Selected Historical and Pro Forma Condensed Combined Consolidated
Financial Data.......................................................... 15
Comparative per Share Data............................................... 20
CERTAIN CONSIDERATIONS.................................................... 21
THE NHL MEETING........................................................... 26
General.................................................................. 26
NHL Share Ownership...................................................... 27
THE CLINICAL LABORATORY TESTING
INDUSTRY................................................................. 28
General................................................................... 28
Effect of the Growth of the Managed Care Sector on the Clinical
Laboratory Business...................................................... 28
Competition............................................................... 29
Regulation and Reimbursement.............................................. 30
OIG Investigations........................................................ 33
NHL....................................................................... 35
RBL....................................................................... 36
General.................................................................. 36
Laboratory Testing Operations and Services............................... 36
Types of Testing and Procedures.......................................... 37
Clients and Payees....................................................... 38
Sales and Marketing...................................................... 39
Quality Assurance........................................................ 39
Raw Materials and Supplies............................................... 40
Employees................................................................ 40
Properties............................................................... 40
Legal Proceedings and Insurance.......................................... 41
RBL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................... 42
Results of Operations of RBL (dollars in millions)....................... 42
Liquidity and Capital Resources (dollars in millions).................... 43
THE MERGER................................................................ 45
Background of the Merger................................................. 45
Recommendation of the NHL Board of Directors and NHL's Reasons for the
Merger.................................................................. 49
Opinion of NHL's Financial Advisor....................................... 53
Reasons of RBL and HLR for the Merger.................................... 59
Exchange Agent; Procedures for Exchange of Certificates; No Fractional
Shares.................................................................. 59
Expenses................................................................. 60
Material Federal Income Tax Consequences................................. 60
Accounting Treatment..................................................... 61
Effect on NHL Employee Stock Options..................................... 61
Interests of Certain Persons in the Merger............................... 63
No Solicitation.......................................................... 67
Right of the NHL Board of Directors to Withdraw Recommendation Upon
Receipt of a Superior Proposal.......................................... 67
Certain Fees............................................................. 68
PLAN OF FINANCING......................................................... 69
Description of Bank Facility............................................. 69
THE MERGER AGREEMENT...................................................... 74
The Merger............................................................... 74
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
The Surviving
Corporation............ 75
Representations and
Warranties............. 76
Covenants of NHL........ 79
Covenants of HLR and
RBL.................... 81
Covenants of NHL, HLR
and RBL................ 82
Agreements of Roche..... 82
Tax Matters............. 83
Conditions to the
Merger................. 84
Amendments.............. 86
Termination............. 86
THE WARRANT AGREEMENT.... 87
Issuance, Exercise and
Redemption............. 87
Anti-Dilution
Provisions............. 90
Warrant Agent........... 91
Certain Miscellaneous
Provisions............. 92
THE STOCKHOLDER
AGREEMENT............... 93
Corporate Governance.... 93
Anti-Dilutive Rights.... 96
Acquisitions and
Transfers of Equity
Securities............. 96
Registration Rights..... 97
Termination............. 99
MANAGEMENT AND OPERATIONS
AFTER THE MERGER........ 99
Directors and Executive
Officers of the
Surviving Corporation.. 99
Operations After the
Merger................. 101
Restructuring Costs of
NHL.................... 102
Liquidity and Capital
Resources After the
Merger................. 102
MARKET PRICES AND
DIVIDENDS............... 104
UNAUDITED PRO FORMA
CONDENSED COMBINED
CONSOLIDATED FINANCIAL
INFORMATION............. 105
THE SHARING AND CALL
OPTION AGREEMENT........ 111
Sharing Payments........ 111
Sale and Voting of
Stockholder Shares
Prior to the Merger.... 111
Call Rights............. 112
Covenants............... 112
Registration Rights..... 112
Amendments and
Termination............ 112
OTHER MATTERS............ 113
Regulatory Approvals
Required............... 113
NAME CHANGE AMENDMENT.... 113
APPRAISAL RIGHTS......... 113
SOLICITATION OF PROXIES.. 116
STOCKHOLDER PROPOSALS.... 116
NHL STOCKHOLDER LIST..... 116
EXPERTS.................. 116
LEGAL MATTERS............ 116
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS OF
RBL..................... F-1
</TABLE>
ANNEXES
<TABLE>
<C> <S>
ANNEX I --Agreement and Plan of Merger
ANNEX II --Form of Warrant Agreement
ANNEX III --Form of Stockholder Agreement
ANNEX IV --Opinion of Morgan Stanley & Co. Incorporated
ANNEX V --Section 262 of the Delaware General Corporation Law
</TABLE>
4
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement/Prospectus and does not purport to be a full description of
such information. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information contained elsewhere in this Proxy
Statement/Prospectus, in the Annexes included herewith and in the documents
incorporated herein by reference. Stockholders are urged to read carefully this
Proxy Statement/Prospectus (including the information incorporated by reference
herein) and the attached Annexes in their entirety.
THE NHL MEETING
The NHL Meeting will be held at the Sheraton New York Hotel, 811 Seventh
Avenue, New York, NY 10019, at 9:00 a.m., New York City Time, on April 28,
1995. Only holders of record of NHL Common Stock at the close of business on
March 10, 1995 (the "NHL Record Date") will be entitled to notice of, and to
vote at, the NHL Meeting. At the NHL Meeting, holders of NHL Common Stock will
be asked to consider and vote upon the approval and adoption of the Merger
Agreement and the Name Change Amendment. Each properly completed proxy card
returned in time for voting at the NHL Meeting will be voted in accordance with
the instructions indicated on the proxy card, or, if no instructions are
provided, will be voted FOR the approval and adoption of the Merger Agreement
and the Name Change Amendment.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the outstanding shares
of NHL Common Stock is required for the approval and adoption of the Merger
Agreement and the Name Change Amendment. As of the NHL Record Date, there were
84,766,109 shares of NHL Common Stock outstanding, of which approximately 26%
were beneficially owned by directors and executive officers of NHL and their
respective affiliates (including Ronald O. Perelman). Pursuant to a Sharing and
Call Option Agreement dated as of December 13, 1994 among HLR, Mafco Holdings
Inc., NHCG and (for the purposes set forth therein) NHL (the "Sharing and Call
Option Agreement"), NHCG, a corporation indirectly wholly owned through Mafco
Holdings Inc. by Mr. Perelman, has agreed to vote all shares of NHL Common
Stock owned by it (which on the date hereof constitute approximately 24% of all
outstanding shares of NHL Common Stock) in favor of the approval and adoption
of the Merger Agreement. The directors and executive officers of NHL have
advised NHL that they intend to vote the shares of NHL Common Stock as to which
they have sole voting power FOR the approval and adoption of the Merger
Agreement and the Name Change Amendment.
THE MERGER
The Parties. NHL. NHL is one of the leading clinical laboratory companies in
the United States. Through a national network of laboratories, NHL offers a
broad range of testing services used by the medical profession in the
diagnosis, monitoring and treatment of disease. Office-based physicians
constitute approximately 90% of NHL's clients. The remainder is comprised
primarily of clinics, nursing homes, hospitals and other clinical laboratories.
Since its founding in 1971, NHL has grown into a network of 23 major
laboratories, including a national reference laboratory which performs esoteric
testing, and approximately 950 service sites consisting of sales ports, patient
service centers and STAT laboratories (which provide immediate results on
certain laboratory tests), serving customers in 45 states.
On June 23, 1994, NHL acquired Allied, the then sixth largest independent
clinical laboratory testing company in the United States (measured by net
revenues), as a wholly owned subsidiary for approximately $191.5 million in
cash plus the assumption of $24.0 million of Allied indebtedness and the
recognition of approximately $5.0 million of Allied net liabilities (the
"Allied Acquisition").
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The principal executive offices of NHL are located at 4225 Executive Square,
Suite 805, La Jolla, California 92037, and its telephone number is (619) 550-
0600.
RBL. RBL is the fourth largest independent clinical laboratory in the United
States (in terms of revenues for the year ended December 31, 1994). RBL
provides clinical laboratory testing services to hospitals, laboratories and
physicians and offers a comprehensive line of over 1,600 tests and procedures,
all of which are performed in RBL's facilities, with a majority performed in
RBL's 17 major testing centers located primarily in the midwestern, eastern and
southern United States. For the year ended December 31, 1994, RBL derived
approximately 58% of its revenues from testing services provided to physicians,
about 11% from services provided to hospitals and the remaining 31% from
services provided to other clinical laboratories (and other clients).
RBL has approximately 160 branch offices serving as hubs for RBL's
professional service network (couriers, specimen pickup and result delivery)
and which maintain daily logistical contact with clients who forward specimens
to RBL for testing. RBL operates approximately 100 STAT laboratories. RBL has
approximately 440 patient service centers ("PSCs") which perform specimen
collection services for patients when specimens are not collected by the
physicians in their own offices. Additionally, RBL has been developing business
from nontraditional customers, such as industrial and corporate clients. Such
customers have found a need for tests and procedures similar to certain of
those offered by RBL to hospitals and physicians, such as employment-related
testing for substance abuse and testing to determine exposure to toxic
substances in the work place.
Originally known as HLR Lab Holdings, Inc. ("HLR Lab"), RBL was formed on
March 23, 1982 by Roche and acquired the business of Biomedical Reference
Laboratories, Inc. ("BRL") through a merger in June 1982. Following the merger,
the surviving corporation changed its name to RBL in February 1983. The stock
of RBL was subsequently transferred to HLR, a wholly owned subsidiary of Roche.
Roche is a wholly owned indirect subsidiary of Roche Holding Ltd ("Roche
Holding") which was incorporated in 1896 in Basel, Switzerland, under the name
F. Hoffmann-La Roche and Co.
Roche Holding is the parent company of an international health care concern
operating in more than 100 countries and employing approximately 60,000 people
worldwide. Roche Holding, including through its subsidiaries (collectively, the
"Roche Group"), engages primarily in the development and manufacture of
pharmaceuticals, vitamins and fine chemicals, diagnostics, flavors and
fragrances and in the business of analytical laboratory services. The Roche
Group is one of the world's leading research-based health care groups active in
the discovery, development, manufacture and marketing of pharmaceuticals and
diagnostic systems. The Roche Group is also one of the world's largest
producers of vitamins and carotenoids and of fragrances and flavors. The
principal executive offices of Roche Holding are located in Basel, Switzerland.
RBL's headquarters and principal executive offices are located at 358 South
Main Street, Burlington, North Carolina 27215, and its telephone number is
(800) 222-7566.
Conversion of Shares. At the Effective Time, each outstanding share of NHL
Common Stock (other than shares of NHL Common Stock owned by RBL, HLR or any
subsidiary of RBL or HLR and other than Dissenting Common Shares) will be
converted (the "NHL Share Conversion") into (i) 0.72 of a share of NHL Common
Stock and (ii) the right to receive $5.60 in cash, without interest (the "Cash
Consideration"; together with the NHL Common Stock received as described in
clause (i), the "Conversion Consideration"). In addition, all shares of common
stock, no par value, of RBL issued and outstanding immediately prior to the
Effective Time (other than treasury shares, which will be canceled) will be
converted into, and become, that number of newly issued shares of NHL Common
Stock as would, in the aggregate and after giving effect to the Merger and the
NHL Common Stock owned by HLR, RBL and their subsidiaries immediately prior to
the Effective Time, equal 49.9% of the total number of shares of NHL Common
Stock outstanding immediately after the Effective Time. No fractional shares of
NHL Common Stock will be issued in the
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Merger and holders of shares of NHL Common Stock will be entitled to a cash
payment in lieu of any fractional shares that would otherwise be payable. The
nature and amount of the Conversion Consideration, the terms of the Warrant
Distribution and the amount of the NHL Cash Contribution, as well as the number
of shares of NHL Common Stock to be issued to HLR, the amount of the HLR Cash
Contribution and the amount of the Roche Warrant Consideration, were determined
by negotiation between representatives of NHL and representatives of HLR, Roche
and RBL. See "THE MERGER--Background of the Merger".
HLR's Ability to Increase Its Ownership Interest. Pursuant to the Stockholder
Agreement to be entered into immediately prior to the Merger among NHL, HLR and
Roche (the "Stockholder Agreement"), HLR and its affiliates (the "HLR Group")
may not, subject to certain exceptions, increase its ownership of NHL Common
Stock (the "HLR Group Interest") above 49.99% during the one-year period
following the Effective Time. After the first anniversary of the Effective
Time, the HLR Group will have the right to acquire equity securities of the
Surviving Corporation to the extent that, after giving effect thereto, the HLR
Group Interest would not exceed 75%. Moreover, the HLR Group may acquire
additional equity securities notwithstanding the fact that, after giving effect
thereto, the HLR Group Interest would exceed 75%, if HLR or any member of the
HLR Group offers, prior to consummation of such purchase, to purchase all
outstanding equity securities and holders of equity securities totalling more
than 50% of the outstanding equity securities (excluding any securities held by
the HLR Group) accept such offer. After the third anniversary of the Effective
Time, the Stockholder Agreement does not restrict purchases by the HLR Group of
equity securities of the Surviving Corporation. Certain provisions of the
Stockholder Agreement described below, including provisions relating to the
composition of the Board of Directors of the Surviving Corporation, would be
suspended if the HLR Group Interest were to be increased to over 50%. See "THE
STOCKHOLDER AGREEMENT".
Warrants. In connection with the Merger, NHL currently intends to make the
Warrant Distribution, payable to holders of record of shares of NHL Common
Stock as of April 21, 1995, consisting of 0.16308 of a Warrant per outstanding
share of NHL Common Stock, each such Warrant representing the right to purchase
one newly issued share of NHL Common Stock for $22.00 (subject to adjustments)
on April 28, 2000 (subject to extension as provided in the Warrant Agreement
(as defined below), the "Expiration Date"). In addition, the Merger Agreement
provides for the issuance to and purchase by Roche of the Roche Warrants. The
terms of the Warrants (including the Roche Warrants) will be set forth in a
warrant agreement (the "Warrant Agreement") between NHL and American Stock
Transfer & Trust Company, as warrant agent (the "Warrant Agent"). Pursuant to
the Warrant Agreement, NHL will have the right, exercisable by notice at least
60 but not more than 90 days prior to the Expiration Date, to redeem the
Warrants on the Expiration Date for a cash redemption price per Warrant equal
to the average closing price of the shares of NHL Common Stock over a specified
period prior to the Expiration Date minus the exercise price of $22.00 per
share (subject to adjustments). Fractional Warrants will not be issued to
holders of shares of NHL Common Stock, and in lieu thereof, each holder of
shares of NHL Common Stock who otherwise would be entitled to receive a
fractional Warrant will be paid an amount in cash, without interest, equal to
such holder's proportionate interest in the net proceeds from the sale or sales
in the open market by the Warrant Agent, on behalf of all such holders, of the
aggregate fractional Warrants, if any, that would have been issued in the
Warrant Distribution.
Effect on NHL Employee Stock Options. The Merger Agreement provides that each
employee stock option or right to acquire shares of NHL Common Stock under
NHL's 1988 and 1994 Stock Option Plans ("NHL Employee Stock Options")
outstanding on the date of the Merger Agreement will be deemed fully vested and
NHL will use reasonable efforts, including with respect to obtaining consents,
to cause each NHL Employee Stock Option to be canceled and terminated
immediately prior to the Effective Time in exchange for an amount in cash and
shares of NHL Common Stock (in the proportions set forth below) equal to the
product of (i) the number of shares of NHL Common Stock subject to such NHL
Employee Stock Option immediately prior to the Effective Time and (ii) the
excess of (1) $18.50 over (2) the per share exercise price of such NHL Employee
Stock Option (such product, the "Option Value Amount"). The Option Value
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Amount will be payable at the Effective Time as follows: 40% of such amount
will be payable in cash, and 60% of such amount (the "Option Stock Amount")
will be payable in the number of shares of NHL Common Stock obtained by
dividing the Option Stock Amount by $15.42; provided that any fractional share
resulting from such calculation will be paid in cash, with the value of a whole
share for such purpose assumed to be $15.42. All such amounts payable will be
subject to any required withholding taxes and will be paid without interest.
The Merger Agreement provides that NHL Employee Stock Options with respect to
which the requisite consents are not obtained will not be canceled, but instead
will be immediately converted as of the Effective Time into the right (an
"Adjusted Option") to purchase the Option Conversion Number (as defined below)
of shares of NHL Common Stock. Each Adjusted Option will have substantially the
same terms as the NHL Employee Stock Option to which it is related, except
that: (i) the Adjusted Option will be deemed fully vested and (ii) the exercise
price of an Adjusted Option will be an amount equal to the exercise price of
the NHL Employee Stock Option related to such Adjusted Option as of the date of
the Merger Agreement divided by the Conversion Number (as defined below). The
"Option Conversion Number" for any Adjusted Option will be equal to the number
of shares of NHL Common Stock purchasable pursuant to the NHL Employee Stock
Option related to such Adjusted Option as of the date of the Merger Agreement
multiplied by the Conversion Number. The "Conversion Number" will be a number
equal to (i) the sum of (x) the product of (A) the average closing price of a
share of NHL Common Stock on the NYSE Composite Tape for the period of five
consecutive trading days beginning on the trading day following the date on
which the Effective Time occurs (the "Post Merger Value") and (B) 0.72 and (y)
$6.60 divided by (ii) the Post Merger Value.
See "THE MERGER--Effect on NHL Employee Stock Options" for examples
illustrating the operation of the provisions described in the preceding two
paragraphs.
Recommendation of the NHL Board of Directors and NHL's Reasons for the
Merger. THE BOARD OF DIRECTORS OF NHL, BY A UNANIMOUS VOTE OF THOSE DIRECTORS
PRESENT AT THE DECEMBER 12, 1994 MEETING OF THE BOARD OF DIRECTORS, HAS
APPROVED THE MERGER AGREEMENT. THE BOARD OF DIRECTORS OF NHL HAS DETERMINED
THAT THE MERGER IS IN THE BEST INTERESTS OF NHL AND ITS STOCKHOLDERS AND
UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF NHL VOTE FOR THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT. The NHL Board of Directors believes that the
Merger offers the potential for achieving significant cost savings, and the
potential for achieving earnings growth, thereby furthering NHL's objective of
achieving long-term value for its stockholders. In addition, the Merger offers
stockholders of NHL the opportunity to receive a cash payment in respect of
their shares while retaining a substantial continuing equity interest in the
combined company and the consequent ability to realize a portion of the
benefits arising from the synergies expected to result from the Merger. See
"THE MERGER--Background of the Merger" and "Recommendation of the NHL Board of
Directors and NHL's Reasons for the Merger" and "CERTAIN CONSIDERATIONS".
In reaching its decision to approve the Merger, the Board of Directors of NHL
also considered the costs of the transaction to NHL and its stockholders,
including restructuring costs in the amount of approximately $84 million
expected to be recorded by NHL at the time of the Merger described under
"MANAGEMENT AND OPERATIONS AFTER THE MERGER--Restructuring Costs of NHL",
transaction costs and expenses to be incurred in connection with the Merger in
an amount that could not be determined at that time but that was estimated to
be up to $20 million, the fact that HLR's ownership interest in the Surviving
Corporation and its rights under the Stockholder Agreement described below will
permit it to exercise significant influence on the governance of the Surviving
Corporation and the fact that HLR's ownership interest may prevent the
Surviving Corporation, without HLR's consent, from entering into a merger or
other transaction that would result in stockholders receiving a premium for
their shares. In evaluating the recommendation of the Board of Directors of
NHL, and in considering whether to approve and adopt the Merger Agreement,
stockholders of NHL should carefully evaluate the matters set forth under
"CERTAIN CONSIDERATIONS" and "THE MERGER--Interests of Certain Persons in the
Merger".
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In the event that the stockholders of NHL do not approve and adopt the Merger
Agreement at the NHL Meeting, NHL will continue to take actions which it
believes will build shareholder value in NHL over both the short and long term.
Reasons of RBL and HLR for the Merger. The Board of Directors of each of RBL
and HLR believe that the Merger is in the best interest of RBL and HLR because
the operations and business of NHL are strategically complementary with those
of RBL. The Boards believe the Merger will create a more diversified clinical
laboratory capable of providing a broad range of high quality testing and
related services on a nationwide basis. Additionally, the Boards of RBL and HLR
regard the combination of NHL's strengths in marketing and client relations and
RBL's growing specialized testing and other niche businesses, as well as RBL's
experience in centralized management and information systems, as significant
benefits for the combined entity. See "THE MERGER--Reasons of RBL and HLR for
the Merger".
Opinion of NHL's Financial Advisor. Morgan Stanley & Co. Incorporated
("Morgan Stanley") has delivered its written opinion dated December 14, 1994 to
the Board of Directors of NHL that, as of such date, the consideration, in the
aggregate, to be received by stockholders of NHL pursuant to the Merger
Agreement, when considered together with the Warrants currently intended to be
distributed as a dividend in the Warrant Distribution, is fair to such
stockholders from a financial point of view. For purposes of its opinion as to
the fairness, from a financial point of view, to the holders of shares of NHL
Common Stock of the Conversion Consideration received by such holders pursuant
to the Merger Agreement together with the Warrants to be dividended to such
holders in the Warrant Distribution, Morgan Stanley arrived at a range of
values for NHL by utilizing three principal valuation methodologies: comparable
company analysis, a precedent transaction analysis and discounted cash flow
analysis, but it did not present to the NHL Board a range of values for NHL
derived from the comparable company analysis or the precedent transaction
analysis because the Allied Acquisition was not fully reflected in NHL's
financial condition and results of operations, which rendered the values
implied from such analyses not meaningful. The discounted cash flow analysis
resulted in a range of values for NHL of between $8.88 and $13.17 per share. In
addition to these valuation methodologies, and given that the structure of the
clinical laboratory industry may allow for synergies to arise from business
combinations, Morgan Stanley also considered the estimated after-tax value of
the synergies expected to result from the proposed transaction in forming its
opinion (which, when fully realized, are expected to amount to between $5.85
and $7.92 per share of common stock of the Surviving Corporation). For purposes
of its opinion, Morgan Stanley compared the range of stand-alone values it
derived for NHL as described above to the value of the Conversion Consideration
together with the value of the Warrants to be dividended to such holders in the
Warrant Distribution (collectively, the "Transaction Value"). In order to
determine the Transaction Value for purposes of its opinion, Morgan Stanley
applied a range of multiples (ranging from 15x to 18x) to the Surviving
Corporation's estimated 1995 earnings per share (which estimate gave effect to,
among other things, the estimated combined net income of NHL and RBL, expected
synergies, goodwill amortization and interest charges) to arrive at a range of
projected market values for the shares of the Surviving Corporation. The
Warrants are intended to have a value of approximately $1.00 per share to
holders of NHL Common Stock prior to the Effective Time. However, the actual
value of the Warrants will ultimately depend upon several market factors
including, but not limited to, general market conditions and the Surviving
Corporation's volatility and pro forma trading value, on which Morgan Stanley
has not separately opined. The assumed value of the Warrants was determined
based upon the following parameters, which were agreed upon by NHL, Roche and
their respective financial advisors: an assumed volatility of approximately 43%
for the Surviving Corporation, a five year maturity, an assumed pro forma
trading value for the Surviving Corporation of approximately $16.00 and a
strike price of $22.00. By adding $6.60 (the sum of the Cash Consideration per
share and the estimated per share value of the Warrant) to NHL's pro rata share
of such market values, Morgan Stanley arrived at a reference range of
Transaction Values of between $16.65 and $18.66 per share. The full text of the
opinion of Morgan Stanley, which sets forth the assumptions made, matters
considered and limitations on the review undertaken by Morgan Stanley, is
included as Annex IV to this Proxy Statement/Prospectus. NHL stockholders are
urged to read the opinion
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in its entirety. See also "THE MERGER--Opinion of NHL's Financial Advisor" for
a description of the analyses Morgan Stanley utilized in arriving at its
opinion.
Interests of Certain Persons in the Merger. In addition to (i) shares of NHL
Common Stock held by directors and executive officers of NHL, for which they
will receive the same consideration as other NHL stockholders, (ii) options to
acquire shares of NHL Common Stock, which will be treated as described above
under "Effect on NHL Employee Stock Options" and (iii) the special bonus
payable to James R. Maher, the current President and Chief Executive Officer of
NHL, described under "THE MERGER--Interests of Certain Persons in the Merger",
certain executive officers of NHL are parties to employment agreements with NHL
pursuant to which such persons may terminate their employment for "good reason"
(which is defined generally in the employment agreements to include an
assignment of duties that is materially inconsistent with the status of such
persons as executive officers, an adverse alteration in the nature of the
responsibilities of such person, a reduction in salary or guaranteed bonus, or
a material breach of such employment agreements by NHL--certain of which
circumstances may occur as a result of the contemplated consolidation of
certain NHL and RBL operations following the Merger), whereupon significant
payments and other benefits may be required to be provided to such persons.
The Merger Agreement provides that the certificate of incorporation and by-
laws of the Surviving Corporation will contain the provisions with respect to
indemnification set forth in NHL's certificate of incorporation and by-laws on
the date of the Merger Agreement, which provisions may not be amended, repealed
or otherwise modified for a period of six years from the Effective Time in any
manner that would adversely affect the rights of individuals who on or prior to
the Effective Time were directors, officers, employees or agents of NHL or RBL
(unless such modification is required by law). In addition, the Merger
Agreement requires the Surviving Corporation to indemnify the present and
former officers and directors of NHL and RBL in respect of acts or omissions
occurring prior to the Effective Time to the maximum extent provided under its
certificate of incorporation and by-laws (except that, subject to certain
exceptions, such indemnification will be mandatory rather than permissive). The
Merger Agreement also provides that, subject to certain exceptions, the
Surviving Corporation will maintain NHL's and RBL's current directors' and
officers' insurance policies for a period of six years after the Effective
Time. See "THE MERGER--Interests of Certain Persons in the Merger".
See "THE SHARING AND CALL OPTION AGREEMENT" for a description of certain
registration rights granted to NHCG with respect to shares of NHL Common Stock
to be received in the Merger.
Regulatory Approvals. NHL and RBL each filed notification and report forms
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act") on January 3, 1995 with respect to the Merger. The waiting period
under the HSR Act expired on February 2, 1995. On February 6, 1995, NHL and RBL
filed a joint letter informing the Committee on Foreign Investment in the
United States ("CFIUS") of the Merger under the Section 721 of Title VII of the
Defense Production Act of 1950 as amended (the "Exon-Florio Amendment"). CFIUS
determined on March 8, 1995 that the Merger raises no issues of national
security sufficient to warrant an investigation under the Exon-Florio Amendment
and that action under the Exon-Florio Amendment had been concluded with respect
to the Merger. See OTHER MATTERS--Regulatory Approvals Required".
Conditions to the Merger. The consummation of the Merger is subject to
certain conditions, including the approval of the holders of a majority of the
outstanding shares of NHL Common Stock and the obtaining by NHL of sufficient
financing to effect the refinancing of NHL's existing indebtedness and to
finance the NHL Borrowings (as defined below).
No Solicitation. The Merger Agreement provides that NHL may not, nor may it
permit any of its subsidiaries to, nor may it authorize or permit any officer,
director or employee of, or any investment banker, attorney or other adviser or
representative of, NHL or any of its subsidiaries to, directly or indirectly
(i)
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solicit, initiate or encourage the submission of any Acquisition Proposal (as
defined below) or (ii) participate in any discussions or negotiations
regarding, or furnish to any person any information with respect to, or take
any other action to facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Acquisition
Proposal. However, to the extent required by the fiduciary obligations of the
Board of Directors of NHL, as determined in good faith by the Board of
Directors based on the advice of outside counsel, NHL may, (i) in response to
an unsolicited request therefor, furnish information with respect to NHL to any
person pursuant to a customary confidentiality agreement (as determined by
NHL's outside counsel) and discuss such information (but not the terms of any
possible Acquisition Proposal) and the terms of this provision of the Merger
Agreement with such person and (ii) upon receipt by NHL of an Acquisition
Proposal, following delivery of a notice to HLR in accordance with the Merger
Agreement, participate in negotiations regarding such Acquisition Proposal. As
used in the Merger Agreement, an "Acquisition Proposal" means any proposal with
respect to a merger or other business combination involving NHL or any of its
subsidiaries or any proposal or offer to acquire in any manner, directly or
indirectly, an equity interest in securities representing not less than 20% of
the outstanding voting securities of, or assets representing not less than 10%
of the annual revenues of, NHL or any of its subsidiaries, other than the
transactions contemplated in the Merger Agreement or the Sharing and Call
Option Agreement.
Right of the NHL Board of Directors to Withdraw Recommendation Upon Receipt
of a Superior Proposal. Under the Merger Agreement, neither the Board of
Directors of NHL nor any committee thereof may (i) withdraw or modify, or
propose to withdraw or modify, in a manner adverse to RBL or HLR, its approval
or recommendation of the Merger Agreement or the Merger (or the other
transactions contemplated thereby), (ii) approve or recommend, or propose to
approve or recommend, any Acquisition Proposal or (iii) enter into any
agreement with respect to any Acquisition Proposal. However, if the Board of
Directors of NHL receives an Acquisition Proposal that, in the exercise of its
fiduciary obligations (as determined in good faith by the Board of Directors
after reviewing the advice of outside counsel) it determines to be a Superior
Proposal (as defined below) the Board of Directors of NHL may withdraw or
modify its approval or recommendation of the Merger Agreement or the Merger,
approve or recommend such Superior Proposal, enter into an agreement with
respect to such Superior Proposal or terminate the Merger Agreement, in each
case at any time after the second business day following HLR's receipt of
written notice of such Superior Proposal. As used in the Merger Agreement, a
"Superior Proposal" means any bona fide Acquisition Proposal on terms which the
Board of Directors of NHL determines in its good faith reasonable judgment
(after reviewing the advice of a financial advisor of nationally recognized
reputation) to be more favorable to NHL's stockholders than the Merger and the
other transactions contemplated by the Merger Agreement.
The Merger Agreement requires NHL to pay to HLR, in immediately available
funds, $30.0 million, plus up to an additional $7.0 million as reimbursement of
Expenses, promptly after the termination of the Merger Agreement (i) by NHL (in
accordance with the provision described in the preceding paragraph) or by HLR
(if the NHL Board of Directors has withdrawn its recommendation of the Merger
or the Merger Agreement (or the transactions contemplated thereby), if, in
either case, any person or "group" (as defined in Section 13(d)(iii) of the
Exchange Act) (other than HLR or an affiliate of HLR) has made an Acquisition
Proposal or become the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of at least 20% of the outstanding shares of NHL Common Stock or
(ii) by HLR (if the NHL Board of Directors has recommended or approved any
Acquisition Proposal other than an Acquisition Proposal made by HLR or a
controlled affiliate of HLR). As used in the Merger Agreement, "Expenses" means
all documented expenses actually incurred by HLR and RBL in connection with the
Merger Agreement and the transactions contemplated thereby.
Termination. The Merger Agreement may be terminated at any time prior to the
Effective Time (i) by the mutual written consent of NHL and HLR; (ii) by either
NHL or HLR, if the Merger has not been consummated by September 1, 1995;
(iii)(a) by either NHL or HLR, if any law or regulation exists that makes
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consummation of the Merger illegal or otherwise prohibited or if there is any
judgment, injunction, order or decree (other than a temporary restraining order
or a preliminary injunction) that enjoins consummation of the Merger, (b) by
NHL, if any such law or regulation or any judgment, injunction, order or decree
exists, that, if applicable, would in NHL's reasonable judgment constitute an
NHL Adverse Condition (as defined under "THE MERGER AGREEMENT--Conditions to
the Merger") or (c) by HLR, if any such law or regulation or any judgment,
injunction, order or decree exists, that, if applicable, would in HLR's
reasonable judgment constitute an HLR Adverse Condition (as defined under "THE
MERGER AGREEMENT--Conditions to the Merger"); (iv) by NHL in accordance with
the provision of the Merger Agreement described under "Right of the NHL Board
of Directors to Withdraw Recommendation Upon Receipt of a Superior Proposal"
above; (v) by either NHL or HLR, if the stockholders of NHL fail to approve and
adopt the Merger Agreement at the NHL Meeting; (vi) by HLR, if it is not in
material breach of its obligations under the Merger Agreement, if the Board of
Directors of NHL (a) withdraws its recommendation of the Merger or the Merger
Agreement (or the transactions contemplated thereby) or (b) recommends or
approves any Acquisition Proposal (other than an Acquisition Proposal made by
HLR or a controlled affiliate of HLR); or (vii) by NHL or HLR, if NHL or RBL or
HLR, as the case may be, receives any communication from the Department of
Justice or the Federal Trade Commission (each, an "HSR Authority") that causes
such party to reasonably believe that any HSR Authority has authorized the
institution, under United States antitrust laws, of litigation seeking an
order, decree or injunction that, if entered, would (in the reasonable judgment
of the party invoking the provision), be reasonably likely to constitute an NHL
Adverse Condition, if NHL is the invoking party, or an HLR Adverse Condition,
if HLR is the invoking party.
Appraisal Rights. Subject to compliance with the procedures set forth in
Section 262 of the Delaware General Corporation Law (the "Delaware Corporation
Law"), the full text of which is included as Annex V to this Proxy
Statement/Prospectus, holders of NHL Common Stock are entitled to appraisal
rights in connection with the Merger. Any demand for appraisal must be made
prior to the vote on the Merger Agreement at the NHL Meeting. Holders of NHL
Common Stock who, prior to the stockholder vote on the Merger Agreement, demand
appraisal of their shares in accordance with the Delaware Corporation Law and
who do not vote (nor grant a proxy to vote) in favor of the approval and
adoption of the Merger Agreement (such shares being referred to herein as
"Dissenting Common Shares") will have the right to obtain a cash payment for
the "fair value" of their shares (excluding any element of value arising from
the accomplishment or expectation of the Merger). Such "fair value" would be
determined in judicial proceedings, the result of which cannot be predicted.
Failure to take any of the steps required under Section 262 of the Delaware
Corporation Law on a timely basis may result in the loss of appraisal rights.
Holders of NHL Common Stock considering seeking appraisal should be aware that
the fair value of their shares of NHL Common Stock as determined under Section
262 could be more than, the same as or less than the value of the Conversion
Consideration that they would otherwise receive if they did not seek appraisal
of their shares of NHL Common Stock. Holders of NHL Common Stock who demand
appraisal rights will continue to be entitled to receive their pro rata share
of the Warrant Distribution.
Because a proxy card that does not contain voting instructions will, unless
revoked, be voted for approval and adoption of the Merger Agreement, a
stockholder who wishes to exercise his appraisal rights must either refrain
from signing and returning his proxy card or, if he signs and returns his proxy
card, vote against or abstain from voting on the approval and adoption of the
Merger Agreement.
Certain Federal Income Tax Consequences. The Warrant Distribution will not be
a taxable event. The NHL Share Conversion is intended to constitute a
redemption within the meaning of Section 317(b) of the Internal Revenue Code of
1986, as amended (the "Code"). It is expected that holders of NHL Common Stock
will recognize gain or loss equal to the difference between the amount of cash
they receive in respect of the shares being redeemed and the tax basis
allocated to such shares. A holder's tax basis attributable to the shares being
redeemed will be the product of (i) the holder's aggregate tax basis in NHL
Common Stock (which will be reduced by the amount of tax basis, if any,
allocated to the Warrants) and (ii) the percentage
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of the holder's NHL Common Stock that is being redeemed (i.e., 28% with an
adjustment for fractional shares). Any such gain or loss will constitute
capital gain or loss if their NHL Common Stock is held as a capital asset at
the Effective Time. Except as described above, holders of NHL Common Stock will
not have any tax consequences resulting from the Merger.
Accounting Treatment. The Merger will be accounted for by the Surviving
Corporation under the purchase method of accounting in accordance with
Accounting Principles Board Opinion No. 16 "Business Combinations" ("APB No.
16"). Under this method of accounting, the purchase price will be allocated to
assets acquired and liabilities assumed based on their estimated fair values at
the Effective Time.
Certain Considerations. In considering whether to approve and adopt the
Merger Agreement, stockholders of NHL should carefully evaluate the matters set
forth under "CERTAIN CONSIDERATIONS".
Effective Time. The Effective Time of the Merger will occur at such time as
certificates of merger to be executed by NHL and RBL in connection with the
Merger (collectively, the "Certificate of Merger") are filed with the Secretary
of State of the State of Delaware and the Secretary of State of the State of
New Jersey or at such later time as is specified in the Certificate of Merger.
The Certificate of Merger will be filed as soon as practicable following the
approval and adoption of the Merger Agreement by the stockholders of NHL and
the satisfaction or waiver of the other conditions to the Merger specified in
the Merger Agreement.
THE STOCKHOLDER AGREEMENT
NHL, HLR and Roche have agreed that, immediately prior to the Merger, they
will enter into the Stockholder Agreement setting forth, among other things,
certain agreements and understandings regarding the governance of the Surviving
Corporation following the Merger, including the composition of the Board of
Directors. Pursuant to the Stockholder Agreement (subject to the exceptions
provided therein), immediately after the Effective Time and for a period of one
year thereafter (the "Initial Period"), the Board of Directors of the Surviving
Corporation will be comprised of seven members, consisting of James R. Maher
(the current President and Chief Executive Officer of NHL), three designees of
HLR (the "HLR Directors"), who will be Jean-Luc Belingard (the Director
General, Diagnostics Division and Executive Committee Member of F. Hoffmann-La
Roche Ltd), Thomas P. Mac Mahon (a Senior Vice President of Roche and the
President of Roche Diagnostics Group) and Dr. James B. Powell (the President of
RBL) and three independent directors (which the Stockholder Agreement defines
generally as persons who are not officers, employees or affiliates of the
Surviving Corporation or HLR). The persons who will serve as the independent
directors for the Initial Period are required to be mutually acceptable to a
majority of the members of NHL's Board of Directors in office immediately prior
to the Effective Time and to HLR. Following the Initial Period, the Board of
Directors of the Surviving Corporation will (subject to specified exceptions)
be comprised of seven members, consisting of three HLR Directors and four
independent directors nominated by the Nominating Committee of the Board of
Directors as described under "THE STOCKHOLDER AGREEMENT". The Nominating
Committee will consist of one HLR Director and two independent directors and
will act by majority vote of the entire committee.
The Stockholder Agreement provides that Mr. Maher will serve as Chairman of
the Board and Mr. Mac Mahon will serve as Vice Chairman of the Board of the
Surviving Corporation for the Initial Period. Following the Initial Period, Mr.
Maher will resign his board and committee positions, Mr. Mac Mahon will become
Chairman of the Board and the position of Vice Chairman will be eliminated.
The Stockholder Agreement also provides that, among other things, certain
actions by the Surviving Corporation will require approval by a majority of the
entire Board of Directors of the Surviving Corporation, which majority must
include at least a majority of the HLR Directors and at least one independent
director (a "Special Majority").
13
<PAGE>
The Stockholder Agreement prohibits, subject to certain exceptions, the
Surviving Corporation from issuing, selling or transferring any of its Equity
Securities (as defined under "THE STOCKHOLDER AGREEMENT--Anti-Dilutive Rights")
to any person unless HLR is offered the right to purchase, on the same terms,
the amount of such Equity Securities as is necessary for the HLR Group to
maintain the same percentage ownership interest it held in the Surviving
Corporation immediately prior to such issuance. The Stockholder Agreement
provides that, during the one year period following the Effective Time, HLR
will not, and will use its best efforts to cause each member of the HLR Group
not to (except, in either case, under the circumstances described under "THE
STOCKHOLDER AGREEMENT-- Acquisitions and Transfers of Equity Securities"),
directly or indirectly, purchase or otherwise acquire any Equity Securities if,
after giving effect thereto, the HLR Group Interest would exceed 49.99%. After
the first anniversary of the Effective Time, the HLR Group will have the right
to acquire Equity Securities to the extent that, after giving effect thereto,
the HLR Group Interest would not exceed 75%. Moreover, the HLR Group may
acquire additional Equity Securities notwithstanding the fact that, after
giving effect thereto, the HLR Group Interest would exceed 75%, if HLR or any
member of the HLR Group offers, prior to consummation of such purchase, to
purchase all outstanding Equity Securities and holders of Equity Securities
totalling more than 50% of the outstanding Equity Securities (excluding any
securities held by the HLR Group) accept such offer. After the third
anniversary of the Effective Time, the Stockholder Agreement does not restrict
purchases by the HLR Group of Equity Securities. Certain provisions of the
Stockholder Agreement described below, including provisions relating to the
composition of the Board of Directors of the Surviving Corporation, would be
suspended if the HLR Group Interest were to be increased to over 50%. See "THE
STOCKHOLDER AGREEMENT--Acquisitions and Transfers of Equity Securities" for a
description of certain other provisions relating to acquisitions and transfers
of Equity Securities by HLR or members of the HLR Group. The Stockholder
Agreement also provides HLR with certain demand and "piggyback" registration
rights with respect to certain Equity Securities that will be held by HLR and
the Roche Warrants that will be held by Roche, in each case after the Merger.
PLAN OF FINANCING
It is estimated that the total funds required to pay the aggregate Cash
Consideration to be paid to stockholders of NHL in the Merger will be
approximately $474,700,000. This amount will be financed from three sources:
(i) the NHL Cash Contribution in the amount of $288,000,000 out of the proceeds
of borrowings by NHL in an equal amount, (ii) the HLR Cash Contribution in the
amount of $135,651,100 and (iii) the proceeds of the Roche Warrant
Consideration in the amount of $51,048,900. NHL has received and accepted a
commitment from Credit Suisse (the "Credit Suisse Commitment Letter") for a
credit facility to refinance NHL's existing indebtedness, to finance the NHL
Cash Contribution and for certain other purposes (the "NHL Borrowings"). NHL
and Credit Suisse are currently negotiating the terms of the definitive
documentation for such credit facility. HLR and RBL have agreed to use their
good faith best efforts to assist NHL in NHL's effecting of the refinancing of
NHL's existing indebtedness and obtaining the NHL Borrowings. See "PLAN OF
FINANCING".
MARKET PRICE DATA
NHL Common Stock (symbol: NH) is listed for trading on the NYSE. The last
reported sales prices per share of NHL Common Stock on the NYSE Composite
Transactions Tape on December 13, 1994, the last trading day before
announcement of the Merger Agreement, was $12.00, and the last reported sales
price per share of NHL Common Stock on the NYSE Composite Transactions Tape on
March 29, 1995, the latest trading day for which information was practicably
available before the printing of this Proxy Statement/Prospectus, was $14 5/8.
RBL has no publicly traded securities.
14
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL
DATA
The following tables present selected historical consolidated financial data
for each of NHL and RBL and selected pro forma condensed combined consolidated
financial data for NHL. The selected historical consolidated financial data for
NHL for, and as of the end of, each of the years in the five-year period ended
December 31, 1994 are derived from the historical consolidated financial
statements of NHL and its subsidiaries, which consolidated financial statements
have been audited by KPMG Peat Marwick LLP, independent certified public
accountants. The consolidated financial statements of NHL as of December 31,
1994 and 1993, and for each of the years in the three-year period ended
December 31, 1994, and the report thereon, are incorporated by reference in
this Proxy Statement/Prospectus. The selected historical consolidated financial
data for RBL as of and for the years ended December 31, 1992, 1993 and 1994 are
derived from the historical consolidated financial statements of RBL that are
included in this Proxy Statement/Prospectus. The selected historical
consolidated financial data for RBL as of and for each of the years ended
December 31, 1990 and 1991 are derived from the historical consolidated
financial statements of RBL as of such dates and for such periods. The
financial statements of RBL and the selected historical consolidated financial
data for RBL that are included in this Proxy Statement/Prospectus do not
include the Roche Image Analysis Systems division of RBL ("RIAS"), the
ownership of which is expected to be transferred by RBL to an affiliate prior
to the Effective Time. The selected pro forma condensed combined consolidated
financial data are derived from the unaudited pro forma condensed combined
consolidated financial statements of NHL, Allied and RBL that are included in
this Proxy Statement/Prospectus. The information set forth below should be read
in conjunction with such historical and pro forma financial statements and the
notes thereto and the historical consolidated financial statements of Allied as
of March 31, 1994 and for the three months then ended contained in Allied's
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1994.
The historical consolidated financial statements of NHL have been audited by
KPMG Peat Marwick LLP, independent certified public accountants, for each of
the five years in the period ended December 31, 1994. The historical
consolidated financial statements of RBL have been audited by Price Waterhouse
LLP, independent certified public accountants, for each of the five years in
the period ended December 31, 1994.
RBL is currently a wholly owned subsidiary of HLR and an indirect wholly
owned subsidiary of Roche. The selected pro forma condensed combined
consolidated financial data reflect adjustments to RBL's financial position and
results of operations as if it had been a stand-alone entity, rather than a
subsidiary of HLR. The adjustments primarily consist of eliminating certain
intercompany charges for services that RBL would no longer require from the
Roche Group (net of the costs that RBL would have incurred to obtain such
services if it had been a stand-alone entity), eliminating certain debt which
will be eliminated as a liability of RBL at or prior to the Merger and
eliminating intercompany accounts, other than current trade payables (the "RBL
Stand-Alone Adjustments"). The selected pro forma condensed combined
consolidated earnings data for the year ended December 31, 1994 reflect the
consolidated operating results for NHL as if the Allied Acquisition, the RBL
Stand-Alone Adjustments and the Merger had all occurred as of the beginning of
the applicable period. The selected pro forma condensed combined consolidated
balance sheet data give effect to the Allied Acquisition, the RBL Stand-Alone
Adjustments and the Merger as if they had all occurred on December 31, 1994.
THE PRO FORMA FINANCIAL DATA ARE PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND
ARE NOT NECESSARILY INDICATIVE OF THE RESULTS OF OPERATIONS OR FINANCIAL
CONDITION THAT WOULD HAVE BEEN ACHIEVED HAD THE TRANSACTIONS SET FORTH ABOVE
ACTUALLY OCCURRED AS OF THE DATES INDICATED OR OF THE FUTURE RESULTS OF
OPERATIONS OR FINANCIAL CONDITION OF THE SURVIVING CORPORATION. The Merger will
be accounted for by the Surviving Corporation under the purchase method of
accounting. The pro forma condensed combined consolidated balance sheet data as
of December 31, 1994 reflects the effect of a restructuring charge of
approximately $84 million expected to be recorded by the Surviving Corporation
at the Effective Time in connection with the Merger. The pro forma condensed
combined consolidated earnings data does not reflect the effect of this
restructuring charge as it is not expected to have a continuing effect on the
results of operations of the Surviving Corporation. See "MANAGEMENT AND
OPERATIONS AFTER THE MERGER--Restructuring Costs of NHL".
15
<PAGE>
NATIONAL HEALTH LABORATORIES HOLDINGS INC.
SELECTED FINANCIAL DATA--HISTORICAL
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1990 1991 1992 1993 1994(1)
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net sales..................... $501.9 $603.9 $721.4 $760.5 $ 872.5
Cost of sales................. 279.3 332.5 395.1 444.5 597.0
------ ------ ------ ------ --------
Gross profit................. 222.6 271.4 326.3 316.0 275.5
Selling, general and
administrative expenses...... 82.2 97.9 117.9 121.4 149.3
Amortization of intangibles
and
other assets................. 7.3 7.7 8.3 9.1 16.3
Settlement and related
expenses...................... -- -- 136.0(2) -- --
------ ------ ------ ------ --------
Operating income............. 133.1 165.8 64.1 185.5 109.9
Other income (expenses):
Litigation settlement and
related expenses............ -- -- -- -- (21.0)(4)
Other gains and expenses,
net......................... -- -- -- 15.3(3) --
Investment income............ 4.1 3.6 2.2 1.2 1.0
Interest expense............. (0.1) (0.1) (4.2) (10.9) (34.5)
------ ------ ------ ------ --------
Earnings before income taxes. 137.1 169.3 62.1 191.1 55.4
Provision for income taxes.... 54.5 65.4 21.5 78.4 25.3
------ ------ ------ ------ --------
Net earnings................. $ 82.6 $103.9 $ 40.6 $112.7 $ 30.1
====== ====== ====== ====== ========
Net earnings per common share. $ 0.83 $ 1.05 $ 0.43(2) $ 1.26 $ 0.36(4)
====== ====== ====== ====== ========
Dividends per common share.... $ 1.58 $ 0.27 $ 0.31 $ 0.32 $ 0.08
====== ====== ====== ====== ========
BALANCE SHEET DATA (AT PERIOD
END):
Cash and cash equivalents..... $ 45.8 $ 51.3 $ 33.4 $ 12.3 $ 26.8
Intangible assets, net (5)(6). 192.7 193.1 188.3 281.5 551.9
Total assets.................. 374.2 411.3 477.4 585.5 1,012.7
Total debt (2)(6)(7)(8)(9).... 4.4 7.6 154.2 341.5 648.9
Due to affiliates (10)........ 66.4 -- 0.9 0.1 --
Total stockholders' equity
(7)(10)....................... 256.7 330.8 212.5 140.8 166.0
</TABLE>
--------
(1) The statement of earnings data for year ended December 31, 1994 include
Allied's results of operations from June 23, 1994 (the date of the Allied
Acquisition) through December 31, 1994. The balance sheet data as of
December 31, 1994 also reflect the occurrence of the corporate
reorganization that was effected on June 7, 1994 that created NHL as a
public holding company parent of National Health Laboratories Incorporated
(the "Reorganization"), the borrowings by a subsidiary of NHL of $585.0 to
finance the Allied Acquisition and refinance certain existing indebtedness
(the "Allied Acquisition Financing") and the Allied Acquisition.
(2) In the fourth quarter of 1992, NHL took a one-time pretax charge of $136.0
to cover estimated costs related to the Federal government's investigation
of certain of NHL's pricing practices and the related settlements that
concluded the investigation in December 1992 (the "1992 NHL Government
Settlement"). At December 31, 1994, remaining principal payments due the
Federal government aggregated $11.0 and are reflected under the caption
"Total debt".
(3) Represents a one-time pretax gain comprised of expense reimbursement and
termination fees of $21.6 in connection with NHL's attempt to purchase
Damon Corporation, a competing independent clinical laboratory, less
related expenses and write-off of certain bank financing costs of $6.3.
16
<PAGE>
(4) In the third quarter of 1994, NHL took a one-time pretax charge of $21.0
related to an approved settlement of previously disclosed shareholder
class and derivative litigation. At February 15, 1995, all payments have
been made under the settlement agreement.
(5) During 1993, NHL acquired 34 clinical laboratories for an aggregate amount
of $78.2 in cash plus the recognition of $28.7 of liabilities, comprised
primarily of future contractual and contingent payments. During 1994,
excluding the Allied Acquisition, NHL acquired 11 clinical laboratories
for an aggregate amount of $46.4 plus the recognition of $32.9 of
liabilities. The cash portion of such purchases was financed with cash on
hand and borrowings under revolving credit facilities in existence at the
time of the acquisitions. The excess of cost over the fair value of net
tangible assets acquired was $100.1 in 1993 and $72.1 in 1994, excluding
the Allied Acquisition, and is included in Intangible Assets, net.
(6) On June 23, 1994, NHL completed the Allied Acquisition for approximately
$191.5 in cash, of which $185.0 was borrowed under a revolving credit
facility constituting a portion of the Allied Acquisition Financing. The
purchase price included the assumption of approximately $24.0 of Allied
indebtedness and the assumption of approximately $5.0 of Allied net
liabilities. The acquisition was accounted for using the purchase method
of accounting; as such, Allied's assets and liabilities were recorded at
their fair values on the date of acquisition. The purchase price exceeded
the fair value of net tangible assets by approximately $220.5, which
amount is included in Intangible Assets, net.
(7) On January 16, 1992, NHL purchased 4,808,000 shares of NHL Common Stock
from its stockholders pursuant to a tender offer (the "1992 Tender
Offer"). NHL borrowed $100.0 under a revolving credit facility in
existence at that time and used $25.8 of cash on hand to finance the 1992
Tender Offer. During 1992 and 1993, NHL made open market purchases of
310,000 and 9,485,800 of its outstanding shares of common stock,
respectively, for an aggregate amount of $6.1 and $154.2, respectively.
Such purchases were financed with cash on hand and borrowings under
revolving credit facilities in existence at such times. At December 31,
1992 and 1993, $75.0 and $278.0, respectively, was outstanding under the
revolving credit facilities in existence on those dates. At December 31,
1994, the amount outstanding under a revolving credit facility
constituting a portion of the Allied Acquisition Financing was $213.0.
(8) In the fourth quarter of 1992, NHL relocated its Long Island-based
laboratory to a newly constructed facility. The transaction is treated as
a capital lease for financial reporting purposes; as such, the associated
long-term lease obligation totalled $9.6, $9.7 and $9.8 at December 31,
1992, 1993 and 1994, respectively.
(9) Total debt includes the expected value of future contractual and
contingent amounts to be paid to the principals of acquired clinical
laboratories. Such payments are primarily based on a percentage of future
revenues derived from the acquired customer lists or specified amounts to
be paid over a period of time. At December 31, 1990, 1991, 1992, 1993 and
1994, such amounts were $4.4, $7.6, $4.6, $26.8 and $35.1, respectively.
(10) In July 1990, NHL paid a special dividend of $150.6. Due to affiliates at
December 31, 1990 principally represents borrowings from Revlon Holdings
Inc. (then known as Revlon, Inc.) in the original principal amount of
$77.0 incurred in connection with the special dividend paid in 1990, net
of an $11.0 principal payment made in 1990.
17
<PAGE>
ROCHE BIOMEDICAL LABORATORIES, INC.(1)
SELECTED FINANCIAL DATA--HISTORICAL
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1990 1991 1992 1993 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales........................... $550.6 $577.3 $667.4 $711.6 $729.8
Cost of sales....................... 374.2 392.6 459.2 488.7 498.0
------ ------ ------ ------ ------
Gross profit...................... 176.4 184.7 208.2 222.9 231.8
Selling, general and administrative. 117.4 130.6 134.6 150.3 152.7
Amortization of goodwill and other
intangibles........................ 30.8(2) 10.7 13.1(4) 13.2 13.9
------ ------ ------ ------ ------
Income from operations............ 28.2 43.4 60.5 59.4 65.2
Interest expense.................... 26.7 25.9 24.5 15.4 15.5
Other expenses (income), net........ (20.2)(3) 0.3 (0.7) 0.8 (0.9)
------ ------ ------ ------ ------
Income before taxes............... 21.7 17.2 36.7 43.2 50.6
Income taxes........................ 13.0 7.7 16.6 19.7 22.7
------ ------ ------ ------ ------
Income before cumulative effect of
change in accounting principle... 8.7 9.5 20.1 23.5 27.9
Cumulative effect of change in
accounting principle(5)............ 9.8
------ ------ ------ ------ ------
Net income........................ $ 8.7 $ 9.5 $ 10.3 $ 23.5 $ 27.9
====== ====== ====== ====== ======
BALANCE SHEET DATA (AT PERIOD END):
Cash................................ $ 4.3 $ 2.9 $ 4.3 $ 7.7 $ 12.6
Goodwill and other intangibles, net. 86.9 82.4 130.0(4) 122.0 108.9
Total assets........................ 400.0 417.6 456.1 474.4 508.3
Debt................................ 293.7 291.4 285.7 285.5 285.4
Invested capital of HLR............. 24.1 31.4 48.2 75.0 102.9
</TABLE>
--------
(1) Represents the results of operations and financial position of RBL,
excluding RIAS, which RBL intends to divest prior to the Effective Time.
(2) In 1990, RBL wrote-off certain intangible assets relating to obsolete
technology, which no longer had continuing value, in the amount of $16.0.
(3) On December 31, 1990, RBL divested the assets and core testing customer
base of certain clinical laboratory businesses located in Sacramento,
California and Denver, Colorado for $41.9. The gain on the sale was $26.8.
(4) On February 11, 1992, RBL acquired all of the issued and outstanding shares
of CompuChem Corporation for $74.6. The transaction was accounted for as a
purchase and was financed with internally generated cash and cash from HLR,
RBL's direct parent. The excess of cost over fair market value of net
tangible assets acquired was $63.7.
(5) In 1992, RBL adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions".
This amount represents the charge, on an after-tax basis, for recording the
transition obligation.
18
<PAGE>
NATIONAL HEALTH LABORATORIES HOLDINGS INC.
SELECTED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994 (1)
------------
<S> <C>
STATEMENT OF EARNINGS DATA:
Net sales........................................................ $1,692.6
Cost of sales.................................................... 1,153.1
--------
Gross profit................................................... 539.5
Selling, general and administrative expenses..................... 316.3
Amortization of intangibles and other assets..................... 29.5
Gain on disposition of regional assets........................... (0.7)
--------
Operating income............................................... 194.4
Other income (expenses):
Litigation settlement and related expenses..................... (21.0)(2)
Other gains and expenses, net.................................. 0.9
Investment income.............................................. 1.3
Interest expense............................................... (50.4)
--------
Earnings before income taxes................................... 125.2
Provision for income taxes....................................... 54.2
--------
Net earnings................................................... $ 71.0
========
Net earnings per common share (3)................................ $ 0.58
========
Weighted average common shares outstanding (millions) (3)........ 122.9
========
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents........................................ $ 33.1
Intangible assets, net........................................... 885.5
Total assets..................................................... 1,710.7
Total debt....................................................... 1,003.0
Total stockholders' equity....................................... 366.1
</TABLE>
--------
(1) For a description of the assumptions underlying the pro forma amounts, see
"UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL
INFORMATION".
(2) In the third quarter of 1994, NHL took a one-time pretax charge of $21.0
related to an approved settlement of previously disclosed class action and
shareholder derivative litigation. At February 15, 1995, all payments have
been made under the settlement agreement.
(3) Pro forma net earnings per share is computed by dividing pro forma net
earnings by NHL's historical weighted average number of shares outstanding
after giving effect to (a) the NHL Share Conversion, (b) the issuance of
approximately 61,341,742 shares of NHL Common Stock at December 31, 1994,
to HLR in connection with the Merger, and (c) the issuance of 559,092
shares of NHL Common Stock at December 31, 1994 in connection with the
cancelation of all NHL Employee Stock Options.
19
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth for NHL Common Stock certain historical, pro
forma consolidated and pro forma equivalent per share financial data for the
year ended December 31, 1994. The following information should be read in
conjunction with and is qualified in its entirety by the consolidated financial
statements and accompanying notes of NHL included in the documents described
under "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE", and the pro forma
condensed combined consolidated financial statements and accompanying
discussion and notes set forth under "UNAUDITED PRO FORMA CONDENSED COMBINED
CONSOLIDATED FINANCIAL INFORMATION". Per share data is not presented for RBL
because RBL is a wholly owned subsidiary of HLR and the presentation of such
information would not be meaningful.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
------------
<S> <C>
NHL COMMON STOCK
Net earnings per common share:
Historical....................................................... $0.36
Pro forma consolidated........................................... 0.58
Dividends per common share:
Historical....................................................... 0.08
Pro forma consolidated........................................... 0.08
Book value per common share at period end:
Historical....................................................... 1.96
Pro forma consolidated........................................... 3.00
</TABLE>
20
<PAGE>
CERTAIN CONSIDERATIONS
In deciding whether to approve and adopt the Merger Agreement, NHL
stockholders should consider the following factors, in addition to the other
matters set forth or incorporated by reference herein:
Interests of Certain Persons in the Merger; Possible Conflicts of
Interest. Certain directors and executive officers of NHL have interests in the
Merger that may be different from, or in addition to, those of stockholders of
NHL generally, including employment contracts, NHL Employee Stock Options,
indemnification from and insurance against certain liabilities and registration
rights. Messrs. James R. Maher, David C. Flaugh, Timothy J. Brodnik, Robert E.
Whalen, Haywood D. Cochrane, Jr., Larry L. Leonard, Ph.D., John F. Markus, W.
David Slaunwhite, Ph.D., James G. Richmond and Bernard E. Statland, M.D. have
employment agreements with NHL pursuant to which such persons may terminate
their employment for "good reason" (as defined therein), whereupon significant
payments and other benefits may be required to be provided to such persons. It
is anticipated that Mr. Maher's employment agreement will be terminated and he
will receive a payment of $3 million as provided therein following Effective
Time. In addition, in connection with the Merger, NHL will pay Mr. Maher a
special bonus of $1 million, subject to certain conditions, in recognition for
his efforts on behalf of NHL with respect to the Merger. Certain executive
officers of NHL have NHL Employee Stock Options which may be cancelled in
connection with the Merger in exchange for a payment in cash and shares of NHL
Common Stock as described under "THE MERGER--Effect on NHL Employee Stock
Options". If the currently outstanding NHL Employee Stock Options are so
cancelled, the amount to be paid in cash and the number of shares of NHL Common
Stock to be issued in connection therewith (which shares will not be converted
in the NHL Share Conversion) for each of such executive officer is as follows:
Mr. Maher: $1,042,500 and 101,410; Mr. Flaugh: $548,750 and 53,379; Mr.
Brodnik: $378,750 and 36,842; Mr. Cochrane: $1,107,525 and 107,735; Dr.
Leonard: $284,250 and 27,649; Mr. Markus: $284,250 and 27,649; Mr. Richmond:
$68,750 and 6,687; Dr. Slaunwhite: $176,250 and 17,144; Dr. Statland: $83,750
and 8,146; and Mr. Whalen: $378,750 and 36,842. See "THE MERGER--Interests of
Certain Persons in the Merger".
Potential Difficulty of the Integration of NHL and RBL. The successful
integration of NHL and RBL is important to the future financial performance of
the Surviving Corporation. The anticipated benefits of the Merger might not be
achieved unless the operations of RBL are successfully combined with those of
NHL in a timely manner. It is currently estimated that the integration of the
operations of NHL and RBL could take up to three years to accomplish. This
integration will require substantial attention from the management of the
Surviving Corporation. The diversion of the attention of management, and any
difficulties encountered in the transition process, could have an adverse
impact on the revenues and operating results of the Surviving Corporation. In
addition, the process of combining the two organizations could cause the
interruption of, or loss of momentum in, the activities of either or both of
NHL's and RBL's businesses, which could have an adverse effect on their
combined operations. The difficulty of combining NHL and RBL may be increased
by the need to integrate personnel. It is possible that changes brought about
by the Merger may cause key employees to leave. There can be no assurance that
the Surviving Corporation will retain its key employees. Because of the
inherent uncertainties associated with merging two large companies, there can
be no assurance that the Surviving Corporation will be able to realize the cost
savings NHL and RBL currently expect to realize as a result of the Merger and
the consolidation of the operations of NHL and RBL or that such savings will be
realized at the times currently anticipated. Furthermore, there can be no
assurance that cost savings which are realized will not be offset by increases
in other expenses, operating losses, other charges to earnings or losses of
revenue, including losses due to problems in integrating the two companies. See
"MANAGEMENT AND OPERATIONS AFTER THE MERGER--Operations After the Merger".
Substantial Stockholder; Ability of Substantial Stockholder to Increase Its
Ownership Interest; Potential Differing Interests from Other
Stockholders. Immediately following the Merger, approximately 49.9% of the
outstanding common stock of the Surviving Corporation will be owned by HLR, a
wholly owned subsidiary of Roche, and the equity interest and relative voting
power of current NHL stockholders will be considerably
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reduced after giving effect to the Merger. Pursuant to the Stockholder
Agreement, the HLR Group may not, subject to certain exceptions, increase the
HLR Group Interest above 49.99% during the one-year period following the
Effective Time. After the first anniversary of the Effective Time, the HLR
Group will have the right to acquire Equity Securities to the extent that,
after giving effect thereto, the HLR Group Interest would not exceed 75%.
Moreover, the HLR Group may acquire additional Equity Securities
notwithstanding the fact that, after giving effect thereto, the HLR Group
Interest would exceed 75%, if HLR, or any member of the HLR Group, offers,
prior to consummation of such purchase, to purchase all outstanding Equity
Securities and holders of Equity Securities totalling more than 50% of the
outstanding Equity Securities (excluding Equity Securities held by the HLR
Group) accept such offer. After the third anniversary of the Effective Time,
the Stockholder Agreement does not restrict purchases by the HLR Group of
Equity Securities. Certain provisions of the Stockholder Agreement described
below, including provisions relating to the composition of the Board of
Directors of the Surviving Corporation, would be suspended if the HLR Group
Interest were to be increased to over 50%. See "THE STOCKHOLDER AGREEMENT--
Acquisitions and Transfers of Equity Securities". There can be no assurance
that the interests of the HLR Group will be the same as those of the other
stockholders of the Surviving Corporation.
Ability of Substantial Stockholder to Exercise Significant Influence. HLR's
ownership interest in the Surviving Corporation and its rights under the
Stockholder Agreement described below will permit it to exercise significant
influence on the governance of the Surviving Corporation, and on the
composition of its board of directors. NHL, HLR and Roche have agreed that
immediately prior to the Merger, they will enter into the Stockholder
Agreement, which sets forth, among other things, certain agreements and
understandings regarding the governance of the Surviving Corporation following
the Merger, including the composition of the Board of Directors. Pursuant to
the Stockholder Agreement (subject to the exceptions provided therein), during
the Initial Period the Board of Directors of the Surviving Corporation will be
comprised of seven members, consisting of Mr. Maher (the current President and
Chief Executive Officer of NHL), three HLR Directors, who will be Mr. Belingard
(the Director General, Diagnostics Division and Executive Committee Member of
F. Hoffmann-La Roche Ltd), Mr. Mac Mahon (a Senior Vice President of Roche and
the President of Roche Diagnostics Group) and Dr. Powell (the President of
RBL), and three independent directors (which the Stockholder Agreement defines
generally as persons who are not officers, employees or affiliates of the
Surviving Corporation or HLR). The persons who will serve as the independent
directors for the Initial Period are required to be mutually acceptable to a
majority of the members of NHL's Board of Directors in office immediately prior
to the Effective Time and to HLR. Following the Initial Period, the Board of
Directors of the Surviving Corporation will (subject to specified exceptions)
be comprised of seven members, consisting of three HLR Directors and four
independent directors nominated by the Nominating Committee of the Board of
Directors as described under "THE STOCKHOLDER AGREEMENT--Corporate Governance".
The Nominating Committee will consist of one HLR Director and two independent
directors and will act by a majority vote of the entire committee.
Special Majority Board Approval Required for Certain Actions. Under the
Stockholder Agreement, for so long as the HLR Group Interest (as defined below)
is at least 30%, a significant number of types of major corporate actions
cannot be taken without the approval of a Special Majority of the Board of
Directors (which is defined in the Stockholder Agreement as a majority of the
entire Board of Directors that includes a majority of the HLR Directors and at
least one independent director). These actions include, among others, certain
executive officer appointments, certain business combinations, acquisitions or
sales of assets, amendments to the Surviving Corporation's Certificate of
Incorporation or by-laws, settlements of material litigation, changes in Board
or committee composition, material capital expenditures, issuance of securities
and incurrence of indebtedness. See "THE STOCKHOLDER AGREEMENT--Corporate
Governance". In addition, as described under "THE STOCKHOLDER AGREEMENT--
Corporate Governance", the Stockholder Agreement requires that NHL prepare
Annual Operating Plans and Strategic Plans, each for approval by a Special
Majority of the Board of Directors.
Substantial Indebtedness. Immediately subsequent to the Merger, the
Surviving Corporation will have approximately $1.0 billion of indebtedness
outstanding. In addition, the terms of the credit agreement to be
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entered into to effect the NHL Borrowings among NHL and a group of banks for
which Credit Suisse will act as administrative agent (the "Credit Agreement")
will permit the Surviving Corporation to incur up to $250 million of additional
indebtedness. The level of the Surviving Corporation's indebtedness could have
important consequences, including the following: (i) the ability of the
Surviving Corporation to obtain additional debt financing in the future for
working capital, capital expenditures or acquisitions may be limited and (ii)
the Surviving Corporation's level of indebtedness could limit its flexibility
in planning for, or reacting to, changes in market conditions, including
adverse governmental regulations (including reductions in the amounts
reimbursable to the Surviving Corporation under Medicare and Medicaid). See "--
Limitations on Third Party Payor Reimbursement of Health Care Costs" below.
Furthermore, the ability of the Surviving Corporation to satisfy its
obligations will be dependent upon its future performance and market
conditions, which will be subject to prevailing economic conditions and to
financial, business and other factors, including factors beyond the Surviving
Corporation's control. In addition, because the borrowings outstanding under
the Credit Agreement will bear interest at a floating rate, the Surviving
Corporation's financial performance may be adversely affected by increases in
interest rates.
Increase in Credit Agreement Interest Rate Upon Reduction of HLR Group
Interest. It is expected that the Credit Agreement providing for the NHL
Borrowings will have interest rate margins and facility fees that are
substantially more favorable than those currently applicable to borrowings
under NHL's existing credit facility. It is expected that the Credit Agreement
will provide, however, that in the event of a reduction in the HLR Group
Interest below 25%, the applicable interest margins and facility fees on NHL
Borrowings outstanding under the Credit Agreement will increase. The amount of
the increase will depend, in part, on the Interest Coverage Ratio and the
Leverage Ratio (each, as defined in the Credit Agreement) of the Surviving
Corporation at the time of such reduction and management believes it is
unlikely that such increased amounts would exceed those under NHL's existing
credit facility. See "PLAN OF FINANCING--Description of Bank Facility".
Shares Available for Future Sale by HLR. Following the Effective Time, HLR
will own approximately 49.9% of the outstanding shares of NHL Common Stock.
Pursuant to the Stockholder Agreement, NHL has granted certain registration
rights to HLR with respect to certain securities of NHL held by it. Subject to
compliance with applicable Federal and state securities laws, HLR may determine
to sell or otherwise transfer any or all the shares of NHL Common Stock it owns
from time to time for any reason. Although NHL cannot make any prediction as to
the effect, if any, that sales in the public market of shares of NHL Common
Stock owned by HLR would have on the market price for NHL Common Stock
prevailing from time to time, sales of substantial amounts of NHL Common Stock
or the availability of such shares for sale could adversely affect prevailing
market prices.
Warrants Available for Future Sale by Roche. Following the effective time,
Roche will own approximately 37.6% of the outstanding Warrants. Pursuant to the
Stockholder Agreement, NHL has granted certain registration rights to Roche
with respect to the Roche Warrants. Subject to compliance with applicable
Federal and state securities laws, Roche may determine to sell or otherwise
transfer any or all the Roche Warrants from time to time for any reason.
Although NHL cannot make any prediction as to the effect, if any, that sales in
the public market of Roche Warrants would have on the market price for Warrants
prevailing from time to time, sales of substantial amounts of Roche Warrants or
the availability of such Warrants for sale could adversely affect prevailing
market prices.
Shares and Warrants Available for Future Sale by NHCG. Following the
Effective Time, NHCG will own approximately 11.8% of the outstanding shares of
NHL Common Stock and approximately 14.9% of the outstanding Warrants. Pursuant
to the Sharing and Call Option Agreement, NHL has granted certain registration
rights to NHCG with respect to the securities of NHL held by it and, pursuant
thereto, NHL has included a resale prospectus in the Registration Statement to
facilitate such sales from time to time. Subject to compliance with applicable
Federal and state securities laws, NHCG may determine to sell or otherwise
transfer any or all the shares of NHL Common Stock or Warrants it owns from
time to time for any reason. Although NHL cannot make any prediction as to the
effect, if any, that sales in the public market of shares of NHL Common Stock
or Warrants owned by NHCG would have on the market price for NHL Common Stock
or Warrants prevailing from time to time, sales of substantial amounts of NHL
Common Stock or Warrants or the availability of such shares or Warrants for
sale could adversely affect prevailing market prices. The Sharing and Call
Option Agreement provides that, at any time after the third anniversary
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<PAGE>
of the Effective Time, HLR or any of its affiliates may exercise the right to
purchase all, but not less than all, the shares of NHL Common Stock then owned
by NHCG, Mafco Holdings Inc. or any of their controlled affiliates at a price
equal to 102% of the average closing price per share of such security for the
30 trading days before the exercise date.
Absence of Public Market for Warrants. There is currently no public market
for any warrants of NHL and there can be no assurance that an active public
market for the Warrants will develop after the Merger. The Warrants are
expected to be approved for listing on the NYSE at or before the Effective
Time.
Governmental Regulation. The clinical laboratory industry is subject to
significant governmental regulation at the Federal, state and local levels.
Virtually all clinical laboratories, including those to be operated by the
Surviving Corporation, are required to be certified or licensed under the
Clinical Laboratory Improvement Act of 1967, and the Clinical Laboratory
Improvement Amendments of 1988 (collectively, as amended, "CLIA"), the Medicare
and Medicaid programs and various state and local laws, and may be subject to
periodic inspections by regulatory agencies. The Surviving Corporation will
also be subject to licensing and regulation under Federal, state and local laws
relating to the handling and disposal of medical specimens, infectious and
hazardous waste and radioactive materials as well as to the safety and health
of laboratory employees. The sanction for failure to comply with these
regulations may be denial of the right to conduct business, significant fines
and criminal penalties. The loss of a license, imposition of a fine or future
changes in such Federal, state and local laws and regulations (or in the
interpretation of current laws and regulations) could have a material adverse
effect on the Surviving Corporation and its subsidiaries. NHL and RBL each
believes that it conforms in all material respects with all applicable
statutory and regulatory requirements.
Limitations on Third Party Payor Reimbursement of Health Care Costs. The
health care industry is undergoing significant change as third party payors,
such as Medicare and Medicaid and insurers, increase their efforts to control
the cost of health care services. In 1994, NHL and RBL derived approximately
35% and 27%, respectively, of their net revenues from tests performed for
beneficiaries of Medicare and Medicaid programs. NHL's and RBL's other business
depends significantly on continued participation in these programs. NHL and RBL
are required by law to accept reimbursement from Medicare and Medicaid as
payment in full for most of the tests performed for Medicare and Medicaid
beneficiaries. In an effort to address the problem of increasing health care
costs, legislation has been proposed at both Federal and state levels to
further regulate health care delivery in general and clinical laboratories in
particular and legislation has been enacted that reduces the amounts
reimbursable to NHL and RBL and other independent clinical laboratories under
Medicare and Medicaid. Pursuant to this legislation, Congress reduced the
ceilings on Medicare reimbursement to clinical laboratories from previously
authorized levels to 84% of the 1984 national median effective January 1, 1994
and to 80% of the 1984 national median effective January 1, 1995. The
legislation provides for a further reduction in the reimbursement ceiling to
76% of the 1984 national median to become effective January 1, 1996. The
provision for annual fee schedule increases based upon the consumer price index
was also eliminated for 1994 and 1995. RBL and NHL cannot predict the effect
health care reform (if enacted) or future changes in Federal, state and local
regulations affecting governmental reimbursement for clinical laboratory
testing may have on their businesses and there can be no assurance that any
such reforms will not have a material adverse effect on the Surviving
Corporation. See "THE CLINICAL LABORATORY TESTING INDUSTRY--Regulation and
Reimbursement".
Potential Additional Costs Resulting from Proposed Medicare Administrative
Policies. In November 1994, the Health Care Financing Administration ("HCFA")
of the Department of Health and Human Services ("HHS") proposed changes in the
policies used to administer Medicare payments to clinical laboratories for the
most frequently performed automated blood chemistry profiles. Among other
things, the proposed changes would establish a consistent standard nationwide
for the content of the automated chemistry profiles. Another change
incorporated in the HCFA proposal would require laboratories performing certain
automated blood chemistry profiles to obtain and provide documentation of the
medical necessity of tests included in the profiles for each Medicare
beneficiary. If such a requirement were to be established, all laboratories,
including those operated by the Surviving Corporation, would incur significant
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additional costs associated with compliance. In addition, if implemented, such
changes would increase the losses associated with unreimbursed testing caused
by the inability to obtain sufficient information from physicians to allow the
laboratory to file valid claims with Medicare. The HCFA proposals may be
modified or replaced with other proposals and no prediction can be made
regarding what proposals, if any, will ultimately be adopted.
Challenges Presented by the Growth of the Managed Care Sector. In recent
years, there has been a significant shift away from traditional, fee-for-
service medicine and toward managed-cost health care. Managed care providers
typically contract with a limited number of clinical laboratories and negotiate
discounts to the fees charged by such laboratories in an effort to control
costs. In addition, managed care providers have used capitated payment
contracts which function to shift the risks of additional testing beyond that
covered by the capitated payment to the clinical laboratory. Historically, NHL
has had a limited presence in the managed care sector. In 1993, NHL assembled a
dedicated sales force to address this increasingly important market segment. In
the last two years, NHL's revenues from the managed care sector have risen from
approximately 3% of total revenues to approximately 8-9% of total revenues. For
the last several years, RBL has had a strong presence in the managed care
sector and has designed its sales efforts to expand its presence in that
sector. RBL's net sales from the managed care sector were approximately 12% for
the year ended December 31, 1994. There can be no assurance, however, that the
Surviving Corporation will be successful in expanding its share of this market
sector, or that the Surviving Corporation will not experience additional
declines in test utilization or per-test revenue in the future as a result of
managed care growth or otherwise.
Governmental Investigations of Clinical Laboratory Companies. As part of an
examination of the rapid growth of Federal expenditures for clinical laboratory
services, several Federal agencies, including the Federal Bureau of
Investigation and the Office of Inspector General (the "OIG") of HHS, have
investigated allegations of fraudulent and abusive conduct by health care
providers. In August 1993, RBL and Allied each received a subpoena from the OIG
requesting documents and information concerning pricing and billing practices.
According to published reports, other independent clinical laboratories have
received similar subpoenas as part of a nationwide OIG audit and investigation.
In September 1993, NHL received a subpoena from the OIG which required NHL to
provide documents to the OIG concerning its regulatory compliance procedures.
NHL, RBL and Allied have complied with or are in the process of complying with
their respective subpoenas and are cooperating with the OIG. Neither NHL nor
RBL can, however, predict the outcome of any such investigation or the impact,
if any, any such investigation may have on the financial condition or results
of operations of any of NHL, RBL or the Surviving Corporation. However, a
criminal conviction or the successful prosecution of a civil fraud or false
claims action could result in the exclusion of the defendant from the Medicare
and Medicaid programs. In addition, any such exclusion would likely have a
material adverse effect on the Surviving Corporation's non-Medicare and non-
Medicaid testing business. See "THE CLINICAL LABORATORY TESTING INDUSTRY--OIG
Investigations".
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THE NHL MEETING
This Proxy Statement/Prospectus is being provided to the stockholders of NHL
in connection with the NHL Meeting. The meeting will be held at the location,
at the time, on the date and to consider the matters set forth below. The Board
of Directors of NHL is soliciting proxies for use at the NHL Meeting. A proxy
card is being provided to the holders of NHL Common Stock with this Proxy
Statement/Prospectus.
GENERAL
The NHL Meeting is scheduled to be held at 9:00 a.m., New York City Time, on
April 28, 1995 at the Sheraton New York Hotel, 811 Seventh Avenue, New York, NY
10019. At the NHL Meeting, the holders of NHL Common Stock will be asked to
consider and vote upon the approval and adoption of the Merger Agreement and
the Name Change Amendment.
THE BOARD OF DIRECTORS OF NHL, BY A UNANIMOUS VOTE OF THOSE DIRECTORS PRESENT
AT THE DECEMBER 12, 1994 MEETING OF THE BOARD OF DIRECTORS, HAS APPROVED THE
MERGER AGREEMENT AND THE NAME CHANGE AMENDMENT. THE NHL BOARD OF DIRECTORS HAS
DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF NHL AND ITS STOCKHOLDERS
AND UNANIMOUSLY RECOMMENDS THAT THE NHL STOCKHOLDERS VOTE FOR THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT. SEE "THE MERGER--BACKGROUND OF THE MERGER"
AND "RECOMMENDATION OF THE NHL BOARD OF DIRECTORS AND NHL'S REASONS FOR THE
MERGER". IN EVALUATING THE RECOMMENDATION OF THE BOARD OF DIRECTORS OF NHL, AND
IN CONSIDERING WHETHER TO APPROVE AND ADOPT THE MERGER AGREEMENT, STOCKHOLDERS
OF NHL SHOULD CAREFULLY EVALUATE THE MATTERS SET FORTH UNDER "CERTAIN
CONSIDERATIONS" AND "THE MERGER--INTERESTS OF CERTAIN PERSONS IN THE MERGER".
THE NHL BOARD ALSO RECOMMENDS THAT STOCKHOLDERS OF NHL VOTE FOR THE NAME CHANGE
AMENDMENT.
NHL Record Date and Voting Rights. Only holders of record of NHL Common Stock
on the NHL Record Date will be entitled to notice of, and to vote at, the NHL
Meeting. As of the NHL Record Date, there were 84,766,109 shares of NHL Common
Stock outstanding. Each share of NHL Common Stock will entitle the holder
thereof to one vote.
NHL Stockholder Vote Required. Holders of at least a majority of the
outstanding shares of NHL Common Stock must be represented, either in person or
by proxy, at the NHL Meeting for a quorum to be present. The approval and
adoption of the Merger Agreement requires the affirmative vote of the holders
of a majority of the outstanding shares of NHL Common Stock. The approval and
adoption of the Name Change Amendment also requires the affirmative vote of the
holders of a majority of the outstanding shares of NHL Common Stock.
Abstentions may be specified with respect to the approval and adoption of the
Merger Agreement and the Name Change Amendment and will be counted as present
for the purpose of determining the existence of a quorum but will have the
effect of a negative vote with respect to the approval and adoption of the
Merger Agreement and the Name Change Amendment due to the voting requirement
described in the previous paragraph.
Under the rules of the NYSE, brokers who hold shares in street name have the
authority to vote on certain items when they have not received instructions
from beneficial owners. Brokers who do not receive instructions who are
present, in person or by proxy, at the NHL Meeting will be counted as present
for quorum purposes and will be entitled to vote on the approval and adoption
of the Name Change Amendment, but will not be entitled to vote on the approval
and adoption of the Merger Agreement. Under the Delaware Corporation Law, a
broker non-vote will have the effect of a negative vote on the approval and
adoption of the Merger Agreement.
If a quorum is not present or represented at the NHL Meeting, the holders of
NHL Common Stock present in person or represented by proxy may adjourn the NHL
Meeting, without notice other than announcement at the meeting, until a quorum
is present or represented. At such adjourned meeting at which a quorum is
present or represented, any business may be transacted which might have been
transacted at the NHL Meeting as originally noticed. If the adjournment is for
more than 30 days, or if after the adjournment
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a new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting will be given to each holder of NHL Common Stock entitled to vote at
the NHL Meeting.
NHL Proxies. Each properly completed proxy card returned in time for voting
at the NHL Meeting will be voted in accordance with the instructions indicated
on the proxy, or, if no instructions are provided, will be voted FOR the
approval and adoption of the Merger Agreement and the Name Change Amendment. It
is not expected that any matters other than those referred to in this Proxy
Statement/Prospectus will be brought before the NHL Meeting. If, however, other
matters are properly presented, the persons named as proxy appointees will vote
in accordance with their best judgment on such matters. The grant of a proxy
will also confer discretionary authority on the persons named in the proxy as
proxy appointees to vote in accordance with their best judgment on matters
incident to the conduct of the NHL Meeting.
A holder of NHL Common Stock entitled to vote at the NHL Meeting may revoke a
proxy at any time before it is voted by filing with the General Counsel of NHL,
James G. Richmond, 4225 Executive Square, Suite 805, La Jolla, CA 92037, an
instrument revoking the proxy, by submitting a duly executed proxy bearing a
later date or by attending the NHL Meeting and voting in person. Attendance at
the NHL Meeting will not by itself constitute revocation of a proxy.
NHL STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS. A
TRANSMITTAL FORM WITH INSTRUCTIONS WITH RESPECT TO THE SURRENDER OF NHL STOCK
CERTIFICATES WILL BE MAILED TO EACH NHL STOCKHOLDER AS SOON AS PRACTICABLE
AFTER THE EFFECTIVE TIME.
NHL SHARE OWNERSHIP
The following table sets forth information with respect to all stockholders
known by NHL to beneficially own more than 5% of the outstanding shares of NHL
Common Stock as of March 15, 1995:
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
OF BENEFICIAL OF
OWNERSHIP CLASS
----------------- -------
<S> <C> <C>
Ronald O. Perelman.................................... 20,176,729(1) 24%
35 East 62nd Street
New York, NY 10021
GEICO Corporation..................................... 6,404,000 7
GEICO Plaza
Washington, D.C. 20076
The Equitable Companies Incorporated.................. 5,812,300(2) 7
787 Seventh Avenue
New York, NY 10019
ESL Partners, L.P..................................... 4,653,400 5
LBP Associates, L.P.
115 East Putnam Avenue
Greenwich, CT 06830
Heine Securities Corporation.......................... 4,356,500 5
51 John F. Kennedy Parkway
Short Hills, NJ 07078
</TABLE>
--------
(1) All such shares of NHL Common Stock are owned by NHCG, a corporation
indirectly wholly owned through Mafco Holdings Inc. by Mr. Perelman. All of
such shares owned are pledged to secure obligations.
(2) As reported in the Schedule 13G filed with the SEC on February 10, 1995, on
behalf of The Equitable Companies Incorporated, 5,077,600 of these shares
are held by Alliance Capital Management L.P., a subsidiary of The Equitable
Companies, for investment purposes on behalf of client discretionary
investment advisory accounts, 697,500 of these shares are held by The
Equitable Life Assurance Society of the United States, a subsidiary of The
Equitable Companies, solely for investment purposes, and the remaining
37,200 of these shares are held by Donaldson, Lufkin & Jenrette Securities
Corporation, a subsidiary of The Equitable Companies, solely for investment
purposes.
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NHL knows of no other person who beneficially owned more than 5% of any class
of NHL's voting securities as of March 15, 1995. As of March 29, 1995, the
directors and executive officers of NHL and their respective affiliates as a
group (including Mr. Perelman) beneficially owned 21,881,466 shares of NHL
Common Stock (representing 26% of the outstanding shares of NHL Common Stock),
including 1,512,167 shares that the directors, executive officers and their
respective affiliates had the right to acquire within 60 days after March 29,
1995 through the exercise of stock options, and including 3,000 shares as to
which the directors, executive officers and their respective affiliates either
disclaimed beneficial ownership or did not have sole dispositive and voting
power. Other than Mr. Perelman, no director or executive officer of NHL
beneficially owned in excess of 1% of the outstanding shares of NHL Common
Stock as of March 29, 1995. The directors and executive officers of NHL have
indicated that they intend to vote the shares as to which they have sole voting
power FOR the approval and adoption of the Merger Agreement. Pursuant to the
Sharing and Call Option Agreement, NHCG has agreed to vote all shares of NHL
Common Stock owned by it in favor of the approval and adoption of the Merger
Agreement.
THE CLINICAL LABORATORY TESTING INDUSTRY
GENERAL
Laboratory tests and procedures are used generally by hospitals, physicians
and other health care providers to assist in the diagnosis, evaluation,
monitoring and treatment of diseases and other medical conditions through the
examination of substances in the blood, tissues and other specimens. Clinical
laboratory testing is generally categorized as either clinical testing, which
is performed on bodily fluids including blood and urine, or anatomical
pathology testing, which is performed on tissue and other samples, including
human cells. Clinical and anatomical pathology procedures are frequently
ordered as part of regular physician office visits and hospital admissions in
connection with the diagnosis and treatment of illnesses. Certain of these
tests and procedures are used principally as tools in the diagnosis and
treatment of a wide variety of medical conditions such as cancer, AIDS,
endocrine disorders, cardiac disorders and genetic disease. The most frequently
requested tests include blood chemistry analyses, urinalyses, blood cell
counts, PAP smears, AIDS tests, microbiology cultures and procedures and
alcohol and other substance-abuse tests. The clinical laboratory industry
consists primarily of three types of providers: hospital-based laboratories,
physician-office laboratories and independent clinical laboratories, such as
those owned by NHL and RBL.
NHL and RBL believe that in 1994 about half of the clinical laboratory
testing revenues in the United States were derived by hospital-based
laboratories and approximately half of the revenues was derived by independent
laboratories and by physicians in their offices and laboratories. The HCFA has
estimated that there are approximately 5,700 independent clinical laboratories
in the United States. NHL and RBL believe that the volume of clinical
laboratory testing has grown over the past few years due to several factors,
including primarily: an expanded base of scientific knowledge which has led to
the development of more sophisticated specialized tests and an increase in the
awareness of physicians of the value of clinical laboratory testing as a cost-
effective means of prevention, early detection of disease and monitoring of
treatment. Additional factors which have contributed to the recent growth
include: an increase in the number and types of tests which are, due to
advances in technology and increased cost efficiencies, readily available on a
more affordable basis to physicians; expanded substance-abuse testing by
corporations and governmental agencies; increased testing for sexually
transmitted diseases such as AIDS and the general aging of the population in
the United States.
EFFECT OF THE GROWTH OF THE MANAGED CARE SECTOR ON THE CLINICAL LABORATORY
BUSINESS
Many market-based changes in the clinical laboratory business have occurred,
most notably involving the shift away from traditional, fee-for-service
medicine and toward managed-cost health care. The growth of the managed care
sector presents various challenges to NHL and RBL and other independent
clinical laboratories. Managed care providers typically contract with a limited
number of clinical laboratories and
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negotiate discounts to the fees charged by such laboratories in an effort to
control costs. In addition, managed care providers have used capitated payment
contracts in an attempt to promote more efficient use of laboratory test
services. Under a capitated payment contract, the clinical laboratory and the
managed care provider agree to a per member per month payment to cover all
laboratory tests during the month, regardless of the number or cost of the
tests actually performed. Such contracts shift the risks of additional testing
beyond that covered by the capitated payment to the clinical laboratory.
Historically, NHL has had a limited presence in the managed care sector. In
1993, NHL assembled a dedicated sales force to address this increasingly
important market segment. In the last two years, NHL's revenues from the
managed care sector have risen from approximately 3% of total revenues to
approximately 8-9% of total revenues. For the last several years RBL has had a
strong presence in the managed care sector and has designed its sales efforts
to expand its presence in that sector. RBL's net sales from the managed care
sector were approximately 12% for the year ended December 31, 1994. There can
be no assurance, however, that the Surviving Corporation will be successful in
expanding its share of this market sector, or that the Surviving Corporation
will not experience additional declines in test utilization or per-test revenue
in the future as a result of managed care growth or otherwise.
In response to the growth of the managed care sector and the developments
described above, many health care providers have established new alliances.
Hospital-physician networks are emerging in many markets in order to offer
comprehensive, integrated service capabilities, either to the managed care
plans or directly to employers. While adapting to these changes, the clinical
laboratory industry is also facing a significantly intensified level of
regulatory and investigative scrutiny, in many cases in areas that have, until
recently, been left without clear regulatory guidance for providers. There is
currently uncertainty in the industry regarding the impact of these factors on
the clinical laboratory business.
COMPETITION
The clinical laboratory business is highly fragmented and intensely
competitive. According to HCFA representatives, there are over 151,000
Federally regulated clinical laboratories, of which approximately 5,700 were
independent clinical laboratories and the remainder were hospital-based
laboratories and physician-office laboratories. RBL and NHL believe that during
1994, approximately 50% of the clinical laboratory testing industry's revenues
were generated by hospital laboratories, with the balance having been generated
by independent clinical laboratories and by physician-office laboratories.
In recent years, certain independent laboratories have engaged in
acquisitions of other laboratories and taken advantage of opportunities for
cost efficiencies afforded by larger scale, automated testing operations. For
example, in June 1994, Corning Inc. ("Corning") and Nichols Institute entered
into a merger agreement pursuant to which Corning acquired Nichols Institute in
exchange for Corning common stock. In 1993 Corning acquired the stock of Damon
Corporation and in June 1994, NHL acquired Allied. RBL and NHL believe that
acquisition activity will continue in the clinical laboratory business. Several
factors are contributing to this activity, including legislative initiatives
such as restrictions on physician referrals and ownership of laboratories,
increasing demand for higher quality services and more stringent service
requirements, the growth of managed health care entities which require low-cost
testing services and, generally, the demands by health care providers and
payers for faster reporting of test results and lower prices.
Each of NHL and RBL competes primarily on the basis of the quality of its
testing, reporting and information services, its reputation in the medical
community, the pricing of its services and its ability to employ qualified
laboratory personnel. Each of NHL and RBL also believes that its ability to
compete also depends on its ability to make investments in equipment and
management information systems and offer testing services on a broad regional
geographic basis.
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REGULATION AND REIMBURSEMENT
Overview. The clinical laboratory industry is subject to significant
governmental regulation at the Federal, state and local levels. Under CLIA,
virtually all clinical laboratories, including those owned by NHL and RBL, must
be certified by the Federal government. Many clinical laboratories also must
meet governmental standards, undergo proficiency testing and are subject to
inspection. Certifications or licenses are also required by various state and
local laws.
The health care industry is undergoing significant change as third party
payers, such as Medicare (which principally serves patients 65 and older) and
Medicaid (which principally serves indigent patients) and insurers, increase
their efforts to control the cost, utilization and delivery of health care
services. In an effort to address this problem of increasing health care costs,
legislation has been proposed or enacted at both the Federal and state levels
to regulate health care delivery in general and clinical laboratories in
particular. Some of the proposals include managed competition, global budgeting
and price controls. Although the Clinton Administration's health care reform
proposal was not enacted by the 103rd Congress, such proposal or other
proposals may be considered in the future. In particular, NHL and RBL believe
that reductions in reimbursement for Medicare services will continue to be
implemented from time to time. Reductions in the reimbursement rates of other
third party payers may occur as well. Neither NHL or RBL can predict the effect
health care reform, if enacted, would have on its business, and there can be no
assurance that such reforms, if enacted, would not have a material adverse
effect on the Surviving Corporation's business and operations.
Regulation of Clinical Laboratories. CLIA extends Federal oversight to
virtually all clinical laboratories by requiring that laboratories be certified
by the government. Many clinical laboratories must also meet governmental
quality and personnel standards, undergo proficiency testing and be subject to
biennial inspection. Rather than focusing on location, size or type of
laboratory, this extended oversight is based on the complexity of the tests
performed by the laboratory.
In 1992, HHS published regulations implementing CLIA. The quality standards
and enforcement procedure regulations became effective in 1992, although
certain personnel, quality control and proficiency testing requirements are
currently being phased in by HHS. The quality standards regulations divide all
tests into three categories (waivered, moderate complexity and high complexity)
and establish varying requirements depending upon the complexity of the testing
performed. A laboratory that performs high complexity tests must meet more
stringent requirements than a laboratory that performs only moderate complexity
tests, while those that perform only one or more of eight routine "waivered"
tests may apply for a waiver from most requirements of CLIA. All major and many
smaller NHL and RBL facilities are certified by CLIA to perform high complexity
testing. The remaining smaller testing sites of NHL and RBL are certified by
CLIA to perform moderate complexity testing or have obtained a waiver from most
requirements of CLIA. Generally, the HHS regulations require, for laboratories
that perform high complexity or moderate complexity tests, the implementation
of systems that ensure the accurate performance and reporting of test results,
establishment of quality control systems, proficiency testing by approved
agencies and biennial inspections.
The sanction for failure to comply with these regulations may be suspension,
revocation or limitation of a laboratory's CLIA certificate necessary to
conduct business, significant fines and criminal penalties. The loss of a
license, imposition of a fine or future changes in such Federal, state and
local laws and regulations (or in the interpretation of current laws and
regulations) could have a material adverse effect on the Surviving Corporation
and its subsidiaries.
NHL and RBL are also subject to state regulation. CLIA provides that a state
may adopt more stringent regulations than Federal law. For example, state law
may require that laboratory personnel meet certain qualifications, specify
certain quality controls, maintain certain records and undergo proficiency
testing. For
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example, certain of NHL's and RBL's laboratories are subject to the State of
New York's clinical laboratory regulations, which contain provisions that are
more stringent than Federal law.
NHL's and RBL's laboratories have continuing programs to ensure that their
operations meet all applicable regulatory requirements.
Regulation Affecting Reimbursement of Clinical Laboratory
Services. Containment of health care costs, including reimbursement for
clinical laboratory services, has been a focus of ongoing governmental
activity. In 1984, Congress established a Medicare fee schedule for clinical
laboratory services performed for patients covered under Part B of the Medicare
program. Subsequently, Congress imposed a national ceiling on the amount that
can be paid under the fee schedule. Laboratories must accept the scheduled
amount as payment in full for most tests performed on behalf of Medicare
beneficiaries and must bill the program directly. In addition, state Medicaid
programs are prohibited from paying more than the Medicare fee schedule amount
for clinical laboratory services furnished to Medicaid recipients. In 1994, NHL
and RBL derived approximately 35% and 27%, respectively, of their net sales
from tests performed for beneficiaries of Medicare and Medicaid programs. In
addition, NHL's and RBL's other business depends significantly on continued
participation in these programs because clients often want a single laboratory
to perform all of their testing services. Since the 1984 establishment of
Medicare fee schedules, Congress has periodically reduced the ceilings on
Medicare reimbursement to clinical laboratories from previously authorized
levels. In 1993, pursuant to provisions in the Omnibus Budget and
Reconciliation Act of 1993 ("OBRA '93"), Congress reduced, effective January 1,
1994, the Medicare national limitations from 88% of the 1984 national median to
76% of the 1984 national median, which reductions are being implemented on a
phased-in basis from 1994 through 1996 (to 84% in 1994, 80% in 1995 and 76% in
1996). The 1995 reduction to 80% was implemented as scheduled on January 1,
1995. OBRA '93 also eliminated the provision for annual fee schedule increases
based upon the consumer price index for 1994 and 1995. Because a significant
portion of NHL's and RBL's costs are relatively fixed, these Medicare
reimbursement reductions have a direct adverse effect on NHL's and RBL's net
earnings and cash flows.
In addition, in 1993, Medicare and Medicaid determined to cease reimbursing
laboratories for certain tests, such as LDL cholesterol, that had previously
been reimbursable. Moreover, Medicare denied reimbursement to NHL for claims
submitted for HDL cholesterol and serum ferritin (a measure of iron in the
blood) tests from September 1993 to December 1993, at which time NHL removed
such tests from its basic test profiles.
In November 1994, the HCFA proposed changes in the policies used to
administer Medicare payments to clinical laboratories for the most frequently
performed automated blood chemistry profiles. Among other things, the proposed
changes would establish a consistent standard nationwide for the content of the
automated chemistry profiles. Another change incorporated in the HCFA proposal
would require laboratories performing certain automated blood chemistry
profiles to obtain and provide documentation of the medical necessity of tests
included in the profiles for each Medicare beneficiary. If such a requirement
were to be established, all laboratories would incur significant additional
costs associated with compliance. In addition, if implemented, such changes
would increase the losses associated with unreimbursed testing caused by the
inability to obtain sufficient information from physicians to allow the
laboratory to file valid claims with Medicare. The HCFA proposals may be
modified or replaced with other proposals and no prediction can be made
regarding what proposals, if any, will ultimately be adopted.
Future changes in Federal, state and local regulations (or in the
interpretation of current regulations) affecting governmental reimbursement for
clinical laboratory testing could have a material adverse effect on the
Surviving Corporation. NHL and RBL are unable to predict, however, whether and
what type legislation will be enacted into law.
Fraud and Abuse Regulations. The Medicare and Medicaid anti-kickback laws
prohibit intentionally paying anything of value to influence the referral of
Medicare and Medicaid business. HHS has published
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safe harbor regulations which specify certain business activities that do not
violate the Medicare/Medicaid anti-kickback laws. Failure to fall within a safe
harbor does not constitute a violation of the anti-kickback laws; rather, the
arrangement would remain subject to scrutiny by HHS.
In October 1994, the OIG of HHS issued a Special Fraud Alert, which set forth
a number of practices allegedly engaged in by clinical laboratories and health
care providers that the OIG believes violate the anti-kickback laws. These
practices include providing employees to collect patient samples at physician
offices if the employees perform additional services for physicians that are
typically the responsibility of the physicians' staff; selling laboratory
services to renal dialysis centers at prices that are below fair market value
in return for referrals of Medicare tests which are billed to Medicare at
higher rates; providing free testing to a physician's HMO patients in
situations where the referring physician benefits from such lower utilization;
providing free pick-up and disposal of bio-hazardous waste for physicians for
items unrelated to a laboratory's testing services; providing facsimile
machines or computers to physicians which are not exclusively used in
connection with the laboratory services performed; and providing free testing
for health care providers, their families and their employees (professional
courtesy testing). The OIG stressed in the Fraud Alert that when one purpose of
the arrangements is to induce referral of program-reimbursed laboratory
testing, both the clinical laboratory and the health care provider or physician
may be liable under the anti-kickback laws and may be subject to criminal
prosecution and exclusion from participation in the Medicare and Medicaid
programs.
According to the 1995 work plan of the OIG, its recently established Office
of Civil Fraud and Administrative Adjudication ("OCFAA") will be responsible
for protecting the government-funded health care programs and deterring
fraudulent conduct by health care providers through the negotiations and
imposition of civil monetary penalties, assessments and program exclusions. The
OCFAA works very closely with the Department of Justice, the Office of General
Counsel and the OIG investigative and audit offices in combatting fraud and
abuse. In addition, the OIG has stated in its 1995 work plan that it will
determine the extent to which laboratories supply physicians' offices with
phlebotomists (blood-drawing technicians), offer management services or medical
waste pick-up to physicians, provide training to physicians or engage in other
financial arrangements with purchasers of laboratories' services. The OIG will
assess the potential benefits of such arrangements as well as the extent to
which such arrangements might be unlawful.
Infectious Wastes and Radioactive Materials. NHL and RBL are subject to
licensing and regulation under Federal, state and local laws relating to the
handling and disposal of medical specimens, infectious and hazardous waste and
radioactive materials as well as to the safety and health of laboratory
employees. All NHL and RBL laboratories are operated in accordance with
applicable Federal and state laws and regulations relating to biohazard
disposal of all laboratory specimens and both NHL and RBL utilize outside
vendors for disposal of such specimens. Although NHL and RBL each believes that
it is currently in compliance in all material respects with such Federal, state
and local laws, failure to comply could subject NHL and RBL to denial of the
right of conduct business, fines, criminal penalties and/or other enforcement
actions.
Occupational Safety. In addition to its comprehensive regulation of safety in
the workplace, the Federal Occupational Safety and Health Administration
("OSHA") has established extensive requirements relating to workplace safety
for health care employers, including clinical laboratories, whose workers may
be exposed to blood-borne pathogens such as HIV and the hepatitis B virus.
These regulations, among other things, require work practice controls,
protective clothing and equipment, training, medical follow-up, vaccinations
and other measures designed to minimize exposure to, and transmission of,
blood-borne pathogens. In addition, in January 1990, OSHA established safety
requirements for the use of chemicals as reagents and for other purposes.
Drug Testing. Drug testing for public sector employees is regulated by the
Substance Abuse and Mental Health Services Administration ("SAMSHA") (formerly
the National Institute on Drug Abuse), which has established detailed
performance and quality standards that laboratories must meet in order to be
approved to perform drug testing on employees of the Federal government,
Federal government contractors and certain other entities. To the extent that
NHL and RBL perform such testing, each must be certified as meeting
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SAMSHA standards. NHL's Herndon, Virginia; Nashville, Tennessee; Redmond,
Washington; Reno, Nevada and Winston Salem, North Carolina laboratories are
SAMSHA-certified as are RBL's Research Triangle Park, North Carolina; Southern
New Jersey and Raritan, New Jersey laboratories.
Controlled Substances. The use of controlled substances in testing for drugs
of abuse is regulated by the Federal Drug Enforcement Administration.
Specimen Transportation. Regulations of the Department of Transportation, the
Public Health Service and the Postal Service apply to the transportation of
clinical laboratory specimens.
Each of NHL and RBL believe that it is in compliance in all material respects
with all statutes, regulations and other requirements applicable to its
clinical laboratory operations. The clinical laboratory testing industry is,
however, subject to extensive regulation, and many of these statutes and
regulations have not been interpreted by the courts. There can be no assurance
therefore that applicable statutes and regulations might not be interpreted or
applied by a prosecutorial, regulatory or judicial authority in a manner that
would adversely affect NHL or RBL. Potential sanctions for violation of these
statues and regulations include significant fines and the loss of various
licenses, certificates and authorizations.
OIG INVESTIGATIONS
In addition to general health care reform, the Federal government has been
examining the rapid growth of Federal expenditures for clinical laboratory
services. Several Federal agencies are responsible for investigating
allegations of fraudulent and abusive conduct by health care providers,
including the Federal Bureau of Investigation and the OIG. In its published
work plan for 1992-1993, the OIG indicated its intention to target certain
laboratory practices for investigation and prosecution. Pursuant to one such
project described in such work plan, entitled "Laboratory Unbundle,"
laboratories that offer packages of tests to physicians and "unbundle" them
into several "tests to get higher reimbursement when billing Medicare and
Medicaid" will be identified and "suitable cases will be presented for
prosecution." Under another project described in such work plan, laboratories
"that link price discounts to the volume of physician referrals, "unbundle'
tests in order to bill Medicare at a higher total rate, and conduct unnecessary
tests . . . will be identified to coordinate investigations throughout the
country."
1992 NHL Government Settlement. In November 1990, NHL became aware of a grand
jury inquiry relating to its pricing practices being conducted by the United
States Attorney for the San Diego area (the Southern District of California)
with the assistance of the OIG. On December 18, 1992, NHL entered into the 1992
NHL Government Settlement, which related to the government's contention that
NHL improperly included its tests for HDL cholesterol and serum ferritin in its
basic test profile, without clearly offering an alternative profile that did
not include these medical tests. The government also contended that, in certain
instances, physicians were told that these additional tests would be included
in the basic test profile at no extra charge. As a result, the government
contended, NHL's marketing activities denied physicians the ability to exercise
their judgment as to the medical necessity of these tests.
Pursuant to the 1992 NHL Government Settlement, NHL pleaded guilty to the
charge of presenting two false claims to the Civilian Health and Medical
Program of the Uniformed Services ("CHAMPUS") and paid a $1 million fine. In
connection with pending and threatened civil claims, NHL also agreed to pay
$100 million to the Federal government in installments. At December 31, 1994,
the remaining payments due to the government under the 1992 NHL Government
Settlement aggregated $11.0 million. Concurrent with the 1992 NHL Government
Settlement, NHL settled related Medicaid claims with states that account for
over 99.5% of its Medicaid business and paid $10.4 million to the settling
states.
1993 OIG Investigation. In August 1993, RBL and Allied each received a
subpoena from the OIG requesting documents and information concerning pricing
and billing practices. According to published reports, other independent
clinical laboratories have received similar subpoenas as part of a nationwide
OIG audit and investigation. In September 1993, NHL received a subpoena from
the OIG which required NHL
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to provide documents to the OIG concerning its regulatory compliance
procedures. Each of NHL, RBL and Allied have complied with or are in the
process of complying with their respective subpoenas and are cooperating with
the related OIG investigation. Among other things, the OIG subpoena received by
RBL and Allied called for the production of documents regarding 14 blood
chemistry tests which were being or had been performed by certain independent
clinical laboratories in conjunction with automated chemistry profiles and which
were being or had been billed separately to Medicare or Medicaid. An automated
chemistry profile is a grouping of up to 23 tests that can be performed together
on a single specimen and that Medicare and Medicaid pay for under the Medicare
fee schedule.
Based on published reports, NHL and RBL believe that the OIG's investigation
is primarily focused on two alleged practices. The first alleged practice
consists of offering the automated chemistry profile as a part of a "standard"
blood chemistry profile that also includes one or more of the 14 tests
referenced in the OIG subpoena in a manner which is misleading to the ordering
physician or which fails to provide the physician with the choice of ordering
only the automated chemistry profile. Representatives of the OIG have publicly
stated that this practice may lead to the ordering of "unnecessary" tests. The
second alleged practice involves the failure to disclose to physicians that the
prices charged by those laboratories to Medicare and Medicaid for many of these
tests referenced in the OIG subpoena were greater than the prices the
laboratories charged to the physicians for those same tests where the tests
were performed in conjunction with an automated chemistry profile.
Representatives of the OIG have publicly stated that undisclosed pricing
differences may cause physicians to believe incorrectly that they are ordering
tests at little or no cost to the Medicare and Medicaid programs, possibly
causing tests to be ordered which are not medically necessary. RBL's and
Allied's laboratories have included some of the 14 tests in their respective
"standard" blood chemistry profiles, and also in "custom" profiles created for
individual physicians at their request. Tests performed for Medicare and
Medicaid patients are, in accordance with applicable laws, billed directly to
the Medicare and Medicaid programs.
If the OIG were to pursue and successfully prove a violation of the laws
related to the Medicare and Medicaid programs, potential sanctions may include
significant fines, recovery of the amounts paid to the clinical laboratory for
the tests involved and, in the case of a criminal conviction, mandatory
exclusion from the Medicare and Medicaid programs for a period of at least five
years. If the OIG asserts a claim against RBL or Allied and is successful in
pursuing such a claim, RBL's or NHL's, as the case may be, business and
financial condition could be adversely affected. Although neither the 1992
Government Settlement nor, based on published reports, any settlement
agreements with the OIG entered into by other major clinical laboratory
companies, provided for exclusion from participation in the Medicare and
Medicaid programs, there can be no assurance that RBL or Allied will be able to
negotiate settlement agreements with similar terms if the government asserts
(or threatens to assert) a claim. In addition, a criminal conviction or the
successful prosecution of a civil fraud or false claims action could result in
the exclusion of the defendant from the Medicare and Medicaid programs. Any
such exclusion would likely have a material adverse effect on the Surviving
Corporation's non-Medicare and non-Medicaid testing business. No prediction,
however, can be made as to the outcome of the OIG investigation or the impact
of such outcome on RBL's, NHL's or the Surviving Corporation's, as the case may
be, financial condition or results of operations.
1994 OIG Investigation of Allied. In April 1994, Allied received a subpoena
from the OIG requesting documents and certain information regarding the
Medicare billing practices of its Cincinnati, Ohio clinical laboratory with
respect to certain cancer screening tests. In March 1995, Allied resolved the
issues raised by the April 1994 subpoena and a related qui tam action commenced
in Cincinnati, Ohio Federal court by entering into agreements with, among
others, HHS, the United States Department of Justice and the relators in the
qui tam action pursuant to which it agreed to pay $4.9 million to settle all
pending claims and inquiries regarding these billing practices and certain
others. NHL had previously established reserves that were adequate to cover
such settlement payment. In connection with the settlement, Allied agreed with
HHS, among other things, to implement a corporate integrity program to ensure
that Allied and its representatives remain in compliance with applicable laws
and regulations and to provide certain reports and information to HHS regarding
such compliance efforts.
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NHL
The following is a summary of certain information relating to the business of
NHL. Reference is made to, and this summary is qualified in its entirety by,
the more detailed information contained in the NHL 10-K, which is incorporated
herein by reference.
NHL, together with its recently acquired subsidiary, Allied, is the third
largest independent clinical laboratory company in the United States (measured
by net revenues). Through a national network of laboratories, NHL offers a
broad range of testing services used by the medical profession to diagnose,
monitor and treat diseases and other clinical states. NHL also provides
extensive testing services in the areas of esoteric clinical testing, cytologic
examinations and anatomical testing. Historically, office-based physicians have
constituted substantially all NHL's clients. NHL is also increasing its
position in the growing hospital, managed care and other non-physician
segments.
Laboratory Operations and Testing Services. NHL has 23 major laboratories,
and approximately 950 service sites consisting of sales ports, patient service
centers and STAT laboratories serving customers in 45 states. A "sales port" is
a central office which collects specimens in a region for shipment to one of
the NHL's laboratories for testing. Test results can be printed at a sales port
and conveniently delivered to the client. A sales port also is used as a base
for sales staff. A "patient service center" generally is a facility maintained
by NHL to serve the physicians in a medical professional building. The patient
service center collects specimens as requested by the physician. The specimens
are sent, principally through NHL's in-house courier system (and, to a lesser
extent, through independent couriers), to one of NHL's major laboratories for
testing. Some of NHL's patient service centers have "STAT laboratories," which
are laboratories that have the ability to perform certain routine tests quickly
and report the results to the physician immediately.
Currently, NHL processes approximately 152,000 patient specimens on an
average day. Patient specimens are delivered to NHL accompanied by a test
request form. These forms, which are completed by the client, indicate the
tests to be performed and provide the necessary billing information.
Each specimen and related request form is checked for completeness and then
given a unique identification number. The unique identification number assigned
to each patient helps to assure that the results are attributed to the correct
patient. The test request forms are sent to a data entry terminal where a file
is established for each patient and the necessary testing and billing
information is entered. Once this information is entered into the computer
system, the tests are performed and the results are entered primarily via
computer interface or manually, depending upon the tests and the type of
equipment involved. Most of NHL's computer testing equipment is directly linked
with NHL's computer system. Most routine testing is completed by early the next
morning, and test results are printed and prepared for distribution by service
representatives that day. Some clients have local printer capability and have
reports printed out directly in their offices. Clients who request that they be
called with a result are so notified in the morning. It is NHL's policy to
notify the client immediately if at any time in the course of the testing
process a life-threatening result is found.
The vast majority of the tests performed by NHL are considered by NHL to be
routine tests. NHL performs all such routine tests in each of its 23 major
regional laboratories often using sophisticated and computerized laboratory
testing equipment. Currently, NHL performs approximately 104 million routine
tests on an annualized basis.
In March 1989, NHL opened a new, state-of-the-art national reference
laboratory in Nashville, Tennessee. This laboratory provides a central location
for esoteric testing for all NHL's major laboratories. NHL performs
approximately 90% of all types of tests considered by NHL to be esoteric at
this facility, representing approximately 2,300,000 tests annually. With the
opening of this facility, NHL has reduced both the types and numbers of
esoteric tests that are referred to outside laboratories to be performed.
NHL also performs cytological and anatomical testing, which may be either
routine or esoteric. NHL currently performs approximately 4.0 million cytologic
examinations annually, 99% of which are PAP smears. In addition, NHL currently
performs approximately 810,000 anatomical tests annually.
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NHL provides management services in a variety of additional health care
settings. NHL generally provides the laboratory manager and other laboratory
personnel, as well as, equipment and testing supplies to manage a laboratory
that is owned by a hospital, physician or other health care provider. In
addition, NHL maintains a data processing system to organize and report test
results and to provide billing and other pertinent information to the tests
performed in the managed laboratory. Under the typical clinical management
agreement, the laboratory manager, who is employed by NHL, reports to the
hospital or clinic administration. Thus, the provider maintains control of the
laboratory. A pathologist designated by the provider serves as medical director
for the laboratory.
RBL
GENERAL
RBL provides clinical laboratory testing services to physicians, hospitals
and other clinical laboratories and offers a comprehensive line of over 1,600
tests and procedures, all of which are performed in RBL's facilities.
RBL is the fourth largest independent clinical laboratory in the United
States (in terms of revenues for the year ended December 31, 1994). RBL
provides clinical laboratory testing services to hospitals, laboratories and
physicians and offers a comprehensive line of over 1,600 tests and procedures,
all of which are performed in RBL's facilities, with a majority performed in
RBL's 17 major testing centers located primarily in the midwestern, eastern and
southern United States. For the year ended December 31, 1994, RBL derived
approximately 58% of its revenues from testing services provided to physicians,
about 11% from services provided to hospitals and the remaining 31% from
services provided to other clinical laboratories (and other clients).
Originally known as HLR Lab, RBL was formed on March 23, 1982 by Roche and
acquired the business of BRL through a merger in June 1982. Following the
merger, the surviving corporation changed its name to RBL in February 1983. The
stock of RBL was subsequently transferred to HLR, a wholly owned subsidiary of
Roche. Roche is an indirect wholly owned subsidiary of Roche Holding which was
incorporated in 1896 in Basel, Switzerland under the name F. Hoffmann-La Roche
and Co. RBL's headquarters and principal executive offices are located at 358
South Main Street, Burlington, North Carolina 27215, and its telephone number
is (800) 222-7566.
Roche Holding is the parent company of an international health care concern
operating in more than 100 countries and employing approximately 60,000 people
worldwide. Roche Holding assumed its present name in June 1989 following a
restructuring which established Roche Holding solely as a holding company and
transferred operating businesses and related assets and liabilities to a newly
established operating subsidiary, F. Hoffmann-La Roche Ltd. HLR is a holding
company for, among other businesses, Roche Holding's diagnostics subsidiaries
operating principally in the United States.
Roche Holding, including through its subsidiaries (collectively, the "Roche
Group"), engages primarily in the development and manufacture of
pharmaceuticals, vitamins and fine chemicals, diagnostics, flavors and
fragrances and in the business of analytical laboratory services. The Roche
Group is one of the world's leading research-based health care groups active in
the discovery, development, manufacture and marketing of pharmaceuticals and
diagnostic systems. The Roche Group is also one of the world's largest
producers of vitamins and carotenoids and of fragrances and flavors. The
principal executive offices of Roche Holding are located in Basel, Switzerland.
LABORATORY TESTING OPERATIONS AND SERVICES
Operational Facilities. RBL's business operations consist of the following
facilities:
Major and Subregional Laboratories. RBL operates 17 major testing centers in
which the majority of RBL's testing is performed. Such facilities receive
specimens from surrounding branch locations and generally offer most of RBL's
routine testing. Extensive use of automated instrumentation and computerization
enables
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these facilities to operate with high efficiency and low cost. Some of these
facilities also have specialized testing capabilities that serve the entire
clinical laboratory RBL network.
Branches and STAT Laboratories. RBL has approximately 160 branch offices
(also referred to as "sales ports" by certain other laboratories, including
NHL) serving as hubs for RBL's professional service network (couriers, specimen
pickup and result delivery) and which maintain daily contact with clients who
forward specimens to RBL for testing. These offices stock supplies and forms
needed by clients, coordinate specimen pickups, receive electronically
transmitted results from RBL laboratory locations for delivery to clients and
perform limited customer service functions. RBL operates approximately 100
limited testing or "STAT" testing laboratories, which laboratories perform high
priority or urgent testing at or near some of its branch locations, based on
customer and market requirements.
Patient Service Centers. RBL has approximately 440 patient service centers
("PSCs") which perform specimen collection services for patients when specimens
are not collected by the physicians in their own offices. RBL operates PSCs in
medical buildings and other locations conveniently accessible to patients,
staffed by RBL personnel qualified to draw blood and other specimens.
Specialty Testing Centers. RBL's Center for Molecular Biology in Research
Triangle Park, North Carolina, specializes in new test development and
education and training related thereto. Additional specialized testing is
performed in certain of RBL's facilities, notably involving identity testing
and specialized microbiological procedures. Certain of RBL's other facilities
include in their operations specialized testing capabilities for serving
specific market needs, such as the performance of clinical research trials
testing for pharmaceutical companies (Raritan, New Jersey) and veterinary
testing (Burlington, North Carolina).
During 1994, RBL performed testing for 80,000 patients on an average day.
Samples are delivered to RBL accompanied by a test request form. Each specimen
is given a unique identification number which helps to assure that the results
are attributed to the right patient. The test request forms are sent to a data
entry terminal where a file is established for each specimen and the necessary
testing and billing information entered. With some clients, test ordering
information is transferred electronically from the client's computer system to
RBL's system. RBL operates an integrated network of computer systems that
handles the tracking, scheduling and reporting for all RBL clients.
Once the relevant information is entered into the system, the tests are
performed and the results are entered either manually or through computer
interface, depending upon the tests and the type of equipment involved. Most of
RBL's testing equipment is interfaced with RBL's computer network. Most regular
testing is completed by early the next morning and test results are printed and
prepared for distribution that day. Some clients have local printer capability
and have reports printed out directly in their offices. An increasing number of
clients receive results through an electronic interface with an RBL facility.
Clients who request that they be called with a result are so notified in the
morning. In addition, certain critical test results are communicated by
telephone as soon as the tests are completed.
TYPES OF TESTING AND PROCEDURES
Physician Offices and Clinics. RBL currently offers approximately 1,600
different clinical laboratory tests or procedures, approximately 1,000 of which
have been widely available from clinical laboratories for use by physicians
since the 1960s. Of these, 200 to 400 tests or procedures are frequently used
in patient care to establish or support a diagnosis, to monitor treatment or
medication or to search for an otherwise undiagnosed condition and are widely
available at clinical laboratories. These types of tests and procedures are
most often used by practicing physicians in their outpatient, office practices.
Hospitals. Hospitals generally maintain an on-site laboratory to perform most
of the same 200 to 400 routine tests or procedures and some additional, more
specialized, procedures that must be promptly available for their admitted
patients whose conditions and treatment are generally more acute than that of
patients visiting clinics or physician offices. Many larger hospitals have the
capability to perform an extensive range
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of such specialized procedures. Some specialized tests or procedures may be
sent to an outside reference laboratory such as RBL.
Niche (Specialty) Testing. RBL has been developing business from
nontraditional customers such as industrial and corporate clients for more than
a decade. Such customers have found a need for tests and procedures similar to
certain of those offered by RBL to hospitals and physicians, such as
employment-related testing for substance abuse and testing to determine
exposure to toxic substances in the workplace.
The following are niche businesses in which RBL offers testing and related
services:
Allergy Testing. RBL offers an extensive range of allergen testing services
as well as a computerized analysis and a treatment program that enables primary
care physicians to diagnose and treat many kinds of allergic disorders.
Ambulatory Monitoring. RBL performs a computer assisted analysis of
electrocardiograms and blood pressure measurements. Many of these analyses are
submitted by physicians who require extended (up to 24 hours) monitoring of
these parameters for patients.
Clinical Trials Testing. RBL regularly performs clinical laboratory testing
for pharmaceutical companies conducting clinical research trials on new drugs.
This testing often involves periodic testing of patients participating in the
trial over several years.
Diagnostic Genetics. RBL offers cytogenetic biochemical and molecular genetic
tests.
Industrial Hygiene Testing. RBL maintains a separate testing facility in
Richmond, Virginia, dedicated to the analysis of potentially toxic substances
in the workplace environment.
Kidney Stone Analysis. RBL offers specialized patient analysis assessing the
risk of kidney stones based on laboratory measurements and patient history.
Oncology Testing. RBL offers an extensive series of testing technologies that
aid in diagnosing and monitoring certain cancers and predicting the outcome of
certain treatments.
Identity Testing. RBL provides forensic identity testing used in connection
with criminal proceedings and parentage evaluation services which are used to
assist in the resolution of disputed parentage in child support litigation.
Parentage testing involves the evaluation of immunological and genetic markers
in specimens obtained from the child, the mother and the alleged father.
Substance Abuse Testing. RBL provides urinalysis testing services for the
detection of drugs of abuse for private and government customers, and also
provides blood testing services for the detection of drugs of abuse and
alcohol. These testing services are designed to produce "forensic" quality test
results that satisfy the rigorous requirements for admissibility as evidence in
legal proceedings.
Veterinary Testing. RBL offers clinical laboratory testing of animal
specimens for veterinarians which require specialized testing procedures and
handling due to their differing characteristics.
CLIENTS AND PAYEES
RBL currently receives requests for tests or procedures from more than 50,000
physicians. In 1994, no single RBL client or group of RBL clients under the
same contract accounted for more than three percent of RBL's net sales. RBL
believes that the loss of any one of its laboratory service agreements would be
unlikely to have a material adverse effect on RBL's financial results. For the
year ended December 31, 1994, billings to private patients or their insurance
carriers accounted for approximately 24% of RBL's net sales, billings to
Medicare and Medicaid accounted for approximately 27% of net sales and billings
paid directly by physicians and other commercial clients accounted for
approximately 49% of RBL's net sales.
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SALES AND MARKETING
RBL has, over the past several years, offered its services through a
combination of direct sales generalists and specialists. Sales generalists
market the mainstream or traditional routine laboratory services primarily to
physicians, while specialists concentrate on individual market segments, such
as hospitals or managed care organizations, or on testing niches, such as
identity testing or genetic testing. Specialist positions are established when
an in-depth level of expertise is necessary to effectively offer RBL's
specialized services. When the need arises, specialists and generalists work
cooperatively to address specific opportunities. In 1994, RBL employed
approximately 190 generalists and 70 specialists. RBL sales generalists and
specialists are compensated through a combination of salaries, commissions and
bonuses, at levels commensurate with each individual's qualifications and
responsibilities. Commissions are primarily based upon the individual's
productivity in generating new business for RBL.
RBL also employs customer service representatives ("CSRs") to interact with
clients on an ongoing basis. CSRs monitor the status of the services being
provided to clients, act as problem-solvers, provide information on new testing
developments and serve as the client's regular point of contact with RBL. In
1994, RBL employed approximately 130 CSRs. CSRs are compensated with a
combination of salaries and bonuses commensurate with each individual's
qualifications and responsibilities.
RBL believes that the clinical laboratory service business is shifting away
from the traditional direct sales structure and into one in which the
purchasing decisions for laboratory services are increasingly made by managed
care organizations, insurance plans, employers and even patients themselves. In
view of these changes, RBL has adapted its sales and marketing structure to
more appropriately address the new opportunities. For example, RBL has expanded
its specialist sales positions in both its primary business and its niche
businesses in order to maximize RBL's competitive strengths of advanced
technology and marketing focus. Additionally, RBL has begun to integrate
traditional sales and customer support functions into a new position, the
Account Manager, which position will have responsibility for certain sales,
service and daily operational contact with physician-clients.
QUALITY ASSURANCE
RBL considers the quality of its tests to be of critical importance, and it
has established a comprehensive quality assurance program for all of its
laboratories and other facilities, designed to help assure accurate and timely
test results. In addition to the compulsory external inspections and
proficiency programs demanded by HCFA and other regulatory agencies, RBL has
company-wide systems and procedures in place to emphasize and monitor quality
assurance. All RBL regional laboratories are subject to on-site evaluations,
the College of American Pathologists' ("CAP") proficiency testing program,
state surveys and RBL's own internal quality control programs.
Internal Quality Control. RBL regularly performs internal quality control
testing by running quality control samples with known values with patient
samples submitted for testing. All quality control sample test results are
entered into RBL's national laboratory computer, which connects RBL facilities
nationwide to a common on-line quality control database. This system helps
technologists and technicians check quality control values and requires further
prompt verification if any quality control value is out of range. RBL has an
extensive, internally administered program of blind sample proficiency testing
(i.e. the testing laboratory does not know the sample being tested is a quality
control sample), as part of which RBL locations receive specimens from the RBL
Quality Assurance and Corporate Technical Services departments for analysis.
External Proficiency/Accreditations. RBL participates in numerous externally-
administered, blind quality surveillance programs, including the CAP program.
The blind programs supplement all other quality assurance procedures and give
RBL management the opportunity to review its technical and service performance
from the client's perspective.
The CAP accreditation program involves both on-site inspections of the
laboratory and participation in the CAP's proficiency testing program for all
categories in which the laboratory is accredited by the CAP.
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The CAP is an independent non-governmental organization (which has been
recently accredited by HCFA to inspect clinical laboratories to determine CLIA
qualifications) of board certified pathologists which offers an accreditation
program to which laboratories can voluntarily subscribe. A laboratory's receipt
of accreditation by the CAP satisfies the Medicare requirement for
participation in proficiency testing programs administered by an external
source. All of RBL's major laboratories are accredited by the CAP. See "THE
CLINICAL LABORATORY TESTING INDUSTRY--Regulation and Reimbursement."
RAW MATERIALS AND SUPPLIES
RBL purchases substantially all of its raw materials (primarily chemicals)
and supplies from various commercial sources in the United States. RBL is not
dependent upon any one or a limited number of suppliers and has not experienced
any difficulties in obtaining necessary supplies.
EMPLOYEES
On December 31, 1994, RBL had approximately 7,800 full-time employees and
approximately 1,070 part-time employees. RBL's employees have never been
covered by a collective bargaining agreement. RBL does, however, receive
courier services on western Long Island, New York, from its affiliate Lab
Delivery Services of N.Y., Inc., whose 30 employees are covered by a collective
bargaining agreement. RBL has never experienced any significant work stoppages,
slowdowns or other serious labor problems and considers relations with its
employees to be good.
PROPERTIES
The following table summarizes certain information as to RBL's principal
operating and administrative facilities as of December 31, 1994:
<TABLE>
<CAPTION>
APPROXIMATE
SQ. FEET
LOCATION(1) OF SPACE NATURE OF OCCUPANCY
----------- ----------- -------------------
<S> <C> <C>
Operating Facilities
Birmingham, AL........ 98,000 lease expires 2005
Burlington, NC........ 205,000 owned
Charleston, SC........ 9,000 lease expires 1998
Charlotte, NC......... 25,000 lease expires 1995; renewal option every 3 years
Chesapeake, VA........ 21,000 lease expires 2002; three 5 year renewal options
Columbia, SC.......... 21,000 lease expires 2002; two 5 year renewal options
Dublin, OH............ 82,000 owned
Fairmount, WV......... 25,000 lease expires 2005; three 5 year renewal options
Houston, TX........... 29,000 lease expires 1998
Kansas City, MO....... 28,000 owned
Pensacola, FL......... 16,000 owned
Raritan, NJ........... 186,000 owned
Research Triangle 71,000 lease expires 2008; three 5 year renewal options
Park, NC..............
70,000 lease expires 1996; two 5 year renewal options
Richmond, VA.......... 57,000 lease expires 2001; one 5 year renewal option
Southhaven, MS........ 25,000 owned
4,000 lease expires 1995; annual renewal options
5,000 lease expires 1996; one 3 year renewal option
Tucker, GA............ 22,000 lease expires 1999
Wichita, KS........... 25,000 lease expires 2003; two 5 year renewal options
Administrative Facilities
Burlington, NC........ 127,000 owned
59,000 lease expires 2008; option to purchase
14,000 lease expires 1998; option to purchase
9,000 lease expires 1997; two 3 year renewal options
9,000 lease expires 1997; three 3 year renewal options
7,000 lease expires 1997; three 3 year renewal options
</TABLE>
--------
(1) Multiple entries listed under a single location indicate separate
properties.
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All of the principal operating facilities have been built or improved for the
single purpose of providing clinical laboratory testing services. RBL believes
that these facilities are suitable and adequate and have sufficient operating
capacity for its currently foreseeable level of operations. RBL believes that
if it were to lose the lease on any of the facilities it presently leases, it
could find alternate space at competitive market rates and readily relocate its
operations to such new locations without material disruption to its operations.
LEGAL PROCEEDINGS AND INSURANCE
RBL is involved in litigation usually arising in the ordinary course of its
business. Such litigation usually involves claims for compensation for damages
purportedly arising as a result of the services rendered by RBL. Most claims
are disposed of through the exoneration of RBL or the payment by RBL of
relatively small amounts.
For a description of a pending investigation by the OIG of RBL, see "THE
CLINICAL LABORATORY TESTING INDUSTRY--OIG Investigations".
The performance of clinical laboratory testing services subjects RBL to the
risk of professional liability claims, which may be substantial, that could
result from inaccurate testing results, including claims that may result from
testing for cancer and drug abuse. RBL maintains liability insurance for such
liability claims (subject to maximums and self-insured retentions). RBL has
participated in a self-insurance program which covers Roche and all of Roche's
wholly owned subsidiaries. Participants self-insure certain self-insured
retention amounts which vary depending upon the liabilities covered. For
example, during 1994, the self-insured retention for products and clinical
testing claims and losses was $25 million and for medical malpractice and
general liability claims was $5 million. Once any combination of payments by
the covered participants exceeds the self-insured retention amount, additional
amounts are covered by significant levels of excess insurance. Participation in
the Roche self-insurance program will cease upon the completion of the Merger.
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RBL MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS OF RBL (DOLLARS IN MILLIONS)
Year Ended December 31, 1994 compared with Year Ended December 31, 1993. Net
sales for the year ended December 31, 1994 were $729.8, an increase of 2.6%
from $711.6 reported in 1993. Growth in new accounts and other volume-related
growth increased net sales by approximately 7.6%. This increase was offset by a
reduction in Medicare fee schedule reimbursement rates from 88% to 84% of the
1984 national median fee amounts, effective January 1, 1994, reducing net sales
by approximately 0.7%, and an adjustment to Medicare fee schedules to
discontinue reimbursement for certain procedures, effective August 1, 1993,
reducing net sales by approximately 5.2%. An increase in net sales of
approximately 0.9% resulted from price increases effective December 1, 1993 and
1994, and was partially offset by price erosion in the industry as a whole,
utilization declines as a result of an increased presence of capitated managed
care arrangements and severe weather in the first quarter of 1994. Sales
derived from tests performed for beneficiaries of Medicare and Medicaid
programs were approximately 26.8% and 29.2% of net sales for the years ended
December 31, 1994 and 1993, respectively.
Cost of sales, which primarily includes laboratory and distribution costs,
was $498.0 for the year ended December 31, 1994, an increase of 1.9%, from
$488.7 in 1993. The increase is attributable primarily to an increased number
of patient service centers opened to meet market demand and to increased
testing volume. Partially offsetting this increase was the implementation of a
cost containment program by management to eliminate excess non-value adding
costs through a reduction of 10.1% of its full and part-time employees in 1994
and closure of certain laboratories. As a percentage of net sales, cost of
sales was 68.2% and 68.7% for the years ended December 31, 1994 and 1993
respectively.
Selling, general and administrative expenses were $152.7 for the year ended
December 31, 1994, an increase of 1.6% from $150.3 in 1993. Included in the
increase were approximately $3.4 in additional litigation and future claims
reserves recorded in 1994. The reserves were slightly increased to provide for
settlement of certain litigation and to provide a reserve for unasserted
claims. As a percentage of net sales, selling, general and administrative
expenses were 20.9% and 21.1% for the year ended December 31, 1994 and 1993,
respectively.
RBL management believes that scheduled Medicare fee reductions will adversely
affect net sales. These fees were reduced from 84% to 80% of the 1984 national
median fee amounts, effective January 1, 1995, to be followed by an additional
reduction to 76% of such amounts effective January 1, 1996. As a result, cost
of sales as a percentage of net sales, and selling, general, and administrative
expenses as a percentage of net sales will be also adversely affected. RBL
management is unable to predict if fee reductions or utilization declines will
continue or the ultimate impact of these factors on net sales or results of
operations. RBL management believes that the increases in cost of sales as a
percentage of net sales and selling, general and administrative expenses as a
percentage of net sales may be offset through ongoing comprehensive cost
reduction programs at RBL's facilities. However, there can be no assurance of
the timing or the success of such measures.
Amortization of goodwill and other intangibles increased to $13.9 for the
year ended December 31, 1994 from $13.2 for the year ended December 31, 1993,
due to an adjustment of amortization expense for certain intangible assets
which were fully amortized during 1994.
Interest expense increased from $15.4 for the year ended December 31, 1993 to
$15.5 for the year ended December 31, 1994.
Other income, net, for the year ended December 31, 1994 was ($0.9) compared
to other expense, net, of $0.8 for the year ended December 31, 1993. The
increase is primarily attributed to a gain of ($1.3) resulting
from the sale of a building and land RBL owned in Sacramento, California.
Additionally, RBL divested certain operations in New England, which resulted in
a gain of approximately ($1.0).
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The provision for income taxes as a percentage of income before taxes is
44.8% for the year ended December 31, 1994 compared to 45.6% for the year ended
December 31, 1993.
Year Ended December 31, 1993 compared with Year Ended December 31, 1992. Net
sales were $711.6 in 1993, an increase of 6.6% from $667.4 in 1992. Growth in
new accounts and other volume-related growth increased net sales by
approximately 7.9%. This increase was offset by a reduction of approximately
2.2% in net sales as a result of discontinued Medicare fee schedule
reimbursement for certain procedures, effective August 1, 1993. A price
increase effective December 1, 1992, partially offset by price erosion in the
industry as a whole and an increasing presence of capitated managed care
arrangements, resulted in an increase in net sales of approximately 0.9%. Sales
derived from tests performed for beneficiaries of Medicare and Medicaid
programs were approximately 29.2% and 29.5% of net sales in 1993 and 1992,
respectively.
Cost of sales primarily includes laboratory and distribution costs and was
$488.7 in 1993, an increase of 6.4% from $459.2 in 1992. As a percentage of net
sales, cost of sales slightly decreased to 68.7% in 1993 from 68.8% in 1992.
Cost of sales increased in 1993 primarily as a result of the reduction in
Medicare reimbursements. As a percentage of net sales, this increase, however,
was offset by management's implementation of a cost containment program in 1993
to eliminate excess non-value adding costs through headcount reductions and
closure of certain laboratories.
Selling, general, and administrative expenses were $150.3 in 1993, an
increase of 11.7% from $134.6 in 1992. As a percentage of net sales, selling,
general, and administrative expenses increased to 21.1% in 1993 compared with
20.2% in 1992. A large portion of this increase is attributable to the increase
in the provision for bad debts. Bad debts as a percentage of net sales
increased from 3.6% in 1992 to 4.3% in 1993 primarily as a result of the weak
economy and the impact of a significant patient price increase in 1992.
Amortization of goodwill and other intangibles increased to $13.2 in 1993
from $13.1 in 1992. This increase is attributable to a full year of
amortization related to the CompuChem Corporation acquisition in 1993 compared
to 10.5 months in 1992.
Interest expense decreased from $24.5 in 1992 to $15.4 in 1993, attributable
primarily to lower average interest rates on outstanding debt.
Other expenses, net, increased to $0.8 in 1993 compared to other income, net,
of ($0.7) in 1992. This additional 1993 expense increase was primarily
attributable to a write-off of an old laboratory facility in Columbus, Ohio.
The provision for income taxes as a percentage of income before taxes
increased to 45.6% in 1993 from 45.3% in 1992.
LIQUIDITY AND CAPITAL RESOURCES (DOLLARS IN MILLIONS)
RBL has generated cash flow in excess of operating requirements in each of
the three past years. For the years ended December 31, 1994, 1993 and 1992, net
cash provided by operations was $32.9, $38.7 and $120.5, respectively.
Cash used for net capital expenditures was $30.1, $29.1 and $34.7 for the
years ended December 31, 1994, 1993 and 1992, respectively. RBL estimates that
capital expenditures will approximate $35.0 in 1995 to accommodate increased
testing volume and to further improve efficiency and laboratory processes with
new technologically advanced equipment and computer support.
During 1994, RBL acquired four small clinical laboratory companies for an
aggregate amount of $1.0 in cash and the recognition of $0.1 of liabilities.
RBL acquired six small laboratory companies during 1993 for an aggregate amount
of $1.3 in cash. In 1992, RBL acquired six small clinical laboratory companies
for an aggregate amount of $1.9 in cash and the recognition of $0.2 of
liabilities. Also in 1992, RBL acquired all of the issued and outstanding stock
of CompuChem Corporation. The purchase price consisted of $74.6 in
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<PAGE>
cash for the shares and certain transaction costs. The acquisition was
accounted for as a purchase and resulted in $63.7 of goodwill and other
intangible assets.
Historically, RBL has relied on HLR, the direct parent of RBL, for cash
needs. All excess cash generated from operations is paid to HLR through a daily
cash sweep. In 1989, RBL incurred $200.0 of indebtedness. Interest payments on
this debt, which are based on LIBOR, amounted to $7.8, $8.7 and $17.2 for 1994,
1993 and 1992, respectively. Additionally, RBL has intercompany notes due to
HLR arising from acquisitions made in prior years. At December 31, 1994, 1993,
and 1992, this intercompany debt aggregated $85.1. Interest expense on the debt
is paid to HLR semi-annually. A portion of this debt carries a LIBOR based
rate, and a portion of the debt carries a fixed interest rate of 11.5%. The
daily cash sweep described above will not continue following the Merger.
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THE MERGER
BACKGROUND OF THE MERGER
As a result of many factors, including the factors described under "CERTAIN
CONSIDERATIONS--Governmental Regulation", "--Limitations on Third Party Payor
Reimbursement of Health Care Costs", "--Potential Additional Costs Resulting
From Proposed Medicare Administrative Policies" and "--Challenges Presented by
the Growth of the Managed Care Sector", the clinical laboratory industry has
been experiencing significant acquisition activity. The NHL Board has from time
to time discussed these industry developments and their implications. In 1993,
the NHL Board expressly authorized James R. Maher, the President and Chief
Executive Officer of NHL, to undertake a program of acquisitions of smaller
clinical laboratory companies. Although the NHL Board believed that NHL could
continue independently without combining with another large laboratory company,
it recognized that NHL might be more successful when combined with one of the
other large clinical laboratory companies because of the significant synergies
that could be achieved. Accordingly, the NHL Board indicated its receptiveness
to pursuing such a transaction, and Mr. Maher had general authority, as NHL's
Chief Executive Officer and a member of the NHL Board's Executive Committee, to
initiate and conduct discussions with respect to a possible combination
transaction involving NHL with representatives of and advisors to other
clinical laboratory companies.
In the early spring of 1994, NHL engaged in discussions with another large
clinical laboratory company about a possible business combination. The NHL
Board of Directors considered the proposed transaction at two separate board
meetings at which presentations were made by the management of NHL and its
legal and financial advisors. Although the discussions with the other clinical
laboratory company did not result in the execution of an agreement with respect
to a transaction, the NHL Board's review and analysis of the proposed
transaction made it aware of the benefits that could be achieved through the
combination of two large clinical laboratory companies.
In April 1994, following the termination of the discussions described above,
James R. Maher, the President and Chief Executive Officer of NHL, who had
become aware that CS First Boston Corporation ("CS First Boston") was acting as
financial advisor to HLR and RBL, telephoned CS First Boston for the purpose of
exploring a possible merger between NHL and RBL. Following that conversation,
CS First Boston, on behalf of HLR and RBL, sent to Mr. Maher certain
preliminary information relating to a combination transaction involving NHL and
RBL, including financial information for the two companies and Roche's initial
position as to the relative valuations of the two companies given various
transaction structures. Mr. Maher subsequently contacted Charles R. Cory, a
representative of Morgan Stanley, to inform him of the developments. Morgan
Stanley had been retained by NHL in 1993 in connection with NHL's proposed
acquisition of Damon Corporation, had just served as NHL's financial advisor in
connection with the discussions with another large clinical laboratory company
about a possible combination transaction that had taken place in the early
spring of 1994 and was at the time serving as NHL's financial advisor in
connection with preparations for the Allied Acquisition, NHL's financing plans
and certain other matters. Accordingly, representatives of Morgan Stanley were
very familiar with NHL and the clinical laboratory industry, had attended and
made presentations at various meetings of the NHL Board of Directors and were
personally known to the directors. Although NHL did not enter into a formal
engagement letter with Morgan Stanley with respect to the NHL-RBL transaction
until December 1994, Morgan Stanley was acting as NHL's financial advisor
throughout the course of the negotiations with Roche and its affiliates.
On May 3, 1994, the NHL Board of Directors authorized the Allied Acquisition,
which was finally consummated on June 23, 1994. At the May 3rd meeting, Mr.
Maher briefed the NHL Board with respect to the contacts that had occurred
between representatives of NHL and representatives of Roche and RBL.
On May 5, 1994, a representative of CS First Boston sent to Mr. Maher a
revised proposal with respect to certain elements of a potential transaction
between NHL and RBL which assumed, among other things, that newly issued shares
representing 43% of the outstanding NHL shares would be issued to HLR in
exchange for all of the shares of RBL and that approximately 20% of the then
outstanding NHL shares would
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<PAGE>
be purchased by NHL in a self-tender or share repurchase program at $15 per
share. On May 9, 1994, Mr. Maher met with Thomas P. Mac Mahon, a Senior Vice
President of Roche and the President of Roche Diagnostics Group, and a
representative of CS First Boston to discuss the possibility of a merger. At
this meeting representatives of each company discussed their recent results of
operations and their respective business strategies. The parties also discussed
their views regarding the proposed terms set forth in the materials provided by
CS First Boston to Mr. Maher. The meeting concluded with a decision to proceed
with further discussions, to gather and exchange financial information and to
meet again soon thereafter to introduce senior management of each company to
their counterparts. Subsequently, on May 17, 1994, representatives of the
managements of NHL and RBL, Mr. Mac Mahon and representatives of CS First
Boston met to produce a detailed analysis of the potential for operating
efficiencies and cost savings that could be generated by a combination of the
two companies and to discuss their views regarding the operation of their
business and the clinical laboratory industry. In late May, representatives of
RBL, including Dr. James B. Powell, the President of RBL, and Mr. Mac Mahon met
with representatives of NHL, including Mr. Maher, to refine the synergy
analyses that had been developed at the prior meeting.
In June 1994, Mr. Maher met with Mr. Mac Mahon and a representative of CS
First Boston to further discuss a possible combination of NHL and RBL. The
discussions did not result in any agreement.
On August 30, 1994, Mr. Maher met with Mr. Mac Mahon and a representative of
CS First Boston to determine if the Roche Group would be interested in resuming
the discussions. The parties discussed their views of various possible terms of
a proposed transaction and certain preliminary results of their due diligence
investigations. On September 19, 1994, a representative of CS First Boston
responded by forwarding a proposal for a combination transaction between NHL
and RBL that would involve the issuance of 61.4 million shares of NHL Common
Stock to HLR (implying an RBL:NHL exchange ratio of 42:58), the purchase by NHL
of 12 million shares of NHL Common Stock at $24 per share and the purchase by
HLR of 8 million shares of NHL Common Stock at $24 per share. This transaction
would have resulted in NHL stockholders owning 64.8 million shares of NHL
Common Stock after the Merger and HLR owning 69.4 million shares of NHL Common
Stock after the Merger.
On September 13, 1994, the NHL Board met and approved two smaller
acquisitions. At the meeting, Mr. Maher gave the Board an update on the status
of the discussions with respect to a possible transaction between NHL and RBL.
On September 23, 1994, a representative of Morgan Stanley communicated to CS
First Boston NHL's response to the September 19th HLR proposal, which included
two alternative counterproposals. The first counterproposal assumed an RBL:NHL
exchange ratio of 42:58 and involved Roche purchasing 14 million shares of NHL
Common Stock for $26 per share and NHL purchasing 12 million shares at $26 per
share. The second counterproposal assumed an RBL:NHL exchange ratio of 40:60
and involved Roche purchasing 10 million shares of NHL Common Stock at $26 per
share and NHL purchasing 12 million shares at $26 per share.
On October 11, 1994, Mr. Maher met with Dr. H.B. Meier, Group Chief Financial
Officer and Executive Committee Member of F. Hoffmann-La Roche Ltd, in Basel,
Switzerland, to discuss certain variations to the transaction proposals. At
this meeting, the parties agreed to include warrants to be issued by NHL in the
transaction structure. Following this meeting, on October 19, 1994, CS First
Boston sent, on behalf of HLR and RBL , a term sheet for the proposed
transaction to representatives of NHL and NHL's financial advisor. The terms
proposed included a transfer by HLR of RBL and up to $240 million in cash to
NHL in exchange for 72.04 million shares of NHL Common Stock, and the proposed
buyback by NHL of 22 million shares of NHL Common Stock for an aggregate of
$528 million (funded with the $240 million provided by HLR and $288 million by
NHL) and would result in NHL stockholders owning 62.8 million shares of NHL
Common Stock. Additionally, the proposal contemplated that warrants with an
aggregate value of approximately $67.9 million would be distributed pro rata to
NHL stockholders, including to HLR. In connection with this proposal, HLR
requested that NHL agree in the definitive documentation for any transaction
between NHL and HLR to grant HLR an option to purchase an amount of newly
issued shares of NHL and to pay to HLR
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an amount in cash in the event that, following the execution of such definitive
documentation, NHL were to enter into an alternative business combination
transaction with an entity not affiliated with Roche. No agreement was reached
at that time with respect to this request although a modified "break-up" fee
provision was ultimately included in the final documentation executed on
December 13, 1994.
On October 20, 1994, representatives of RBL and Roche and their financial and
legal advisors met with representatives of NHL to conduct a due diligence
review regarding certain regulatory proceedings involving NHL. On October 21,
1994, Jean-Luc Belingard, Director General, Diagnostics Division, and Executive
Committee Member of F. Hoffmann-La Roche Ltd. and Mr. Mac Mahon met in New York
with Ronald O. Perelman, the Chairman of the Board of NHL, Howard Gittis, a
Director of NHL, and Mr. Maher to discuss the principal features of the
proposed transaction and a proposed timetable for the completion of a
transaction between NHL and RBL.
On October 24 and 25, 1994, representatives of RBL and their legal and
financial advisors met with representatives of NHL and their financial advisors
in La Jolla, California to conduct a due diligence review of NHL's operations
and financial condition. Following this meeting, on October 27, 1994
representatives of NHL and their legal and financial advisors met with
representatives of RBL and their financial advisors in Burlington, North
Carolina to conduct a due diligence review of RBL's operations and financial
condition. Additional due diligence meetings were held in late October in
Washington, D.C. and Baltimore, Maryland at which representatives of NHL and
RBL and their legal advisors continued their respective legal due diligence
investigations with respect to certain matters.
At the November 4 and 8, 1994 meetings of the Board of Directors of NHL, Mr.
Maher informed the Board of the progress of the ongoing discussions regarding a
possible transaction with RBL.
In the first week of November 1994, Mr. Maher received an unsolicited call
from another clinical laboratory company expressing interest in a possible
combination transaction with NHL. Representatives of that company subsequently
met with Mr. Maher in order to discuss the synergies that could be generated
from a combination of the two companies and various possible transactions
structures. Although that company expressed general interest in exploring a
possible transaction, it did not make a specific proposal to Mr. Maher. In late
November, Mr. Maher asked representatives of Morgan Stanley, NHL's financial
advisor, to meet with the representatives of that company in order to follow-up
on the earlier meeting and to ascertain that company's level of interest in
entering into a transaction with NHL and to report back to NHL. Representatives
of Morgan Stanley met with representatives of that company on December 6, 1994,
at which meeting the representatives of Morgan Stanley described various
possible transaction structures for a combination of the two companies and the
synergies that could be expected to be generated by such a combination and
indicated NHL's expectations as to valuation in an attempt to see if a
transaction could be structured with that company that would generate more
value for stockholders of NHL than the proposed NHL-RBL transaction. That
company indicated that it would not be interested in entering into a
transaction at the valuation levels sought by NHL and no definitive proposal
with respect to a transaction was made by that company. The NHL Board discussed
the impending meeting between Morgan Stanley and that company at the December
5th Board meeting described below and the results of the meeting at the
December 12th Board meeting.
On November 23, 1994, after analyzing the results of its due diligence review
and considering various structural issues that had arisen during their
evaluation of the proposed transaction, CS First Boston, on behalf of HLR and
RBL, forwarded a revised proposal to NHL that provided for the purchase from
holders of NHL Common Stock of 17.6 million shares at an average price of $27
per share and a pro rata distribution of warrants with an aggregate value of
approximately $67.1 million in a transaction that would result in NHL
stockholders owning 67.2 million shares of NHL Common Stock after the Merger
and HLR owning 66.9 million shares of NHL Common Stock after the Merger. This
proposal was described to the NHL Board of Directors at the December 5th Board
meeting.
On December 1, 1994, Mr. Maher met with Dr. Meier in Basel to discuss the
revised proposal.
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At a meeting of the NHL Board of Directors held on December 5, 1994, Mr.
Maher reported that discussions with Roche had progressed and described the
status of the talks concerning the proposed transaction. Mr. Maher described to
the Board the industry factors which made the transaction attractive from the
point of view of both companies. Mr. Maher also described the potential
synergies and cost savings that the managements of NHL and RBL believed could
be obtained following the transaction. Mr. Maher also reported that Morgan
Stanley, NHL's financial advisor, was preparing analyses so as to be able to
render a fairness opinion on the proposed transaction, and representatives of
Morgan Stanley then delivered a preliminary report on the transaction. There
was a discussion of the results of the business and legal due diligence
investigation of RBL. The NHL Board of Directors, after discussing the
potential risks and benefits of the proposed transaction, authorized management
to continue discussions with RBL. See "Recommendation of the NHL Board of
Directors and NHL's Reasons for the Merger".
During the first and second weeks of December, members of the senior
management of NHL (including Mr. Maher, David C. Flaugh, Senior Executive Vice
President, Chief Operating Officer and Acting Chief Financial Officer of NHL,
and James G. Richmond, Executive Vice President, General Counsel and Assistant
Secretary of NHL), Roche, HLR and RBL, together with their financial and legal
advisors, negotiated the terms of the Merger Agreement and related agreements,
including the Stockholder Agreement and the Warrant Agreement. The final terms
of the transaction were agreed to (subject to the approval of the parties'
boards of directors), including a structure that provided in effect for the
purchase from holders of NHL Common Stock of 23.7 million shares at an average
price of $20 per share (at an aggregate cost of approximately $474 million),
the distribution to NHL stockholders of warrants with an aggregate value of
approximately $84.8 million and the purchase by Roche from NHL of additional
warrants for approximately $51 million, in a transaction that would result in
NHL stockholders owning 61.07 million shares of NHL Common Stock after the
Merger and HLR owning 60.83 million shares of NHL Common Stock after the
Merger. However, NHL, in negotiating the terms of the Merger Agreement,
obtained the agreement of Roche, HLR and RBL to a change in the final
transaction structure to provide, in lieu of the stock repurchase, for the NHL
Share Conversion, which results in the same aggregate amount of cash being
transferred to the stockholders of NHL (approximately $474.7 million) as the
stock repurchase but which ensures that each NHL stockholder would be able to
participate pro rata. Such discussions also resolved various other outstanding
issues, including the treatment of NHL Employee Stock Options in the Merger and
other executive compensation issues. The parties also resolved the outstanding
issues relating to HLR's request for a termination fee and an option to
purchase NHL Common Stock in the event the Merger Agreement was terminated
under certain circumstances following a third party proposal to acquire NHL.
NHL agreed to pay HLR a termination fee of $30.0 million, plus up to an
additional $7.0 million in reimbursement of expenses, in the event the Merger
Agreement was terminated under certain circumstances following a third party
proposal to acquire NHL or a third party's acquisition of at least 20% of the
outstanding shares of NHL Common Stock, but no stock option was granted by NHL.
The terms of the Sharing and Call Option Agreement relating to the shares of
NHL Common Stock held by NHCG, a subsidiary of Mafco Holdings Inc., were
negotiated during the same time frame.
On December 12, 1994, the NHL Board of Directors met to consider the Merger
Agreement, the Stockholder Agreement, the Sharing and Call Option Agreement and
the Warrant Agreement. Mr. Maher and representatives of NHL's legal and
financial advisors made presentations to the NHL Board of Directors and
discussed with the NHL Board of Directors their views and analyses of various
aspects of the proposed transactions and the effects thereof. Morgan Stanley
delivered its oral opinion, subsequently confirmed in writing, that the
consideration, in the aggregate, to be received by holders of shares of NHL
Common Stock pursuant to the Merger Agreement, when considered together with
the Warrants to be distributed to such holders prior to the Merger, is fair
from a financial point of view to such holders. On December 12, 1994, the Board
of Directors of NHL, by a unanimous vote of those directors present (with Dr.
Thier not present for the vote), approved the Merger Agreement, the Stockholder
Agreement, the Sharing and Call Option Agreement and the Warrant Agreement. All
members of the NHL Board of Directors, including Dr. Thier, were present for
the presentations with respect to the transaction made by management and by
NHL's legal and financial advisors. Because of a scheduling conflict, however,
Dr. Thier did not participate in that part of
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the meeting in which the vote has taken. Subsequent to the December 12 meeting,
the NHL Board unanimously recommended that the stockholders of NHL vote for the
approval and adoption of the Merger Agreement.
RECOMMENDATION OF THE NHL BOARD OF DIRECTORS AND NHL'S REASONS FOR THE MERGER
The Board of Directors of NHL approved the Merger Agreement by a unanimous
vote of those directors present at the December 12 meeting. The NHL Board has
determined that the Merger is in the best interests of NHL and its stockholders
and unanimously recommends that the stockholders of NHL vote FOR the approval
and adoption of the Merger Agreement. In evaluating the recommendation of the
Board of Directors of NHL, and in considering whether to approve and adopt the
Merger Agreement, stockholders of NHL should be aware that certain directors
and executive officers of NHL have interests in the Merger which may be
different from, or in addition to, the interests of NHL stockholders generally,
including NHL Employee Stock Options that may be cancelled in the Merger in
exchange for a payment of cash and shares of NHL Common Stock, employment
contracts with NHL pursuant to which such persons may terminate their
employment for "good reason" and receive certain payments and other interests
(including, in the case of James R. Maher, the current President and Chief
Executive Officer of NHL, a special bonus to be paid in connection with the
Merger). See "CERTAIN CONSIDERATIONS" and "THE MERGER--Interests of Certain
Persons in the Merger".
In reaching its decision to approve the Merger Agreement, the NHL Board
considered a number of factors including but not limited to the following:
(i) The NHL Board considered the current conditions and trends in the
clinical laboratory industry that have resulted in a high level of
acquisition activity (including NHL's proposed acquisition of Damon
Corporation, the Allied Acquisition and Corning's acquisition of Damon
Corporation in 1993 and Nichols Institute in 1994). The NHL Board believes
that recent industry trends, including the growth of health maintenance
organizations and other managed care providers, the reduction in the number
of tests being ordered per patient, continued changes in healthcare
reimbursement policies of the Federal government and cost containment
efforts of private insurers, have caused the clinical laboratory industry
to experience volume and price pressures. The NHL Board believes that these
pressures will continue in the future and that larger independent clinical
laboratories will be better positioned to operate under these conditions. A
significant portion of the clinical laboratory industry's costs are
relatively fixed, which makes high volume laboratories more cost efficient.
In addition, the NHL Board considered the fact that, since the structure of
the clinical laboratory industry may allow for significant synergies to
arise from business combinations, the high level of acquisition activity is
likely to continue. Finally, the NHL Board considered that the number of
large clinical laboratory companies that are regarded as suitable and
potentially available for a business combination transaction with NHL is
limited and that failure to effect a business combination transaction could
result in other clinical laboratory companies becoming significantly larger
than NHL but that, if the Merger with RBL is consummated, the Surviving
Corporation would be the largest participant in the U.S. clinical
laboratory industry. On balance the discussion among members of the NHL
Board evidenced the general view that the high level of acquisition
activity in the clinical laboratory industry, the limited number of
suitable clinical laboratory companies that were thought to be available
for a business combination transaction with NHL and the fact that the
failure to enter into a business combination transaction might result in
NHL being at a competitive disadvantage with respect to other clinical
laboratory companies that had realized the benefits of the synergies
available through business combinations, were factors that weighed in favor
of approving the transaction.
(ii) The NHL Board considered the financial condition, results of
operations, business and prospects of RBL, including RBL's sales, earnings
before interest and taxes ("EBIT") and net income for 1993 and projections
of sales, EBIT and net income for 1994 and 1995. On balance the discussion
of this financial information among members of the NHL Board evidenced the
general view that the
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combination of NHL and RBL would result in the Surviving Corporation's pro
forma financial condition and results of operations being improved from
those of NHL and, accordingly, that this information was a factor that
weighed in favor of approving the transaction.
(iii) The NHL Board considered the financial condition, results of
operations, business and prospects of NHL, including NHL's sales, earnings
before interest, taxes, depreciation and amortization ("EBITDA"), EBIT and
net income for the five years ended December 31, 1993 and projections of
NHL's sales, EBITDA, EBIT and net income for 1994, 1995 and 1996. The NHL
Board considered the potential effect of the transaction on NHL's earnings
per share. The members of the NHL Board of Directors were generally
familiar with and knowledgeable about NHL's affairs and further reviewed
these matters in the course of their deliberations. On balance the
discussion among members of the NHL Board evidenced the general view that
the financial condition, results of operation and prospects of NHL, were it
not to approve the transaction, were factors that weighed in favor of
approving the transaction in light of the benefits that could be achieved
through the combination of NHL and RBL.
(iv) The NHL Board of Directors considered the opportunity presented by
the Merger for the constituent companies to improve their profitability
through the achievement of economies of scale, the elimination of
redundancies and the enhancement of market position. By consolidating
certain NHL operations with those of RBL and eliminating redundant
expenses, the Surviving Corporation would be able to achieve substantial
savings of operating costs. Such savings would be realized over time as
consolidation is completed. The NHL Board considered the analyses of
management that anticipated that the Surviving Corporation would realize
annual aggregate savings of between $80 million and $90 million within
three years following the Merger. The synergies expected to be realized by
the Surviving Corporation would be derived from several sources, including
an expected $25 million of savings in corporate, general and administrative
expenses including the consolidation of administrative staff. Combining the
NHL sales force with the RBL sales force where duplicate territories exist
would be expected to add approximately $9 million of synergies. Operational
savings would be expected to result in approximately $55 million of
synergies. These include closing overlapping laboratories and other
facilities and savings to be realized from additional buying power by the
larger Surviving Corporation. The Surviving Corporation also would be
expected to realize approximately $5 million of savings relating to
employee benefits as a result of expected changes to certain benefit
arrangements. These estimated savings were anticipated to be partially
offset by a loss of existing accounts during the conversion process in the
amount of approximately $4 million. The NHL Board recognized that the
realization of improvements in profitability is dependent, in part, on the
extent to which the revenues of the constituent companies are maintained
and will be influenced by many factors, including factors outside of the
control of the Surviving Corporation, and that there can be no assurance
that the estimated cost savings will be realized or achieved in a timely
manner or that improvements, if any, in profitability would be achieved or
that such savings would not be offset by increases in other expenses.
Although the NHL Board recognized the risk that the expected synergies
might not be achieved, or might not be achieved in a timely manner, the NHL
Board accepted the overall analyses and conclusions of the management of
NHL that the Merger presented the opportunity to achieve significant cost
savings and resultant improvements in profitability, and accordingly the
discussion among members of the NHL Board evidenced the general view that
the expected synergies were a factor that weighed in favor of approving the
transaction.
(v) The NHL Board considered the fact that the transaction enables the
stockholders of NHL to receive a cash payment of $5.60 in respect of their
shares, while retaining a substantial equity interest in the Surviving
Corporation and the consequent ability to realize a portion of the benefits
arising from the synergies expected to result from the Merger. On balance
the discussion among members of the NHL Board of the cash payment of $5.60
per share to be received by holders of NHL Common Stock in the Merger
evidenced the general view that such payment represented a significant
percentage of the market price of the NHL Common Stock prior to the
announcement of the Merger Agreement, and that, when considered together
with the fact that the stockholders of NHL would retain a substantial
equity interest in the Surviving Corporation and would therefore be able to
participate in the prospects for the Surviving
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Corporation (including the value of the synergies expected to result from
the Merger), such payment was a factor that weighed in favor of approving
the transaction.
(vi) The NHL Board considered the view of Morgan Stanley, NHL's financial
advisor, that the consideration, in the aggregate, to be received by
holders of shares of NHL Common Stock pursuant to the Merger Agreement,
when considered together with the Warrants to be distributed in the Warrant
Distribution, is fair to such stockholders from a financial point of view.
The NHL Board also considered Morgan Stanley's underlying analyses that
suggested, based on a discounted cash flow analysis, a stand-alone range of
asset values for NHL of between $8.88 and $13.17 per share, that the
aggregate after-tax value of the synergies expected to result from the
transaction, when fully realized, could amount to be between $5.85 and
$7.92 per share of common stock of the Surviving Corporation and that the
aggregate value of the consideration to be received by holders of NHL
Common Stock in the Merger and the Warrant Distribution would be between
$16.65 and $18.66 per share. The NHL Board also considered the data
presented by Morgan Stanley with respect to the performance of NHL Common
Stock over the last five years, three years and twelve months and a price
volume analysis suggesting the percentages of outstanding shares that have
traded within various indicated price ranges. While the NHL Board did not
take any specific action with respect to the Morgan Stanley presentation,
in making its decision to approve the Merger, the NHL Board accepted the
overall analyses and conclusions presented by Morgan Stanley. Accordingly,
the opinion and presentation of Morgan Stanley were factors that weighed in
favor of approving the transaction.
(vii) The NHL Board considered the structure of the proposed transaction,
including that NHL's stockholders would retain approximately 50.1% of the
common equity of the Surviving Corporation, that Mr. Maher would serve as
Chairman of the Board of NHL for one year after the Merger and that Board
of Directors of the Surviving Corporation would consist of seven directors
(during the initial one-year period following the Merger consisting of Mr.
Maher, three independent directors and three directors designated by HLR
and, thereafter, consisting of four independent directors and three
directors designated by HLR). On balance the discussion among members of
the NHL Board evidenced the general view that the fact the existing
stockholders of NHL would retain a majority of the equity interest in the
Surviving Corporation, the fact that the Surviving Corporation would have
the benefit of Mr. Maher's experience during the one-year period following
the Merger and the fact that Mr. Maher and three independent directors
would constitute four of the seven members of the board of directors of the
Surviving Corporation during the Initial Period following the Merger, and
that there would be four independent directors thereafter, were factors
that weighed in favor of approving the transaction.
(viii) The NHL Board considered the terms of the Merger Agreement,
Stockholder Agreement, Sharing and Call Option Agreement and Warrant Agreement
and the presentations with respect thereto made by management and NHL's legal
and financial advisors. The NHL Board determined that the structure and terms
of the transaction, including the combined effect of the NHL Share Conversion,
the Warrant Distribution, the sale of the Roche Warrants, the incurrence of
the NHL Borrowings and the issuance of shares of NHL Common Stock to HLR were
in the best interests of the stockholders. The NHL Board considered the fact
that the issuance of shares of NHL Common Stock to HLR in connection with the
Merger would significantly reduce the ownership interest of the public
stockholders. On balance the discussion among members of the NHL Board
evidenced the general view that, although the fact that the ownership interest
of the stockholders of NHL would be significantly reduced in the transaction,
when considered alone, was a factor that weighed against approving the
transaction, the fact that the transaction, when considered as a whole, would
allow the stockholders of NHL to receive a payment in cash in respect of their
shares and the opportunity to participate in the future performance of the
Surviving Corporation (which would be substantially larger than NHL), through
both the substantial equity interest that would continue to be held by such
stockholders and through the Warrants, were factors that weighed in favor of
approving the transaction. On balance the discussion among members of the NHL
Board evidenced the general view that the ability of the HLR Group to
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obtain a controlling equity interest in NHL by making further purchases of
NHL Common Stock after the Initial Period, when considered alone, was a
factor that weighed against approving the transaction, but that the
provisions of the Stockholder Agreement that prohibit the HLR Group from
acquiring additional Equity Securities of the Surviving Corporation during
the Initial Period, and that for two years thereafter prohibit the HLR
Group from acquiring more than 75% of the outstanding Equity Securities of
the Surviving Corporation unless HLR or any member of the HLR Group first
offers to purchase all outstanding Equity Securities of the Surviving
Corporation and holders of more than 50% of the outstanding Equity
Securities (excluding securities held by the HLR Group) accept such offer,
were appropriate protections for the stockholders of NHL under the
circumstances.
(ix) The NHL Board considered the provision of the Merger Agreement
providing for the payment of a termination fee and expense reimbursement to
HLR under certain circumstances, which the Board believed was reasonable
under the circumstances.
(x) The NHL Board considered the reports made by management and by Morgan
Stanley with respect to the discussions that had taken place in November
and early December with another large clinical laboratory company with
respect to a possible business combination and the likelihood of being able
to negotiate a favorable transaction with that company. On balance the
discussion among members of the NHL Board evidenced the general view that
it was unlikely that NHL would be able to negotiate a transaction with that
company that would be more favorable to the stockholders of NHL than the
Merger, and accordingly, that this factor weighed in favor of approving the
transaction.
(xi) The Board of Directors of NHL also considered the costs of the
transaction to NHL and its stockholders, including restructuring costs in
the amount of approximately $84 million expected to be recorded by NHL at
the time of the Merger and transaction costs in an amount that could not be
determined at that time but that were estimated to be up to $20 million. On
balance the discussion among members of the NHL Board evidenced the general
view that these costs were reasonable in light of the expected benefits of
the transaction, including the synergies expected to be achieved following
the Merger.
(xii) The NHL Board considered the fact that HLR's ownership interest in
the Surviving Corporation and its rights under the Stockholder Agreement
described below will permit it to exercise significant influence on the
governance of the Surviving Corporation and the fact that HLR's ownership
interest may prevent the Surviving Corporation, without HLR's consent, from
entering into a merger or other transaction that would result in
stockholders receiving a premium for their shares. However, the Board
determined that the package of securities and cash to be received by
holders of NHL Common Stock in the Merger, taken as a whole, should be
regarded as adequate compensation to such holders for such loss of
opportunity.
(xiii) The NHL Board considered the provision of the Stockholder
Agreement providing that, for so long as the HLR Group Interest is at least
30%, a significant number of types of major corporate actions cannot be
taken without the approval of a Special Majority of the Board of Directors
(which is defined in the Stockholder Agreement as a majority of the entire
Board of Directors that includes a majority of the HLR directors and at
least one independent director) including, among others, certain executive
officer appointments, certain business combinations, acquisitions or sales
of assets, amendments to the Surviving Corporation's Certificate of
Incorporation or by-laws, settlements of material litigation, changes in
Board or committee composition, material capital expenditures, issuance of
securities and incurrence of indebtedness. On balance the discussion among
members of the NHL Board evidenced the general view that this provision
weighed in favor of approving the transaction because it was expected to
operate in part to the benefit of the public stockholders of the Surviving
Corporation (since all the enumerated actions, including certain actions
that might not otherwise require specific approval by the board of
directors of the Surviving Corporation, would require the consent of at
least one independent director). In addition, the discussion among members
of the NHL Board evidenced the general view that the benefits accorded to
HLR by these provisions were not inappropriate given the size of HLR's
equity ownership interest in the Surviving Corporation.
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(xiv) The NHL Board of Directors took into account the results of NHL's
due diligence review of RBL's business, including its review of RBL's
selling, pricing and billing practices (including NHL's assessment of RBL's
practices and procedures with respect to the matters described under "THE
CLINICAL LABORATORY TESTING INDUSTRY--Regulation and Reimbursement" and "--
OIG Investigations").
(xv) The NHL Board considered the fact that Mr. Flaugh would be expected
to serve as Chief Operating Officer of NHL after the Merger, which the
Board regarded as important to the successful integration of the two
companies and to the success of the Surviving Corporation, and the likely
effect of the transaction on certain other executive officers of NHL.
(xvi) The NHL Board considered the presentation and recommendation made
by the management of NHL, which weighed in favor of approving the
transaction.
(xvii) The NHL Board also considered the interests of certain directors
and executive officers of NHL in the Merger, including the fact that
certain directors and executive officers of NHL have NHL Employee Stock
Options that may be cancelled in connection with the Merger in exchange for
a payment in cash and shares of NHL Common Stock and employment contracts
with NHL pursuant to which such persons may terminate their employment for
"good reason" and receive certain payments and certain other interests
(including in the case of James R. Maher, the current President and Chief
Executive Officer of NHL, a special bonus to be paid in connection with the
Merger). During its deliberations at the December 12, 1994 meeting, members
of the NHL Board who were not affiliated with NHL or Mafco Holdings Inc.
had the opportunity to meet separately with, and ask questions of, NHL's
legal and financial advisors prior to voting on the proposed transaction.
On balance the discussion among members of the NHL Board evidenced the
general view that the potential benefits to be received by certain
directors and executive officers in connection with the Merger were not
inappropriate under the circumstances, and, accordingly, that such benefits
were not a factor that weighed against approving the transaction.
In light of all the factors set forth above, the Board of Directors of NHL
approved the Merger Agreement. In view of the wide variety of factors
considered in connection with its evaluation of the Merger Agreement, the NHL
Board of Directors did not find it practicable to assign relative weights to
the specific factors considered in reaching its decision or to undertake to
make any specific determination as to whether any particular factor (or any
aspect of any particular factor) was favorable or unfavorable to the NHL
Board's ultimate determination. However, on balance the discussions among the
members of the NHL Board of Directors evidenced the general view that the
factors set forth in paragraphs (i), (ii), (iii), (iv), (v), (vi), (vii), (x),
(xv) and (xvi) were favorable to the Board's determination to approve the
Merger Agreement and the factors set forth in paragraphs (viii), (ix), (xi),
(xii), (xiii) and (xiv) contained both favorable and unfavorable aspects.
OPINION OF NHL'S FINANCIAL ADVISOR
Morgan Stanley delivered its opinion to the Board of Directors of NHL on
December 12, 1994, subsequently confirmed in its written opinion dated December
14, 1994, that, as of such date, the consideration, in the aggregate, to be
received by the holders of shares of NHL Common Stock pursuant to the Merger
Agreement, when considered together with the Warrants currently intended to be
distributed as a dividend to such holders prior to the Merger, is fair from a
financial point of view to such holders. No limitations were imposed by NHL
with respect to the investigations made or the procedures followed by Morgan
Stanley in rendering its opinion.
The full text of the opinion of Morgan Stanley, which sets forth assumptions
made, matters considered and limitations on the review undertaken by Morgan
Stanley, is included as Annex IV to this Proxy Statement/Prospectus. NHL
stockholders are urged to read the opinion in its entirety. Morgan Stanley's
opinion does not constitute a recommendation to any NHL stockholder as to how
such stockholder should
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vote at the NHL Meeting. The summary of the opinion of Morgan Stanley set forth
in this Proxy Statement/Prospectus is qualified in its entirety by reference to
the full text of such opinion.
In arriving at its opinion, Morgan Stanley (i) analyzed certain publicly
available financial statements and other information of NHL; (ii) analyzed
certain internal financial statements and other financial and operating data
concerning NHL prepared by the management of NHL; (iii) analyzed certain
financial projections prepared by the management of NHL; (iv) discussed the
past and current operations and financial condition and the prospects of NHL
with senior executives of NHL; (v) reviewed the reported prices and trading
activity for NHL Common Stock; (vi) compared the financial performance of NHL
and the prices and trading activity of NHL Common Stock with that of certain
other comparable publicly traded companies and their securities; (vii) reviewed
the financial terms, to the extent publicly available, of certain comparable
acquisition transactions; (viii) analyzed certain internal financial statements
and other financial and operating data concerning RBL prepared by the
management of RBL; (ix) discussed the past and current operations and financial
condition and prospects of RBL with senior executives of RBL; (x) participated
in discussions and negotiations among representatives of NHL and HLR and their
financial and legal advisors; (xi) discussed with managements of both of NHL
and RBL certain cost savings and synergies expected to be derived from the
Merger; (xii) reviewed the Merger Agreement and certain related documents and
(xiii) performed such other analyses as it deemed appropriate.
Morgan Stanley assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by it for purposes of
rendering its opinion. Morgan Stanley also assumed that the financial
projections provided to it were reasonably prepared on bases reflecting the
best currently available estimates and judgments of the future financial
performance of NHL. Morgan Stanley also relied upon the assumptions of the
managements of NHL and RBL regarding certain cost savings and synergies that
are expected to result from the Merger. Morgan Stanley did not make any
independent valuation or appraisals of the assets or liabilities of NHL. Morgan
Stanley did not review and was not provided with any unaudited or other
financial information of RBL for any period prior to 1993. Morgan Stanley's
opinion was based on the economic, market and other conditions in effect on,
and the information made available to it as of, the date of the opinion.
Although Morgan Stanley was not generally authorized to solicit interest from
any party with respect to a transaction with NHL, Morgan Stanley did engage at
NHL's request in certain discussions with a company that was engaged in
negotiations with NHL in the early spring of 1994 and with another company that
made an unsolicited call to NHL in November 1994. See "Background of the
Merger".
The following is a summary of the analyses Morgan Stanley utilized in
arriving at its opinion and that Morgan Stanley discussed with the NHL Board of
Directors on December 5 and December 12, 1994. The presentations made by Morgan
Stanley at the December 5th and December 12th meetings of the NHL Board of
Directors were substantially similar, except that the description of the terms
and structure of the transaction in the December 12th presentation reflected
the changes to the transaction resulting from the negotiations of the final
terms of the definitive documentation that had ensued since the December 5th
presentation, and certain financial and market data as of December 2, 1994,
contained in the December 5th presentation was updated to December 9, 1994, in
the December 12th presentation.
Overview. Morgan Stanley presented an overview of Roche Holding, the indirect
parent company of RBL, noting particularly its status as the world's largest
health care company measured by market capitalization, its strong growth rate,
its high level of investment in research and development and its strong
commitment to biotechnology. Morgan Stanley reviewed Roche Holding's recent
acquisitions and divestiture, and set forth Roche Holding's revenues on a
segment basis and a geographic basis. Morgan Stanley then presented an overview
of RBL, noting that it has the fourth largest independent clinical laboratory
testing network in the United States and offers a broad range of laboratory
tests and procedures. Morgan Stanley presented data that had been provided by
CS First Boston, RBL's financial advisor, with respect to 1993 actual, and 1994
and 1995 estimated, sales, EBIT, and net income, including information with
respect to growth rates and margins. Morgan Stanley summarized the principal
terms and the structure of the proposed
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transaction, evaluated the positions and strengths of the combined company
after the Merger and qualitatively reviewed the significant issues and
opportunities (including with respect to estimated synergies) represented by
the transaction. Morgan Stanley then presented an overview of certain
information relating to NHL, including a review of the closing prices of NHL
Common Stock over the five and three year periods ending December 9, 1994, a
review of the performance of NHL Common Stock over the five and one year
periods ending December 9, 1994 relative to the S&P 400 Index and a composite
index comprised of the common stock of certain comparable companies. The
comparable companies were IG Laboratories, Inc., LabOne, Inc., Physicians
Clinical Laboratory, Inc., Unilab Corporation and Universal Standard Medical
Laboratories, Inc. Morgan Stanley also presented a price volume analysis that
suggested the percentage of the total number of outstanding shares of NHL
Common Stock that had traded within specified price ranges over the last four
years. Morgan Stanley reviewed certain historical and projected financial
information for NHL, including sales, EBITDA, EBIT and net income.
Stand-Alone Valuation of NHL. Morgan Stanley arrived at a range of values for
NHL by utilizing three principal valuation methodologies: a comparable company
analysis, a precedent transactions analysis and a discounted cash flow
analysis, but it accorded the most weight to the discounted cash flow analysis.
Comparable company analysis analyzes a company's operating performance and
outlook relative to a group of publicly traded peers to determine an implied
unaffected market trading value. Precedent transactions analysis provides a
valuation range based upon financial information of companies in the same or
similar industries as the target which have been acquired in selected recent
transactions. Discounted cash flow analysis provides insight into the intrinsic
value of a company based on projected earnings and capital requirements and the
subsequent cash flows generated by the assets of the target company. No company
used in the comparable company analyses described below is identical to NHL and
no transaction used in the precedent transactions analyses described below is
identical to the Merger. Accordingly, an analysis of the results of analyses
described below necessarily involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the public trading value or the
acquisition value of the companies to which they are being compared.
Comparable Company Analysis. Morgan Stanley compared certain financial
information of NHL with the following group of companies that Morgan
Stanley believed to be appropriate for comparison: IG Laboratories, Inc.,
LabOne, Inc., Physicians Clinical Laboratory, Inc., Unilab Corporation and
Universal Standard Medical Laboratories, Inc. The financial information
compared included market value; aggregate value; common stock price; last
12 month's ("LTM") high and low common stock price; LTM EBIT and net income
margins; five year projected growth rate; earnings per share for LTM, 1994
and 1995; LTM revenues and the three year historical growth rate for
revenues; LTM gross margin, selling, general and administrative expenses,
EBITDA, EBIT and net income expressed in the aggregate as well as a
percentage of revenues; the three year historical net income growth rate
and the five year projected net income growth rate. Morgan Stanley also
compared certain capitalization and credit statistics of the comparable
companies, including cash; short-term debt; long-term debt; preferred
stock; book value; long-term debt as a percentage of adjusted book
capitalization; total debt as a percentage of adjusted book capitalization;
long-term debt as a percentage of adjusted market capitalization; total
debt as a percentage of adjusted market capitalization; LTM return on
equity and certain interest coverage ratios. In order to arrive at
hypothetical implied values for NHL, Morgan Stanley derived multiples for
the comparable companies, including market value as a multiple of earnings
per share for LTM and for 1994 and 1995, market value as a multiple of LTM
cash flow, market value as a multiple of LTM book value, aggregate value as
a multiple of LTM revenues, aggregate value as a multiple of LTM EBITDA and
aggregate value as a multiple of LTM EBIT. The hypothetical implied values
per share for NHL derived from such analysis, based on the median multiples
for all of the statistics considered, ranged from $4.60 (based on the
comparable companies' median market value to book value multiple) to $11.13
(based on the comparable companies' median aggregate value to LTM EBIT
multiple). The market price information used in such analysis was as of
December 9, 1994. The earnings per share estimates used were based on
estimates as of October 20, 1994, by Institutional Brokers Estimate System,
a data service
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that monitors and publishes a compilation of earnings estimates regarding
companies of interest to institutional investors produced by selected
research analysts. The LTM book values used were as of September 30, 1994,
and the LTM earnings per share, cash flow, revenues, EBITDA and EBIT used
were calculated from each of the comparable companies' most recently
available quarterly and annual reports.
<TABLE>
<CAPTION>
COMPANY EPS MULTIPLE
------- ------------------- --------
CASH BOOK
FLOW VALUE REVENUE EBITDA EBIT
(LTM) (1994) (1995) (LTM) (LTM) (LTM) (LTM) (LTM)
----- ------ ------ -------- ----- ------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Comparable
Companies
High....................................................... 30.6 21.1 15.5 13.9 3.5 2.4 9.4 17.3
Low........................................................ 17.2 10.2 7.3 5.7 0.9 0.7 7.8 11.7
Median..................................................... 23.4 14.4 8.3 5.7 2.5 1.4 9.3 15.0
NHL(1)...................................................... 26.3 12.2 6.3 1.9 11.2 15.4
</TABLE>
--------
(1) Morgan Stanley did not regard the multiples derived from the
comparable company analysis to be meaningful given that the Allied
Acquisition was not fully reflected in NHL's financial condition and
results of operations.
Precedent Transactions Analysis. The transactions used in the analysis
included Corning's acquisition of Nichols Institute; the Allied
Acquisition; Corning's acquisition of Maryland Medical Labs; Corning's
acquisition of Damon Corporation; Corning's acquisition of the non-
California laboratories of Unilab Corporation; Genzyme Corp.'s acquisition
of Vivigen, Inc.; Corning's acquisition of JS Pathology PLC; Corning's
acquisition of the U.S. assets of MDS Health Group Ltd.; RBL's acquisition
of CompuChem Corp.; Unilab Corporation's acquisition of RBL's western
operations; Unilab Corporation's acquisition of Central Diagnostic
Laboratory; Allied's acquisition of the clinical laboratory subsidiary of
Hospital Corporation of America; and SmithKline Beckman's acquisition of
International Clinical Labs. The financial information compared in the
analysis included equity value; aggregate value; and premium paid to the
price one month before announcement. In order to arrive at hypothetical
implied values for NHL, Morgan Stanley derived multiples for the precedent
transactions, including equity value as a multiple of LTM earnings, equity
value as a multiple of book value, aggregate value as a multiple of LTM
revenues, aggregate value as a multiple of LTM EBITDA and aggregate value
as a multiple of LTM EBIT. The hypothetical implied values per share for
NHL derived from such analysis, based on the median multiples for all of
the statistics considered, ranged from $5.33 (based on the precedent
transactions' median market value to book value multiple) to $16.07 (based
on the precedent transactions' median aggregate value to LTM EBITDA
multiple). The various information used in such analysis was derived from
the same sources as for the comparable company analysis.
<TABLE>
<CAPTION>
PRECEDENT
TRANSACTION(1) MULTIPLE
-------------- --------
EPS BOOK VALUE REVENUE EBITDA EBIT
(LTM) (LTM) (LTM) (LTM) (LTM)
----- ---------- ------- ------ -----
<S> <C> <C> <C> <C> <C>
High................................ 37.4 4.7 3.3 17.8 32.6
Low................................. 21.7 1.9 1.0 8.1 14.3
Median.............................. 30.2 2.9 1.6 13.9 18.6
</TABLE>
--------
(1) Morgan Stanley did not regard the multiples derived from the
precedent transactions analysis to be meaningful given that the
Allied Acquisition was not fully reflected in NHL's financial
condition and results of operations.
Discounted Cash Flow Analysis. The stand-alone asset value of NHL was
determined by adding (i) the present value of the projected unlevered free
cash flows of NHL over a 9-year period from 1995 through 2003 and (ii) the
present value of NHL's 2003 terminal value. The stand-alone equity value
was determined by subtracting NHL's net debt as of September 30, 1994 from
NHL's asset value. The terminal value of NHL at the end of the 9-year
period was determined by projecting a range of nominal perpetual growth
rates of NHL's unlevered free cash flow after 2003 of 3%, 4% and 5%.
Earnings were projected assuming NHL performed in accordance with NHL's
management's forecast and certain extrapolations thereof. The unlevered
free cash flows and terminal value of NHL were discounted to
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present values using a 13%, 13.5% and 14% discount rate, representing NHL's
weighted average cost of capital as determined by the capital asset pricing
model. This analysis resulted in a range of values for NHL of between
$752.3 million and $1,116.3 million (or $8.88 to $13.17 per share ).
Although Morgan Stanley considered all three valuation methodologies outlined
above, it placed greater reliance on the discounted cash flow analysis in
forming its opinion and did not present to the NHL Board a range of values for
NHL derived from the comparable company analysis or the precedent transaction
analysis because of certain difficulties in applying the multiples derived from
the comparable company analysis and the precedent transaction analysis to NHL
given the effect of the Allied Acquisition on NHL's LTM results of operations
and because of the relative lack of comparable companies whose financial
condition approximates NHL's. When calculating LTM results for NHL, Morgan
Stanley subtracted from the results for the fiscal year ended December 31, 1993
the results for the nine months ended September 30, 1993 and added the results
for the nine months ended September 30, 1994. Since NHL completed the Allied
Acquisition on June 21, 1994, the LTM results for the twelve months ended
September 30, 1994 do not portray NHL's financial results giving full effect to
the Allied Acquisition, and Morgan Stanley did not deem it appropriate to use
these results as basis to imply a value for NHL. Both comparable company
analysis and precedent transaction analysis require complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies involved, and other factors that can affect the public trading
value or the acquisition value of the companies being compared. Accordingly,
mathematical analysis (such as determining average or median multiples) is not,
in itself, a meaningful application of comparable company analysis or precedent
transaction analysis. In addition to the valuation methodologies described
above and given that the structure of the clinical laboratory industry may
allow for significant synergies to arise from business combinations, Morgan
Stanley also considered the estimated value of the synergies expected to result
from the proposed transaction in forming its opinion. Based on preliminary
estimates of such synergies, developed by the managements of both NHL and RBL,
the Surviving Corporation is expected to realize annualized pretax operating
savings of between $80 million and $90 million within three years following the
Merger. Assuming a 40% tax rate, such savings, after taxes, would amount to
between $48 million and $54 million, or approximately $0.39 to $0.44 per share
of common stock of the Surviving Corporation. Using price/earnings multiples
ranging from 15x to 18x, the aggregate after tax value of such synergies, when
fully realized, would amount to between $5.85 and $7.92 per share of common
stock of the Surviving Corporation. See "MANAGEMENT AND OPERATIONS AFTER THE
MERGER--Operations After the Merger" for a discussion of the synergies that are
expected to be realized in connection with the Merger. NHL expects to record a
restructuring charge of approximately $84 million in connection with the Merger
and to incur transaction costs in an amount that cannot be determined at this
time but that are estimated to be up to $20 million.
Transaction Value. For purposes of its opinion as to the fairness, from a
financial point of view, to the holders of shares of NHL Common Stock of the
consideration, in the aggregate, to be received by such holders pursuant to the
Merger Agreement, when considered together with the Warrants currently intended
to be dividended to such holders prior to the Merger (collectively, the
"Transaction Value"), Morgan Stanley compared the range of stand-alone values
it derived for NHL as described above to the Transaction Value. In order to
determine the Transaction Value for purposes of its opinion, Morgan Stanley
applied a range of multiples (ranging from 15x to 18x) to the Surviving
Corporation's estimated 1995 earnings per share (which estimate gave effect to,
among other things, the estimated combined net income of NHL and RBL, expected
synergies, goodwill amortization and interest charges) to arrive at a range of
projected market values for the shares of the Surviving Corporation. The
Warrants are intended to have a value of approximately $1.00 per share to
holders of NHL Common Stock prior to the Effective Time. However, the actual
value of the Warrants will ultimately depend upon several market factors
including, but not limited to, general market conditions and the Surviving
Corporation's volatility and pro forma trading value, on which Morgan Stanley
has not separately opined. The assumed value of the Warrants was determined
based upon the following parameters, which were agreed upon by NHL, Roche and
their respective financial advisors: an assumed volatility of approximately 43%
for the Surviving Corporation, a five year maturity, an assumed pro forma
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<PAGE>
trading value for the Surviving Corporation of approximately $16.00 and a
strike price of $22.00. By adding $6.60 (the sum of the Cash Consideration per
share and the estimated per share value of the Warrant) to NHL's pro rata share
of such market values, Morgan Stanley arrived at a reference range of
Transaction Values of between $16.65 and $18.66 per share.
As indicated above, a stand-alone valuation of NHL based on a comparable
company analysis or a precedent transaction analysis would not be meaningful
given that NHL's LTM results do not portray NHL's financial results giving full
effect to the Allied Acquisition. In arriving at its opinion, Morgan Stanley
considered NHL's stand-alone discounted cash flow valuation of $8.88 to $13.17
per share, the value of the synergies of between $5.85 to $7.92 per share of
common stock of the Surviving Corporation, the average trading price of NHL
Common Stock over the twelve months preceding the announcement of the Merger
Agreement of $12.94, and determined that the reference range of Transaction
Values of between $16.65 and $18.66 per share was fair to NHL's stockholders
from a financial point of view.
The summary set forth above does not purport to be a complete description of
the analyses performed by Morgan Stanley. The preparation of a fairness opinion
is a complex process and is not necessarily susceptible to partial analysis or
summary description. Morgan Stanley believes that its analyses must be
considered as a whole and that selecting portions of its analyses, without
considering all analyses, would create an incomplete view of the process
underlying its opinion. In addition, Morgan Stanley may have given various
analyses more or less weight than other analyses (and, as described above,
accorded the most weight to the discounted cash flow analysis) and may have
deemed various assumptions more or less probable than other assumptions. In
performing its analyses, Morgan Stanley made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond the control of NHL or RBL. The analyses
performed by Morgan Stanley are not necessarily indicative of actual values,
which may be significantly more or less favorable than suggested by such
analyses. Additionally, analyses relating to the values of businesses do not
purport to be appraisals or to reflect the prices at which such businesses
actually may be sold. The analyses performed were prepared solely as part of
Morgan Stanley's analysis of the fairness of the consideration to be received
by holders of NHL Common Stock, and were provided to the NHL Board of Directors
in connection with the delivery of Morgan Stanley's opinion. Because such
analyses are inherently subject to uncertainty, none of NHL, the NHL Board of
Directors or management, Morgan Stanley or any other person assumes
responsibility if future events do not conform to the judgments reflected in
the opinion of Morgan Stanley. Morgan Stanley's opinion was addressed to the
fairness, from a financial point of view, of the consideration to be received
by holders of NHL Common Stock in the NHL Share Conversion and the Warrant
Distribution and was not a recommendation as to the amount of the consideration
to be paid or received.
The NHL Board of Directors retained Morgan Stanley based upon its experience
and expertise. Morgan Stanley is a nationally recognized investment banking and
advisory firm. Morgan Stanley, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for corporate and other purposes. Morgan Stanley has
provided, and continues to provide, certain other financial advisory,
investment banking and agency services to NHL and its affiliates. Morgan
Stanley provided financial advisory and other services, including the rendering
of a fairness opinion, to NHL in connection with the Allied Acquisition and
NHL's proposed acquisition of Damon Corporation, and received fees of $500,000
and $750,000, respectively, in connection therewith. Morgan Stanley has
underwritten equity offerings by NHL.
Pursuant to a letter agreement dated December 16, 1994, between NHL and
Morgan Stanley (the "Engagement Letter"), Morgan Stanley agreed to render a
fairness opinion and to provide limited financial advisory services to NHL.
Morgan Stanley will receive from NHL a fee of $3.75 million for its role as a
limited financial advisor and for rendering a fairness opinion concerning the
Merger. In addition, the Engagement Letter with Morgan Stanley provides that
NHL will reimburse Morgan Stanley for its reasonable out-of-pocket expenses and
will indemnify Morgan Stanley against certain liabilities incurred in
connection with its services.
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<PAGE>
REASONS OF RBL AND HLR FOR THE MERGER
The Board of Directors of each of RBL and HLR believe that the Merger is in
the best interest of RBL and HLR because the operations and business of NHL are
strategically complementary with those of RBL. The Boards believe the Merger
will create a more diversified clinical laboratory capable of providing a broad
range of high quality testing and related services on a nationwide basis.
Additionally, the Boards of RBL and HLR regard the combination of NHL's
strengths in marketing and client relations and RBL's growing specialized
testing and other niche businesses, as well as RBL's experience in centralized
management and information systems, as significant benefits for the combined
entity. The Board of Directors of each of RBL and HLR was also favorably
influenced by their understanding that certain persons familiar with RBL's
business and operations would serve as executive officers and/or directors of
the Surviving Corporation, including that Mr. Mac Mahon would serve as Vice
Chairman during the Initial Period and as Chairman of the Board of Directors
following such period, that Dr. Powell would serve as President and Chief
Executive Officer of the Surviving Corporation and by their understanding that
the Stockholder Agreement would contain governance provisions appropriate in
light of HLR's substantial minority interest in the Surviving Corporation. The
possibility of efficiencies in the operations of the Surviving Corporation
through the consolidation of NHL's and RBL's operations and the elimination of
redundant expenses and associated cost savings was also viewed favorably by the
Boards of RBL and HLR.
EXCHANGE AGENT; PROCEDURES FOR EXCHANGE OF CERTIFICATES; NO FRACTIONAL SHARES
Exchange Agent. The Merger Agreement requires (i) HLR to deposit at or prior
to the Effective Time, with or for the account of a bank or trust company
appointed by NHL and HLR for the purpose of paying the Cash Consideration (the
"Exchange Agent"), the HLR Cash Contribution, (ii) Roche to provide to NHL, at
or prior to the Effective Time, the Roche Warrant Consideration and (iii) NHL
to deposit with the Exchange Agent, at or prior to the Effective Time, the NHL
Cash Contribution and the Roche Warrant Consideration received from Roche.
Pursuant to instructions from the Surviving Corporation, the Exchange Agent
will deliver the Cash Consideration to stockholders of NHL who have complied
with the Procedures for Exchange of Certificates set forth below. No interest
will be paid or will accrue on any cash payable as Cash Consideration.
Procedures for Exchange of Certificates. As soon as practicable after the
Effective Time, the Surviving Corporation will cause the Exchange Agent to send
a transmittal form to each holder of NHL Common Stock. The transmittal form
will contain instructions with respect to the surrender of certificates
representing NHL Common Stock to be converted pursuant to the NHL Share
Conversion. Upon surrender of a certificate for shares of NHL Common Stock for
cancellation to the Exchange Agent, together with such transmittal form
properly completed and duly executed, and such other documents as may
reasonably be required by the Exchange Agent, the holder of such certificate
will be entitled to receive in exchange a certificate representing the number
of shares of NHL Common Stock not redeemed in the NHL Share Conversion and the
Cash Consideration which such holder has the right to receive (and cash, if
any, payable in lieu of fractional shares). Until surrendered, each certificate
will be deemed at any time after the Effective Time to represent only the
number of shares of NHL Common Stock and the right to receive the Cash
Consideration (and cash, if any, payable in lieu of fractional shares) to which
such holder is entitled pursuant to the NHL Share Conversion, and the holder of
such certificate will cease to have any rights with respect to the number of
shares of NHL Common Stock represented by such certificate immediately prior to
the Effective Time in excess of the number of shares of NHL Common Stock to
which such holder is entitled pursuant to the NHL Share Conversion, except as
otherwise provided in the Merger Agreement or by law.
From and after the Effective Time, there will be no further registration of
transfers of shares of NHL Common Stock converted in the NHL Share Conversion.
Any portion of the aggregate Cash Consideration and proceeds from the sale of
fractional shares that remains undistributed six months after the Effective
Time will be delivered to the Surviving Corporation upon demand, and any
holders of such NHL Common Stock who have not theretofore duly surrendered
certificates representing shares of NHL Common Stock converted
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<PAGE>
in the NHL Share Conversion must thereafter look only to the Surviving
Corporation for the Cash Consideration (and cash, if any, payable in lieu of
fractional shares) to which they are entitled). Neither HLR nor the Surviving
Corporation will be liable to any holder of shares of NHL Common Stock
converted in the NHL Share Conversion for any such Cash Consideration (or cash,
if any, payable in lieu of fractional shares) or any certificates for any NHL
Common Stock delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
NHL STOCKHOLDERS SHOULD NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY
CARD. NHL STOCKHOLDERS SHOULD NOT FORWARD NHL STOCK CERTIFICATES TO THE
EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL FORMS.
No Fractional Shares. No fractional shares of NHL Common Stock will be issued
to any NHL stockholder or holder of NHL Employee Stock Options in connection
with the consummation of the Merger. In lieu of any such fractional shares,
each holder of NHL Common Stock who otherwise would be entitled to receive a
fractional share of NHL Common Stock pursuant to the Merger will be paid an
amount by check, without interest, equal to such holder's proportionate
interest in the net proceeds from the sale or sales in the open market by the
Exchange Agent, on behalf of all such holders, of the aggregate fractional
shares of NHL Common Stock (the "Excess Shares"), if any, that would have been
issued in the Merger. As soon as practicable following the Effective Time, the
Exchange Agent will determine the number of Excess Shares, if any, and the
Exchange Agent, as agent of the holders of NHL Common Stock, will sell any such
Excess Shares at the prevailing prices on the NYSE. The sales of the Excess
Shares by the Exchange Agent will be executed on the NYSE through one or more
member firms of the NYSE and will be executed in round lots to the extent
practicable. The Surviving Corporation will pay all commissions, transfer taxes
and other out-of-pocket transaction costs, including the expenses and
compensation of the Exchange Agent, incurred in connection with such sale or
sales of Excess Shares. Until the net proceeds of such sale or sales have been
distributed to the holders of certificates relating to Excess Shares, the
Exchange Agent will hold such proceeds in trust for such holders. As soon as
practicable after the determination of the amount of cash to be paid to holders
of certificates in lieu of any fractional shares of NHL Common Stock, the
Exchange Agent will make available such amounts to such holders.
EXPENSES
The Merger Agreement provides that (except under the circumstances described
under "--Certain Fees" below) NHL and RBL each will pay their own expenses in
connection with the Merger and the transactions contemplated thereby, including
fees and expenses of their own financial or other consultants, investment
bankers, accountants and counsel, except that in the event that RBL's legal and
financial advisory fees and expenses exceed in the aggregate those of NHL, HLR
or an affiliate will pay the excess amount.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the principal Federal income tax
consequences of the Warrant Distribution, the NHL Share Conversion and the
Merger Agreement to holders of NHL Common Stock. The discussion is based on the
Federal income tax laws and regulations as now in effect and currently
interpreted, and does not take into account possible changes in such laws,
regulations or interpretations, which changes may be retroactive. The
discussion does not reflect the individual tax position of any holder of NHL
Common Stock and may not be applicable to holders of NHL Common Stock with a
special tax status or tax situation, including but not limited to financial
institutions, broker-dealers, holders that are not citizens or residents of the
United States, tax-exempt entities and holders that acquired NHL Common Stock
upon the exercise of employee stock options or otherwise as compensation.
Holders of shares of NHL Common Stock are urged to consult with their own tax
advisors regarding the tax consequences of the distribution of Warrants, the
NHL Share Conversion and the Merger, including the effects of Federal, state,
local, foreign and other tax laws.
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The Warrant Distribution will constitute a nontaxable distribution by NHL of
rights to acquire its stock within the meaning of Section 305 of the Code.
Accordingly, the distribution of the Warrants will not be a taxable event to
holders of NHL Common Stock, and a holder's holding period for the Warrants
will include the holder's holding period for the NHL Common Stock. A holder
will have no tax basis in the Warrants unless the holder elects to allocate
part of its tax basis in NHL Common Stock to the Warrants in a statement
attached to the holder's tax return for the taxable year in which the Warrants
are distributed. If such election is made by a holder, the tax basis allocated
to the Warrants will be equal to the product of (x) the holder's tax basis in
NHL Common Stock and (y) the ratio (immediately after the distribution) of the
fair market value of the Warrants to the fair market value of NHL Common Stock
held by such holder. Upon a sale or a redemption of the Warrants (including a
sale of Fractional Warrants), the holder will recognize gain or loss, if any,
in an amount equal to the difference between the proceeds of such sale or
redemption and the tax basis, if any, allocated to such Warrants. If the
Warrants are exercised, the tax basis allocated to the Warrants as a result of
the election will be added to the tax basis in the NHL Common Stock that the
holder will receive as a result of exercising the Warrants. However, if the
Warrants lapse, a holder who made an election to allocate tax basis to the
Warrants will not recognize any loss with respect to the Warrants, but the tax
basis allocated to the Warrants will be reallocated to the NHL Common Stock.
The NHL Share Conversion is intended to constitute a redemption of NHL Common
Stock within the meaning of Section 317(b) of the Code. It is expected that
stockholders of NHL will recognize gain or loss equal to the difference between
the amount of cash they receive in respect of the shares being redeemed (and in
lieu of fractional share interests) and the tax basis allocated to such shares.
A holder's tax basis allocable to the shares redeemed will be the product of
(i) the holder's aggregate tax basis in NHL Common Stock (which will be reduced
by the amount of tax basis, if any, allocated to the Warrants) and (ii) the
percentage of the holder's NHL Common Stock that is redeemed (i.e., 28% with an
adjustment for fractional shares).
Gain or loss recognized by a holder with respect to shares of NHL Common
Stock or Warrants will be capital gain or loss if the NHL Common Stock or
Warrants, as the case may be, are held as capital assets, and any such capital
gain or loss will be long-term if, as of the date of the disposition, the NHL
Common Stock or Warrants had a holding period of more than one year. If gain
does not qualify for a long-term capital gain treatment, such gain will be
taxable at the same rate as ordinary income.
The Exchange Agent will be required to withhold 31% of the gross proceeds
otherwise payable to a holder or other payee pursuant to the NHL Share
Conversion unless either (i) the holder or other payee provides its taxpayer
identification number (i.e., social security number or employer identification
number) and certifies that such number is correct or (ii) an exemption applies
under the applicable law and regulations concerning "backup withholding" of
United States Federal income tax. Each holder will be required to complete and
sign the main signature form and the Substitute Form W-9 included in the Letter
of Transmittal, so as to provide the information and certification necessary to
avoid backup withholding, unless an applicable exemption exists and is
established in a manner satisfactory to NHL and the Exchange Agent.
Holders of NHL Common Stock will not have any tax consequences resulting from
the Merger other than the tax consequences with respect to the distribution of
the Warrants and the NHL Share Conversion.
ACCOUNTING TREATMENT
The Merger will be accounted for by the Surviving Corporation under the
purchase method of accounting in accordance with APB No. 16. Under this method
of accounting, the purchase price will be allocated to assets acquired and
liabilities assumed based on their estimated fair values at the Effective Time.
EFFECT ON NHL EMPLOYEE STOCK OPTIONS
The Merger Agreement provides that each NHL Employee Stock Option outstanding
on the date of the Merger Agreement will be deemed fully vested, and NHL will
use reasonable efforts, including with respect
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to obtaining consents, to cause each NHL Employee Stock Option to be canceled
and terminated immediately prior to the Effective Time in exchange for an
amount in cash and shares of NHL Common Stock (in the proportions set forth
below) equal to the Option Value Amount, which is defined as the product of (i)
the number of shares of NHL Common Stock subject to such NHL Employee Stock
Option immediately prior to the Effective Time and (ii) the excess of (1)
$18.50 over (2) the per share exercise price of such NHL Employee Stock Option.
The Option Value Amount will be payable at the Effective Time as follows: 40%
of such amount will be payable in cash and 60% of such amount will be payable
in the number of shares of NHL Common Stock obtained by dividing the Option
Stock Amount by $15.42, provided that any fractional share resulting from such
calculation will be paid in cash, with the value of a whole share for such
purpose assumed to be $15.42. All amounts payable as provided in this paragraph
will be subject to applicable tax withholding requirements and will be paid
without interest. The shares of NHL Common Stock issued upon cancellation and
termination of NHL Employee Stock Options will not participate in the NHL Share
Conversion and no Warrants will be issued with respect thereto. If all current
holders of NHL Employee Stock Options elect to convert all such options to cash
and NHL Common Stock (as described above), NHL will issue an additional 557,502
shares of NHL Common Stock to such holders and pay such holders an amount in
cash equal to approximately $5.8 million.
The following example illustrates the operation of the formula described
above. If an individual holds NHL Employee Stock Options to purchase 100 shares
at an assumed exercise price of $11.75 per share, the formula would operate as
follows:
<TABLE>
<S> <C>
$ 18.50
Option exercise price............................................ 11.75
-------
Excess of $18.50 over option exercise price.................... $ 6.75
Number of shares subject to option............................... 100
-------
Option Value Amount............................................ $675.00
=======
Cash payable (40%)............................................... $270.00
=======
Option Stock Amount (60%)........................................ $405.00
Divide by $15.42............................................... $ 15.42
-------
Shares of NHL Common Stock payable............................... 26.2646
=======
Shares of NHL Common Stock issued................................ 26
=======
Fractional amount paid in cash:
Fractional shares.............................................. 0.2646
Multiply by $15.42............................................. $ 15.42
-------
Cash paid for fractional shares.............................. $ 4.08
=======
</TABLE>
The NHL Employee Stock Options with respect to which the requisite consents
are not obtained will not be canceled, but instead will be immediately
converted as of the Effective Time into an Adjusted Option to purchase the
Option Conversion Number (the number of shares of NHL Common Stock purchasable
pursuant to the NHL Employee Stock Option related to such Adjusted Option
multiplied by the Conversion Number) of shares of NHL Common Stock. Each
Adjusted Option will have substantially the same terms as the Employee Stock
Option to which it is related, except that: (i) the Adjusted Option will be
deemed fully vested and (ii) the exercise price of an Adjusted Option will be
an amount equal to the exercise price of the NHL Employee Stock Option related
to such Adjusted Option as of the date of the Merger Agreement divided by the
Conversion Number, which will be a number equal to (i) the sum of (x) the
product of (A) the average closing price of a share of NHL Common Stock on NYSE
Composite Tape for the period of five consecutive trading days beginning on the
trading day following the date on which the Effective Time occurs, which is the
Post Merger Value, and (B) 0.72 and (y) $6.60 divided by (ii) the Post Merger
Value.
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<PAGE>
The following example illustrates the operation of the formula described
above. If an individual holds NHL Employee Stock Options to purchase 100 shares
at an assumed exercise price of $11.75 per share, and assuming that the average
closing price of a share of NHL Common Stock for the period of five consecutive
trading days beginning on the trading day following the date on which the
Effective Time occurs is $12.00, such options will be converted into options to
purchase 127 shares of NHL Common Stock at an exercise price of $9.25 per
share, determined as follows:
<TABLE>
<S> <C> <C>
Conversion Number = ($12.00 X .72) + $6.60
----------------------
$12.00
= $8.64 + $6.60 = 1.27
----------------------
$12.00
Option Conversion Number = 100 X 1.27 = 127
Adjusted Exercise Price = $11.75 = $9.25
------
1.27
</TABLE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the NHL Board with respect to the
Merger, stockholders should be aware that certain directors and executive
officers of NHL have interests in the Merger which may be different from, or in
addition to, the interests of NHL's stockholders generally. The NHL Board was
aware of these interests and considered them, among other items, in approving
the Merger Agreement and the transactions contemplated hereby. These interests
include the following: certain directors and executive officers of NHL hold
shares of NHL Common Stock, for which they will receive the same consideration
in the Merger as other NHL stockholders, in the amounts set forth below under
"Merger Consideration". Certain directors and executive officers of NHL have
NHL Employee Stock Options, which may be cancelled in connection with the
Merger in exchange for a payment in cash and shares of NHL Common Stock as
described above under "Effect on NHL Employee Stock Options" and below under
"Employee Stock Options". As described below under "Employment Contracts",
certain executive officers of NHL have employment contracts with NHL pursuant
to which such persons may terminate their employment for "good reason" (which
is defined generally in the employment agreements to include an assignment of
duties that is materially inconsistent with the status of such persons as
executive officers, an adverse alteration in the nature of the responsibilities
of such person, a reduction in salary or guaranteed bonus, or a material breach
of such employment agreements by NHL--certain of which circumstances may occur
as a result of the contemplated consolidation of certain NHL and RBL operations
following the Merger), whereupon significant payments and other benefits may be
required to be provided to such persons. In addition, as described below, James
R. Maher, the current President and Chief Executive Officer of NHL, will
receive a special bonus in connection with the Merger. Finally, the directors
and officers of NHL will be entitled to indemnification as described below
under "Indemnification and Insurance" and NHCG will be entitled to the
registration rights set forth under "Registration Rights".
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<PAGE>
Merger Consideration. The following table sets forth the number of shares of
NHL Common Stock owned by directors and executive officers of NHL as of March
29, 1995, and the number of shares of NHL Common Stock and the amount of cash
to be received by such persons in the NHL Share Conversion and the number of
Warrants to be received by such persons in the Warrant Distribution:
<TABLE>
<CAPTION>
SHARES OF NHL CASH CONSIDERATION TO WARRANTS TO BE
NUMBER OF COMMON STOCK TO BE BE RECEIVED IN THE RECEIVED IN THE
SHARES OWNED RECEIVED IN THE MERGER(3) MERGER WARRANT DISTRIBUTION(3)
------------ ------------------------- --------------------- -----------------------
<S> <C> <C> <C> <C>
NHCG (1) 20,176,729 14,527,244.88 $112,989,682.40 3,290,420.97
James R. Maher 140,000 100,800.00 $784,000.00 22,831.20
David C. Flaugh 3,570 2,570.40 $19,992.00 582.20
Howard Gittis 46,000(2) 33,120.00 $257,600.00 7,501.68
Paul A. Marks, M.D. 3,000 2,160.00 $16,800.00 489.24
</TABLE>
--------
(1) A corporation indirectly wholly owned through Mafco Holdings Inc. by Ronald
O. Perelman.
(2) Includes 3,000 shares owned by Mr. Gittis' spouse as to which he disclaims
beneficial ownership.
(3) Fractional shares will not be issued in the NHL Share Conversion and
fractional Warrants will not be distributed in the Warrant Distribution.
Employee Stock Options. Certain executive officers of NHL have NHL Employee
Stock Options which may be cancelled in connection with the Merger in exchange
for a payment in cash and shares of NHL Common Stock as described under "THE
MERGER--Effect on NHL Employee Stock Options". If such NHL Employee Stock
Options are so cancelled, the amount to be paid in cash and the number of
shares of NHL Common Stock to be issued in connection therewith (which shares
will not be converted in the NHL Share Conversion) for each of such executive
officers is as follows (based on the number of options owned by each person as
of March 29, 1995): Mr. Maher: $1,042,500 and 101,410; Mr. Flaugh: $548,750 and
53,379; Mr. Brodnik: $378,750 and 36,842; Mr. Cochrane $1,107,525 and 107,735;
Dr. Leonard: $284,250 and 27,649; Mr. Markus: $284,250 and 27,649; Mr.
Richmond: $68,750 and 6,687; Dr. Slaunwhite: $176,250 and 17,144; Dr. Statland:
$83,750 and 8,146; and Mr. Whalen: $378,750 and 36,842. See "--Effect on NHL
Employee Stock Options". For a description of the ownership interest of
directors and executive officers of NHL and their affiliates in the NHL Common
Stock, see "THE NHL MEETING--NHL Share Ownership".
Employment Contracts. NHL has an employment agreement with James R. Maher
which provides for his employment as Chief Executive Officer of NHL through
December 31, 1995 at an annual salary of $1,000,000 with an annual bonus of
$500,000 and an additional discretionary bonus as may be awarded at the
discretion of the Board of Directors. If the employment agreement is terminated
by Mr. Maher for certain specified reasons, including, but not limited to, (i)
the assignment of duties materially inconsistent with Mr. Maher's status as
Chief Executive Officer of NHL or resulting in an adverse alteration in the
nature of his responsibilities, (ii) a reduction by NHL in the annual salary or
annual bonus or a failure by NHL to pay any such amount when due, (iii) the
relocation of NHL's principal executive offices to a location more than 50
miles from La Jolla, California or NHL's failure to permit Mr. Maher to
maintain his principal places of employment at both NHL's principal executive
offices in La Jolla, California and in New York, New York or (iv) the
occurrence of a change in control of NHL which, for such purpose, is deemed to
occur if Mr. Perelman ceases beneficially to own 5% or more of the combined
voting power of NHL's outstanding securities, then NHL will be required to pay
Mr. Maher, within five days following the date of such termination, in a lump
sum in cash, the sum of (i) any amounts due to Mr. Maher as annual salary and
annual bonus, but unpaid, and (ii) $3,000,000. It is anticipated that Mr.
Maher's employment agreement will be terminated and he will receive a payment
of $3,000,000 as provided therein following the Effective Time. In addition, in
connection with the Merger, NHL will pay Mr. Maher a special bonus of
$1,000,000, subject to certain conditions, in recognition for his efforts on
behalf of NHL with respect to the Merger. The special bonus is in addition to
any other payments Mr. Maher may become entitled to under his employment
agreement with NHL in connection with the Merger.
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<PAGE>
NHL has an amended employment agreement with David C. Flaugh which provides
for his employment as Senior Executive Vice President and Chief Operating
Officer of NHL through December 31, 1996 at an annual salary of $500,000 with
an annual bonus of 50% of the annual salary then in effect and an additional
discretionary bonus as may be awarded at the discretion of the Board of
Directors. The employment agreement also provides that the duties assigned to
Mr. Flaugh will be performed primarily at the offices of NHL in San Diego
County, California. If the employment agreement is terminated by Mr. Flaugh for
certain specified reasons including (i) the assignment of duties materially
inconsistent with Mr. Flaugh's status as Senior Executive Vice President, (ii)
a reduction by NHL in the annual salary or annual bonus or a failure by NHL to
pay any such amount when due or (iii) a material breach of any of the terms of
the employment agreement by NHL, then NHL will be required to pay, in monthly
installments, (i) the annual salary Mr. Flaugh would have otherwise received
during the remainder of the employment period and (ii) for a period of one year
following the date of the expiration of the employment term, in consideration
of the performance of specified noncompetition obligations, an amount equal to
one-half the annual salary at the rate in effect on the date of expiration of
the employment term.
NHL has amended employment agreements with Timothy J. Brodnik and Robert E.
Whalen which provide for each of them to be employed as an Executive Vice
President through December 31, 1996 at an annual salary of $325,000 with an
annual bonus equal to 50% of the annual salary then in effect and an additional
discretionary bonus as may be awarded at the discretion of the Board of
Directors. The employment agreements also provide that the respective duties
assigned to Mr. Brodnik and Mr. Whalen will be performed primarily at the
offices of NHL in Fairfax County, Virginia and in San Diego County, California,
respectively. If the respective employment agreements are terminated by Mr.
Brodnik or Mr. Whalen for certain specified reasons, including, (i) the
assignment of duties materially inconsistent with the status of the office of
Executive Vice President of NHL or resulting in an adverse alteration in the
nature of the responsibilities associated therewith, (ii) a reduction by NHL in
the annual salary or annual bonus or a failure by NHL to pay any such amount
when due or (iii) a material breach of any of the terms of the employment
agreements by NHL, then NHL will be required to pay, in monthly installments,
(i) the respective annual salary and annual bonus Mr. Brodnik and Mr. Whalen
would have otherwise received during the remainder of their respective
employment periods and (ii) for a period of one year following the respective
dates of expiration of their respective employment terms, in consideration of
the performance of specified noncompetition obligations, an amount equal to
one-half the annual salary at the rate in effect on the date of expiration of
their respective employment terms.
NHL has an employment agreement with Haywood D. Cochrane, Jr. which provides
for his employment as an executive through June 21, 1995 at an annual salary of
$500,000 with an annual bonus of not more than $500,000 as well as any other
bonus as may be awarded through any executive bonus plan applicable to similar
executives of NHL from time to time. In addition, Mr. Cochrane will receive a
total of 200,000 stock options in NHL Common Stock pursuant to the NHL 1994
Stock Option Plan, one third of which vested on July 12, 1994 and one third of
which will vest on each of July 12, 1995 and July 12, 1996. The employment
agreement also provides that the duties assigned to Mr. Cochrane will be
performed primarily in La Jolla, California. If the employment agreement is
terminated by Mr. Cochrane following a material breach of the terms of the
agreement by NHL, then NHL will be required to pay, in monthly installments,
(i) the annual salary Mr. Cochrane would otherwise have received during the
remainder of the employment period and (ii) if NHL, in its discretion, elects
to have Mr. Cochrane perform specified noncompetition obligations, for a period
of 24 months following the date of the expiration of the employment term, an
amount equal to one-half of the annual salary at the rate in effect on the date
of expiration of the employment term.
NHL has amended employment agreements with Larry L. Leonard, Ph.D., John
Markus and W. David Slaunwhite, Ph.D. which provide for each of them to be
employed as an Executive Vice President through December 31, 1996 at an annual
salary of $325,000 with an annual bonus equal to 50% of the annual salary then
in effect and an additional discretionary bonus as may be awarded at the
discretion of the Board of Directors. If the respective employment agreements
are terminated by Dr. Leonard, Mr. Markus or Dr.
65
<PAGE>
Slaunwhite for certain specified reasons, including, (i) the assignment of
duties materially inconsistent with the status of the office of Executive Vice
President of NHL or resulting in an adverse alteration in the nature of the
responsibilities associated therewith, (ii) a reduction by NHL in the annual
salary or annual bonus or a failure by NHL to pay any such amount when due or
(iii) a material breach of any of the terms of the employment agreement by NHL,
then NHL will be required to pay, in monthly installments, (i) the respective
annual salary and annual bonus Dr. Leonard, Mr. Markus and Dr. Slaunwhite would
have otherwise received during the remainder of their respective employment
periods and (ii) for a period of one year following the respective dates of
expiration of their respective employment terms, in consideration of the
performance of specified noncompetition obligations, an amount equal to one-
half the annual salary at the rate in effect on the date of expiration of their
respective employment terms.
NHL has an employment agreement with James G. Richmond which provides for his
employment as Executive Vice President/General Counsel through December 31,
1995 at an annual salary of $350,000 with a discretionary bonus as may be
awarded at the discretion of the Board of Directors and a deferred bonus equal
to $37,500 per quarter plus interest, which deferred bonus is payable in a
single cash payment 10 days after the December 31 coincident with, or next
following, the date of the end of the employment period or for 18 months after
such termination, whichever period is greater. The employment agreement also
provides that the duties assigned to Mr. Richmond will be performed primarily
at the offices of NHL in La Jolla, California. If the employment agreement is
terminated by Mr. Richmond following a material breach of any of the terms of
the agreement by NHL, then NHL will be required to pay, (i) the annual salary
Mr. Richmond would have otherwise received during the remainder of the
employment period, in monthly installments, and (ii) the accumulated deferred
compensation, both subject to Mr. Richmond's duty to mitigate his damages by
seeking other employment.
NHL has an amended employment agreement with Bernard E. Statland, M.D., which
provides for his employment as Executive Vice President of NHL and Chief
Executive Officer of the NHL National Reference Laboratory through December 31,
1995 at an annual salary of $325,000 with an annual bonus equal to 50% of the
annual salary then in effect and an additional discretionary bonus as may be
awarded at the discretion of the Board of Directors. If the employment
agreement is terminated by Dr. Statland following a material breach of any of
the terms of the agreement by NHL, then NHL will be required to pay, in monthly
installments, (i) the annual salary Dr. Statland would have otherwise received
during the remainder of the employment period and (ii) for a period of one year
following the date of the expiration of the employment term, in consideration
of the performance of specified noncompetition obligations, an amount equal to
one-half the annual salary at the rate in effect on the date of expiration of
the employment term.
Indemnification and Insurance. The Merger Agreement provides that the
certificate of incorporation and by-laws of the Surviving Corporation will
contain the provisions with respect to indemnification set forth in NHL's
certificate of incorporation and by-laws on the date of the Merger Agreement,
which provisions will not be amended, repealed or otherwise modified for a
period of six years from the Effective Time in any manner that would adversely
affect the rights of individuals who on or prior to the Effective Time were
directors, officers, employees or agents of NHL or RBL (unless such
modification is required by law) and such indemnification shall be, to the
extent legally permitted, mandatory and not permissive.
The Delaware Corporation Law provides that all debts, liabilities and duties
of constituent corporations merged under such law attach to the surviving
corporation and may be enforced against it to the same extent as if said debts,
liabilities and duties had been incurred or contracted by it. On this basis,
indemnification obligations of RBL that have arisen or arise under New Jersey
law or pursuant to the indemnification provisions of the RBL certificate of
incorporation or bylaws prior to the Effective Time would be enforceable
against the Surviving Corporation. The indemnification provisions contained in
the RBL bylaws are substantially similar to those contained in NHL's bylaws.
In addition, the by-laws of NHL contain a provision, which closely parallels
a provision of the Delaware Corporation Law, making the indemnification
provisions thereof applicable to any constituent corporation
66
<PAGE>
absorbed by NHL in a consolidation or merger. Any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation stands in the same
position under the indemnification provisions of the NHL bylaws with respect to
the Surviving Corporation as such person would have with respect to such
constituent corporation if its separate existence had continued.
The Merger Agreement requires the Surviving Corporation, for a period of six
years after the Effective Time, to maintain the current policies of officers'
and directors' liability insurance in respect of acts or omissions occurring
prior to the Effective Time covering each such person covered on the date of
the Merger Agreement by RBL's officers' and directors' liability insurance
policy or NHL's officers' and directors' liability insurance policy or who
becomes covered thereby prior to the Effective Time, provided that the
Surviving Corporation may substitute therefor policies of at least the same
coverage containing terms and conditions which in all material respects are no
less favorable than those of the policies in effect on the date hereof for so
long as such substitution does not result in gaps or lapses in coverage; and
provided further that the Surviving Corporation will not be obligated to pay
premiums in excess of 200% of the aggregate amount per annum which RBL and NHL
paid in their last full fiscal years, but provided further, that the Surviving
Corporation will be obligated to provide such coverage as may be obtained for
such amount.
Registration Rights. For a description of certain registration rights granted
by NHL to NHCG with respect to shares of NHL Common Stock to be received by
NHCG in the Merger and the Warrants to be received by NHCG in the Warrant
Distribution (including NHL's agreement to include a resale prospectus with
respect to such securities in the Registration Statement, to keep the
Registration Statement effective for up to three years (if necessary) and to
pay certain associated expenses), see "THE SHARING AND CALL OPTION AGREEMENT".
See also "CERTAIN CONSIDERATIONS".
NO SOLICITATION
The Merger Agreement provides that NHL may not, nor may it permit any of its
subsidiaries to, nor may it authorize or permit any officer, director or
employee of, or any investment banker, attorney or other adviser or
representative of, NHL or any of its subsidiaries to, directly or indirectly
(i) solicit, initiate or encourage the submission of any Acquisition Proposal
or (ii) participate in any discussions or negotiations regarding, or furnish to
any person any information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Acquisition Proposal. However, to the
extent required by the fiduciary obligations of the Board of Directors of NHL,
as determined in good faith by the Board of Directors based on the advice of
outside counsel, NHL may, (i) in response to an unsolicited request therefor,
furnish information with respect to NHL to any person pursuant to a customary
confidentiality agreement (as determined by NHL's outside counsel) and discuss
such information (but not the terms of any possible Acquisition Proposal) and
the terms of this provision of the Merger Agreement with such person and (ii)
upon receipt by NHL of an Acquisition Proposal, following delivery of notice to
HLR, participate in negotiations regarding such Acquisition Proposal. Any
violation of these restrictions by any officer, director or employee of NHL or
any of its subsidiaries or any investment banker, attorney or other advisor or
representative of NHL or any of its subsidiaries will be deemed to be a
violation by NHL.
RIGHT OF THE NHL BOARD OF DIRECTORS TO WITHDRAW RECOMMENDATION UPON RECEIPT OF
A SUPERIOR PROPOSAL
Under the Merger Agreement, neither the Board of Directors of NHL nor any
committee thereof may (i) withdraw or modify, or propose to withdraw or modify,
in a manner adverse to RBL or HLR, the approval or recommendation of the Board
of Directors or any such committee thereof of the Merger Agreement or the
Merger (or the other transactions contemplated thereby), (ii) approve or
recommend, or propose to approve or recommend, any Acquisition Proposal or
(iii) enter into any agreement with respect to any Acquisition Proposal.
However, if the Board of Directors of NHL receives an Acquisition Proposal
that, in the exercise of its fiduciary obligations (as determined in good faith
by the Board of Directors after reviewing
67
<PAGE>
the advice of outside counsel) it determines to be a Superior Proposal, the
Board of Directors of NHL may withdraw or modify its approval or recommendation
of the Merger Agreement or the Merger, approve or recommend such Superior
Proposal, enter into an agreement with respect to such Superior Proposal or
terminate the Merger Agreement, in each case at any time after the second
business day following HLR's receipt of written notice of such Superior
Proposal.
CERTAIN FEES
The Merger Agreement requires NHL to pay to HLR, in immediately available
funds, $30.0 million, plus up to an additional $7.0 million as reimbursement of
Expenses, promptly after the termination of the Merger Agreement (i) by NHL (in
accordance with the provision described under "Right of NHL Board of Directors
to Withdraw Recommendation Upon Receipt of a Superior Proposal" above) or by
HLR (if the NHL Board of Directors has withdrawn its recommendation of the
Merger, the Merger Agreement or the transactions contemplated thereby), if, in
either case, any person or group (as defined in Section 13(d)(iii) of the
Exchange Act) (other than HLR or an affiliate of HLR) has made an Acquisition
Proposal (excluding for this purpose any indication of interest that has not
resulted in an offer or proposal) or become the beneficial owner (as defined in
Rule 13d-3 under the Exchange Act) of at least 20% of the outstanding shares of
NHL Common Stock or (ii) by HLR (if the NHL Board of Directors has recommended
or approved any Acquisition Proposal other than an Acquisition Proposal made by
HLR or a controlled affiliate of HLR).
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<PAGE>
PLAN OF FINANCING
It is estimated that the total funds required to pay the aggregate Cash
Consideration to be paid to stockholders of NHL in the Merger will be
approximately $474,700,000. This amount will be financed from three sources:
(i) the NHL Cash Contribution (in the amount of $288,000,000) out of the
proceeds of the NHL Borrowings in an equal amount, (ii) the HLR Cash
Contribution (in the amount of $135,651,100) and (iii) the Roche Warrant
consideration (in the amount of $51,048,900). NHL has received and accepted a
commitment from Credit Suisse contained in a commitment letter (the "Credit
Suisse Commitment Letter") for a credit facility (a) to refinance NHL's
existing indebtedness (including, as of December 31, 1994, a revolving credit
facility of $213.0 million and a term loan facility of $380.0 million entered
into in connection with the Allied Acquisition Financing), (b) to refinance
certain of RBL's existing indebtedness, (c) to finance the NHL Cash
Contribution, (d) to pay transaction costs and expenses associated with the
Merger and (e) for general corporate purposes of the Surviving Corporation and
its subsidiaries.
It is a condition to the Merger that NHL shall have obtained the NHL
Borrowings. In addition, the Merger Agreement requires HLR and RBL to use their
good faith best efforts to assist NHL in NHL's effecting of the refinancing of
NHL's existing indebtedness and obtaining the NHL Borrowings.
DESCRIPTION OF BANK FACILITY
General. In connection with the consummation of the Merger, NHL expects to
obtain bank financing consisting of (i) not more than $800,000,000 as a six
year amortizing senior term loan facility (the "Term Loan Facility") and (ii)
not more than $450,000,000 as a senior five year revolving credit facility (the
"Revolving Credit Facility" and together with the Term Loan Facility, the "Bank
Facility"). The Bank Facility will be provided pursuant to the terms of, and
will become effective only upon the execution and delivery of, mutually
satisfactory definitive loan documentation for the Credit Agreement. Pursuant
to the Credit Suisse Commitment Letter, Credit Suisse has committed (the
"Commitment"), subject to certain conditions, to provide the full amount of the
Bank Facility. The following description constitutes a summary of the expected
principal terms of the Credit Agreement based upon a draft of the agreement
currently being negotiated. The definitive Credit Agreement may contain more or
less restrictive provisions (including, but not limited to, those relating to
interest rates and fees) than those referred to below.
Guaranty. The Bank Facility (including Competitive Bid Advances, as defined
below) will be unconditionally and irrevocably guaranteed by certain of the
Surviving Corporation's subsidiaries (each, a "Subsidiary Guarantor"),
including National Health Laboratories Incorporated and Allied.
Syndication. Credit Suisse (New York Branch) will act as sole agent under the
Bank Facility. Credit Suisse (New York Branch) intends to syndicate the Bank
Facility to additional banks and other financial institutions (the "Lenders"),
and, as agent for the Lenders, Credit Suisse will manage all aspects of the
syndication.
Interest Rates and Facility Fees. The Surviving Corporation will pay
interest, as set forth in the chart below, on unpaid principal advanced under
the Bank Facility at a rate per annum equal to the Base Rate (as defined below)
plus the applicable Base Rate Margin (as set forth below) or the Eurodollar
Rate (as defined below) plus the applicable Eurodollar Rate Margin (as set
forth below). "Eurodollar Rate" means the reserve adjusted average (rounded
upward to the next higher 1/16 of 1%) of the rates at which deposits are offered
by Credit Suisse to prime banks in the London interbank market. "Base Rate"
means the higher of Credit Suisse's base rate and the federal funds rate plus
0.5% per annum. During the term of the Revolving Credit Facility, a competitive
bid option also will be available, advances pursuant to which ("Competitive Bid
Advances") will reduce availability under the Revolving Credit Facility.
Competitive Bid Advances may be requested on a fixed rate basis or on another
basis (e.g., LIBOR) specified by the Surviving Corporation in its solicitation
of Competitive Bid Advances.
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<PAGE>
For as long as the HLR Group Interest remains at least 25%, applicable
interest margins and facility fees (facility fees will be payable against
commitment amounts regardless of usage) would be fixed as set forth below:
<TABLE>
<CAPTION>
REVOLVING CREDIT TERM LOAN
FACILITY FACILITY
---------------- ---------
<S> <C> <C>
Eurodollar Rate Margin...................... 0.25% 0.375%
Facility Fee................................ 0.125% 0.0%
Base Rate Margin............................ 0.0% 0.0%
</TABLE>
In the event there is a reduction in the HLR Group Interest to below 25%,
applicable interest margins and facility fees will not be determined as set
forth above, but instead will be determined based upon the Surviving
Corporation's Interest Coverage Ratio and Leverage Ratio (each as defined
below), as set forth in the chart below:
<TABLE>
<CAPTION>
LEVEL I(1) LEVEL II LEVEL III LEVEL IV
----------- -------- --------- ---------
RATIOS:
-------
<S> <C> <C> <C> <C>
Interest Coverage Ratio greater than
or equal to:....................... 5.0:1.0 6.0:1.0 7.0:1.0
and
Leverage Ratio of less than or equal 2.50:1.0 2.00:1.00 1.50:1.00
to:................................
INTEREST AND FACILITY FEES:
---------------------------
TERM LOAN FACILITY:
Term Loan Facility Eurodollar Rate
Margin........................... 1.50% 1.25% 1.00% 0.75%
Term Loan Facility Base Rate Mar-
gin.............................. 0.50% 0.25% 0.0% 0.0%
REVOLVING CREDIT FACILITY:
Revolving Credit Facility
Eurodollar Rate Margin........... 1.00% 0.875% 0.75% 0.625%
Revolving Credit Facility Base
Rate Margin...................... 0.0% 0.0% 0.0% 0.0%
Revolving Credit Facility Fee..... 0.50% 0.375% 0.25% 0.125%
</TABLE>
--------
(1) The Surviving Corporation's performance will be deemed to be at Level I if
it does not meet the requirements of Level II, III or IV.
"Interest Coverage Ratio", as defined in the Credit Agreement, means, with
respect to any specified period, a ratio of (a) "EBITDA" (defined generally,
for the purposes of the Credit Agreement, as consolidated earnings before
deduction of interest, taxes, depreciation and certain non-cash adjustments)
(subject to certain adjustments under certain circumstances) to (b) the sum of
interest expense on all Debt (as defined in the Credit Agreement) of the
Surviving Corporation and its subsidiaries on a consolidated basis in
accordance with generally accepted accounting principles, including certain
types of indebtedness specified in the Credit Agreement, to the extent not
otherwise included in accordance with generally accepted accounting principles.
"Leverage Ratio", as defined in the Credit Agreement means, with respect to any
fiscal quarter, the ratio of (a) the total Consolidated Debt (as defined in the
Credit Agreement) of the Surviving Corporation and its subsidiaries as of the
last day of such fiscal quarter to (b) EBITDA (subject to certain adjustments
in certain circumstances) for any specified period ended at the end of such
fiscal quarter.
Default interest will be equal to the rate of interest applicable to each
defaulted advance, plus 200 basis points (2.00%) per annum.
Availability. The entire amount of the Term Loan Facility will be drawn down
in one advance shortly before the Effective Time.
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<PAGE>
The Revolving Credit Facility will provide revolving credit, with minimum
borrowings of at least $10 million, for five years beginning on or about the
Effective Time, subject to mandatory commitment reductions described below.
Revolving Credit Facility availability will be reduced by Competitive Bid
Advances outstanding from time to time.
Term Loan Amortization. Total amortization of the Term Loan Facility for each
12-month period following the Effective time shall be made (in quarterly
installments) in accordance with the following table:
<TABLE>
<CAPTION>
YEAR ENDING APRIL AMOUNT
----------------- ------
<S> <C>
1996....................................................... $ 50,000,000
1997....................................................... 75,000,000
1998....................................................... 150,000,000
1999....................................................... 150,000,000
2000....................................................... 175,000,000
2001....................................................... 200,000,000
------------
Total...................................................... $800,000,000
============
</TABLE>
Mandatory and Optional Commitment Reduction/Prepayment. The amounts available
under the Revolving Credit Facility will be subject to certain mandatory
permanent reduction and prepayment requirements and the Term Loan Facility will
be subject to specified mandatory prepayment requirements as follows: (i) the
proceeds of debt issuances, subject to certain exceptions, must first be
applied to repay scheduled Term Loan Facility payments until the Term Loan
Facility is repaid in full and then to reduce the commitments and advances
under the Revolving Credit Facility; and (ii) the proceeds of certain asset
sales, unless reinvested within one year of the applicable asset sale in
productive assets of a kind then used or usable in the business of the
Surviving Corporation and its subsidiaries, must first be applied to scheduled
Term Loan Facility payments until the Term Loan Facility is repaid in full and
then to reduce the commitments and advances under the Revolving Credit
Facility.
Optional reductions of the commitment for the Revolving Credit Facility and
optional prepayments under the Term Loan Facility will be permitted at any time
subject to certain conditions.
Representations and Warranties. The Credit Agreement will contain certain
customary representations and warranties with respect to NHL and its
subsidiaries and, to the best knowledge of NHL, with respect to RBL and its
subsidiaries and HLR, including, without limitation, the following: (i) the
corporate existence and power of NHL, RBL and each Subsidiary Guarantor,
including the qualification to do business as a foreign corporation in each
jurisdiction where such qualification is necessary, except for those
jurisdictions where the failure to be so qualified would not have a Material
Adverse Effect (as defined in the Credit Agreement), and the validity of the
NHL Common Stock; (ii) the corporate existence and power of NHL's and RBL's
material subsidiaries and the ownership of the stock of such subsidiaries;
(iii) the authorization of the execution, delivery and performance of, and the
binding effect of, the Loan Documents and the Transaction Documents (each, as
defined in the Credit Agreement) and the absence of any contravention of the
certificate of incorporation or the by-laws of each relevant person's
organizational documents, or any violation of any provision of any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
which would conflict with or result in breach of certain contracts binding or
affecting NHL, RBL or their subsidiaries which is reasonably likely to have a
Material Adverse Effect; (iv) the absence of the need for any action by or
filing with, any governmental authority or regulatory body with respect to (A)
the execution, delivery and performance by NHL, RBL, any Subsidiary Guarantor
or any other relevant party of any Loan Document or Transaction Document to
which it is a party, or (B) the exercise by Credit Suisse or any Lender of its
rights under the Loan Documents; (v) the due execution and delivery of each
Loan Document and each Transaction Document by each party thereto; (vi) the
accuracy of audited consolidated financial statements of each of NHL and RBL
for 1994 and unaudited pro forma financial information of NHL, which were
provided to each Lender; (vii) the absence of any Material Adverse Change
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(as defined in the Credit Agreement) with respect to NHL, RBL and their
subsidiaries or HLR; (viii) the absence of material litigation involving NHL,
RBL or any of their respective subsidiaries, which is reasonably likely to have
a Material Adverse Effect; (ix) the nature of NHL's and RBL's employee benefit
plans and arrangements and the compliance of the plans with the applicable
provisions of ERISA; (x) environmental compliance by NHL, RBL and their
subsidiaries; (xi) the non-investment company status of NHL, RBL and their
subsidiaries; (xii) the filing of tax returns and payment of taxes by NHL, RBL
and their subsidiaries; (xiii) the qualification of the Merger as a
reorganization within the meaning of Section 368(a)(1) of the Code; (xiv) NHL's
non-engagement in the business of extending credit for the purpose of
purchasing or carrying Margin Stock (as defined in the Credit Agreement); (xv)
the solvency of NHL, RBL and the Subsidiary Guarantors; (xvi) the ownership of
NHL Common Stock by HLR and its affiliates, after giving effect to the Merger;
(xvii) the secured and unsecured indebtedness of NHL, RBL and their
subsidiaries of $5 million or more at the Effective Time; and (xviii) the
sufficiency of NHL's assets, properties and rights at the Effective Time,
giving effect to the Merger, in order for the Surviving Corporation to conduct
business as presently conducted and as proposed to be conducted.
Conditions Precedent. The obligations of each Lender to make an advance as of
the Effective Time are subject to customary conditions precedent, including the
following (i) the Effective Time shall have occurred on or before June 1, 1995;
(ii) Credit Suisse shall have received appropriate certificates, legal opinions
and recent financial information with respect to NHL and RBL; (iii) all
outstanding debt under the Allied Acquisition Financing shall have been
prepaid; (iv) there shall have occurred no Material Adverse Change relating to
NHL or RBL; (v) NHL shall have paid accrued fees and expense of Credit Suisse
and the Lenders (including the reasonable fees and expenses of Credit Suisse's
special counsel); (vi) the representations and warranties shall be true and
correct; (vii) there shall have been be no defaults or material litigation; and
(viii) Credit Suisse shall have received satisfactory evidence of the authority
of NHL to enter into the Credit Agreement and shall have received a guaranty
signed by the Subsidiary Guarantors.
Covenants. Under the Credit Agreement NHL will agree to certain customary
covenants pursuant to which, among other things, (i) the Surviving Corporation
will comply, and cause each of its subsidiaries to comply, with all applicable
laws, rules, regulations and orders, the failure to comply with which would be
reasonably likely to have a Material Adverse Effect on the Surviving
Corporation; (ii) the Surviving Corporation will comply, and cause each of its
subsidiaries to comply, with environmental laws and permits applicable to its
operations and properties; (iii) the Surviving Corporation will maintain, and
cause each of its subsidiaries to maintain, insurance adequate insurance with
reputable insurance companies; (iv) the Surviving Corporation will preserve and
maintain, and cause each of its subsidiaries to preserve and maintain, its
corporate existence, rights and franchises, subject to certain exceptions; (v)
the Surviving Corporation shall permit, upon reasonable prior notice, Credit
Suisse or any Lender, to the extent reasonably requested, to examine and make
copies of, and abstracts from the records and books of account of, and visit
the properties of, NHL and of its subsidiaries; (vi) the Surviving Corporation
will keep, and cause each of its subsidiaries to keep, proper books of record
and account to the extent necessary to permit the preparation of financial
statements required to be delivered under the Credit Agreement; (vii) the
Surviving Corporation will maintain and preserve, and cause each of its
subsidiaries to maintain and preserve, all of its properties in good working
order and condition; (viii) not later than 180 days immediately after the
Effective Time, the Surviving Corporation will enter into and thereafter
maintain interest rate hedge agreements covering at least 50% of the Term Loan
Facility advances, such agreements having terms and conditions satisfactory to
Credit Suisse; and (ix) the Surviving Corporation will comply with certain
reporting requirements by furnishing to Credit Suisse: (A) on a quarterly basis
consolidated financial statements for each of the first three quarters during
each fiscal year and on an annual basis, copies of each annual report on Form
10-K, together with notice whether a default under the Bank Facility has
occurred and is continuing, (B) annual management financial models, (C) copies
of certain filings with the SEC, (D) copies of certain reports and notices
received or filed in connection with ERISA and notices relating thereto, (E)
copies of IRS notices with respect to material additional tax liability, (F)
within 45 days of the end of each month during the 12-month period following the
Effective Time, copies of summary reports prepared by the chief financial
officer of the Surviving
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Corporation reviewing significant business and financial issues and (G) such
other information as any Lender may reasonably request.
In addition, the Credit Agreement will contain certain negative covenants,
subject to such baskets and exceptions as the parties may agree, pursuant to
which the Surviving Corporation or its subsidiaries will agree not to (i)
create or permit the creation of certain liens, (ii) grant guaranties, (iii)
engage in certain mergers or certain sales of assets, (iv) invest in certain
other persons, (v) engage in certain acquisitions outside the ordinary course
of business, (vi) incur additional debt or prepay other debt, subject to
certain exceptions, (vii) pay dividends to the Surviving Corporation's
stockholders or repurchase outstanding securities of the Surviving Corporation,
subject to certain exceptions if certain specified performance levels are
achieved, (viii) change the nature of their business, (ix) increase lease
obligations over certain levels, (x) make capital expenditures over certain
levels, (xi) adopt accounting changes without the consent of the Lenders, (xii)
make certain prepayments or redemptions of debt subject to certain exceptions,
or (xiii) subject to certain exceptions, enter into any agreement prohibiting
the creation or assumption of any lien on the assets of the subsidiaries of the
Surviving Corporation.
Financial Covenants. In addition, the Credit Agreement will contain financial
covenants, including with respect to the Interest Coverage Ratio, the Leverage
Ratio and minimum stockholders' equity. The covenants will be tested quarterly.
Events of Default. The Credit Agreement will set forth certain customary
events of default, including (i) the failure to make any principal payment when
due; (ii) failure to pay interest, fees or other payments within five business
days of the date due; (iii) the breach of any representation or warranty; (iv)
default in any covenant or financial covenant (subject in certain cases to a
grace period); (v) the imposition of a nonmonetary judgment which remains
unstayed for 30 days which is likely to have a Material Adverse Effect on the
Surviving Corporation or its subsidiaries; (vi) default under any other
indebtedness in excess of $25,000,000; (vii) certain events of bankruptcy or
insolvency; (viii) the occurrence of a Change of Control of the Surviving
Corporation (as defined in the Credit Agreement, including the acquisition by a
person or group other than HLR or its affiliates of 51% of the outstanding
stock of the Surviving Corporation); (ix) certain ERISA defaults; (x) the
imposition of an individual final judgment in excess of $25,000,000, or one or
more final judgments aggregating more than $50,000,000, in each case which is
unstayed for 30 days and not covered by insurance, and (xi) any material
provision of any Loan Document being judicially determined to be invalid and
non-binding or unenforceable or the Surviving Corporation or any Subsidiary
Guarantor so asserting in writing.
Cost and Yield Protection. The Credit Agreement will contain standard
provisions limiting the costs of and protecting the yield of the Lenders,
including provisions relating to illegality, inability to determine rate,
funding losses, and increased costs or reduced return, including those arising
from reserve requirements, taxes and capital requirements.
Assignment. Lenders will be permitted (i) to sell assignments (other than
Competitive Bid Advances) in specified amounts to other Lenders or affiliates
or, subject to the consent of the Surviving Corporation (not to be unreasonably
withheld), to certain other specified lenders, and (ii) to sell participations
in all or part of their loans or commitments.
Amendments and Waivers. Amendments to and waivers of provisions of the Loan
Documents may be made or given by the lenders holding a majority of the
advances and commitments under the Bank Facility, except for, among other
things: increases in commitment amounts; reduction of principal, interest, fees
or other amounts payable to the Lenders; postponement of final maturity and
waiver of conditions to the financing closing, each of which will require the
consent of all the lenders.
Expenses and Indemnification. The Surviving Corporation will pay all of
Credit Suisse's and its affiliates' (including CS First Boston's) reasonable
out-of-pocket costs and expenses in connection with the
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preparation, execution, delivery, administration, modification and amendment of
the Loan Documents (including, without limitation, the fees and expenses of
counsel). The Surviving Corporation will also pay all expenses incurred by the
Lenders in connection with the enforcement of the rights and remedies available
to any of them under the Loan Documents. NHL will agree to indemnify and hold
harmless Credit Suisse and each Lender and their affiliates from and against
any and all claims, damages, losses, liabilities and expenses that may be
incurred by or asserted or awarded against any of such parties, in each case
arising out of or in connection with or by reason of any investigation,
litigation or proceeding arising out of, related to or in connection with the
Loan Documents and the transactions contemplated thereby.
THE MERGER AGREEMENT
The following is a brief summary of all material provisions of the Merger
Agreement not described elsewhere in this Proxy Statement/Prospectus. The
Merger Agreement is included as Annex I to this Proxy Statement/Prospectus and
is incorporated herein by reference. Such summary is qualified in its entirety
by reference to the Merger Agreement.
THE MERGER
The Merger. The Merger Agreement provides that, following the approval and
adoption of the Merger Agreement by the stockholders of NHL and the
satisfaction or waiver of the other conditions to the Merger, RBL will be
merged with and into NHL (with NHL being the Surviving Corporation). The Merger
will become effective upon the filing of a Certificate of Merger with the
Secretary of State of the State of Delaware and the Secretary of State of the
State of New Jersey. The filing of the Certificate of Merger will occur as soon
as practicable after satisfaction or waiver of the conditions to the Merger.
The Surviving Corporation will possess all the rights, privileges, powers and
franchises and be subject to all restrictions, disabilities and duties of NHL
and RBL, all as provided by the Delaware Corporation Law.
Conversion of Shares. At the Effective Time, each outstanding share of NHL
Common Stock (other than shares of NHL Common Stock owned by RBL or HLR and
other than Dissenting Common Shares) will be converted in the NHL Share
Conversion into (i) 0.72 of a share of NHL Common Stock and (ii) the right to
receive $5.60 in cash, without interest. No fractional shares of NHL Common
Stock will be issued in the Merger and, in lieu thereof, each holder of NHL
Common Stock who otherwise would be entitled to receive a fractional share of
NHL Common Stock pursuant to the Merger will be paid an amount in cash, without
interest, equal to such holder's proportionate interest in the net proceeds
from the sale or sales in the open market by the Exchange Agent, on behalf of
all such holders, of the aggregate fractional shares of NHL Common Stock, if
any, that would have been issued in the Merger. See "THE MERGER--Exchange
Agent; Procedures for Exchange of Certificates; No Fractional Shares".
In addition, all shares of common stock, no par value, of RBL outstanding
immediately prior to the Effective Time (other than treasury shares, which will
be canceled) will be converted into, and become, that number of newly issued
shares of NHL Common Stock as would, in the aggregate and after giving effect
to the Merger and the NHL Common Stock owned by HLR, RBL and their subsidiaries
immediately prior to the Effective Time, equal 49.9% of the total number of
shares of NHL Common Stock outstanding immediately after the Effective Time
(after giving effect to the issuance of NHL Common Stock in respect of the NHL
Employee Stock Options in connection with the Merger as described herein). If
between the date of the Merger Agreement and the Effective Time, the
outstanding shares of NHL Common Stock have been changed into a different
number of shares or a different class, by reason of any stock dividend,
subdivision, reclassification, recapitalization, split, combination or exchange
of shares, the number of shares to be issued in respect of the shares of RBL
common stock will be correspondingly adjusted to reflect such stock dividend,
subdivision, classification, recapitalization, split, combination or exchange
of shares.
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The Warrants. In connection with the Merger, NHL currently intends to make
the Warrant Distribution to holders of record of shares of NHL Common Stock as
of April 21, 1995, consisting of 0.16308 of a Warrant per outstanding share of
NHL Common Stock, each such Warrant representing the right to purchase one
newly issued share of NHL Common Stock for $22.00 (subject to adjustments) on
the Expiration Date. NHL will have the right, exercisable by notice at least 60
but not more than 90 days prior to the Expiration Date, to redeem the Warrants
on the Expiration Date for a cash redemption price per Warrant equal to the
average closing price of NHL Common Stock over a specified period prior to the
Expiration Date minus the exercise price of $22.00 per share (subject to
adjustments). No fractional Warrants will be issued to the holders of shares of
NHL Common Stock, and in lieu thereof, each holder of NHL Common Stock who
otherwise would be entitled to receive a fractional Warrant will be paid an
amount in cash, without interest, equal to such holder's proportionate interest
in the net proceeds from the sale or sales in the open market by the Warrant
Agent on behalf of all such holders, of the aggregate fractional Warrants, if
any, that would have been issued in the dividend distribution.
The Merger Agreement also provides for the issuance by NHL and the purchase
by Roche of 8,325,000 Warrants to purchase shares of NHL Common Stock for the
Roche Warrant Consideration. The principal terms of the Roche Warrants will be
identical to those of the Warrants issued to the NHL stockholders in the
dividend distribution. See "THE WARRANT AGREEMENT."
It is a condition to each party's obligation to consummate the Merger that
the Warrants be listed on the NYSE, subject to official notice of issuance. NHL
has agreed to use its best efforts to cause the Warrants to be so listed,
subject to official notice of issuance. See "CERTAIN CONSIDERATIONS."
Stock Options. Each NHL Employee Stock Option outstanding on the date of the
Merger Agreement will be deemed fully vested, and NHL will use reasonable
efforts, including with respect to obtaining consents, to cause each NHL
Employee Stock Option to be canceled and terminated immediately prior to the
Effective Time in exchange for an amount in cash and shares of NHL Common Stock
(in the proportions set forth below) equal to the Option Value Amount, which is
defined as the product of (i) the number of shares of NHL Common Stock subject
to such NHL Employee Stock Option immediately prior to the Effective Time and
(ii) the excess of (1) $18.50 over (2) the per share exercise price of such NHL
Employee Stock Option. The Option Value Amount will be payable at the Effective
Time as follows: 40% of such amount will be payable in cash and 60% of such
amount will be payable in the number of shares of NHL Common Stock obtained by
dividing the Option Stock Amount by $15.42, provided that any fractional share
resulting from such calculation will be paid in cash, with the value of a whole
share for such purpose assumed to be $15.42.
Each of the NHL Employee Stock Options with respect to which the requisite
consent is not obtained will not be canceled, but instead will be immediately
converted as of the Effective Time into an Adjusted Option to purchase the
Option Conversion Number (the number of shares of NHL Common Stock purchasable
pursuant to the NHL Employee Stock Option related to such Adjusted Option
divided by the Conversion Number) of shares of NHL Common Stock. Each Adjusted
Option will have substantially the same terms as the NHL Employee Stock Option
to which it is related, except that: (i) the Adjusted Option will be deemed
fully vested and (ii) the exercise price of an Adjusted Option will be an
amount equal to the exercise price of the NHL Employee Stock Option related to
such Adjusted Option as of the date of the Merger Agreement divided by the
Conversion Number.
THE SURVIVING CORPORATION
Certificate of Incorporation and By-laws. The certificate of incorporation
and the by-laws of NHL in effect at the Effective Time will, except as amended
to give effect, as necessary, to the provisions of the Merger Agreement and the
Stockholder Agreement, be the certificate of incorporation and the bylaws of
the Surviving Corporation until amended in accordance with applicable law.
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Board of Directors and Executive Officers. Pursuant to the Stockholder
Agreement (subject to the exceptions provided therein), during the Initial
Period the Board of Directors of the Surviving Corporation will be comprised of
seven members, consisting of Mr. Maher (the current President and Chief
Executive Officer of NHL), three HLR Directors, who will be Mr. Belingard (the
Director General, Diagnostics Division and Executive Committee Member of F.
Hoffmann-La Roche Ltd), Mr. Mac Mahon (a Senior Vice President of Roche and the
President of Roche Diagnostics Group) and Dr. Powell (the President of RBL),
and three independent directors (which the Stockholder Agreement defines
generally as persons who are not officers, employees or affiliates of the
Surviving Corporation or HLR). The persons who will serve as the independent
directors for the Initial Period are required to be mutually acceptable to a
majority of the members of NHL's Board of Directors in office immediately prior
to the Effective Time and to HLR. Following the Initial Period, the Board of
Directors of the Surviving Corporation will (subject to specified exceptions)
be comprised of seven members, consisting of three HLR Directors and four
independent directors (each of whom must be reasonably acceptable to a majority
of the HLR Directors) selected by the Nominating Committee of the Board of
Directors as described under "THE STOCKHOLDER AGREEMENT." Prior to the
Effective Time, the Board of Directors of NHL will take all action as is
necessary to make effective as of the Effective Time the resignations from the
NHL Board of Directors of any Persons then serving on the Board of Directors
who are not identified in a certificate delivered by HLR to NHL in accordance
with the Merger Agreement and the Stockholder Agreement and to cause each of
the Persons designated to be directors in such certificate to be duly appointed
to the Surviving Corporation's Board of Directors, in each case effective at
the Effective Time.
The Merger Agreement provides that from and after the Effective Time, the
executive officers of the Surviving Corporation will be such persons as are
identified on a certificate delivered by HLR to NHL prior to the Effective
Time.
Mr. Maher will serve as Chairman of the Board and Mr. Mac Mahon will serve as
Vice Chairman of the Board of the Surviving Corporation for the Initial Period.
Following the Initial Period, Mr. Maher will resign his board and committee
positions, Mr. Mac Mahon will become Chairman of the Board and the position of
Vice Chairman will be eliminated. See "THE STOCKHOLDER AGREEMENT".
REPRESENTATIONS AND WARRANTIES
The Merger Agreement includes various customary representations and
warranties of the parties thereto. The Merger Agreement includes
representations and warranties by NHL, subject to exceptions set forth on the
disclosure schedule delivered by NHL to HLR prior to the execution of the
Merger Agreement (the "NHL Disclosure Schedule"), as to, among other things,
(i) the corporate existence and power of NHL, including the qualification to do
business as a foreign corporation in each jurisdiction where such qualification
is necessary, except for those jurisdictions where the failure to be so
qualified would not, individually or in the aggregate, have a material adverse
effect on the business, financial condition, assets, results of operations or
prospects of NHL and its subsidiaries, taken as a whole (an "NHL Material
Adverse Effect"), (ii) the authorization of the execution, delivery and
performance of and the binding effect of the Merger Agreement, the Warrant
Agreement, the Stockholder Agreement and the Sharing and Call Option Agreement
by NHL, (iii) the absence of the need for any action by, or filing with, any
governmental body with respect to the execution, delivery and performance of
the Merger Agreement, the Warrant Agreement, the Stockholder Agreement and the
Sharing and Call Option Agreement by NHL, other than as described in the Merger
Agreement, (iv) the absence of any contravention of the certificate of
incorporation or the bylaws of NHL, the organizational documents of any of its
subsidiaries or any provision of any law, order or decree binding upon or
applicable to NHL or any of its subsidiaries, the absence of any default or
right of termination or acceleration of any right or obligation of NHL or any
of its subsidiaries or any loss of any benefit to which NHL or any of its
subsidiaries is entitled under any provision of any agreement, contract or
other instrument binding on NHL or any of its subsidiaries and the absence of
any liens on any asset of NHL or any of its subsidiaries as a result of the
execution, delivery and performance of the Merger Agreement, the Warrant
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Agreement, the Stockholder Agreement and the Sharing and Call Option Agreement
by NHL, (v) the capital structure of NHL and the issuance of NHL Common Stock
and the Warrants in connection with the Merger, (vi) the corporate existence
and power of NHL's subsidiaries, the ownership of the stock of the subsidiaries
and certain activities of the subsidiaries pertaining to the manufacture or
production of drugs of abuse reagent products, (vii) the completeness and
accuracy of the required reports, forms and other documents NHL has filed with
the SEC since January 1, 1992 (the "SEC Documents"), (viii) the accuracy of the
financial statements included in any of the SEC Documents and their preparation
in accordance with applicable accounting principles and SEC rules and
regulations (ix) the accuracy of the information supplied by NHL in connection
with the Proxy Statement/Prospectus and the Registration Statement, (x) the
absence of certain changes since December 31, 1993, including any material
adverse change in the business, financial condition, assets or results of
operations of NHL and its subsidiaries, taken as a whole, or any event,
occurrence or development of circumstances or facts known to NHL or any of its
subsidiaries which could reasonably be expected to result in such a material
adverse change, any declaration of any dividend with respect to any shares of
capital stock of NHL or any repurchase, redemption or other acquisition by NHL
or any of its subsidiaries of any outstanding shares of capital stock or other
securities, any amendment of any material term of any outstanding shares of
capital stock or other voting securities of NHL or of any of its subsidiaries,
any incurrence, assumption or guarantee by NHL or any of its subsidiaries of
any indebtedness for borrowed money other than in the ordinary course of
business and in excess of $25,000,000 and which is on terms consistent with
past practices, any creation or assumption by NHL or any of its subsidiaries of
any lien on any material asset other than in the ordinary course of business
consistent with past practices, any making of any loan, advance or capital
contributions to, or any investment in, any person, including an individual,
corporation, partnership, association, trust or any other entity or
organization, (including a governmental or political subdivision or any agency
thereof) (a "Person"), other than loans, advances or capital contributions to,
or investments in, wholly owned subsidiaries made in the ordinary course of
business consistent with past practices, any damage, destruction or other
casualty loss (whether or not covered by insurance) affecting the business or
assets of NHL or any of its subsidiaries which, individually or in the
aggregate, has had or would reasonably be expected to have an NHL Material
Adverse Effect, any transaction or commitment made, or any contract or
agreement entered into, by NHL or any of its subsidiaries relating to its
assets or business (including the acquisition or disposition of any assets) or
any relinquishment by NHL or any of its subsidiaries of any contract or other
right, in either case, material to NHL and its subsidiaries, taken as a whole,
other than transactions and commitments in the ordinary course of business
consistent with past practices, any change in any method of accounting or
accounting practice by NHL or any of its subsidiaries, except for any such
change required by reason of a concurrent change in generally accepted
accounting principles ("GAAP"), the grant of severance or termination pay other
than pursuant to existing contracts, certain increases in severance or
termination pay, entry into of certain employment, deferred compensation or
other similar agreements or increases in the compensation, bonus or other
benefits payable to certain directors, officers or employees of NHL or any of
its subsidiaries or any labor dispute, other than routine individual
grievances, any proceeding by a labor union, or any lockouts, strikes,
slowdowns, work stoppages or threats thereof by or with respect to certain
employees of NHL, (xi) the absence of any undisclosed liabilities of NHL or any
of its subsidiaries that could be reasonably expected to have an NHL Material
Adverse Effect, (xii) the absence of any undisclosed action, suit,
investigation or proceeding pending against NHL or any of its subsidiaries
before any court or arbitrator or any governmental body, agency or official
that could reasonably be expected to have an NHL Material Adverse Effect,
impair the ability of NHL to perform its obligations under the Merger Agreement
or prevent or materially delay the consummation of any of the transactions
contemplated by the Merger Agreement, the Stockholder Agreement, the Warrant
Agreement or the Sharing and Call Option Agreement, (xiii) matters relating to
the filing of tax returns and payment of taxes by NHL and its subsidiaries, and
the absence of any action by NHL or its subsidiaries or knowledge of any fact
or circumstance that is reasonably likely to prevent the Merger from qualifying
as a reorganization with the meaning of Section 368(a)(1) of the Code, (xiv)
the nature of NHL's employee benefit plans and arrangements and the compliance
of the plans with the applicable provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA") and the Code, (xv) the absence of violations
that, individually or in the aggregate, could be reasonably expected to have an
NHL Material Adverse Effect by NHL or any of its
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subsidiaries of any applicable provisions of any laws, statutes, ordinances or
regulations or any term of any judgement, decree, injunction or other order
outstanding against NHL or any of its subsidiaries, (xvi) the absence of any
fees payable by NHL or any of its subsidiaries to any investment banker, broker
or finder or other intermediary which has been authorized to act on behalf of
NHL or any of its subsidiaries which might be entitled to any fee or commission
from HLR upon consummation of the Merger, other than those fees previously
disclosed to HLR, (xvii) the preparation of NHL's projections and forward-
looking information, (xviii) the nature of the environmental liabilities of NHL
and its subsidiaries, (xix) the approval of the Merger, the Merger Agreement,
the Warrant Agreement, the Stockholder Agreement and the Sharing and Call
Option Agreement by the Board of Directors of NHL and the inapplicability of
Section 203 of the Delaware Corporation Law, (xx) the receipt of an opinion by
NHL's financial advisor and (xxi) the voting requirements for the approval of
the Merger.
The Merger Agreement also includes representations and warranties by HLR and
RBL, subject to exceptions set forth on the disclosure schedule delivered by
HLR and RBL to NHL prior to the execution of the Merger Agreement (the "RBL
Disclosure Schedule"), as to, among other things, (i) the corporate existence
and power of HLR and RBL, including the qualification to do business as a
foreign corporation in each jurisdiction where such qualification is necessary,
except for those jurisdictions where the failure to be so qualified would not,
individually or in the aggregate, have a material adverse effect on the
business, financial condition, assets, results of operations or prospects of
RBL and its subsidiaries, taken as a whole (an "RBL Material Adverse Effect"),
(ii) the authorization of the execution, delivery and performance of and the
binding effect of the Merger Agreement by HLR and RBL and of the Stockholder
Agreement and the Sharing and Call Option Agreement by HLR, (iii) the absence
of the need for any action by, or filing with, any governmental body with
respect to the execution, delivery and performance of the Merger Agreement by
HLR and with respect to the execution, delivery and performance of the
Stockholder Agreement and the Sharing and Call Option Agreement by HLR, other
than as described in the Merger Agreement, (iv) the absence of any
contravention of the certificate of incorporation or the bylaws of HLR, RBL or
any of RBL's subsidiaries or (assuming the necessary governmental filings and
approvals are made and obtained) any provision of any law, order or decree
binding upon or applicable to HLR, RBL or any of RBL's subsidiaries and the
absence of any default or right of termination or acceleration of any right or
obligation of HLR, RBL or any of RBL's subsidiaries or any loss of any benefit
to which HLR, RBL or any of RBL's subsidiaries is entitled under any provision
of any agreement, contract or other instrument binding on HLR, RBL or any of
RBL's subsidiaries and the absence of any liens on any asset of RBL or any of
its subsidiaries as a result of the execution, delivery and performance of the
Merger Agreement by HLR and RBL and the execution, delivery and performance of
the Stockholder Agreement by HLR, (v) the capital structure of RBL, (vi) the
corporate existence and power of RBL's subsidiaries and the ownership of the
stock of the subsidiaries, (vii) the delivery by RBL to NHL of certain
financial statements, their accuracy, and their preparation in accordance with
applicable accounting principles and SEC rules and regulations, (viii) the
accuracy of the information supplied by HLR and RBL in connection with the
Proxy Statement/Prospectus and the Registration Statement, (ix) the absence of
certain changes since December 31, 1993, including any material adverse change
in the business, financial condition, assets or results of operations of RBL
and its subsidiaries, taken as a whole, or any event, occurrence or development
of circumstances or facts known to RBL or any of its subsidiaries which could
reasonably be expected to result in such a material adverse change, any
declaration of any dividend with respect to any shares of capital stock of RBL
or any repurchase, redemption or other acquisition by RBL or any of its
subsidiaries of any outstanding shares of capital stock or other securities,
any amendment of any material term of any outstanding shares of capital stock
or other voting securities of RBL or any of its subsidiaries, any incurrence,
assumption or guarantee by RBL or any of its subsidiaries of any indebtedness
for borrowed money other than in the ordinary course of business and in excess
of $25,000,000 and which is on terms consistent with past practices, any
creation or assumption by RBL or any of its subsidiaries of any lien on any
material asset other than in the ordinary course of business consistent with
past practices, any making of any loan, advance or capital contributions to, or
any investment in, any Person other than loans, advances or capital
contributions to, or investments in, wholly owned subsidiaries made in the
ordinary course of business consistent with past practices, any damage,
destruction
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or other casualty loss (whether or not covered by insurance) affecting the
business or assets of RBL or any of its subsidiaries which, individually or in
the aggregate, has had or would reasonably be expected to have an RBL Material
Adverse Effect, any transaction or commitment made, or any contract or
agreement entered into, by RBL or any of its subsidiaries relating to its
assets or business (including the acquisition or disposition of any assets) or
any relinquishment by RBL or any of its subsidiaries of any contract or other
right, in either case, material to RBL and its subsidiaries, taken as a whole,
other than transactions and commitments in the ordinary course of business
consistent with past practices and other than mergers and consolidations of one
or more of RBL's subsidiaries into or with another subsidiary or into RBL and
activities in connection with the transfer of the business and assets of RIAS,
any change in any method of accounting by RBL or any of its subsidiaries,
except for any such change required by reason of a concurrent change in GAAP,
the grant of severance or termination pay other than pursuant to existing
contracts, certain increases in severance or termination pay, entry into of
certain employment, deferred compensation or other similar agreements or
increases in the compensation, bonus or other benefits payable to certain
directors, officers or employees of RBL or any of its subsidiaries or any labor
dispute, other than routine individual grievances, any proceeding by a labor
union, or any lockouts, strikes, slowdowns, work stoppages or threats thereof
by or with respect to certain employees of RBL, (x) the absence of any
undisclosed liabilities of RBL or any of its subsidiaries that could be
reasonably expected to have an RBL Material Adverse Effect, (xi) the absence of
any undisclosed action, suit, investigation or proceeding pending against RBL
or any of its subsidiaries before any court or arbitrator of any governmental
body, agency or official that could reasonably be expected to have an RBL
Material Adverse Effect, impair the ability of HLR or RBL to perform its
obligations under the Merger Agreement or impair the ability of HLR to perform
its obligations under the Shareholder Agreement or the Sharing and Call Option
Agreement or prevent or materially delay the consummation of any of the
transactions contemplated by the Merger Agreement, the Stockholder Agreement,
the Warrant Agreement or the Sharing and Call Option Agreement, (xii) matters
relating to the filing of tax returns and payment of taxes by RBL, its
subsidiaries, and the affiliated, combined, consolidated or unitary group of
which HLR is a member (the "HLR Tax Group"), the absence of any action by HLR,
RBL or its subsidiaries or knowledge of any fact or circumstance that is
reasonably likely to prevent the Merger from qualifying as a reorganization
within the meaning of Section 368(a)(1) of the Code, and, except as provided in
the Merger Agreement, the absence of any plan or current intention on the part
of HLR to cause the Surviving Corporation to amend its certificate of
incorporation, (xiii) the nature of RBL's employee benefit plans and
arrangements and the compliance of the plans with the applicable provisions of
ERISA and the Code, (xiv) the absence of violations that, individually or in
the aggregate, could be reasonably expected to have an RBL Material Adverse
Effect by RBL or any of its subsidiaries of any applicable provisions of any
laws, statutes, ordinances or regulations or any term of any judgement, decree,
injunction or other order outstanding against RBL or any of its subsidiaries,
(xv) the absence of any fees payable by RBL or any of its subsidiaries to any
investment banker, broker or finder or other intermediary which has been
authorized to act on behalf of RBL or any of its subsidiaries which might be
entitled to any fee or commission from NHL upon consummation of the Merger,
other than those fees previously disclosed to NHL, (xvi) the nature of the
environmental liabilities of RBL and its subsidiaries, (xvii) the sufficiency
of the funds, investments and credit facilities available to HLR and its
affiliates to pay the HLR Cash Contribution, (xviii) the absence to RBL's
knowledge of any state takeover statute applicable to RBL or HLR that applies
to the Merger, the Warrant Agreement, the Stockholder Agreement or the Sharing
and Call Option Agreement and (xix) the ownership by HLR, RBL and their
subsidiaries of shares of NHL Common Stock.
COVENANTS OF NHL
Conduct of NHL. NHL has agreed that, prior to the Effective Time, (i) NHL and
it subsidiaries will conduct their businesses in the ordinary course and use
all reasonable efforts to preserve intact their business organizations and
relationships with third parties and to keep available the services of their
present officers and employees and that (ii) it will not, and (where relevant)
it will not permit its subsidiaries to, (1) propose or adopt any change in its
certificate of incorporation or bylaws, except as provided in the Merger
Agreement, (2) enter into certain, or amend existing, employment, severance or
similar contracts, agreements, plans or
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arrangements covering any director, officer or employee of NHL or any of its
subsidiaries, (3) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization
or make any acquisition of any business or other material assets of any Person,
whether by means of merger, consolidation or otherwise, except for the Merger
or as set forth on the NHL Disclosure Schedule, (4) sell, lease, license or
otherwise dispose of any material assets or property except pursuant to
existing contracts or commitments or in the ordinary course of business
consistent with past practice or as set forth on the NHL Disclosure Schedule,
(5) incur any indebtedness for borrowed money or guarantee any such
indebtedness except for borrowings under existing credit facilities,
replacements therefor and refinancings thereof and borrowings in the ordinary
course of business and consistent with past practice and except for the NHL
Borrowings, (6) issue any shares of capital stock or other voting securities of
NHL except as contemplated in the Merger Agreement or pursuant to the NHL
Employee Stock Options or (7) take any action that would result in any of the
representations and warranties set forth in the Merger Agreement that are
qualified as to materiality from becoming untrue or any such representations
and warranties that are not so qualified becoming untrue in any material
respect or any conditions to the Merger not being satisfied.
Additional Agreements. NHL has also agreed that, prior to the Effective Time,
(i) it will (1) call and hold the NHL Meeting and, in connection therewith, (A)
promptly prepare and file with the SEC, and use all reasonable efforts to have
cleared by the SEC under the Exchange Act, this Proxy Statement/Prospectus and,
subject to the fiduciary duties of the Board of Directors, recommend and use
all reasonable efforts to obtain the approval and adoption by NHL's
stockholders of the Merger Agreement, (B) promptly prepare and file with the
SEC the Registration Statement, in which this Proxy Statement/Prospectus will
be included as a prospectus, use its best efforts to have the Registration
Statement declared effective under the Securities Act, and take any action
(other than qualifying to do business in any jurisdiction in which it is not
now so qualified) required to be taken under any applicable state securities
laws in connection with the issuance of NHL Common Stock in the Merger (and HLR
and RBL will furnish all information concerning the HLR and RBL as may be
reasonably requested in connection with any action contemplated by the
covenants of NHL), (C) as promptly as practicable after the Registration
Statement is declared effective under the Securities Act, cause this Proxy
Statement/Prospectus to be mailed to its stockholders and (D) use all
reasonable efforts to cause the Warrants to be issued as contemplated in the
Merger Agreement and to be listed on the NYSE, (2) give HLR, RBL, their
counsel, financial advisors, auditors and other authorized representatives
reasonable access during normal business hours to the offices, properties,
books and records of NHL and its subsidiaries and hold, and use its best
efforts to cause its officers, directors, employees, counsel, financial
advisors, auditors and other advisors and agents to hold, in confidence, unless
compelled to disclose by judicial or administrative process or by other
requirements of law, all confidential documents and information concerning HLR,
RBL and RBL's subsidiaries furnished to NHL in connection with transactions
contemplated by the Merger Agreement, except as provided therein, (3) promptly
notify HLR of any notice or other communication from any Person alleging that
the consent of such Person is or may be required or from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by the Merger Agreement and of any actions, suits, claims, investigations or
proceedings commenced or, to the best of NHL's knowledge, threatened against,
relating to, involving or otherwise affecting NHL or any of its subsidiaries
which, if pending on the date of the Merger Agreement, would have been required
to have been disclosed pursuant to the terms thereof or which relate to the
consummation of the transactions contemplated by the Merger Agreement, the
Warrant Agreement, the Stockholder Agreement or the Sharing and Call Option
Agreement, (4) file, and cause its subsidiaries to file, and timely pay, and
cause it subsidiaries to timely pay, all taxes shown due as payable on all
material tax returns, statements, reports and forms required to be filed with
any taxing authority in accordance with all applicable laws, (5) take all
action as is necessary to make effective the resignations of any persons
serving on the Board of Directors of NHL who are not identified on the
certificate delivered by HLR to NHL pursuant to the terms of the Merger
Agreement and to cause each of the persons designated to be directors in such
certificate to be duly appointed to the Surviving Corporation's Board of
Directors, in each case as of the Effective Time, and that (ii) it will not,
and it will not permit any of its subsidiaries to, and it also will not permit
or authorize any officer, director or employee of, or any investment banker,
attorney or other advisor or representative of NHL or any of its
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subsidiaries to, directly or indirectly, solicit, initiate or encourage the
submission of any Acquisition Proposal or participate in any discussions or
negotiations regarding, or furnish to any Person any information with respect
to, or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal, except as set forth under the section of the Merger
Agreement entitled "Other Offers". See "THE MERGER--No Solicitation" and "THE
MERGER--Right of the NHL Board of Directors to Withdraw Recommendation Upon
Receipt of a Superior Proposal".
COVENANTS OF HLR AND RBL
Conduct of RBL. HLR and RBL have agreed that, prior to the Effective Time,
(i) RBL and its subsidiaries will conduct their businesses in the ordinary
course and use all reasonable efforts to preserve intact their business
organizations and relationships with third parties and to keep available the
services of their present officers and employees and that (ii) it will not, and
(where relevant) it will not permit its subsidiaries to, (1) propose or adopt
any change in its certificate of incorporation or bylaws, (2) enter into
certain or amend existing employment, severance or similar contracts,
agreements, plans or arrangements covering any director, officer or employee of
RBL or any of its subsidiaries (3) adopt a plan of complete or partial
liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization or make any acquisition of any
business or other material assets of any Person, whether by means of merger,
consolidation or otherwise, except for the Merger or as set forth on the RBL
Disclosure Schedule, (4) sell, lease, license or otherwise dispose of any
material assets or property except pursuant to existing contracts or
commitments, in the ordinary course of business consistent with past practice,
as set forth on the RBL Disclosure Schedule, as NHL agrees in writing or that
RBL or a subsidiary thereof may dispose of or transfer RIAS, the assets and
liabilities of which were disclosed to NHL prior to the date of the Merger
Agreement and the proceeds of such distribution may be paid as a dividend or
otherwise HLR or any other Person (5) declare, set aside, or apply any dividend
or make any other distribution with respect to any shares of RBL capital stock,
except as provided in the Merger Agreement or as set forth on the RBL
Disclosure Schedule, (6) incur any indebtedness for borrowed money or guarantee
any such indebtedness except for borrowings under existing credit facilities,
replacements therefor and refinancings thereof and borrowings in the ordinary
course of business and consistent with past practice, (7) issue any shares of
capital stock or other voting securities other than to HLR, (8) directly or
indirectly acquire any NHL Common Stock prior to any termination fee becoming
payable under the Merger Agreement to HLR or (9) take any action that would
result in any of the representations and warranties set forth in the Merger
Agreement that are qualified as to materiality from becoming untrue or any such
representations and warranties that are not so qualified becoming untrue in any
material respect or any conditions to the Merger not being satisfied.
Additional Agreements. HLR and RBL have also agreed that, prior to the
Effective Time, (i) RBL will (1) give NHL, its counsel, financial advisors,
auditors and other authorized representatives reasonable access during normal
business hours to the offices, properties, books and records of RBL and its
subsidiaries and hold, and use their best efforts to cause their officers,
directors, employees, counsel, financial advisors, auditors and other advisors
and agents to hold, in confidence, unless compelled to disclose by judicial or
administrative process or by other requirements of law, all confidential
documents and information concerning NHL and NHL's subsidiaries furnished to
each of HLR and RBL in connection with transactions contemplated by the Merger
Agreement, except as provided therein, (2) promptly notify NHL of any notice or
other communication from any Person alleging that the consent of such Person is
or may be required or from any governmental or regulatory agency or authority
in connection with the transactions contemplated by the Merger Agreement, and
of any actions, suits, claims, investigations or proceedings commenced or, to
the best of RBL's knowledge, threatened against, relating to, involving or
otherwise affecting RBL or any of its subsidiaries which, if pending on the
date of the Merger Agreement, would have been required to have been disclosed
pursuant to terms thereof or which relate to the consummation of the
transactions contemplated by the Merger Agreement or the Sharing and Call
Option Agreement, (3) file, and cause their subsidiaries to file, timely pay,
and cause their subsidiaries to timely pay, all taxes shown due as payable on
all material tax
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returns, statements, reports and forms required to be filed with any taxing
authority in accordance with all applicable laws, (4) vote any shares of NHL
Common Stock beneficially owned in favor of approval and adoption of the Merger
Agreement at the NHL Meeting and (5) prepare a pro forma balance sheet for RBL
and its subsidiaries (excluding RIAS) as of December 31, 1994 to eliminate any
outstanding intercompany account balances (other than current trade payables
but including any intercompany balances with respect to taxes) as of that date
and to remove and eliminate as liabilities of RBL and any of its subsidiaries
indebtedness for borrowed money ("Borrowed Funds"), such that the aggregate
liabilities of RBL (excluding RIAS) and its subsidiaries for Borrowed Funds as
of December 31, 1994, reduced by cash and cash equivalents as of that date,
will not exceed $44,000,000 (the "Net Debt Amount") and that (ii) (A) HLR will
not take any action to prevent NHL from honoring the financial terms of the
existing employment agreements between NHL and its employees to the extent that
copies of such agreements have been provided to HLR prior to the date of the
Merger Agreement (or if not so provided, if such agreements were entered into
after the date of the Merger Agreement and would not result in any of the
representations and warranties of NHL contained in the Merger Agreement
becoming untrue at the Effective Time and which are otherwise entered into in
compliance with the Merger Agreement) and (B) from January 1, 1995 until the
Effective Time, no interest will be charged or paid on any intercompany account
or on any borrowed funds (as defined in the Merger Agreement), except to the
extent of the interest that would accrue during the period beginning on January
1, 1995, and ending at the Effective Time on the Net Debt Amount at the
interest rate provided in the Bank Facility.
COVENANTS OF NHL, HLR AND RBL
The Merger Agreement also contains additional covenants of each party to the
effect that (i) NHL, HLR and RBL have agreed that (A) each party will use
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the Merger and the other transactions
contemplated by the Merger Agreement, subject to certain limitations set forth
in the Merger Agreement and (B) each party will use all reasonable efforts to
consult with each of the other parties before issuing any press release or
making any public statement with respect to the Merger Agreement, (ii) HLR and
RBL will use their good faith best efforts from and after the date of the
Merger Agreement to assist NHL in obtaining the NHL Borrowings, and NHL will
use its good faith best efforts from and after the date of the Merger Agreement
to obtain the NHL Borrowings (it being understood and agreed by the parties to
the Merger Agreement that none of the parties thereto will have any liability
to any other party thereto or any other Person if the NHL Borrowings are not
obtained), (iii) the officers and directors of the Surviving Corporation will
be authorized to execute and deliver, in the name and on behalf of NHL or RBL,
any deeds, bills of sale, assignments or assurances and to take and do, in the
name of and on behalf of NHL or RBL, any other actions and things to vest,
perfect or confirm of record or otherwise in the Surviving Corporation any and
all right, title and interest in, to and under any of the rights, properties or
assets of NHL acquired or to be acquired by the Surviving Corporation as a
result of, or in connection with, the Merger, (iv) the certificate of
incorporation and the bylaws of the Surviving Corporation will contain the
provisions with respect to indemnification set forth in NHL's certificate of
incorporation and bylaws on the date of the Merger Agreement and the Surviving
Corporation will indemnify and hold harmless the present and former officers
and directors of NHL and RBL in respect of acts or omissions occurring prior to
the Effective Time to the maximum extent provided thereunder and (v) NHL, HLR
and Roche will execute and deliver the Stockholder Agreement immediately prior
to the Effective Time.
AGREEMENTS OF ROCHE
In the Merger Agreement, Roche agreed to cause to be delivered to NHL at or
prior to the Effective Time an amount in cash equal to the Roche Warrant
Consideration in payment of the aggregate purchase price payable in respect of
the Roche Warrants. The Merger Agreement also contains representations and
warranties by Roche to NHL as to (i) the corporate existence and power of
Roche, (ii) the authorization of
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the execution, delivery and performance of the Merger Agreement by Roche, (iii)
the absence of the need for any action by, or filing with, any governmental
body, agency or official with respect to the execution, delivery and
performance of the Merger Agreement by Roche, other than compliance with any
applicable requirements of the HSR Act, (iv) the absence of any contravention
of the certificate of incorporation or the bylaws of Roche or, any violation of
any applicable provision of any law, regulation, judgement, injunction, order
or decree binding upon or applicable to Roche, any default or right of
termination, cancelation or acceleration of any right or obligation of Roche or
to a loss of any benefit to which Roche is entitled under any provision of any
agreement, contract or other instrument binding upon Roche or any creation or
imposition of any lien on any asset of Roche, in each case arising out of the
execution, delivery and performance by Roche of the Merger Agreement, except in
each case for contraventions, conflicts, violations, defaults, rights of
termination, cancelation or acceleration, losses of benefits or creation or
imposition of liens that would not be reasonably expected to have, individually
or in the aggregate, a material adverse effect on the business, financial
condition, assets, results of operations or prospects of Roche and its
subsidiaries, taken as a whole. In addition, Roche represented and warranted
that it has sufficient funds, investments and credit facilities available to it
to pay the Roche Warrant Contribution and will, to the extent necessary, make
funds available to HLR to enable HLR to satisfy its obligation to deposit the
HLR Cash Contribution. Finally, Roche has agreed to use its best efforts to
cause RBL and HLR to perform their obligations under the Merger Agreement.
TAX MATTERS
Tax Covenants. With respect to the filing and payment of any and all taxes,
NHL, HLR and RBL have agreed that (i) the Surviving Corporation will promptly
pay or cause prompt payment to be made to HLR of certain refunds of taxes and
interest thereon received by the Surviving Corporation or any of its
subsidiaries attributable to taxes paid by HLR, RBL or any subsidiary of RBL
with respect to any tax period or any portion of any tax period ending on or
before the date on which the Effective Time occurs (any such period, a "Pre-
Merger Tax Period"), (ii) HLR will promptly indemnify the Surviving Corporation
or any other member of the NHL Group (as defined under Section 1504(a) of the
Code) (1) for all taxes of RBL and its subsidiaries for any Pre-Merger Tax
Period, subject, in the case of taxes (other than Federal income taxes) for any
Pre-Merger Tax Period for which no return has been filed at the Effective Time,
to certain limitations set forth in the Merger Agreement, and (2) for all taxes
of any member of the HLR Tax Group (other than RBL and its subsidiaries for any
tax period that is not a Pre-Merger Tax Period (any such period, a "Post-Merger
Tax Period") and, for any Post-Merger Tax Period, the Surviving Corporation and
its subsidiaries) with respect to any Pre-Merger or Post-Merger Tax Period,
(iii) in the event it is determined that the Surviving Corporation or any of
its subsidiaries is a member of the HLR Tax Group for purposes of any income or
franchise tax imposed by any state or local taxing jurisdiction, HLR and the
Surviving Corporation will negotiate in good faith with each other and with the
other members of the HLR Tax Group in an attempt to enter into an agreement
regarding the allocation of liability and/or indemnification with respect to
such tax among the member of the HLR Tax Group, (iv) all transfer, real estate
gains, documentary, sales, use, stamp, registration and other such taxes and
fees (including any penalties and interest) incurred in connection with the
Merger Agreement will be borne and paid by the Surviving Corporation, (v) HLR
and NHL will separately execute and deliver a letter dated as of the date on
which the Effective Time occurs containing certain representations relating to
the qualification of the Merger as a reorganization within the meaning of
Section 368(a)(1) of the Code, (vi) NHL and HLR will not, and will not permit
any of their respective subsidiaries to, take any action during specified
periods that is reasonably likely to prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a)(1) of the Code.
Tax Sharing Agreements. With respect to any tax sharing agreements, NHL, HLR
and RBL have agreed that (i) any and all existing written or unwritten tax
sharing agreements or arrangements, including agreements or arrangements based
on past practices, binding RBL or any of its subsidiaries (each, a "Tax Sharing
Agreement") between RBL or any subsidiary of RBL and any member of the HLR Tax
Group will be terminated as of the date on which the Effective Time occurs,
(ii) immediately prior to the Effective Time,
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RBL will pay to HLR an amount equal to the Federal income taxes of RBL and its
subsidiaries with respect to the Pre-Merger Tax Period that ends on the date of
the Effective Time, and at such time as the HLR Tax Group prepares its Federal
income tax return for such Pre-Merger Tax Period and also at such time as the
HLR Tax Group prepares its Federal income tax return for its 1994 tax year, it
will deliver to the Surviving Corporation pro forma returns (in each case, a
"Pro Forma Return") for RBL and its subsidiaries which calculates,
respectively, the amount of Federal income taxes that RBL and its subsidiaries
would have paid with respect to such Pre-Merger Tax Period and such tax year
had RBL timely filed its own consolidated Federal income tax return including
its subsidiaries (with RBL as the common parent) for such Pre-Merger Tax Period
and such tax year, respectively, which returns the Surviving Corporation will
have an opportunity to review and question, subject to certain limitations set
forth in the Merger Agreement, after which the respective Pro Forma Returns
will become binding on the parties and HLR will promptly pay the Surviving
Corporation, or the Surviving Corporation will promptly pay HLR, as
appropriate, an amount equal to (1) the respective differences between (A) the
sum of the liabilities shown on the respective Pro Forma Returns and (B) the
respective sums of all payments previously made by RBL or its subsidiaries with
respect thereto to HLR, any other member of the HLR Tax Group or the Internal
Revenue Service, subject, in the case of the 1994 tax year, to certain
provisions set forth in the Merger Agreement, and (2) the respective amounts of
interest earned on such respective differences, which will accrue at a rate
equal to the three-month London Interbank Offered Rate plus 0.5% from the
Effective Time until the date the respective payments are made and (iii) the
Surviving Corporation will prepare, or will cause to be prepared, and will
deliver to HLR, each return with respect to state or local income, franchise,
sales and use taxes for any Pre-Merger Tax Period for which no return has been
filed (and is not yet due) as of the Effective Time and which relates, in whole
or in part, to taxes with respect to which HLR may be required to indemnify the
Surviving Corporation or any other member of the NHL Group, which return HLR
will have an opportunity to review and question, subject to certain limitations
set forth in the Merger Agreement, after which the Surviving Corporation or its
subsidiary, as appropriate, will file such return with the appropriate taxation
authority and pay the tax shown due thereon.
Cooperation on Tax Matters. With respect to other tax matters, (i) HLR and
the Surviving Corporation have agreed to furnish, or cause to be furnished, to
each other, upon request, as promptly as practicable, such information
(including access to books and records) and assistance relating to RBL and its
subsidiaries as is reasonably necessary for the filing of any return, for the
preparation for any audit, and for the prosecution or defense of any claim,
suit or proceeding relating to any proposed adjustment, subject to certain
conditions set forth in the Merger Agreement, (ii) HLR and the Surviving
Corporation have agreed to retain, or cause to be retained, all books and
records pertinent to RBL and its subsidiaries until the end of the fifth year
after the Effective Time and (iii) the Surviving Corporation has agreed to give
HLR reasonable notice prior to transferring, discarding or destroying any such
books and records relating to tax matters and, if HLR so requests, the
Surviving Corporation will allow HLR to take possession of such books and
records at HLR's cost and expense.
CONDITIONS TO THE MERGER
Conditions to the Obligations of Each Party. The obligations of NHL, HLR and
RBL to consummate the Merger are subject to the satisfaction or waiver, as of
the Effective Time, of the following conditions: (i) the Merger Agreement, the
Stockholder Agreement and any amendments to the Surviving Corporation's
certificate of incorporation to be effected by the Merger and any amendments to
the NHL Employee Stock Options contemplated by the Merger Agreement shall have
been approved by the stockholders of NHL in accordance with the Delaware
Corporation Law, (ii) any applicable waiting period under the HSR Act relating
to the Merger will have expired or been terminated, (iii) no provision of any
applicable law or regulation and no judgment, injunction, order or decree shall
prohibit the consummation of the Merger, (iv) the Warrant Agreement shall have
been executed and delivered by NHL and the Warrant Agent and such agreement
shall be in full force and effect, and the Warrants shall have been approved
for listing on the NYSE, (v) the Registration Statement shall have been
declared effective, and no stop order suspending the
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effectiveness of the Registration Statement shall be in effect, and no
proceedings for such purpose shall be pending before or threatened by the SEC,
(vi) the Stockholder Agreement shall have been executed and delivered by HLR
and NHL and shall be in full force and effect, (vii) NHL shall have obtained
the NHL Borrowings, and (viii) there shall not be in effect any banking
moratorium or suspension of payments in respect of banks in the United States
or Switzerland, or any general suspension in trading in, or limitation on
prices for, securities on the NYSE.
Conditions to the Obligations of NHL. The obligations of NHL to consummate
the Merger are subject to the satisfaction of the following further conditions:
(i) HLR and RBL shall have performed in all material respects all of their
respective obligations required to be performed by them under the Merger
Agreement at or prior to the Effective Time, the representations and warranties
of HLR and RBL set forth in the Merger Agreement that are qualified as to
materiality shall be true and correct and the representations and warranties of
HLR and RBL set forth therein that are not so qualified will be true and
correct in all material respects, in each case as of the Effective Time, except
to the extent that such representations and warranties speak only as of a
particular earlier date, and NHL shall have received a certificate or
certificates signed by such executive officers of HLR and RBL as reasonably
requested by NHL to the foregoing effect, (ii) NHL shall have received all
documents it may reasonably request relating to the existence of HLR or RBL and
the authority of HLR or RBL for the Merger Agreement and the Stockholder
Agreement, all in form and substance reasonably satisfactory to NHL, (iii) HLR
shall have deposited the HLR Cash Contribution in trust with the Exchange Agent
as contemplated by the Merger Agreement and Roche shall have paid the Roche
Warrant Consideration to NHL, (iv) there shall be no NHL Adverse Condition, (v)
NHL shall have received from its counsel an opinion to the effect that the
Merger shall constitute a reorganization pursuant to Section 368(a)(1) of the
Code, (vi) all actions by, or filings with, any governmental body, agency,
official or authority described in the Merger Agreement as are required to be
obtained and made by NHL will have been obtained and made by HLR and RBL and
(vii) Roche shall have performed in all material respects its obligations under
the Merger Agreement required to be performed at or prior to the Effective
Time, the representations and warranties of Roche that are qualified as to
materiality shall be true and correct and the representations and warranties of
Roche set forth in that section that are not so qualified shall be true and
correct in all material respects, in each case as of the Effective Time, and
NHL shall have received a certificate or certificates signed by such executive
officers of Roche as reasonably requested by NHL to the foregoing effect. As
used herein, an "NHL Adverse Condition" means any order, decree, injunction of
any court or governmental authority of competent jurisdiction that seeks to (i)
prohibit or enjoin consummation of, materially impair or diminish the intended
benefits to NHL's stockholders of, the transactions contemplated by the Merger
Agreement or by the Warrant Agreement or (ii) restrain the ownership or
operation by NHL or any of its affiliates or the Surviving Corporation of all
or any material portion of the assets or business of either NHL or RBL or any
subsidiary of either or compel NHL or any of its affiliates to dispose of all
or any material portion of the business or assets of NHL or RBL or any
subsidiary of either.
Conditions to the Obligations of HLR and RBL. The obligations of HLR and RBL
to consummate the Merger are subject to the satisfaction of the following
further conditions: (i) NHL shall have performed in all material respects all
of its obligations required to be performed by it under the Merger Agreement at
or prior to the Effective Time, the representations and warranties of NHL set
forth in the Merger Agreement that are qualified as to materiality shall be
true and correct and the representations and warranties of NHL set forth
therein that are not so qualified shall be true and correct in all material
respects, in each case as of the Effective Time, except to the extent such
representations speak only as of a particular earlier date, and HLR shall have
received a certificate or certificates signed by such executive officers of NHL
as reasonably requested by HLR to the foregoing effect, (ii) HLR shall have
received all documents it may reasonably request relating to the existence of
NHL and its subsidiaries and the authority of NHL for the Merger Agreement and
the Stockholder Agreement, all in form and substance reasonably satisfactory to
HLR, (iii) either the Committee on Foreign Investment in the United States
shall have determined not to investigate the Merger under the Exon-Florio
Amendment (whether by action or nonaction) or, if such Committee shall have
determined to make such an investigation, such investigation shall have been
completed and the President will have
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determined (whether by action or nonaction) not to take any action under the
Exon-Florio Amendment with respect to the transactions contemplated by the
Merger Agreement, (iv) there shall be no HLR Adverse Condition, (v) all action
by, or filings with, any governmental body, agency, official or authority
described in the Merger Agreement as are required to be obtained and made by
HLR and RBL will have been obtained and made by NHL, (vi) the NHL Cash
Contribution and the Roche Warrant Consideration received by NHL pursuant to
the Merger Agreement shall have been deposited with the Exchange Agent, (vii)
HLR shall have received from counsel to NHL an opinion in form and substance
reasonably satisfactory to HLR to the effect that the newly issued shares of
NHL Common Stock have been duly authorized and, upon delivery to HLR at the
Effective Time, will be validly issued, fully paid and nonassessable and that
the Roche Warrants have been duly authorized and, upon payment of the Roche
Warrant Consideration, shall be validly issued and (viii) RBL and HLR shall
have received from their counsel an opinion to the effect that the Merger will
constitute a reorganization pursuant to Section 368(a)(1) of the Code. As used
herein, an "HLR Adverse Condition" means any order, decree, injunction of any
court or governmental authority of competent jurisdiction that seeks to (i)
prohibit or enjoin consummation of, or materially impair or diminish the
intended benefits of, the transactions contemplated by the Merger Agreement,
the Stockholder Agreement or the Warrant Agreement, (ii) restrain the ownership
or operation by HLR or any of its affiliates of all or any material portion of
the assets or business of the Surviving Corporation or any of its subsidiaries
or compel HLR or any of its affiliates to dispose of all or any material
portion of the business or assets of the Surviving Corporation or HLR or any of
its affiliates, (iii) impose or confirm limitations on the ability of HLR
effectively to exercise full rights and privileges of ownership of the shares
of NHL Common Stock to be acquired by it, the Warrants or other NHL securities
HLR or any of its affiliates may acquire except as limited by the Stockholder
Agreement or (iv) require divestiture by HLR or any of its affiliates or any
shares of NHL Common Stock to be acquired by it or other NHL securities.
AMENDMENTS
Any provision of the Merger Agreement may be amended or waived prior to the
Effective Time if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by NHL, HLR and RBL, or in the case of a
waiver, by the party against whom the waiver is to be effective (except that
after the adoption of the Merger Agreement by the stockholders of NHL, no such
amendment or waiver will, without the further approval of such stockholders,
alter or change the NHL Share Conversion, any term of the certificate of
incorporation of the Surviving Corporation or any of the terms or conditions of
the Merger Agreement, if such alteration or change would adversely affect the
holders of any shares of NHL Common Stock).
TERMINATION
Methods of Termination. The Merger Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time (notwithstanding any
approval of the Merger Agreement by the stockholders of NHL)(i) by mutual
written consent of NHL and HLR, (ii) by either NHL or HLR, if the Merger has
not been consummated by September 1, 1995, (iii) (a) by either NHL or HLR, if
any law or regulation exists that makes consummation of the Merger illegal or
otherwise prohibited or if there is any judgment, injunction, order or decree
(other than a temporary restraining order or a preliminary injunction) that
enjoins consummation of the Merger, (b) by NHL if any NHL Adverse Condition
exists, as determined by NHL in NHL's reasonable judgment or (c) by HLR if any
RBL Adverse Condition exists, as determined by HLR in HLR's reasonable
judgement, (iv) by NHL, in accordance with the provisions of the Merger
Agreement described under "THE MERGER--Right of the NHL Board of Directors to
Withdraw Recommendation Upon Receipt of a Superior Proposal", (v) by either HLR
or NHL, if the stockholders of NHL fail to approve and adopt the Merger
Agreement at the NHL Meeting, (vi) by HLR, if it is not in material breach of
its obligations under the Merger Agreement, if the Board of Directors of NHL
(a) withdraws its recommendation of the Merger or the Merger Agreement (or the
transactions contemplated thereby) or (b) recommends or approves any
Acquisition Proposal (other than an Acquisition Proposal made
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by HLR or a controlled affiliate of HLR) or (vii) by HLR or NHL, if HLR, RBL or
NHL receives any communication from any HSR Authority that causes such party to
reasonably believe that any such HSR Authority has authorized the institution
under United States antitrust laws of litigation seeking an order, decree or
injunction that, if entered, would (in the reasonable judgement of the party
invoking such provision) be reasonably likely to constitute an NHL Adverse
Condition, if NHL is the invoking party, or an HLR Adverse Condition, if HLR is
the invoking party.
Effect of Termination. Upon termination of the Merger Agreement in accordance
with its terms, the Merger Agreement will become void and of no effect, with no
liability on the part of any party thereto, except for liability or damages
resulting from a willful breach of the Merger Agreement and except that the
provisions pertaining to the effect of termination of the Merger Agreement,
confidentiality and the payment of fees and expenses will survive the
termination of the Merger Agreement. See "THE MERGER--Certain Fees".
THE WARRANT AGREEMENT
The following is a summary of all material provisions of the Warrant
Agreement, a form of which is included as Annex II to this Proxy
Statement/Prospectus and is incorporated herein by reference. Such summary is
qualified in its entirety by reference to the Warrant Agreement.
ISSUANCE, EXERCISE AND REDEMPTION
Issuance. The Warrant Agreement permits NHL to issue and deliver warrant
certificates (the "Warrant Certificates"), in registered form only, to
purchase, under certain circumstances, up to an aggregate of 23,000,000 shares
(the "Warrant Shares"), subject to adjustment (as provided in the Warrant
Agreement), of NHL Common Stock. The Warrant Certificates will initially be
issued by the Warrant Agent at the time, in the denominations and to the
Persons (as defined in the Warrant Agreement) so directed by NHL.
In particular, NHL intends to make the Warrant Distribution to holders of
record of NHL Common Stock as of the April 21, 1995 consisting of 0.16308 of a
Warrant per share of NHL Common Stock. Upon declaration of the Warrant
Distribution, NHL will execute and deliver to the Warrant Agent for
countersignature Warrant Certificates representing the product of the number of
outstanding shares of NHL Common Stock on April 21, 1995 and 0.16308. Based on
the number of shares of NHL Common Stock outstanding on the NHL Record Date,
NHL expects to issue approximately 13,823,657 Warrants in the Warrant
Distribution. In addition, pursuant to the Merger Agreement NHL will issue
8,325,000 Warrants for purchase by Roche.
No certificates or scrip representing fractional Warrants will be issued to
any holder (each, a "Holder") shown in the register maintained by the Warrant
Agent (the "Warrant Register") in the Warrant Distribution. As promptly as
practicable following April 21, 1995, the Warrant Agent will determine with
respect to each Person entitled to receive Warrants pursuant to the Warrant
Distribution the excess of the number of Warrants delivered to the Warrant
Agent by NHL with respect to each such Person over the number of whole Warrants
to be distributed with respect to such Person (such excess fraction of Warrant
hereinafter referred to in connection with each such Person as a "Fractional
Warrant"). As soon after April 21, 1995 as practicable, the Warrant Agent, as
agent for Holders otherwise entitled to receive Fractional Warrants (each, a
"Fractional Warrant Holder"), will aggregate and sell in normal transactions
the Fractional Warrants for all Fractional Warrant Holders at then available
prices on the NYSE or on the principal U.S. securities exchange on which shares
of NHL Common Stock are traded, if any, or on the National Association of
Securities Dealers, Inc.'s Automated Quotation System ("NASDAQ"), if shares of
NHL Common Stock are quoted on NASDAQ. Until the net proceeds of such sale or
sales (the "Fractional Warrant Proceeds") have been distributed to the
Fractional Warrant Holders, the Warrant Agent will hold the Fractional Warrant
Proceeds in trust for the Fractional Warrant Holders. The Warrant Agent will
determine the portion of the net Fractional Warrant Proceeds to which each
Fractional Warrant Holder will
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be entitled, if any, by multiplying the net Fractional Warrant Proceeds amount
by a fraction, the numerator of which is the Fractional Warrant to which such
Fractional Warrant Holder would otherwise be entitled and the denominator of
which is the aggregate Fractional Warrants to which all Fractional Warrant
Holders would otherwise be entitled. As soon as practicable after the
determination of the amount of Fractional Warrant Proceeds, if any, to be paid,
in cash, to each Fractional Warrant Holder in lieu of any Fractional Warrants,
the Warrant Agent will make available such amounts, without interest, to each
such Fractional Warrant Holder.
At or prior to the Effective Time, NHL will execute and deliver to the
Warrant Agent for countersignature Warrant Certificates representing the Roche
Warrants.
Exercise and Redemption. Not earlier than 90 days nor later than 60 days
prior to the Expiration Date, NHL will deliver to the Warrant Agent notice, in
writing, which notice will be irrevocable, stating whether or not it has
elected to redeem the Warrants on the Expiration Date. Promptly after receipt
of NHL's notice, the Warrant Agent will mail notice to all Holders describing
the exercise procedure set forth in the Warrant Agreement (which is summarized
below) or stating that each Warrant will be redeemed for the Redemption Amount
(which is described below) on the Expiration Date, as the case may be.
Subject to the provisions of the Warrant Agreement, each Warrant will be
exercisable only on the Expiration Date, prior to the Close of Business (as
defined in the Warrant Agreement) on such date, and only if NHL has not duly
redeemed the Warrants. Unless NHL has elected to effect a Redemption, in which
case each Holder will be entitled to receive the Redemption Amount, the
Warrants will expire at, and become null and void, and have no value, and no
Person will have any rights as of the Close of Business on the Expiration Date,
except Holders that have properly exercised Warrants in accordance with the
terms of the Warrant Agreement will be entitled to receive Warrant Shares with
respect to such Holders' Warrants.
Each Warrant will entitle the Holder thereof to purchase from NHL one fully
paid and non-assessable share of NHL Common Stock at the exercise price of
$22.00 (subject to adjustments) upon (i) surrender to the Warrant Agent of the
Warrant Certificate evidencing such Warrant and (ii) payment of the exercise
price for the number of Warrant Shares in respect of which such Warrant is
being exercised. Such surrender and payment (if applicable) may be made and
will be accepted by the Warrant Agent at any time during the 45 day period
immediately preceding the Close of Business (as defined in the Warrant
Agreement) on the Expiration Date, but any Warrants so surrendered will not be
deemed to be exercised until the Expiration Date. Payment of the Exercise Price
must be made by a certified or official bank check payable to the order of the
Warrant Agent for the account of NHL or by wire transfer of funds to an account
designated by NHL for such purpose. The Warrants evidenced by a Warrant
Certificate will be exercisable, at the election of the Holder thereof, either
in their entirety or in part.
The Warrant Agreement provides that, upon the surrender of each Warrant
Certificate and the payment of the per share exercise price, immediately
following the Expiration Date, NHL will issue and cause its transfer agent for
NHL Common Stock (the "Transfer Agent") to deliver with all reasonable dispatch
to, or upon the written order of, the Holder and in such name or names as such
Holder may designate, a certificate or certificates for the number of full
Warrant Shares so purchased upon the exercise of such Warrant or Warrants
together with cash in respect of any Fractional Warrant Share (as defined
below) otherwise issuable upon such exercise.
No certificates or scrip representing fractional Warrant Shares will be
issued upon exercise of a Warrant. As promptly as practicable following the
Expiration Date (if NHL has not elected to effect a Redemption), the Transfer
Agent will determine with respect to each Holder entitled to receive Warrant
Shares pursuant to the surrender of the Warrant Certificates the excess of the
number of Warrant Shares delivered to the Transfer Agent by NHL over the
aggregate number of whole Warrant Shares to be issued with respect to such
Holder (such excess being hereinafter referred to in connection with each such
Holder as a "Fractional Warrant Share"). As soon after the Expiration Date as
practicable, the Transfer Agent, as agent for Holders
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otherwise entitled to receive Fractional Warrant Shares (each, a "Fractional
Warrant Share Holder"), will aggregate and sell in normal transactions the
Fractional Warrant Shares for all the Fractional Warrant Share Holders at then
available prices on the NYSE. Until the net proceeds of such sale or sales (the
"Fractional Warrant Share Proceeds") have been distributed to the Fractional
Warrant Share Holders, the Transfer Agent will hold the Fractional Warrant
Share Proceeds in trust for the Fractional Warrant Share Holders. The Transfer
Agent will determine the portion of the net Fractional Warrant Share Proceeds
to which each Fractional Warrant Share Holder will be entitled, if any, by
multiplying the net Fractional Warrant Share Proceeds amount by a fraction, the
numerator of which is the Fractional Warrant Share to which such Fractional
Share Holder would otherwise be entitled and the denominator of which is the
aggregate Fractional Warrant Shares to which all Fractional Warrant Share
Holders would otherwise be entitled. As soon as practicable after the
determination of the amount of the Fractional Warrant Share Proceeds, if any,
to be paid, in cash, to each Fractional Warrant Share Holder in lieu of any
Fractional Warrant Shares, the Transfer Agent will make available such amounts,
without interest, to each such Fractional Warrant Share Holder.
The Warrant Agreement provides that, so long as NHL has timely delivered to
the Warrant Agent written notice of its election to redeem the Warrants (as
described above), NHL will have the right to redeem all, but not less than all,
of the Warrants on the Expiration Date by payment in cash to each Holder as of
such date of the Redemption Amount with respect to the Warrants held by such
Holder (a "Redemption"). The Redemption Amount will be an amount equal to the
excess, if any, of the Market Price of the NHL Common Stock over the Exercise
Price of $22.00 (subject to adjustments). As used in the Warrant Agreement, the
"Market Price" will be the average of the last sale price (or if no such sale
takes place, the average of the closing bid and asked prices) on the NYSE of a
share of NHL Common Stock over the 10 consecutive trading days commencing 15
trading days and ending five trading days before the Expiration Date. If NHL
has elected to redeem the Warrants, at or immediately prior to the Expiration
Date NHL will cause to be transferred to the Warrant Agent an amount in
immediately available funds equal to the aggregate Redemption Amount for all
outstanding Warrants for payment by the Warrant Agent to the Holders as of the
Expiration Date. If NHL has elected to redeem the Warrants but the aggregate
Redemption Amount is zero or less than zero, no amount will be required to be
paid by NHL in respect of the redemption of the Warrants, but the Warrants will
nonetheless be deemed to have been redeemed.
Transfer and Exchange of Warrants. The Warrant Agreement provides that the
Warrant Agent will, from time to time, register the transfer of any outstanding
Warrant Certificate in the Warrant Register, upon surrender of such Warrant
Certificate, duly endorsed, and accompanied by a written instrument or
instruments of transfer in a form satisfactory to the Warrant Agent, duly
signed by the Holder or Holders thereof or by the duly appointed legal
representative thereof or by a duly authorized attorney, such signature to be
guaranteed by (i) a bank or trust company, (ii) a broker or dealer that is a
member of the National Association of Securities Dealers or (iii) a member of a
national securities exchange, and funds sufficient to pay any transfer taxes
payable with respect to such transfer. Upon any such registration or transfer,
a new Warrant Certificate will be issued to the transferee. Warrant
Certificates may be exchanged at the option of the Holder, when surrendered to
the Warrant Agent, for other Warrant Certificates of like tenor and
representing in the aggregate a like number of Warrants.
Notwithstanding the preceding paragraph, the Warrant Agent will not be
required to transfer or exchange any Warrant Certificate from and after the
105th day preceding the scheduled Expiration Date, provided that, if in the
written notice provided by NHL to the Warrant Agent pursuant to the Warrant
Agreement with respect to whether NHL has elected to redeem the Warrants, NHL
elects not to redeem the Warrants, then the Warrant Agent will be required to
permit transfers or exchanges of Warrant Certificates from and after the date
of mailing of the notice by the Warrant Agent pursuant to the Warrant Agreement
to the Holders of Warrants with respect to the procedures for exercise of the
Warrants until the 15th day preceding the Expiration Date.
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In addition, in connection with governmental approvals and stock exchange
listings, NHL, from time to time, will use its best efforts (i) to obtain and
keep effective any and all permits, consents and approvals of governmental
agencies and authorities and to file such documents under Federal and state
securities acts and laws, which may be or become requisite in connection with
the issuance, sale, transfer and delivery of the Warrant Certificates, the
exercise of the Warrants and the issuance, sale, transfer and delivery of the
Warrant Shares issued upon exercise of Warrants, (ii) to have the Warrants
listed on the NYSE (or on the principal United States securities exchange or
exchanges on which the NHL Common Stock is listed, if any, or quoted on NASDAQ,
if the NHL Common Stock is so quoted) and (iii) immediately upon the issuance
of Warrant Shares and upon the exercise of the Warrants, to have such Warrant
Shares listed on the NYSE (or on the principal United States securities
exchange or exchanges on which the NHL Common Stock is listed, if any, or
quoted on NASDAQ, if the NHL Common Stock is so quoted). NHL will cause the
Warrants to be delisted (or cease to be quoted, as the case may be) effective
as of the Close of Business on the Expiration Date.
Repurchase of Warrants. The Warrant Agreement provides that NHL and its
subsidiaries will have the option, in their sole discretion, at any time or
from time to time, to purchase Warrants (i) in the public market, (ii) by
tender or exchange offer available to all Holders at any price or (iii) in
private transactions at a price not more than 10% over the Market Price of the
Warrants as of the closing date of each such transaction respectively. Warrants
acquired by NHL or its subsidiaries will be canceled and will not be available
for reissuance or resale.
Cancelation of Warrants. If NHL has purchased or otherwise acquired Warrants,
NHL may deliver the Warrant Certificates representing such Warrants to the
Warrant Agent to be canceled and retired. The Warrant Agent will cancel all
Warrants so surrendered.
ANTI-DILUTION PROVISIONS
The exercise price, the number of Warrant Shares purchasable upon the
exercise of each Warrant and the number of Warrants outstanding are each
subject to adjustment from time to time upon the occurrence of certain events
described in the Warrant Agreement (and summarized below).
Stock Dividends, Stock Splits, Combinations and Stock Reclassifications. If
NHL (i) pays a dividend on its shares of capital stock (including NHL Common
Stock) in shares of NHL Common Stock, (ii) subdivides its outstanding shares of
NHL Common Stock, (iii) combines its outstanding shares of NHL Common Stock
into a smaller number of shares of NHL Common Stock or (iv) issues any shares
of its capital stock in a reclassification of the NHL Common Stock, in each
case, other than the Merger pursuant to the Merger Agreement, the number of
Warrant Shares purchasable upon exercise of each Warrant immediately prior
thereto will be adjusted so that each Holder will be entitled, upon exercise,
to receive the kind and number of Warrant Shares or other securities of NHL
which such Holder would have owned or have been entitled to receive after the
happening of any of the events described above, had such Warrant been exercised
immediately prior to the happening of such event or any record date with
respect thereto.
Rights, Options and Warrants. If NHL issues any rights, options or warrants
to holders of outstanding shares of NHL Common Stock (other than pursuant to
the Merger Agreement, the Warrant Agreement or stock option plans or similar
plans approved by the Board of Directors of NHL), without payment of additional
consideration by such holders, entitling them to subscribe for or purchase
shares of NHL Common Stock at a price per share that is lower than the Market
Price (calculated as of the applicable date of determination) per share of NHL
Common Stock, the number of Warrant Shares thereafter purchasable upon the
exercise of each Warrant will be determined by multiplying the number of
Warrant Shares theretofore purchasable upon exercise of each Warrant by a
fraction, the numerator of which will be the number of shares of NHL Common
Stock outstanding on the record date for the issuance of such rights, options
or warrants plus the number of additional shares of NHL Common Stock offered
for subscription or purchase and the denominator of which will be the number of
shares of NHL Common Stock outstanding on the record date
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for the issuance of such rights, options or warrants plus the number of shares
which the aggregate offering price of the total number of shares of NHL Common
Stock so offered would purchase at the Market Price per share of NHL Common
Stock on the record date with respect thereto.
Certain Distributions. If NHL distributes to all holders of shares of NHL
Common Stock evidences of its indebtedness or assets, rights, options or
warrants, or convertible or exchangeable securities containing the right to
subscribe for or purchase shares of NHL Common Stock, then in each case the
number of Warrant Shares thereafter purchasable upon the exercise of each
Warrant will be determined by multiplying the number of Warrant Shares
theretofore purchasable upon the exercise of each Warrant, by a fraction, the
numerator of which will be the then current Market Price per share of NHL
Common Stock on the date of such distribution and the denominator of which will
be the then current Market Price per share of NHL Common Stock on the date of
such distribution less the then fair value of the portion of the evidences of
indebtedness or assets so distributed or of such subscription rights, options
or warrants or convertible or exchangeable securities applicable to one share
of NHL Common Stock.
Capital Reorganizations and Stock Reclassifications. In the event of any
capital reorganization or any reclassification of NHL Common Stock except as
otherwise provided in the Warrant Agreement, any Holder of Warrants, upon
exercise thereof, will be entitled to receive, in lieu of the NHL Common Stock
to which such Holder would have become entitled upon exercise immediately prior
to such reorganization or reclassification, the shares or other securities or
property of NHL that such Holder would have been entitled to receive at the
same aggregate exercise price upon such reorganization or reclassification if
such Holder's Warrants had been exercised immediately prior thereto.
Consolidations, Mergers, Sales and Conveyances. In the event of any
consolidation of NHL with, or merger (other than the Merger) of NHL into,
another corporation or in case of any sale or conveyance to another corporation
of the property of NHL as an entirety or substantially as an entirety, NHL or
such successor or purchasing corporation, as the case may be, will execute with
the Warrant Agent an agreement that each Holder will have the right thereafter,
upon payment of the exercise price in effect immediately prior to such action,
to purchase upon exercise of each Warrant the kind and amount of shares and
other securities and property which such Holder would have owned or to which
such Holder would have been entitled to receive after the happening of such
consolidation, merger, sale or conveyance had such Warrant been exercised
immediately prior to such action.
WARRANT AGENT
The Warrant Agreement provides that the Warrant Agent will undertake
customary duties and obligations imposed by the Warrant Agreement upon the
following terms and conditions, by which NHL and the Holders, by their
acceptance of the Warrants, will be bound: (i) the statements contained in the
Warrant Agreement and in the Warrant Certificates will be taken as statements
of NHL, and the Warrant Agent will assume no responsibility for the correctness
of any of the same, except such as describes the Warrant Agent or action taken
or to be taken by it, and, except as otherwise provided in the Warrant
Agreement, the Warrant Agent will assume no responsibility with respect to the
execution, delivery or distribution of the Warrant Certificates, (ii) the
Warrant Agent will not be responsible for any failure of NHL to comply with any
of the covenants contained in the Warrant Agreement or in the Warrant
Certificates, nor will it at any time be under any duty or responsibility to
any Holder to make, or cause to be made, any adjustment in the exercise price
or in the number of Warrant Shares issuable upon exercise of any Warrant
(except as instructed by NHL) or to determine whether any facts exist which may
require any such adjustments or the method employed in making any such
adjustments, (iii) the Warrant Agent may consult at any time with counsel
satisfactory to it, and the Warrant Agent will incur no liability or
responsibility to NHL or any holder of any Warrant Certificate in respect of
any action taken, suffered or omitted by it under the Warrant Agreement in good
faith and in accordance with the opinion or the advice of such counsel, (iv)
the Warrant Agent will incur no liability or responsibility to NHL, or to any
Holder, for any action taken in reliance on any notice, resolution, waiver,
consent, order, certificate or other paper, document or instrument
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believed by it to be genuine and to have been signed, sent or presented by the
proper party or parties, (v) NHL will promptly pay the Warrant Agent the
compensation to be agreed upon with NHL for all services rendered by the
Warrant Agent, to reimburse the Warrant Agent for its reasonable out-of-pocket
expenses incurred without negligence, bad faith or breach of the Warrant
Agreement on its part in connection with the services rendered by it under the
Warrant Agreement and to indemnify the Warrant Agent for, and to hold it
harmless against, any loss, liability or expense incurred without negligence,
bad faith or breach of the Warrant Agreement on its part arising out of, or in
connection with, its acting as such Warrant Agent, (vi) the Warrant Agent will
be under no obligation to institute any action, suit or legal proceeding, or to
take any action likely to involve expense, unless NHL or one or more Holders of
Warrant Certificates will furnish the Warrant Agent with reasonable security
and indemnity for any costs or expenses which may be incurred, (vii) the
Warrant Agent and any stockholder, director, officer or employee of the Warrant
Agent, may buy, sell or deal in any of the Warrants or other securities of NHL
or become pecuniarily interested in any transaction in which NHL may be
interested, or contract with or lend money to NHL or otherwise act as fully and
freely as though they were not the Warrant Agent, or a stockholder, director,
officer or employee of the Warrant Agent, as the case may be, (viii) the
Warrant Agent will act solely as agent for NHL, and its duties will be
determined solely by the provisions of the Warrant Agreement, (ix) NHL will
perform, execute, acknowledge and deliver, or cause to be performed, executed,
acknowledged and delivered, all such further and other acts, instruments and
assurances as may reasonably be required by the Warrant Agent for the carrying
out or performing of the provisions of the Warrant Agreement, (x) the Warrant
Agent will not be under any responsibility in respect of the validity of the
Warrant Agreement, the execution and delivery of the Warrant Agreement or in
respect of the validity or execution of any Warrant Certificate, nor will the
Warrant Agent by any act under the Warrant Agreement be deemed to make any
representation as to the authorization or reservation of the Warrant Shares,
any Warrant Certificate, whether the Warrant Shares will, when issued, be
validly issued, fully paid and nonassessable or the exercise price or number of
Warrant Shares issuable upon exercise of any Warrant, (xi) the Warrant Agent is
authorized and directed to accept instructions with respect to the performance
of its duties under the Warrant Agreement from the Chairman of the Board, the
Chief Executive Officer, the President, any Vice President, the Treasurer, the
Secretary or an Assistant Secretary of NHL and to apply to such officers for
advice or instructions in connection with its duties and will not be liable for
any action taken or suffered to be taken by it in good faith in accordance with
instruction of any such officer or in good faith reliance upon any statement
signed by any one of such officers of NHL with respect to any fact or matter
which may be deemed to be conclusively proved and established by such signed
statement.
The Warrant Agreement provides that, if the Warrant Agent resigns or becomes
incapable of acting as Warrant Agent, or if the Board of Directors of NHL by
resolution removes the Warrant Agent, NHL will appoint a successor to the
Warrant Agent. If NHL fails to make such appointment within a period of 30 days
after such resignation, incapacity or removal, any Holder may apply to any
court of competent jurisdiction for the appointment of a successor to the
Warrant Agent. Pending appointment of a successor to the Warrant Agent, either
by NHL or by such court, the duties of the Warrant Agent will be carried out by
NHL.
CERTAIN MISCELLANEOUS PROVISIONS
Termination. The Warrant Agreement will terminate immediately after (i) all
Warrant Shares in respect of properly exercised Warrants have been issued (if
NHL does not elect to effect a Redemption) or (ii) NHL has paid the Redemption
Amount with respect to all Holders (if NHL elects to effect a Redemption),
provided that the provisions pertaining to the terms and conditions under which
the Warrant Agent has agreed to undertake the duties and obligations imposed by
the Warrant Agreement survive such termination until such time that the
obligations contemplated thereunder have been satisfied.
Supplements and Amendments. NHL and the Warrant Agent may, from time to time,
supplement or amend the Warrant Agreement without the approval of the Holders
to cure any ambiguity, manifest error or
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other mistake, to correct any provision of the Warrant Agreement that may be
defective or inconsistent with any other provisions of the Warrant Agreement or
to make any other provisions in regard to matters or questions arising under
the Warrant Agreement that NHL and the Warrant Agent may deem necessary or
desirable and that will not adversely affect, alter or change the interest of
the Holders.
THE STOCKHOLDER AGREEMENT
The following is a summary of all material provisions of the Stockholder
Agreement, a form of which is included as Annex III to this Proxy
Statement/Prospectus and is incorporated herein by reference. Such summary is
qualified in its entirety by reference to the Stockholder Agreement.
CORPORATE GOVERNANCE
Composition of the Board of Directors. Pursuant to the Stockholder Agreement
(subject to the exceptions provided therein), during the Initial Period the
Board of Directors of the Surviving Corporation will be comprised of seven
members, consisting of Mr. Maher (the current President and Chief Executive
Officer of NHL), three HLR Directors, who will be Mr. Belingard (the Director
General, Diagnostics Division and Executive Committee Member of F. Hoffmann-La
Roche Ltd), Mr. Mac Mahon (a Senior Vice President of Roche and the President
of Roche Diagnostics Group) and Dr. Powell (the President of RBL) (unless any
such individual is unable to serve in such capacity, in which event the Board
of Directors will elect as a director one or more substitute individuals
designated by HLR prior to the Merger who is reasonably acceptable to a
majority of the independent directors in office immediately prior to the
Effective Time), and three independent directors (as defined in the Stockholder
Agreement, which provides in general that such persons shall not be officers,
employees or affiliates of the Surviving Corporation or HLR). The persons who
will serve as the independent directors for the Initial Period are required to
be mutually acceptable to a majority of the members of NHL's Board of Directors
in office immediately prior to the Effective Time and to HLR. Following the
Initial Period, the Board of Directors of the Surviving Corporation will
(subject to specified exceptions) be comprised of seven members, consisting of
three HLR Directors and four independent directors nominated by the Nominating
Committee of the Board of Directors. The Nominating Committee will consist of
one HLR Director and two independent directors. A quorum of the Nominating
Committee will consist of all members of the committee, and the Nominating
Committee will act by majority vote of the entire committee.
Mr. Maher will serve as Chairman of the Board and Mr. Mac Mahon will serve as
Vice Chairman of the Board of the Surviving Corporation for the Initial Period.
Following the Initial Period, Mr. Maher will resign his board and committee
positions, Mr. Mac Mahon will become Chairman of the Board and the position of
Vice Chairman will be eliminated.
If the percentage of the aggregate number of votes entitled to be voted in an
election of Directors of the Surviving Corporation by all outstanding
securities having the right to vote generally in any election of Directors of
the Surviving Corporation (the "Total Voting Power") that is controlled
directly or indirectly by HLR and its affiliates (other than the Surviving
Corporation and its subsidiaries) is less than 30% but at least 20%, HLR will
have the right to designate for nomination two HLR Directors and if the HLR
Group Interest is less than 20% but at least 10%, HLR will have the right to
designate for nomination one HLR Director.
Committees of the Board of Directors. The Stockholder Agreement provides
that, the Board of Directors of the Surviving Corporation will establish,
empower, maintain and elect the members of the following committees of the
Board of Directors: (i) an Audit Committee, comprised solely of Independent
Directors, (ii) a Nominating Committee, which will be composed of one HLR
Director (designated by the majority of HLR Directors), and two independent
directors (designated by the majority of independent directors), (iii) an
employee benefits committee, comprised of HLR Directors and independent
directors
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(with the independent directors constituting a majority) and (iv) such other
committees as the Board of Directors deems necessary or desirable to establish,
empower and maintain, provided that such committees are approved by a Special
Majority of the Board of Directors.
Except as otherwise provided in the Stockholder Agreement or as agreed by a
majority of the independent directors, the number of HLR Directors serving on
each committee of the Board of Directors will be the same proportion of the
total membership of such committee as the number of HLR Directors is of the
entire Board of Directors, with a minimum of one member so long as HLR is
entitled under the Stockholder Agreement to designate one HLR Director.
Notwithstanding the previous sentence, if the HLR Group Interest is less than
30% but more than 20%, the number of HLR Directors serving on each committee of
the Board of Directors (other than the Audit Committee) will be two, if such
committee has five or more total members or one, in all other cases. If the HLR
Group Interest is less than 20% but more than 10%, the number of HLR Directors
serving on each committee of the Board of Directors (other than the Audit
Committee) will be one.
Management Committee. The Stockholder Agreement provides that the Surviving
Corporation will establish a Management Committee, comprised of its President
and Chief Executive Officer, who will be the Chairman of the Management
Committee, its Chief Operating Officer, its Chief Administrative Officer, its
Chief Financial Officer, its General Counsel, its Executive Vice President,
Sales and Marketing, its Executive Vice President, Human Resources, the
Chairman of the Board and the Vice Chairman of the Board, if any, of the
Surviving Corporation and such other directors or executive officers as may be
approved by a Special Majority of the Board of Directors of the Surviving
Corporation. The Management Committee will have the responsibility, authority
and duty to review and approve and oversee the implementation of certain
operational and strategic plans proposed by the Operating Committee (referred
to below) prior to consideration and approval by the Board of Directors and
such other responsibilities, authority and duties as the Board (acting by
Special Majority of the Board of Directors) may from time to time grant,
subject to the other provisions of the Stockholder Agreement, the certificate
of incorporation of the Surviving Corporation and the by-laws of the Surviving
Corporation. Pursuant to the Stockholder Agreement, the location of the
headquarters of the Surviving Corporation will be determined by the Management
Committee.
Approval Required for Certain Actions. The Stockholder Agreement provides
that, so long as the HLR Group Interest is 30% or more, no action by the
Surviving Corporation or any of its subsidiaries will be taken with respect to
any of the following matters without the approval of a Special Majority of the
Board of Directors: (i) the appointment of any of the Chairman of the Board,
Chief Executive Officer, President, Secretary, Treasurer, the Chief
Administrative Officer, General Counsel, Chief Financial Officer or Chief
Operating Officer or other executive officer in any similar capacity of the
Surviving Corporation or any of its subsidiaries, (ii) the approval of
Strategic Plans and Annual Operating Plans referred to below in "Strategic and
Operating Planning Process", (iii) any merger or consolidation of the Surviving
Corporation or any of its subsidiaries with or into any Person other than the
Surviving Corporation or any of its subsidiaries, (iv) any amendment to the
certificate of incorporation or the bylaws of the Surviving Corporation or any
adoption of, or amendment to, the certificate of incorporation or the bylaws of
any subsidiary of the Surviving Corporation, (v) any acquisition of assets,
business, operations or securities by the Surviving Corporation or any of its
subsidiaries by merger or otherwise (whether in one transaction or a series of
related transactions) which assets, business, operations or securities would
constitute more than 10% of the fair market value of the total assets of the
Surviving Corporation and its subsidiaries as of the end of the most recent
fiscal quarter ending prior to such transaction (a "Substantial Part" of the
Surviving Corporation), (vi) any sale, asset exchange, lease, exchange,
mortgage, pledge, transfer or other disposition by merger or otherwise by the
Surviving Corporation or any of its subsidiaries (in one transaction or a
series of related transactions) of any of the subsidiaries or assets of the
Surviving Corporation or any of its subsidiaries which constitutes a
Substantial Part of the Surviving Corporation, (vii) the settling of any
litigation, investigation or proceeding involving any governmental authority or
where the amount to be paid in settlement is in excess of $5,000,000, (viii)
any material transaction between the Surviving Corporation or any of its
subsidiaries, on the one hand,
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and any stockholder or affiliate of the Surviving Corporation (other than any
subsidiary of the Surviving Corporation and other than HLR and its affiliates),
on the other hand (other than as specifically contemplated by the Sharing and
Call Option Agreement), (ix) the issuance of any security of the Surviving
Corporation or of any security of any subsidiary of the Surviving Corporation
(other than as specifically contemplated by the Merger Agreement, the Warrants
or existing employee stock options), (x) any capital expenditures individually
in excess of $1,000,000 or in the aggregate in excess of $50,000,000 per annum
or which represent in the aggregate 110% or more of the total amount provided
for in certain plans for such year, (xi) any reclassification, recombination,
split, subdivision or redemption, purchase or other acquisition, directly or
indirectly, of any debt or Equity Securities or other capital stock of the
Surviving Corporation, except as provided in the Merger Agreement and the
Warrants, (xii) any change in the size or composition of the Board of
Directors, any committee thereof or the Management Committee or any
establishment of a new committee of the Board, (xiii) any incurrence,
assumption or issuance by the Surviving Corporation or any of its subsidiaries
of indebtedness other than indebtedness existing immediately after the
Effective Time and any refinancings thereof and other indebtedness in an
aggregate principal amount at any one time outstanding not to exceed
$25,000,000, (xiv) any declaration of any dividend or any making of any other
distribution with respect to, or any redemption, repurchase or other
acquisition of, any class of securities of the Surviving Corporation or any of
its subsidiaries, except as expressly otherwise provided in the Merger
Agreement or pursuant to the Warrants, (xv) any proposal, or entry into, by the
Surviving Corporation or any of its subsidiaries of any Discriminatory
Transaction (as defined in the Stockholder Agreement), (xvi) any relocation of
the headquarters of the Surviving Corporation, (xvii) any determination of
compensation, benefits, perquisites and other incentives for executive officers
(other than officers whose total compensation including employee stock options
and similar incentives does not exceed $150,000 annually) and any approval or
amendment of any plans or contracts in connection therewith, (xviii) any
adoption or implementation of any takeover defense measures, including the
institution, amendment or redemption by the Surviving Corporation or any of its
subsidiaries of any stockholder rights plan or similar plan or device, or any
change of control matters, (xix) any transaction involving, or any action by,
the Surviving Corporation or any of its subsidiaries (A) leading to a
circumstance in which any Person or 13D Group (as defined in the Stockholder
Agreement) representing a percentage of Total Voting Power or any equity
interest in the Surviving Corporation greater than 15% or (B) requiring the
approval of holders of a majority of the securities having the right to vote
generally in any election of Directors of the Surviving Corporation or Equity
Securities and (xx) any change in the fiscal year or the accounting or tax
principles, or policies with respect to the financial statements, records or
affairs of the Surviving Corporation or any of its subsidiaries, except as
required by GAAP or by law or (xxi) any dissolution of the Surviving
Corporation or any of its subsidiaries, any adoption of a plan of liquidation
of the Surviving Corporation of any of its subsidiaries or any action by the
Surviving Corporation or any of its subsidiaries to commence any suit, case,
proceeding or other action (A) under any existing or future law of any
jurisdiction relating to bankruptcy, insolvency, reorganization or relief of
debtors seeking to have an order for relief entered with respect to the
Surviving Corporation or any of its subsidiaries, seeking to adjudicate the
Surviving Corporation or any of its subsidiaries bankrupt or insolvent or
seeking reorganization, arrangement, adjustment, winding up, liquidation,
dissolution, composition or other relief with respect to the Surviving
Corporation or any of its subsidiaries or (B) seeking appointment of a
receiver, trustee custodian or other similar official for the Surviving
Corporation or any of its subsidiaries or for all or any Substantial Part of
the assets of the Surviving Corporation or any of its subsidiaries or making a
general assignment for the benefit of the creditors of the Surviving
Corporation or any of its subsidiaries.
Strategic and Operating Planning Process. The Stockholder Agreement requires
that the President and Chief Executive Officer of the Surviving Corporation
cause to be prepared and proposed to the Management Committee an Annual
Operating Plan for each fiscal year (providing for an analysis of gross
profits, summary of operating expenses, personnel levels, pricing, budgets for
niche businesses, cash flows and capital expenditures) and a Strategic Plan for
five-year periods (providing for an analysis of the business environment,
business objectives and strategies, business revenues, financial forecasts,
capital plans, acquisition and divestiture plans, business segment analysis and
niche business plans), beginning with the period 1997-2001.
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Under the Stockholder Agreement, the Management Committee will be responsible
for overseeing the implementation of the Initial Synergy Plan (as defined in
the Stockholder Agreement) for the initial two-year period following the
Effective Time. The Stockholder Agreement requires that the Annual Operating
Plans and the Strategic Plans be approved by a Special Majority of the Board of
Directors.
ANTI-DILUTIVE RIGHTS
The Stockholder Agreement prohibits, subject to certain exceptions, the
Surviving Corporation from issuing, selling or transferring any (i) common
stock or other voting stock of the Surviving Corporation, (ii) any debt or
equity securities of the Surviving Corporation convertible or exchangeable for
common stock or voting stock of the Surviving Corporation or (iii) any options,
rights or warrants issued by the Surviving Corporation to acquire common stock
or other voting stock of the Surviving Corporation ("Equity Securities") to any
Person unless HLR is offered in writing the right to purchase, at the same
price and on the same terms proposed to be issued or sold, an amount of such
Equity Securities (the "Maintenance Securities") as is necessary for the HLR
Group to maintain the HLR Group Interest as it existed immediately prior to
such issuance (the "Anti-Dilutive Rights"). If HLR does not deliver to the
Surviving Corporation written notice of acceptance of any such offer within 20
business days after HLR's receipt thereof, HLR will be deemed to have waived
its right to purchase all or part of the Maintenance Securities as set forth in
such offer, but HLR will retain its Anti-Dilutive Rights with respect to future
offers.
The Anti-Dilutive Rights will not apply to (i) the grant or exercise of
options to purchase shares of stock of the Surviving Corporation, the issuance
of shares of stock of the Surviving Corporation to employees of the Surviving
Corporation or any of its subsidiaries (other than employees who are also
employees of a stockholder, its affiliates or any subsidiary of a stockholder)
or otherwise pursuant to any stock option or similar plan in existence on the
date of the Stockholder Agreement or otherwise adopted by the Board of
Directors after the date of the Stockholder Agreement, (ii) the issuance of the
stock of the Surviving Corporation pursuant to the Warrants or of shares of the
stock of the Surviving Corporation issuable upon exercise of any option,
warrant, convertible security or other rights to purchase shares of stock of
the Surviving Corporation which, in each case, has been issued in compliance
with the terms of the provisions pertaining to the Anti-Dilutive Rights, (iii)
the issuance of any securities pursuant to any stock split, stock dividend or
other similar stock recapitalization or (iv) the issuance of shares of stock of
the Surviving Corporation pursuant to any underwritten public offering of
Equity Securities under an effective registration statement filed by the
Surviving Corporation with the SEC in accordance with the Securities Act (such
offering referred to as a "Public Offering"), provided that the action
described in clauses (i), (iii) or (iv) above, as the case may be, has been
approved (to the extent required) in accordance with the provisions of the
Stockholder Agreement.
ACQUISITIONS AND TRANSFERS OF EQUITY SECURITIES
Acquisitions of Additional Equity Securities. The Stockholder Agreement
provides that, during the Initial Period, HLR will not, and will use its best
efforts to cause each member of the HLR Group not to, directly or indirectly,
purchase or otherwise acquire any Equity Securities of the Surviving
Corporation if, after giving effect thereto, the HLR Group Interest would
exceed 49.99%. Notwithstanding the foregoing, the Stockholder Agreement permits
the HLR Group or one or more members thereof to acquire, directly or
indirectly, by purchase or otherwise, Equity Securities resulting in the HLR
Group Interest exceeding such limitation in the event (i) any Person or group
makes an Acquisition Proposal, (ii) after the Effective Time, Mafco Holdings
Inc. or any affiliate thereof acquires Equity Securities representing 1% or
more of the Total Voting Power, (iii) any Person or group acquires beneficial
ownership of Equity Securities representing 5% or more of Total Voting Power
(10% or more in the case of beneficial ownership permitted to be reported on
Schedule 13G under the Exchange Act), or (iv) there has been a material adverse
change in the business, financial condition or operations of the Surviving
Corporation for, or which would reasonably be expected to
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continue for, a sustained period and HLR has determined in good faith that the
acquisition of additional Equity Securities is reasonably necessary to protect
its investment in the Surviving Corporation.
From the first anniversary of the Effective Time until the third anniversary
of the Effective Time, the Stockholder Agreement requires that HLR not, and use
its best efforts to cause each member of the HLR Group not to, directly or
indirectly, purchase or otherwise acquire, or propose or offer to purchase or
acquire, any Equity Securities of the Surviving Corporation, whether by tender
offer, market purchase, privately negotiated purchase, merger or otherwise,
except that the HLR Group may acquire Equity Securities to the extent that,
after giving effect thereto, the HLR Group Interest would not exceed 75%.
However, the Stockholder Agreement permits the HLR Group to acquire Equity
Securities, notwithstanding the fact that, after giving effect thereto, the HLR
Group Interest would exceed 75%, if the HLR Group (or a member or affiliate
thereof, as the case may be) offers, prior to consummating such purchase, to
purchase all outstanding Equity Securities, and holders of Equity Securities
representing more than 50% of the outstanding Equity Securities (excluding any
Equity Securities held by the HLR Group) accept such offer, and the HLR Group
(or a member or affiliate thereof, as the case may be) consummates such
purchase.
Transfers of Equity Securities. The Stockholder Agreement provides that HLR
will not sell or otherwise transfer any Equity Securities, except pursuant to a
Public Offering, Rule 144 or Rule 144A or any other transaction in compliance
with the Securities Act, state securities laws and other applicable laws. HLR
has agreed to cause any Person who acquires 30% of the Total Voting Power from
HLR to agree to be bound by the provisions of the Stockholder Agreement
whereupon such Person will become entitled to all of the rights and benefits of
HLR under the Stockholder Agreement.
REGISTRATION RIGHTS
Demand Registrations. The Stockholder Agreement provides that, HLR may make a
written request to the Surviving Corporation for registration under the
Securities Act of Registrable Securities (as defined in the Stockholder
Agreement) (each, a "Demand Registration"). The obligations of the Surviving
Corporation to register such Registrable Securities are subject to the
following conditions: (i) the Registrable Securities requested to be registered
must (unless reduced pursuant to the provisions of the section of the
Stockholder Agreement entitled "Reduction of Offering"), constitute at least 2%
of the equivalent outstanding Equity Securities or at least 5% of the
Registrable Securities at such time, whichever amount is smaller, (ii) there
shall not have been consummated more than one offering pursuant to a Demand
Registration within the preceding 12 month period, (iii) if the HLR Group
Interest is less than 30% but more than 20%, no more than three other Demand
Registrations shall have been effected after the date on which the HLR Group
Interest was reduced to less than 30%, if the HLR Group Interest is less than
20% but more than 10%, no more than two other Demand Registrations shall have
been effected after the date on which the HLR Group Interest was reduced to
less than 20% and if the HLR Group Interest is less than 10%, no more than one
other Demand Registration shall have been effected after the date on which the
HLR Group Interest was reduced to less than 10%, (iv) HLR shall conform to all
applicable requirements of the Securities Act and the Exchange Act with respect
to the offering and sale of securities and advise each underwriter, broker or
dealer through which any of the Registrable Securities are offered that the
Registrable Securities are part of a distribution that is subject to the
prospectus delivery requirements of the Securities Act and (v) HLR shall use
all reasonable efforts to effect as wide a distribution of such Registrable
Securities as is reasonably practicable, but in no event will any sale of
Registrable Securities be made knowingly to any Person who beneficially owns 5%
or more of the Total Voting Power.
In addition, the Surviving Corporation's obligations pursuant to any Demand
Registration will be suspended if (i) the fulfillment of such obligations would
require the Surviving Corporation to make a disclosure that would, in the
reasonable good faith and judgment of the Board of Directors, be materially
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detrimental and premature, (ii) the Surviving Corporation has filed a
registration statement with respect to Equity Securities to be distributed in a
Public Offering and it is advised by its lead or managing underwriter that an
offering by HLR of the Registrable Securities would materially adversely affect
the distribution of such Equity Securities or (iii) the fulfillment of such
obligations would require the Surviving Corporation to prepare audited
financial statements not required to be prepared for the Surviving Corporation
to comply with its obligations under the Exchange Act as of any date not
coincident with the last day of any fiscal year of the Surviving Corporation.
The obligations of the Surviving Corporation, however, will be reinstated (x)
in the case of clause (i) above, upon the making of such disclosure (or, if
earlier, when such disclosure would either be no longer necessary for the
fulfillment of such obligations or no longer detrimental), (y) in the case of
clause (ii) above, upon the conclusion of any period during which the Surviving
Corporation would not, pursuant to the terms of its underwriting arrangements,
be permitted to sell securities of the Surviving Corporation for its own
account and (z) in the case of clause (iii) above, as soon as it would no
longer be necessary to prepare such financial statements to comply with the
Exchange Act.
Piggyback Registration. The Stockholder Agreement provides that, if the
Surviving Corporation proposes to file a registration statement under the
Securities Act with respect to an offering of any securities of the Surviving
Corporation for the Surviving Corporation's own account (other than a
registration statement on Form S-4 or S-8 (or any substitute that may be
adopted by the SEC) or the account of any holder of Equity Securities other
than any member of the HLR Group (each, an "Other Holder") (other than Mafco or
any of its Affiliates), then the Surviving Corporation will give written notice
of such proposed filing to HLR as soon as practicable, and such notice will
offer HLR the opportunity to register such number of shares of, or Warrants
constituting, Registrable Securities as HLR may request on the same terms and
conditions as those applicable to the securities of the Surviving Corporation
or of the Other Holders in the offering (a "Piggyback Registration"). Upon the
written request of HLR made within ten days after the receipt of notice from
the Surviving Corporation, which request shall specify the amount and types of
Registrable Securities intended to be issued or disposed of, the Surviving
Corporation will use its best efforts, subject to certain conditions set forth
in the Stockholder Agreement, to effect the registration under the Securities
Act of all such Registrable Securities which the Surviving Corporation has been
so requested to register by HLR, to the extent requisite to permit the
disposition of such Registrable Securities to be so registered. In connection
with any Demand Registration or any Piggyback Registration, the Surviving
Corporation will pay all Registration Expenses (as defined in the Stockholder
Agreement) of HLR and Roche.
Rule 144 and Rule 144A. The Surviving Corporation will agree to file
necessary reports with the SEC and to take other action as reasonably requested
by HLR to enable it to sell its the Surviving Corporation securities pursuant
to Rule 144 under the Securities Act. If HLR desires to transfer any of its
securities of the Surviving Corporation pursuant to Rule 144A, the Stockholder
Agreement requires the Surviving Corporation to promptly, upon request by HLR,
use its best efforts to facilitate the consummation of such Rule 144A
transaction in accordance with the requirements of such rule and with such
request and will take all necessary or appropriate actions in connection
therewith. If the HLR Group Interest is less than 30%, then the Surviving
Corporation will only be required to facilitate the consummation of such Rule
144A transaction according to the following provisions: (i) if the HLR Group
Interest is less than 30% but more than 20%, no more than three other Rule 144A
transactions will have been effected after the date on which the HLR Group
Interest was reduced to less than 30%, (ii) if the HLR Group Interest is less
than 20% but more that 10%, no more than two other Rule 144A transactions will
have been effected after the date on which the HLR Group Interest was reduced
to less than 20% and (iii) if the HLR Group Interest is less than 10%, no more
than one other Rule 144A transaction will have been effected after the date on
which the HLR Group Interest was reduced to less than 10%. the Surviving
Corporation has agreed to pay all expenses in connection with Rule 144A
transactions by HLR to the same extent as the Surviving Corporation would be
required to pay Registration Expenses.
Information. In the Stockholder Agreement, the Surviving Corporation will
agree to provide certain information to HLR on a periodic basis and as
requested.
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No Inconsistent Agreements. Under the Stockholder Agreement, the Surviving
Corporation will agree that it will not enter into any agreements with respect
to its securities which would be inconsistent with the rights granted to HLR,
the HLR Group and the HLR Directors in the Stockholder Agreement.
TERMINATION
The provisions of the Stockholder Agreement will terminate if the HLR Group
Interest is less than 30%, provided, however, that the provisions relating to
the obligation of the Surviving Corporation to furnish certain information
will not terminate until such time as the HLR Group Interest is less than 20%,
certain provisions regarding Board and Board committee membership and
amendment of the Surviving Corporation's Certificate of Incorporation and by-
laws will not terminate until such time as the HLR Group Interest is less than
10%, the registration rights will not terminate until such time as the HLR
Group does not own any Registrable Securities (except the provisions relating
to piggyback registrations, which will terminate at such time as the HLR Group
Interest is less that 20%) and certain miscellaneous provisions will not
terminate until all other provisions of the Stockholder Agreement have
terminated. Furthermore, in the event that the HLR Group Interest exceeds 50%,
the provisions pertaining to corporate governance will terminate, but will be
reinstated, at the request of HLR, if the HLR Group Interest is later reduced
below 50%.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
DIRECTORS AND EXECUTIVE OFFICERS OF THE SURVIVING CORPORATION
The following table sets forth certain information as of December 31, 1994,
concerning certain persons who are expected to serve as directors and
executive officers of the Surviving Corporation as of the Effective Time. In
addition, in accordance with the Merger Agreement and the Stockholder
Agreement, it is also expected that three persons (mutually acceptable to a
majority of the members of the NHL Board in office immediately preceding the
Effective Time and to HLR) will be designated prior to the Effective Time to
serve as independent directors (which the Stockholder Agreement generally
defines as persons who are not officers, employees or affiliates of the
Surviving Corporation or HLR) beginning immediately after the Effective Time.
See "THE MERGER AGREEMENT--The Surviving Corporation" for a description of the
provisions of the Merger Agreement relating to the appointment of the
directors and executive officers of the Surviving Corporation.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James R. Maher.......... 45 Chairman of the Board and Director
Thomas P. Mac Mahon..... 48 Vice Chairman of the Board and Director
Jean-Luc Belingard...... 46 Director
Dr. James B. Powell..... 56 Director, President and Chief Executive Officer
Timothy J. Brodnik...... 47 Executive Vice President, Sales and Marketing
Haywood D. Cochrane,
Jr. .................... 45 Executive Vice President, Chief Financial Officer
David C. Flaugh......... 47 Executive Vice President, Chief Operating Officer
John F. Markus.......... 43 Executive Vice President, Corporate Compliance
Bradford T. Smith....... 41 Executive Vice President, General Counsel and Secretary
Ronald B. Sturgill...... 58 Executive Vice President, Information Systems/Operations
David C. Weavil......... 43 Executive Vice President, Chief Administrative Officer
Robert E. Whalen........ 52 Executive Vice President, Human Resources
Wesley R. Elingburg..... 38 Senior Vice President, Finance
</TABLE>
James R. Maher. Mr. Maher has been President and Chief Executive Officer and
a Director of NHL since December 1992. Mr. Maher was Vice Chairman of The
First Boston Corporation from 1990 to 1992
99
<PAGE>
and Managing Director of The First Boston Corporation from 1982 to 1992. Mr.
Maher also is a director of First Brands Corporation.
Thomas P. Mac Mahon. Mr. Mac Mahon has served as Senior Vice President of
Roche since 1993 and President of Roche Diagnostics Group and a director and
member of the Executive Committee of Roche since 1988. Prior to assuming the
office of Senior Vice President of Roche, Mr. Mac Mahon served as Vice
President from 1982 to 1988. In May 1994 Mr. Mac Mahon was appointed to serve
one-year terms as director of RBL, HLR, Roche Diagnostic Systems, Inc., Roche
Molecular Systems, Inc., Medlab of South Georgia, Inc., KCCL, Inc., Medical
Laboratory Associates, Inc., and Sacramento Clinical Laboratory, Inc. As Senior
Vice President of Roche and President of Roche Diagnostics Group, Mr. Mac Mahon
is responsible for the management of all United States operations of the
diagnostic businesses of Roche. Mr. Mac Mahon is also currently a member of the
Worldwide Diagnostics Executive Committee of Roche Holding Ltd.
Jean-Luc Belingard. Mr. Belingard is Director General of the Diagnostics
Division and member of the Executive Committee of F. Hoffmann-La Roche Ltd,
Basel, Switzerland. He joined Hoffmann-La Roche in 1982, and held various
positions prior to being named to his current positions in 1990. His current
responsibilities include the management of the worldwide diagnostic business of
Hoffmann-La Roche. Mr. Belingard is a director of Perkin-Elmer Corporation,
Norwalk, Connecticut, a Foreign Trade Advisor to the French Government and a
member of the Advisory Council of the Banque de France. He also serves as Vice
President of the European Diagnostic Manufacturers Association.
Dr. James B. Powell. Dr. Powell has served as President of RBL since 1982.
From 1979 through 1982, Dr. Powell served as President of Biomedical Reference
Laboratories, a publicly-held company, which was acquired by HLR in 1982, and
from 1969 through 1979 Dr. Powell served as President of Biomedical
Laboratories, the privately-held predecessor of Biomedical Reference
Laboratories. As President of RBL, Dr. Powell is responsible to the Board of
Directors for supervision of the ongoing operations of RBL, including
development and implementation of strategic and long-term plans. Dr. Powell is
a medical doctor and became board certified in anatomic and clinical pathology
in 1969.
Timothy J. Brodnik. Mr. Brodnik joined NHL in 1971. He was appointed
Executive Vice President of NHL in 1993 and was Senior Vice President from 1991
to 1993 and Vice President-Division Manager commencing in 1979. Mr. Brodnik
oversees NHL's sales operations and major regional laboratories in Florida and
North Carolina.
Haywood D. Cochrane, Jr. Mr. Cochrane has been an executive of NHL since the
Allied Acquisition. Mr. Cochrane was President, Chief Executive Officer and a
director of Allied from its formation in 1989 until the Allied Acquisition. He
had previously been employed since 1977 by RBL, and its predecessor company
Biomedical Reference Laboratories, Inc. where he held a number of positions
including most recently Senior Vice President and Chief Operating Officer. He
also served as a Vice President of Roche. Mr. Cochrane also serves as a
director of First Union National Bank of Tennessee and JDN Realty Corp.
David C. Flaugh. Mr. Flaugh has been Chief Operating Officer and Senior
Executive Vice President of NHL since 1993. He has been acting Chief Financial
Officer and Treasurer of NHL since July 1994. Mr. Flaugh was Vice President-
Managing Director, Chief Financial Officer and Treasurer of NHL from 1991 to
1993. From 1988 to 1991, Mr. Flaugh was Vice President-Finance. From 1984 to
1988, Mr. Flaugh was Vice President and Controller.
John F. Markus. Mr. Markus joined NHL in 1990. He was appointed Executive
Vice President and Director of Compliance in 1993 and was Vice President-
Managing Director from 1990 to 1993. Previously, Mr. Markus was an attorney in
the law firm of Akin, Gump, Strauss, Hauer and Feld in Washington D.C. for more
than five years and was a partner in such firm since 1989.
Bradford T. Smith. Mr. Smith has served as Assistant General Counsel of HLR,
Division Counsel of RBL, and Assistant Secretary and member of RBL's Senior
Management Committee since 1988. As Division
100
<PAGE>
Counsel of RBL, Mr. Smith established the on-site legal function at RBL's
corporate headquarters in 1988 and since then his duties have included the
general management of the RBL Law Department. He is also responsible for
providing legal advice to RBL's management in connection with regulatory
compliance, corporate law, litigation, antitrust, contracts, acquisitions and
divestitures and the legal implications of major strategic, operational and
policy issues. Mr. Smith has served as Assistant Secretary of HLR since 1989
and as an Assistant Vice President of HLR during 1992 and 1993.
Ronald B Sturgill. Mr. Sturgill has served as Senior Vice President,
Administration of RBL since 1987. From 1986 to 1987, he served as Senior Vice
President, North-central Regional Operations of RBL. Mr. Sturgill served as
RBL's Vice President of Laboratories and Human Resources from 1982 until 1986.
Mr. Sturgill's responsibilities as Senior Vice President, Administration
include the supervision of Information Systems, Human Resources, Sales Support
and Training.
David C. Weavil. Mr. Weavil has served as Senior Vice President and Chief
Operating Officer of RBL since 1989. 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. Mr.
Weavil's current responsibilities as Chief Operating Officer of RBL include the
supervision of operating activities involving laboratory testing, sales,
logistics and certain administrative activities.
Robert E. Whalen. Mr. Whalen joined NHL in 1976. He was named Executive Vice
President of NHL in 1993 and was Senior Vice President from 1991 to 1993 and
Vice President-Administration commencing 1985. From 1979 to 1985, he was Vice
President-Division Manager of NHL. Mr. Whalen oversees human resources,
information systems, client service and major regional laboratories in
California, Washington, Nevada and Utah.
Wesley R. Elingburg. Mr. Elingburg has served as Senior Vice President--
Finance and Treasurer of RBL since 1988 and Assistant Vice President of Roche
since 1989. In such capacities, Mr. Elingburg has been responsible for the
management of all financial functions of RBL, including financial reporting,
analysis, strategic planning, budgeting, income tax, insurance, fleet
administration, managed care and national accounts. Mr. Elingburg's specific
responsibilities also include management of the RBL billing operation, and
other specific finance areas such as general ledger and accounts payable.
OPERATIONS AFTER THE MERGER
Headquarters of the Surviving Corporation. At the Effective Time, the
headquarters of the Surviving Corporation will be located in Burlington, North
Carolina. However, the Surviving Corporation's office in La Jolla, California,
is not expected to be closed in connection with the Merger and certain
executive officers of the Surviving Corporation are expected to be based there.
Expected Savings of Operating Costs. The Surviving Corporation is expected to
achieve substantial savings of operating costs through the consolidation of
certain operations and the elimination of redundant expenses. Such savings
would be realized over time as the consolidation is completed. The Surviving
Corporation is expected to realize approximate annualized savings of between
$80 million to $90 million within three years following the Merger. The
synergies expected to be realized by the Surviving Corporation would be derived
from several sources, including an expected $25 million of savings in
corporate, general and administrative expenses including the consolidation of
administrative staff. Combining the NHL sales force with the RBL sales force
where duplicate territories exist is expected to add approximately $9 million
of synergies. Operational savings are expected to result in approximately $55
million of synergies. These include closing overlapping laboratories and other
facilities and savings to be realized from additional buying power by the
larger Surviving Corporation. It is also expected that the Surviving
Corporation will realize approximately $5 million of savings relating to
employee benefits as a result of expected changes to certain benefit
arrangements. These estimated savings are anticipated to be partially offset by
a loss of existing accounts during the conversion process in the amount of
approximately $4 million. Realization of improvements in profitability is
dependent, in part, on the extent to which the revenues of the constituent
companies are maintained and will be influenced by many factors, including
factors outside the control of the Surviving Corporation. There can be no
assurance that the estimated cost savings described above will be realized or
achieved in a timely manner or that improvements, if any, in profitability will
be achieved or that such savings will not be offset by increases in other
expenses. See "CERTAIN CONSIDERATIONS--Potential Difficulty of the Integration
of NHL and RBL".
101
<PAGE>
RESTRUCTURING COSTS OF NHL
Restructuring costs of approximately $84 million are expected to be recorded
by the Surviving Corporation at the Effective Time in connection with the
Merger. These costs will reflect the write-off of deferred financing costs
related to the repayment of NHL's revolving credit facility and term loan
facility entered into in connection with the Allied Acquisition Financing and
the creation of reserves for severance and benefit costs, costs for office
facilities expected to be closed, vacant space costs, systems conversion costs
and other restructuring expenses of NHL associated with the Merger.
LIQUIDITY AND CAPITAL RESOURCES AFTER THE MERGER
The aggregate cash consideration of approximately $474.7 million to be paid
to stockholders of NHL in the Merger will be financed from three sources: the
NHL Cash Contribution of approximately $288.0 million to be made out of the
proceeds of borrowings by NHL in an equal amount, the HLR Cash Contribution in
the amount of approximately $135.7 million and the Roche Warrant Consideration
in the amount of approximately $51.0 million.
NHL has obtained a commitment from Credit Suisse for a senior unsecured
credit facility in an aggregate amount of $1.25 billion, which will include an
$800.0 million amortizing senior term loan facility and a $450.0 million
revolving credit facility, to refinance NHL's existing indebtedness and to
finance the NHL Cash Contribution. The expected material terms and conditions
of the credit facility are described under "PLAN OF FINANCING--Description of
Bank Facility".
In connection with the Merger, RBL expects that approximately $150.0 million
of its existing indebtedness will be assigned by RBL and HLR to another entity
in the Roche Group (other than a subsidiary of RBL). Intercompany indebtedness
of RBL of approximately $85.1 million is expected to be eliminated in
connection with the Merger through an equity contribution by HLR. See "PLAN OF
FINANCING--Description of Bank Facility".
Based on the expected terms of the Credit Agreement, aggregate principal
payments are expected to be approximately $16.7 million, $70.8 million, $112.5
million, $150.0 million and $162.5 million, respectively, in the five fiscal
years subsequent to the Merger. Interest payments under the Credit Agreement
are estimated to be $50.0 million to $60.0 million in the 1995 period
subsequent to the Merger. Such payments in the following four fiscal years are
estimated to decline from approximately $85.0 million in 1996 to approximately
$50.0 million in 1999. There can be no assurance, however, that the terms of
the definitive Credit Agreement will not vary from these described above or
that the interest payments made under the Credit Agreement (which will reflect
fluctuating interest rates and outstanding principal amounts) will not vary
significantly from these estimated above.
The ability of the Surviving Corporation to meet its debt service
requirements and operating cash needs will be dependent, in part, on the
successful integration of NHL and RBL. The anticipated benefits of the Merger
might not be achieved unless the operations of RBL are successfully combined
with those of NHL in a timely manner. It is currently estimated that the
integration of the operations of NHL and RBL could take up to three years to
accomplish. See "CERTAIN CONSIDERATIONS--Potential Difficulty of the
Integration of NHL and RBL".
NHL expects that its cash needs for working capital, capital expenditures and
the cash costs of the restructuring and operations of the Surviving Corporation
after the Merger will be met by its cash flow from operations and borrowings
under the revolving credit facility. During the five fiscal years following the
Merger, the Surviving Corporation is expected to have unused borrowing capacity
under the Revolving Credit Facility of between $100.0 million and $225.0
million per year. However, there can be no assurance that the Surviving
Corporation's actual unused borrowing capacity will not vary significantly from
the amounts estimated above.
102
<PAGE>
Subsequent to the Merger, the Surviving Corporation is expected to derive
approximately 31% of its net sales from tests performed for beneficiaries of
Medicare and Medicaid programs. During 1993, provisions were included in OBRA
'93 that reduced Medicare reimbursement schedules by lowering payments under
the fee schedule methodology from 88% to 84% of the 1984 national median,
effective January 1, 1994, and from 84% to 80% of the national median,
effective January 1, 1995. A further reduction in payments to 76% of the 1984
national median will become effective on January 1, 1996. OBRA '93 also
eliminated, for 1994 and 1995, the provision for annual fee schedule increases
based upon the consumer price index.
The health care industry is undergoing significant change as third party
payors, such as Medicare and Medicaid and insurers, increase their efforts to
control the cost of health care services. In an effort to address the problem
of increasing health care costs, legislation has been proposed at both the
Federal and state levels to further regulate health care delivery in general
and clinical laboratories in particular and legislation has been enacted that
reduces the amounts reimbursable to NHL and RBL and other independent clinical
laboratories under Medicare and Medicaid. NHL and RBL cannot predict the effect
health care reform, if enacted, or future changes in Federal, state and local
regulations affecting governmental reimbursement for clinical laboratory
testing may have on the Surviving Corporation's business, and there can be no
assurance that any such reforms would not have a material adverse effect on the
Surviving Corporation. See "CERTAIN CONSIDERATIONS--Limitations on Third Party
Payor Reimbursement of Health Care Costs".
It is expected that the Surviving Corporation's capital expenditures will be
approximately $80 to $90 million in fiscal year 1995 following the Merger and
approximately $65 to $80 million in each of the four fiscal years thereafter in
order to integrate NHL and RBL, accommodate expected growth, further automate
laboratory processes and improve efficiency.
103
<PAGE>
MARKET PRICES AND DIVIDENDS
NHL Common Stock (symbol: NH) is listed for trading on the NYSE. The
following table sets forth, for the periods indicated, the high and low sales
prices per share of NHL Common Stock on the NYSE Composite Transactions Tape
and the quarterly cash dividends per share paid by NHL on such shares. The
common stock, no par value, of RBL is not publicly traded, and no comparative
market price data is available.
<TABLE>
<CAPTION>
NHL CASH
COMMON DIVIDENDS
STOCK PER SHARE
------------ OF COMMON
HIGH LOW STOCK
---- ---- ---------
<S> <C> <C> <C>
1992
First Quarter.................................. $29 1/4 $24 1/4 $.07
Second Quarter................................. 25 1/2 18 7/8 .08
Third Quarter.................................. 24 3/8 18 .08
Fourth Quarter................................. 25 1/8 15 5/8 .08
1993
First Quarter.................................. 18 1/4 12 7/8 .08
Second Quarter................................. 19 1/2 16 1/8 .08
Third Quarter.................................. 18 1/2 14 1/2 .08
Fourth Quarter................................. 16 3/8 12 .08
1994
First Quarter.................................. 15 1/4 12 7/8 .08
Second Quarter................................. 13 3/4 10 5/8 --
Third Quarter.................................. 13 3/8 10 7/8 --
Fourth Quarter................................. 15 3/4 11 3/8 --
1995
14
First Quarter (through March 29, 1995)......... 5/8 12 5/8 --
</TABLE>
The following table sets forth the last reported sales prices per share of
the NHL Common Stock on the NYSE Composite Transactions Tape on December 13,
1994, the last trading day before announcement of the Merger Agreement, and on
March 29, 1995, the latest trading day for which information was practicably
available before the printing of this Proxy Statement/Prospectus:
<TABLE>
<CAPTION>
NHL
COMMON
STOCK
-------
<S> <C>
December 13, 1994................................................. $ 12.00
March 29, 1995.................................................... $14.625
</TABLE>
104
<PAGE>
UNAUDITED PRO FORMA CONDENSED
COMBINED CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma condensed combined consolidated statement of earnings
of NHL for the year ended December 31, 1994 present the consolidated operating
results for NHL as if the Allied Acquisition, the RBL Stand-Alone Adjustments
and the Merger had all occurred as of January 1, 1994. The accompanying
unaudited pro forma condensed combined consolidated balance sheet as of
December 31, 1994 gives effect to these transactions as if they had all
occurred on December 31, 1994.
The unaudited pro forma condensed combined consolidated financial information
should be read in conjunction with the accompanying notes, the historical
consolidated financial statements and notes thereto of NHL incorporated by
reference herein, the historical consolidated financial statements and notes
thereto of RBL included herein and the historical consolidated financial
statements of Allied as of March 31, 1994 and for the three months then ended
contained in Allied's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1994.
THE UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
ARE PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND ARE NOT NECESSARILY INDICATIVE
OF THE RESULTS OF OPERATIONS OR FINANCIAL CONDITION THAT WOULD HAVE BEEN
ACHIEVED HAD THE ALLIED ACQUISITION, THE RBL STAND-ALONE ADJUSTMENTS AND THE
MERGER ACTUALLY OCCURRED AS OF THE DATES INDICATED OR OF THE FUTURE RESULTS OF
OPERATIONS OR FINANCIAL CONDITION OF NHL. The pro forma adjustments are based
upon available information and certain assumptions that NHL currently believes
are reasonable in the circumstances. If these transactions are consummated,
NHL's financial statements will reflect their effects only from the date each
such transaction occurs. The pro forma adjustments are applied to the
historical consolidated financial statements of NHL, RBL and Allied to account
for the Allied Acquisition and the Merger using the purchase method of
accounting. Under purchase accounting, the total purchase cost of Allied was
allocated and for RBL will be allocated to the assets and liabilities acquired
based on their relative fair values as of the dates the transactions are
closed, with any excess of the total purchase price over the fair value of the
tangible assets acquired less the fair value of the liabilities assumed
recorded as intangible assets. The cost allocations will be based on appraisals
and other studies, which are not yet completed. Accordingly, the final
allocations will be different from the amounts reflected herein. Although the
final allocations will differ, the pro forma condensed combined consolidated
financial information reflects NHL management's best estimate based on
currently available information. The pro forma condensed combined consolidated
balance sheet data as of December 31, 1994 reflects the effect of a
restructuring charge of approximately $84 million expected to be recorded by
the Surviving Corporation at the Effective Time in connection with the Merger.
The pro forma condensed combined consolidated statement of earnings data does
not reflect the effect of this restructuring charge as it is not expected to
have a continuing effect on the results of operations of the Surviving
Corporation. See "MANAGEMENT AND OPERATIONS AFTER THE MERGER--Restructuring
Costs of NHL".
105
<PAGE>
PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS
------------------------ ---------------------------------------
ALLIED ACQUISITION
AND THE MERGER
------------------------
RBL FINANCING
STAND-ALONE AND PURCHASE PRO FORMA
NHL(6) ALLIED(6) RBL ADJUSTMENTS(1) ACQUISITIONS ACCOUNTING COMBINED
------ --------- ------ -------------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $872.5 $90.3 $729.8 $1,692.6
Cost of sales........... 597.0 62.2 498.0 $(4.1)(4) 1,153.1
------ ----- ------ ----- --------
Gross profit.......... 275.5 28.1 231.8 4.1 539.5
Selling, general and
administrative
expenses............... 149.3 18.1 152.7 $(3.8) -- 316.3
Amortization of
intangibles and
other assets........... 16.3 1.7 13.9 -- (2.4)(4) 29.5
Gain on disposition of
regional assets........ -- (0.7) -- -- -- (0.7)
------ ----- ------ ----- ----- --------
Operating income...... 109.9 9.0 65.2 3.8 6.5 194.4
Other income (expenses):
Litigation settlement
and related
expenses............. (21.0) -- -- -- -- (21.0)
Other gains and
expenses, net........ -- -- 0.9 -- -- 0.9
Investment income..... 1.0 0.1 -- 0.2 -- 1.3
Interest expense...... (34.5) (1.0) (15.5) 13.0 $(15.6)(2) (50.4)
3.2 (3)
------ ----- ------ ----- ------ ----- --------
Earnings before income
taxes................ 55.4 8.1 50.6 17.0 (12.4) 6.5 125.2
Provision for income
taxes.................. 25.3 3.2 22.7 6.8 (5.7)(5) 1.9 (5) 54.2
------ ----- ------ ----- ------ ----- --------
Net earnings.......... $ 30.1 $ 4.9 $ 27.9 $10.2 $ (6.7) $ 4.6 $ 71.0
====== ===== ====== ===== ====== ===== ========
Net earnings per common
share (7).............. $ 0.36 $ 0.58
====== ========
Weighted average common
shares
outstanding (millions)
(7).................... 84.8 122.9
====== ========
</TABLE>
See accompanying Notes to Pro Forma Condensed Combined Consolidated Statement
of Earnings
106
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF EARNINGS
(DOLLARS IN MILLIONS)
(1) Reflects the RBL Stand-Alone Adjustments, which represent adjustments to
reflect RBL's financial position and results of operations as if it had
been a stand-alone entity, rather than a subsidiary of HLR. The adjustments
primarily consist of eliminating certain intercompany charges for services
that RBL would no longer require from the Roche Group (net of the costs
that RBL would have incurred to obtain such services if it had been stand-
alone entity), eliminating certain debt which will be eliminated as a
liability of RBL at or prior to the Merger and eliminating intercompany
accounts, other than current trade payables.
(2) In June 1994, in connection with the Allied Acquisition, a subsidiary of
NHL obtained the Allied Acquisition Financing (in an aggregate principal
amount of $585.0 million) to refinance existing indebtedness of NHL and to
finance the Allied Acquisition. The Allied Acquisition Financing, Allied's
7.375% Convertible Senior Subordinated Notes due 2006 (in an aggregate
principal amount of $24.0 million), all other outstanding indebtedness of
NHL and the indebtedness of RBL not assumed by HLR pursuant to the RBL
Stand-Alone Adjustments (in an aggregate principal amount of $50.3) are
assumed, for the purpose of the Pro Forma Condensed Combined Consolidated
Statement of Earnings, to have been refinanced, pursuant to borrowings
under the Bank Facility, at the beginning of the applicable period. The pro
forma adjustment to interest expense (based on the interest rate
assumptions shown below) reflects the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
Interest on indebtedness:
Term Loan Facility..................................... $(37.5)
Revolving Credit Facility.............................. (6.7)
Facility fee on the Revolving Credit Facility........... (0.6)
Amortization of deferred financing costs................ (2.3)
Less historical amounts on NHL indebtedness
assumed to be repaid:
Interest expense...................................... 29.5
Commitment fees....................................... 0.5
Amortization of deferred financing costs.............. 1.5
------
$(15.6)
======
</TABLE>
In calculating interest expense, the interest rate assumptions were based on
the terms of the draft of the Credit Agreement. For the applicable periods,
such interest rates (which are subject to final acceptance by the lenders) are
based on the Eurodollar Rate, as defined in the draft of the Credit Agreement,
plus 0.375% for the Term Loan Facility and 0.25% for the Revolving Credit
Facility, as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
Term Loan Facility...................................... 4.682%
Revolving Credit Facility............................... 4.557%
Facility fee on the Revolving Credit Facility........... 0.125%
</TABLE>
An increase or decrease in the interest rate of one-quarter of one percent
(0.25%) with respect to the pro forma debt capitalization of NHL would
increase or decrease interest expense as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
Term Loan Facility...................................... $2.0
Revolving Credit Facility............................... 0.4
</TABLE>
107
<PAGE>
(3) Reflects the elimination of the interest expense attributable to $24.0 of
Allied's 7.375% Convertible Senior Subordinated Notes due December 15,
2006. In addition, reflects the elimination of interest expense
attributable to RBL debt not assumed by HLR of $50.3, which is assumed to
be refinanced with proceeds from the Term Loan Facility.
(4) The Allied Acquisition was accounted for under the purchase method of
accounting. The Merger will also be accounted for under the purchase method
of accounting. Pro forma purchase accounting adjustments, which take into
account the revaluation of the depreciable basis of the fixed assets of
both entities, are provided below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994(A)
------------
<S> <C>
Allied, RBL and NHL:
Reduction in depreciation and amortization of leasehold
improvements expense..................................... $(4.1)
Allied:
Elimination of preacquisition intangible asset
amortization............................................. (1.7)
Allied Acquisition intangible asset amortization.......... 2.9
RBL:
Elimination of pre-Merger intangible asset amortization... (13.9)
Merger intangible asset amortization...................... 10.3
-----
$(6.5)
=====
</TABLE>
For purposes of determining the pro forma amortization of intangible
assets, NHL has estimated that the intangible assets of Allied consist of
goodwill of $162.5 and other intangible assets of $51.9. The amortization
periods for these assets are between 3 and 40 years. In addition, NHL has
estimated that the intangible assets of RBL consist of goodwill of $257.2,
customer lists of $73.4 and product technology of $3.0. The amortization
periods for these assets are estimated to be 40 years, 25 years and 3
years, respectively. The final cost allocations for both Allied and RBL
will be based on appraisals and other studies which are not yet completed.
--------
(a) Reflects net increase (decrease) for Allied for the period from January
1, 1994 to June 22, 1994.
(5) Reflects the change in the provision for income taxes as a result of the
pro forma adjustments set forth under the columns "Allied Acquisition and
the Merger". Such tax adjustments were based on the historical statutory
tax rates used for NHL's consolidated financial statements.
(6) The data for NHL include Allied's results of operations from June 23, 1994
through December 31, 1994. Data presented for Allied include results of
operations through June 22, 1994.
(7) Pro forma net earnings per common share is computed by dividing pro forma
net earnings by NHL's historical weighted average number of common shares
outstanding after giving effect to (a) the NHL Share Conversion, (b) the
issuance of approximately 61,341,742 shares of NHL Common Stock at December
31, 1994 to HLR in connection with the Merger and (c) the issuance of
559,092 shares of NHL Common Stock at December 31, 1994 in connection with
the cancelation of all NHL Employee Stock Options.
108
<PAGE>
PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1994
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------------------------------
HISTORICAL THE MERGER
--------------- ---------------------------------------
RBL FINANCING NHL
STAND-ALONE AND PURCHASE SHARE PRO FORMA
NHL RBL ADJUSTMENTS(1) ACQUISITIONS ACCOUNTING CONVERSION COMBINED
-------- ------ -------------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............ $ 26.8 $ 12.6 $ (6.3) $135.7 (2) $ (5.8)(7) $ 33.1
344.1 (9) (474.7)(6)
(50.3)(3) 51.0 (8)
Accounts receivable,
net.................... 205.4 159.8 -- -- -- 365.2
Inventories............ 20.1 38.4 -- -- -- 58.5
Prepaid expenses and
other.................. 8.3 12.0 -- -- -- 20.3
Deferred income taxes.. 29.4 12.8 -- -- -- 42.2
Income taxes
receivable............. 3.0 -- -- -- -- 3.0
-------- ------ ------- ------ ------- --------
Total current assets... 293.0 235.6 (6.3) 429.5 (429.5) 522.3
Property, plant and
equipment, net.......... 140.1 155.4 -- (24.1)(5) $ (0.5)(4) -- 270.9
Investment in
subsidiary.............. -- -- -- 539.6 (2) (539.6)(4) -- --
Intangible assets, net.. 551.9 109.0 -- -- 224.6 (4) -- 885.5
Other assets, net....... 27.7 4.1 -- (14.0)(5) -- -- 27.8
10.0 (9)
Deferred income taxes... -- 4.2 -- -- -- -- 4.2
-------- ------ ------- ------ ------- ------- --------
$1,012.7 $508.3 $ (6.3) $941.0 $(315.5) $(429.5) $1,710.7
======== ====== ======= ====== ======= ======= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt
and capital lease
obligations........... $ 39.0 $235.3 $(235.1) $ (0.2)(3) $ 50.0
(39.0)(9)
50.0 (10)
Accounts payable....... 44.3 31.2 1.4 -- 76.9
Accrued expenses and
other.................. 92.8 53.6 (19.4) (26.6)(5) $ 24.0 (4) 124.4
Current portion of
accrued settlement
expenses.............. 26.7 -- -- -- -- 26.7
-------- ------ ------- ------ ------- --------
Total current
liabilities............ 202.8 320.1 (253.1) (15.8) 24.0 278.0
Revolving credit
facility................ 213.0 -- -- (65.9)(9) -- 147.1
Long-term debt, less
current portion......... 341.0 50.1 -- 459.0 -- 750.0
(50.1)(3)
(50.0)(10)
Capital lease
obligation.............. 9.8 -- -- -- 9.8
Deferred income taxes... 20.6 -- -- -- -- 20.6
Other liabilities....... 59.5 35.2 -- 34.2 (5) 10.2(4) 139.1
Stockholders' equity:
Preferred stock........ -- -- -- -- -- --
Common stock........... 0.8 1.5 -- 0.6 (2) (1.5)(4) $ (0.2)(6) 1.2
Additional paid-in
capital................ 153.5 228.8 226.4 674.7 (2) (455.2)(4) (474.5)(6) 398.9
51.0 (8)
(5.8)(7)
Retained earnings....... 11.7 (127.4) 20.4 (45.7)(5) 107.0 (4) -- (34.0)
-------- ------ ------- ------ ------- ------- --------
Total stockholders'
equity................. 166.0 102.9 246.8 629.6 (349.7) (429.5) 366.1
-------- ------ ------- ------ ------- ------- --------
$1,012.7 $508.3 $(6.3) $941.0 $(315.5) $(429.5) $1,710.7
======== ====== ======= ====== ======= ======= ========
</TABLE>
See accompanying Notes to Pro Forma Condensed Combined Consolidated Balance
Sheet
109
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NOTES TO PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(1) Reflects the RBL Stand-Alone Adjustments, which represent adjustments to
reflect RBL's financial position and results of operations as if it had
been a stand-alone entity, rather than a subsidiary of HLR. The
adjustments primarily consist of eliminations of certain intercompany
charges for services that RBL would no longer require from HLR (net of the
costs that RBL would have incurred to obtain such services if it had been
a stand-alone entity), eliminating certain debt which will be eliminated
as a liability of RBL at or prior to the Merger and elimination of
intercompany accounts, other than current trade payables.
(2) Reflects the issuance in the Merger of 61,341,742 shares of NHL Common
Stock at December 31, 1994 to HLR in exchange for all shares of common
stock of RBL issued and outstanding. The fair market value of the shares
of NHL Common Stock issued to HLR is based on the estimated fair market
value of NHL after giving effect to the transactions contemplated in
connection with the Merger.
(3) Reflects the repayment of $50.3 of remaining debt of RBL concurrent with
the Merger. This repayment will be made with proceeds of borrowings under
the Term Loan Facility.
(4) Reflects the estimated allocation of the purchase price paid in the Merger
to the net assets of RBL based upon the estimated fair market values of
such net assets.
<TABLE>
<S> <C>
Estimated acquisition cost, net................................. $ 539.6
Less historical book value of net assets at December 31, 1994,
as adjusted.................................................... (349.7)
Elimination of preacquisition intangibles...................... 109.0
Write-down of property, plant & equipment...................... 0.5
Other adjustments.............................................. 34.2
-------
Intangible Assets............................................. $ 333.6
=======
</TABLE>
NHL has estimated the value of the intangible assets acquired in the Merger
as follows: goodwill of $257.2, customer lists of $73.4 and product
technology of $3.0. The amortization periods for these assets are 40 years,
25 years and 3 years, respectively. The final cost allocations will be
based on appraisals and other studies which are not yet completed.
(5) Reflects restructuring costs of approximately $84.0 million ($45.7 million
after-tax) which are expected to be recorded by the Surviving Corporation
at the Effective Time in connection with the Merger. These costs will
reflect the write-off by NHL of deferred financing costs related to the
repayment of its existing revolving credit facility and term loan facility
entered into in connection with the Allied Acquisition Financing and the
creation of reserves for severance and benefit costs, costs for office
facilities expected to be closed, vacant space costs, systems conversion
costs and other restructuring expenses of NHL associated with the Merger.
(6) Reflects the NHL Share Conversion and the issuance of 0.16308 Warrant per
share to purchase one share of NHL Common Stock at $22 per share (subject
to adjustments) in five years. The number of Warrants to be issued is
13,822,957 with an estimated value of $6.132 per Warrant (determined based
on the Roche Warrant Consideration).
(7) Reflects the cancellation of all NHL Employee Stock Options for the Option
Value Amount of which 40%, or approximately $5.8, is paid in cash and 60%
is paid in shares of NHL Common Stock, resulting in the issuance of an
additional 559,092 shares of NHL Common Stock at December 31, 1994.
(8) Reflects the issuance of the Roche Warrants to Roche for approximately
$51.0.
(9) Reflects borrowings of $147.1 under the Revolving Credit Facility and
$800.0 under the Term Loan Facility to repay an existing revolving credit
facility of $213.0 and an existing term loan of $380.0 entered into in
connection with the Allied Acquisition Financing and borrowings to finance
the NHL Cash Contribution. In addition, reflects the payment of estimated
financing fees and expenses of $10.0 which have been capitalized as
deferred financing costs and included in the caption "Other assets, net."
(10) Reflects the current portion of the Term Loan Facility in accordance with
expected terms of the Bank Facility.
110
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THE SHARING AND CALL OPTION AGREEMENT
The following is a brief summary of all material provisions of the Sharing
and Call Option Agreement. Such summary is qualified in its entirety by
reference to the Sharing and Call Option Agreement.
SHARING PAYMENTS
Definition of Sharing Payment. In the event that a termination fee has become
payable by NHL to HLR as described under "THE MERGER--Certain Fees", and NHCG
sells, transfers, assigns or otherwise disposes of (including by conversion or
exchange in a merger, exchange offer or the like) (any such action being a
"transfer") any of the Stockholder Shares (as defined below), NHCG and Mafco
Holdings Inc., jointly and severally, agree to pay to HLR an amount in cash (a
"Sharing Payment") equal to the product of (i) the number of Stockholder Shares
transferred by NHCG or any of the controlled affiliates of Mafco Holdings Inc.
or NHCG and (ii) 50% of the excess, if any, of (A) the per share cash
consideration or the per share fair market value, as the case may be, of any
non-cash consideration received by NHCG and each such controlled affiliate as a
result of such transfer over (B) $20.00 (as adjusted to give effect to any
stock dividend, stock split, recapitalization, combination or exchange of
shares, merger, consolidation, reorganization or other similar change or
transaction by NHL).
For purposes of determining the amount of the Sharing Payment, the fair
market value of any non-cash consideration, (i) consisting of securities listed
on a national securities exchange or traded on the National Association of
Securities Dealers, Inc.'s National Market System ("NASDAQ/NMS"), will be equal
to the average closing price per share of such security as reported on such
exchange or NASDAQ/NMS for the five trading days before the date of disposition
by NHCG and (ii) consisting of consideration which is other than cash or
securities listed on a national securities exchange or traded on the
NASDAQ/NMS, will be determined by a nationally recognized independent
investment banking firm (which firm will be mutually agreed upon by the
parties) within 10 business days of the selection of such investment banking
firm. If the parties are unable to agree within two business days after the
date of disposition as to the investment banking firm, then Morgan Stanley and
CS First Boston will jointly name a third investment banking firm whose fees
and expenses will be borne equally by HLR, on the one hand, and NHCG, on the
other hand.
Timing of Sharing Payment. Any Sharing Payment required to be made pursuant
to the Sharing and Call Option Agreement will be made two business days after
the later of (i) the fifth trading day after settlement of any disposition of
securities for cash or (ii) the date on which the investment banking firm
delivers to the parties its determination of the per share value of any non-
cash consideration received pursuant to any disposition, as applicable.
SALE AND VOTING OF STOCKHOLDER SHARES PRIOR TO THE MERGER
Sale of Stockholder Shares. The Sharing and Call Option Agreement prohibits
NHCG from transferring any of the 20,176,729 shares of NHL Common Stock,
beneficially owned or owned of record by NHCG, Mafco Holdings Inc. and their
respective affiliates on the date of the Sharing and Call Option Agreement and
any additional shares of NHL Common Stock or rights to acquire voting
securities of NHL acquired by NHCG, Mafco Holdings Inc. or any of their
respective affiliates from and after the date of the Sharing and Call Option
Agreement (collectively, the "Stockholder Shares") prior to the Effective Time,
unless a termination fee has become payable by NHL to HLR as described under
"THE MERGER--Certain Fees".
Voting of Stockholder Shares. The Sharing and Call Option Agreement requires
NHCG to, and requires NHCG and Mafco Holdings Inc. to cause their controlled
affiliates which hold NHL Common Stock to, be present in person or by proxy at
the NHL Meeting for the purpose of voting on the approval and adoption of the
Merger Agreement, and to cause all of the Stockholder Shares to be voted in
favor of the Merger and of the Merger Agreement.
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<PAGE>
CALL RIGHTS
Call Rights with Respect to Stockholder Shares. The Sharing and Call Option
Agreement provides that at any time after the third anniversary of the
Effective Time, HLR or any of its affiliates (such party, a "Purchaser") may
exercise the right (the "Call Right"), which right may only be exercised once,
to purchase all, but not less than all, the shares of NHL Common Stock then
owned by NHCG, Mafco Holdings Inc. or any of their controlled affiliates. If
Purchaser intends to exercise the Call Right, then, not less than 20 business
days prior to the exercise thereof, Purchaser is required to so notify Mafco
Holdings Inc. and NHCG of such intention, specifying in such notice (the "Call
Notice") the date of such exercise (the "Exercise Date"). From and after the
receipt of a Call Notice, the Sharing and Call Option Agreement prohibits NHCG,
Mafco Holdings Inc. and any of their controlled affiliates from transferring
any shares of NHL Common Stock that are owned by them except during any period
expiring 15 business days prior to the Exercise Date.
The Sharing and Call Option Agreement provides that Purchaser will pay a
price per share for the shares to be purchased equal to 102% of the average
closing price per share of such security as reported on the principal national
securities exchange on which such shares are listed, or if not so listed, as
reported on NASDAQ/NMS, for the 30 trading days before the Exercise Date.
COVENANTS
The Sharing and Call Option Agreement requires NHCG and Mafco Holdings Inc.
to comply with, and be bound by, the restrictions set forth in the section of
the Merger Agreement described under "THE MERGER--No Solicitation" as if such
restrictions were set forth in the Sharing and Call Option Agreement and to
take all actions necessary to enable each of them and their affiliates to
comply with the provisions of the Sharing and Call Option Agreement pertaining
to the voting of Stockholder Shares and the Call Rights.
REGISTRATION RIGHTS
NHL has agreed, pursuant to the Sharing and Call Option Agreement, to use its
best efforts to cause the Registration Statement to include a resale prospectus
that would permit NHCG (or any pledgee of the Merger Shares (as defined below)
under a bona fide pledge arrangement with NHCG) to sell shares of NHL Common
Stock received by NHCG in the Merger (the "Merger Shares") and Warrants
received by NHCG in the Warrant Distribution without restriction and, after the
filing of the Registration Statement, will use its best efforts to prepare and
file with the SEC such amendments and post-effective amendments to the
Registration Statement as may be necessary to keep such Registration Statement
continuously effective for a period ending on the third anniversary of the date
of the Sharing and Call Option Agreement and during such period will use its
best efforts to cause the resale prospectus to be supplemented by any required
prospectus supplement. NHL has agreed to pay all of the Registration Expenses
arising from exercise of the Registration Rights set forth in the Sharing and
Call Option Agreement.
AMENDMENTS AND TERMINATION
The Sharing and Call Option Agreement may not be modified, amended, altered
or supplemented, except upon the execution and delivery of a written agreement
executed by the parties thereto. The Agreement will terminate on the earliest
to occur of (i) the date on which NHCG, Mafco Holdings Inc. and their
affiliates own no shares of NHL Common Stock except with respect to the
obligation to make any Sharing Payment which has become due as a result of any
transfer of shares of NHL Common Stock or (ii) the effective date of any
termination of the Merger Agreement pursuant to any of the grounds for
termination set forth therein except termination pursuant to the provisions
described under "THE MERGER--Right of NHL Board of Directors to Withdraw
Recommendation Upon Receipt of a Superior Proposal" or any termination by HLR
if the Board of Directors of NHL has withdrawn its recommendation of the Merger
or the Merger Agreement or has recommended or approved any other Acquisition
Proposal. The registration rights provisions will terminate when NHCG, Mafco
Holdings Inc. and their respective controlled affiliates own no shares of NHL
112
<PAGE>
Common Stock that are subject to the registration requirements of the
Securities Act, and the Sharing Payment provisions of the Sharing and Call
Option Agreement will terminate 180 days after the effective date of any
termination of the Merger Agreement pursuant to the provisions described under
"THE MERGER--Right of NHL Board of Directors to Withdraw Recommendation Upon
Receipt of a Superior Proposal" or any termination by HLR if the Board of
Directors of NHL has withdrawn its recommendation of the Merger or the Merger
Agreement or has recommended or approved any other Acquisition Proposal.
OTHER MATTERS
REGULATORY APPROVALS REQUIRED
The consummation of the Merger is subject to, among other approvals, the
expiration or termination of the relevant waiting period under the HSR Act. The
HSR Act notification and report forms were filed by NHL and RBL on January 3,
1995. The waiting period under the HSR Act applicable to the Merger expired on
February 2, 1995.
In addition, it is a condition to the obligations of HLR and RBL to
consummate the Merger that CFIUS shall have determined not to investigate the
Merger under the Exon-Florio Amendment (or any such investigation shall have
been completed and the President shall have determined not to take any action
with respect thereto). NHL and RBL filed a letter informing CFIUS of the Merger
on February 6, 1995. CFIUS determined on March 8, 1995 that the Merger raises
no issues of national security sufficient to warrant an investigation under the
Exon-Florio Amendment and that action under the Exon-Florio Amendment had been
concluded with respect to the Merger.
NAME CHANGE AMENDMENT
At the NHL Meeting, holders of NHL Common Stock will be asked to approve the
Name Change Amendment, a proposed amendment to Article FIRST of the NHL
Certificate of Incorporation to change the name of the corporation to
Laboratory Corporation of America Holdings at, and subject to the occurrence
of, the Effective Time. The Board of Directors of NHL has unanimously approved
the Name Change Amendment. Moreover, the Board of Directors of NHL unanimously
recommends that the stockholders of NHL vote FOR the Name Change Amendment.
Approval of the Name Change Amendment is not required for the consummation of
the Merger.
The NHL Board of Directors recommends the approval of the Name Change
Amendment because it believes that the adoption of a new name will help convey
to the analyst, investor and health care communities that the Merger involves
the integration of NHL and RBL to create a new, larger, national clinical
laboratory company with greater potential for growth. The NHL Board of
Directors believes that the adoption of a new name is an appropriate method for
recognizing the significant contribution that both NHL and RBL will make to the
business of the Surviving Corporation.
APPRAISAL RIGHTS
Record holders of NHL Common Stock are entitled to appraisal rights under
Section 262 of the Delaware Corporation Law in connection with the Merger. The
following discussion is not a complete statement of the law pertaining to
appraisal rights under the Delaware Corporation Law and is qualified in its
entirety by the full text of Section 262 which is reprinted in its entirety as
Annex V to this Proxy
113
<PAGE>
Statement/Prospectus and is incorporated herein by reference. Except as set
forth herein, stockholders of NHL will not be entitled to appraisal rights in
connection with the Merger.
Section 262. Under the Delaware Corporation Law, record holders of shares of
NHL Common Stock who follow the procedures set forth in Section 262 and who
have not voted in favor of the Merger will be entitled to have their shares of
NHL Common Stock appraised by the Delaware Court of Chancery and to receive
payment of the "fair value" of such shares, exclusive of any element of value
arising from the accomplishment or expectation of the Merger, together with a
fair rate of interest, as determined by such court.
Under Section 262, where a merger agreement is to be submitted for approval
and adoption at a meeting of stockholders, as in the case of the NHL Meeting,
not less than 20 days prior to the meeting, NHL must notify each of the holders
of NHL Common Stock at the close of business on the NHL Record Date that such
appraisal rights are available and include in each such notice a copy of
Section 262. This Proxy Statement/Prospectus constitutes such notice. Any such
stockholder who wishes to exercise appraisal rights should review the following
discussion and Annex V carefully because failure to timely and properly comply
with the procedures specified in Section 262 will result in the loss of
appraisal rights under the Delaware Corporation Law.
A holder of shares of NHL Common Stock wishing to exercise appraisal rights
must deliver to NHL, before the vote on the approval and adoption of the Merger
Agreement at the NHL Meeting, a written demand for appraisal of such holder's
shares of NHL Common Stock. In addition, a holder of shares of NHL Common Stock
wishing to exercise appraisal rights must hold of record such shares on the
date the written demand for appraisal is made and must continue to hold such
shares through the Effective Time.
Only a holder of record of shares of NHL Common Stock is entitled to assert
appraisal rights for the shares of NHL Common Stock registered in that holder's
name. A demand for appraisal should be executed by or on behalf of the holder
of record fully and correctly, as the holder's name appears on the stock
certificates.
If the shares of NHL Common Stock are owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, execution of the demand
should be made in that capacity, and if the shares of NHL Common Stock are
owned of record by more than one person, as in a joint tenancy or tenancy in
common, the demand should be executed by or on behalf of all joint owners. An
authorized agent, including one or more joint owners, may execute a demand for
appraisal on behalf of a holder of record; however, the agent must identify the
record owner or owners and expressly disclose the fact that, in executing the
demand, the agent is agent for such owner or owners. A record holder such as a
broker who holds NHL Common Stock as nominee for several beneficial owners may
exercise appraisal rights with respect to the NHL Common Stock held for one or
more beneficial owners while not exercising such rights with respect to the NHL
Common Stock held for other beneficial owners; in such case, the written demand
should set forth the number of shares as to which appraisal is sought and where
no number of shares is expressly mentioned the demand will be presumed to cover
all NHL Common Stock held in the name of the record owner. Holders of NHL
Common Stock who hold their shares in brokerage accounts or other nominee forms
and who wish to exercise appraisal rights are urged to consult with their
brokers to determine the appropriate procedures for the making of a demand for
appraisal by such nominee. All written demands for appraisal of NHL Common
Stock should be sent or delivered to James G. Richmond, Executive Vice
President and General Counsel, National Health Laboratories Holdings Inc., 4225
Executive Square, Suite 805, La Jolla, CA 92037 so as to be received before the
vote on the approval and adoption of the Merger Agreement at the NHL Meeting.
Within 10 days after the Effective Time, the Surviving Corporation must send
a notice as to the effectiveness of the Merger to each person who has satisfied
the appropriate provisions of Section 262. Within 120 days after the Effective
Time, but not thereafter, NHL, or any holder of shares of NHL Common Stock
entitled to appraisal rights under Section 262 and who has complied with the
foregoing procedures, may file
114
<PAGE>
a petition in the Delaware Court of Chancery demanding a determination of the
fair value of such shares. NHL is not under any obligation, and has no present
intention, to file a petition with respect to the appraisal of the fair value
of the shares of NHL Common Stock. Accordingly, it is the obligation of the
stockholders to initiate all necessary action to perfect their appraisal rights
within the time prescribed in Section 262.
Within 120 days after the Effective Time, any record holder of shares of NHL
Common Stock who has complied with the requirements for exercise of appraisal
rights will be entitled, upon written request, to receive from NHL a statement
setting forth the aggregate number of shares of the NHL Common Stock with
respect to which demands for appraisal have been received and the aggregate
number of holders of such shares. Such statements must be mailed within 10 days
after a written request therefor has been received by NHL.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Court of Chancery will determine the holders of shares
of NHL Common Stock entitled to appraisal rights and will appraise the "fair
value" of the shares of NHL Common Stock, exclusive of any element of value
arising from the accomplishment or expectation of the Merger, together with a
fair rate of interest, if any, to be paid upon the amount determined to be the
fair value. Holders considering seeking appraisal should be aware that the fair
value of their shares of NHL Common Stock as determined under Section 262 could
be more than, the same as or less than the value of the Merger Consideration
that they would otherwise receive, if they did not seek appraisal of their
shares of NHL Common Stock. The Delaware Supreme Court has stated that "proof
of value by any techniques or methods which are generally considered acceptable
in the financial community and otherwise admissible in court" should be
considered in the appraisal proceedings. In addition, Delaware courts have
decided that the statutory appraisal remedy, depending on factual
circumstances, may or may not be a dissenter's exclusive remedy. The Court will
also determine the amount of interest, if any, to be paid upon the amounts to
be received by persons whose shares of NHL Common Stock or have been appraised.
The costs of the action may be determined by the Court and taxed upon the
parties as the Court deems equitable. The Court may also order that all or a
portion of the expenses incurred by any holder of shares of NHL Common Stock in
connection with an appraisal, including, without limitation, reasonable
attorneys' fees and the fees and expenses of experts utilized in the appraisal
proceeding, be charged pro rata against the value of all of the shares of NHL
Common Stock entitled to appraisal.
Any holder of shares of NHL Common Stock who has duly demanded an appraisal
in compliance with Section 262 will not, after the Effective Time, be entitled
to vote the shares of NHL Common Stock subject to such demand for any purpose
or be entitled to the payment of dividends or other distributions on those
shares (except dividends or other distributions payable to holders of record of
shares of NHL Common Stock as of a date prior to the Effective Time).
If any holder of shares of NHL Common Stock who demands appraisal of shares
under Section 262 fails to perfect, or effectively withdraws or loses, the
right to appraisal, as provided in the Delaware Corporation Law, the shares of
NHL Common Stock of such holder will be converted into Merger Consideration in
accordance with the Merger Agreement. A holder of shares of NHL Common Stock
will fail to perfect, or effectively lose, the right to appraisal if no
petition for appraisal is filed within 120 days after the Effective Time. A
holder may withdraw a demand for appraisal by delivering to NHL a written
withdrawal of the demand for appraisal and acceptance of the Merger, except
that any such attempt to withdraw made more than 60 days after the Effective
Time will require the written approval of the Surviving Corporation.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DELAWARE
CORPORATION LAW FOR PERFECTING APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH
RIGHTS.
The foregoing is a summary of certain of the provisions of Section 262 of the
General Corporation Law of the State of Delaware and is qualified in its
entirety by reference to the full text of such Section, a copy of which is
included herewith as Annex V.
115
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SOLICITATION OF PROXIES
NHL will bear the cost of the solicitation of proxies from its stockholders.
The solicitation is being made by mail, telephone, facsimile and personal
interview. Arrangements will also be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation
material to the beneficial owners of shares held of record by such persons, and
NHL will reimburse such custodians, nominees and fiduciaries for their
reasonable out-of-pocket expenses in connection therewith. In addition,
directors, officers and regular employees of NHL, and its subsidiaries may
solicit proxies from stockholders of their respective companies, without
additional compensation, except for out-of-pocket expenses in connection
therewith.
In addition, D. F. King & Co., Inc. will assist in the solicitation of
proxies by NHL for a fee not to exceed $7,500, plus reasonable out-of-pocket
expenses.
STOCKHOLDER PROPOSALS
Proposals of stockholders for inclusion in the proxy statement for the 1995
annual meeting of NHL stockholders must be received by NHL on or before April
13, 1995. Proposals should be mailed to National Health Laboratories Holdings
Inc., 4225 Executive Square, Suite 805, La Jolla, CA 92037, Attention: General
Counsel.
NHL STOCKHOLDER LIST
A certified list of NHL stockholders entitled to be present and vote at the
NHL Meeting will be available at the office of NHL's corporate secretary, La
Jolla, CA, and at the office of NHL's transfer agent, American Stock Transfer &
Trust Company, for inspection by any stockholder during normal business hours
from March 11, 1995 to one day prior to the date of the NHL Meeting and at the
NHL Meeting site on the day of the NHL Meeting.
EXPERTS
The consolidated financial statements and schedule of NHL and subsidiaries as
of December 31, 1994 and 1993, and for each of the years in the three-year
period ended December 31, 1994, have been incorporated by reference herein in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
The consolidated financial statements of RBL as of December 31, 1994 and
1993, and for each of the three years in the period ended December 31, 1994
included herein have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in accounting and auditing.
Representatives of KPMG Peat Marwick LLP are expected to be present at the
NHL Meeting. Such representatives are expected to be available to respond to
appropriate questions.
LEGAL MATTERS
The validity of the shares of NHL Common Stock offered hereby will be passed
upon for NHL by Cravath, Swaine & Moore, New York, New York.
116
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF RBL
<TABLE>
<S> <C>
PAGE
----
Report of Independent Accountants......................................... F-2
Consolidated Financial Statements
Consolidated Balance Sheet - December 31, 1993 and 1994................. F-3
Consolidated Statement of Income - Years Ended December 31, 1992, 1993,
and 1994............................................................... F-4
Consolidated Statement of Cash Flows - Years Ended December 31, 1992,
1993 and 1994.......................................................... F-5
Notes to Consolidated Financial Statements - Years Ended December 31,
1992, 1993 and 1994.................................................... F-6
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
February 15, 1995
TO THE BOARD OF DIRECTORS AND STOCKHOLDER OF
ROCHE BIOMEDICAL LABORATORIES, INC.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income and of cash flows present fairly, in all
material respects, the financial position of Roche Biomedical Laboratories,
Inc. and its subsidiaries ("RBL"--see definition in Note 1) at December 31,
1993 and 1994, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1994, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of RBL'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 the accompanying Notes to the financial statements, effective
January 1, 1992, RBL adopted Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."
Price Waterhouse LLP
Morristown, New Jersey
F-2
<PAGE>
ROCHE BIOMEDICAL LABORATORIES, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994
ASSETS -------- --------
<S> <C> <C>
Current assets:
Cash....................................................... $ 7,717 $ 12,553
Receivables, net........................................... 134,556 159,757
Inventories, net........................................... 39,556 38,400
Deferred income taxes...................................... 8,458 12,782
Other current assets....................................... 7,078 12,044
-------- --------
Total current assets..................................... 197,365 235,536
-------- --------
Property, plant and equipment, net........................... 145,850 155,449
-------- --------
Other assets:
Goodwill and other intangibles, net........................ 122,017 108,954
Other assets............................................... 3,986 4,133
Deferred income taxes...................................... 5,227 4,214
-------- --------
Total other assets....................................... 131,230 117,301
-------- --------
Total assets............................................. $474,445 $508,286
======== ========
LIABILITIES AND INVESTED CAPITAL OF HLR
Current liabilities:
Accounts payable........................................... $ 37,839 $ 31,225
Current installments of long-term debt..................... 114 235,284
Accrued compensation....................................... 10,282 13,296
Payable to affiliates, net................................. 14,559 4,167
Other current liabilities.................................. 7,367 11,042
Income taxes payable....................................... 11,197 25,122
-------- --------
Total current liabilities.................................... 81,358 320,136
Other liabilities:
Long-term debt............................................. 285,372 50,088
Other liabilities.......................................... 8,796 6,393
Postretirement benefits other than pensions................ 23,911 28,722
-------- --------
Total liabilities........................................ 399,437 405,339
Invested capital of HLR (Note 10)............................ 75,008 102,947
-------- --------
Commitments and contingencies (Notes 13 and 14)
Total liabilities and invested capital of HLR............ $474,445 $508,286
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
ROCHE BIOMEDICAL LABORATORIES, INC.
CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Net sales......................................... $667,372 $711,550 $729,807
-------- -------- --------
Cost of sales..................................... 459,196 488,697 498,030
Selling, general and administrative............... 134,554 150,346 152,738
Amortization of goodwill and other intangibles.... 13,055 13,151 13,863
-------- -------- --------
Income from operations........................ 60,567 59,356 65,176
Interest expense.................................. 24,491 15,368 15,501
Other expenses (income), net...................... (677) 803 (958)
-------- -------- --------
Income before taxes........................... 36,753 43,185 50,633
Income taxes...................................... 16,646 19,709 22,694
-------- -------- --------
Income before cumulative effect of change in
accounting principle......................... 20,107 23,476 27,939
Cumulative effect of change in accounting for
postretirement benefits other than pensions, net
(Note 12)........................................ (9,818) -- --
-------- -------- --------
Net income.................................... $ 10,289 $ 23,476 $ 27,939
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
ROCHE BIOMEDICAL LABORATORIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1992 1993 1994
--------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net income..................................... $ 10,289 $ 23,476 $ 27,939
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization................. 27,109 29,161 32,290
Provision for losses on receivables........... 24,017 30,725 29,897
Change in deferred income taxes............... (6,960) (643) (3,311)
Loss (gain) on disposal of assets............. 414 2,250 (883)
Changes in assets and liabilities:
Receivables.................................. 20,629 (29,123) (55,098)
Inventories.................................. (333) (1,988) 1,156
Accounts payable............................. 6,820 9,563 (6,614)
Income taxes payable......................... (11,642) 2,922 13,925
Other assets and liabilities................. 50,120 (27,622) (6,408)
--------- -------- --------
Net cash provided by operating activities... 120,463 38,721 32,893
--------- -------- --------
Investing activities:
Cash used for acquisition...................... (74,600) -- --
Purchases of intangible assets................. (7,829) (6,087) (800)
Purchases of property, plant and equipment,
net........................................... (34,736) (29,093) (30,127)
Proceeds from sale of property, plant and
equipment..................................... -- -- 2,984
--------- -------- --------
Net cash (used in) investing activities..... (117,165) (35,180) (27,943)
--------- -------- --------
Financing activities:
Repayments of debt............................. (1,575) (169) (114)
--------- -------- --------
Net cash used in financing activities....... (1,575) (169) (114)
--------- -------- --------
Increase in cash............................ 1,723 3,372 4,836
Cash at beginning of year....................... 2,622 4,345 7,717
--------- -------- --------
Cash at end of year............................. $ 4,345 $ 7,717 $ 12,553
========= ======== ========
Supplemental disclosures:
Interest paid.................................. $ 25,360 $ 16,216 $ 15,440
Income taxes paid.............................. 21,410 13,769 13,182
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
ROCHE BIOMEDICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994 (DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Roche Biomedical Laboratories, Inc. ("RBL") is a wholly owned subsidiary of
HLR Holdings Inc. ("HLR") and is an indirect wholly owned subsidiary of Roche
Holding Ltd. RBL has 100 shares of common stock issued and outstanding. The
financial statements of RBL include the accounts of its wholly owned
subsidiaries but do not include the assets, liabilities or results of
operations of the Roche Image Analysis Systems division ("RIAS"), the ownership
of which is expected to be transferred by RBL to an affiliate prior to the
effective time of the merger of RBL with and into National Health Laboratories
Holdings Inc. as described below in Note 2. All significant intercompany
balances and transactions have been eliminated in consolidation. RBL provides
clinical laboratory testing services to hospitals, laboratories and physicians
and offers a comprehensive line of over 1,600 tests and procedures, all of
which are performed in RBL's facilities, with a majority performed in RBL's 17
major testing centers located primarily in the midwestern, eastern and southern
United States.
Revenue Recognition
Revenue is recognized when testing services are performed.
Inventories
Inventories, which primarily consist of laboratory supplies, are stated at
the lower of cost or market. Cost is determined by the first-in, first-out
(FIFO) method.
Property, Plant and Equipment and Depreciation
Property, plant and equipment are carried at cost, which includes interest
costs attributable to and incurred during an asset's construction period. The
costs of maintenance, repairs and minor equipment items are charged to
operations. The costs of major renewals and betterments, which extend the
useful lives of assets, are capitalized.
Depreciation is computed using the straight-line method over the estimated
useful lives or lease terms for financial reporting purposes which range from 3
to 35 years. Accelerated methods are generally used for income tax purposes.
Goodwill and Other Intangibles
The excess of the cost over the fair value of net assets of purchased
businesses is recorded as goodwill and is amortized using the straight-line
method over periods not in excess of forty years. Other intangibles are being
amortized using the straight-line method over their estimated useful lives or
legal lives, whichever is shorter. Accumulated amortization of goodwill and
other intangibles amounted to $123,302 and $137,165 at December 31, 1993 and
1994, respectively.
At each balance sheet date, RBL reviews the recoverability of goodwill based
primarily on estimated future cash flows.
Income Taxes
RBL adopted Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes", effective January 1, 1992, which requires an
asset and liability approach for accounting and reporting of income taxes. The
adoption had no effect on RBL's results of operations for the year ended
December 31, 1992. Prior to 1992, RBL used the SFAS No. 96 asset and liability
approach that gave no recognition to future events other than the recovery of
assets and settlement of liabilities at their carrying amounts.
F-6
<PAGE>
ROCHE BIOMEDICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994 (DOLLARS IN THOUSANDS)
RBL and HLR are members of a controlled group which files a consolidated
Federal income tax return. Recorded income tax expenses and account balances
have been computed as if RBL filed its own separate tax return. Federal income
taxes payable reflect amounts which will be remitted to HLR.
Postretirement Benefits Other Than Pensions
Effective January 1, 1992, RBL adopted the provisions of SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" ("SFAS
No. 106"), which requires recognition of these costs on an accrual basis over
the service lives of employees. Prior to 1992, these costs were accounted for
on the cash basis.
2. AGREEMENT AND PLAN OF MERGER
On December 13, 1994, National Health Laboratories Holdings Inc. ("NHL"),
HLR, RBL and Hoffmann-La Roche Inc. entered into an Agreement and Plan of
Merger, pursuant to which RBL will be merged with and into NHL (the "Merger")
whereupon the existence of RBL will cease and NHL will become the surviving
corporation (the "Surviving Corporation"). All of the issued and outstanding
stock of RBL will be converted in the Merger into common stock of NHL.
After giving effect to the Merger, former shareholders of NHL and certain
option holders will collectively hold a 50.1 percent interest and HLR will hold
a 49.9 percent interest in the Surviving Corporation. Shares of the Surviving
Corporation will be traded on the New York Stock Exchange, Inc. with
approximately 122.9 million shares outstanding.
3. ACQUISITION
On February 11, 1992, RBL acquired all of the issued and outstanding shares
of CompuChem Corporation. The purchase price consisted of $74,600 in cash for
the shares and certain transaction costs. CompuChem was primarily engaged in
the forensic drug testing business. The acquisition was accounted for as a
purchase. Accordingly, the results of operations of the forensic drug testing
business of the acquired company are included with those of RBL for periods
subsequent to the date of acquisition. The acquisition resulted in $63,684 of
goodwill and other intangibles which are being amortized over periods up to 40
years.
Unaudited pro forma results of operations for 1992 combining the operations
of CompuChem Corporation as if it had been acquired at the beginning of the
periods have not been presented as the difference between the pro forma and
historical results is not significant.
4. RELATED PARTY TRANSACTIONS
RBL purchased various materials and other products from affiliated companies
approximating $7,996 in 1992, $7,168 in 1993 and $6,936 in 1994. RBL also had
sales to affiliated companies of $4,092 in 1992, $5,701 in 1993 and $8,089 in
1994.
Certain common expenses and expenses incremental and proportional to RBL's
operations such as legal, treasury, data processing and managerial costs have
been allocated to RBL and included in the accompanying statement of income. The
allocations to RBL are based on various factors such as specific identification
of costs and percentage of revenues. Interest is not charged on payables to or
receivables from affiliated companies. HLR charged RBL $5,103 in 1992, $6,486
in 1993 and $6,827 in 1994, for certain selling, general and administrative
services.
F-7
<PAGE>
ROCHE BIOMEDICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994 (DOLLARS IN THOUSANDS)
5. RECEIVABLES, NET
Receivables consisted of the following at December 31:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Trade receivables......................................... $159,167 $184,708
Other..................................................... 1,530 1,644
-------- --------
160,697 186,352
Less allowance for doubtful accounts...................... 26,141 26,595
-------- --------
$134,556 $159,757
======== ========
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Land...................................................... $ 6,538 $ 6,289
Buildings................................................. 80,076 81,937
Machinery, equipment and furniture........................ 123,011 140,420
Uncompleted capital projects.............................. 9,635 11,091
-------- --------
219,260 239,737
Less accumulated depreciation............................. 73,410 84,288
-------- --------
$145,850 $155,449
======== ========
</TABLE>
Depreciation expense was $14,054 in 1992, $16,010 in 1993 and $18,427 in
1994.
7. GOODWILL AND OTHER INTANGIBLES, NET
Goodwill and other intangibles consisted of the following at December 31:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Goodwill.................................................. $ 92,752 $ 92,752
Customer lists............................................ 75,550 76,201
Product technology........................................ 55,033 55,033
Other..................................................... 21,984 22,133
-------- --------
245,319 246,119
Less accumulated amortization............................. 123,302 137,165
-------- --------
$122,017 $108,954
======== ========
</TABLE>
F-8
<PAGE>
ROCHE BIOMEDICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994 (DOLLARS IN THOUSANDS)
8. DEBT
Debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Notes payable to a bank bearing interest at an average
rate of 5.7%, due January 1995........................... $200,000 $200,000
Notes payable to affiliated company bearing interest at
LIBOR (6.9% at December 31, 1994), payable upon demand... 33,699 33,699
Note payable to affiliated company bearing interest at
11.5%, payable upon demand............................... 51,355 51,355
Other..................................................... 432 318
-------- --------
285,486 285,372
Less current installments of long-term debt............... 114 235,284
-------- --------
Total long-term debt.................................... $285,372 $ 50,088
======== ========
</TABLE>
In December 1989, RBL entered into an unsecured credit agreement with a bank
for two term loans of $100,000 each. The credit agreement was initially amended
to extend the maturity dates to December 1, 1993 and December 28, 1993 and was
subsequently amended to extend the maturity dates to September 30, 1995.
The annual maturities of debt are: 1995--$235,284 and 1996--$50,088. The fair
value of RBL's debt at December 31, 1994 is estimated to be similar to the
amounts reflected above.
In accordance with the terms of the Merger described in Note 2 above, it is
anticipated that prior to the Merger, RBL's parent will remove from RBL's
balance sheet notes payable to the bank in principal amounts totalling $150,000
and all notes payable to affiliated companies, in principal amounts totalling
$85,054. Accordingly, this debt is classified as current. The terms of the
Merger also provide that the remaining notes payable to the bank in principal
amounts totally $50,000 will be refinanced on a long-term basis by the
Surviving Corporation.
9. INCOME TAXES
The provision for income taxes is comprised of the following components:
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Current:
Federal........................................ $12,064 $16,590 $21,362
State.......................................... 4,384 3,762 4,644
Deferred:
Federal........................................ 1,225 (683) (2,636)
State.......................................... (1,027) 40 (676)
------- ------- -------
16,646 19,709 22,694
Deferred tax effect of change in accounting for
postretirement benefits other than pensions..... (6,333) -- --
------- ------- -------
$10,313 $19,709 $22,694
======= ======= =======
</TABLE>
F-9
<PAGE>
ROCHE BIOMEDICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994 (DOLLARS IN THOUSANDS)
A reconciliation of the Federal statutory rate to the effective rate follows:
<TABLE>
<CAPTION>
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
Taxes at Federal statutory rate........................... 34.0% 35.0% 35.0%
State income taxes, net of Federal benefit................ 5.2% 5.0% 5.1%
Nondeductible goodwill amortization....................... 5.6% 5.2% 5.3%
All other items, net...................................... 0.5% 0.4% (0.6%)
---- ---- ----
Total................................................... 45.3% 45.6% 44.8%
==== ==== ====
</TABLE>
The components of deferred income tax assets consist of the following at
December 31:
<TABLE>
<CAPTION>
1993 1994
------- -------
<S> <C> <C>
Deferred tax liabilities
Property, plant and equipment basis differences............ $11,370 $13,904
Other individually immaterial items........................ 2,015 3,317
------- -------
Total deferred tax liabilities........................... 13,385 17,221
------- -------
Deferred tax assets
Postretirement benefits other than pensions................ 9,764 11,598
Sale of western sales territory laboratories............... 2,434 2,438
Post employment benefits................................... 2,963 2,379
Difference between book and tax basis of receivables....... 6,424 7,687
Book amortization in excess of tax amortization............ 2,683 4,188
Other reserves in excess of tax deductions................. 2,034 5,095
Other individually immaterial items........................ 768 832
------- -------
Total deferred tax assets................................ 27,070 34,217
------- -------
$13,685 $16,996
======= =======
</TABLE>
10. INVESTED CAPITAL OF HLR
Changes in invested capital of HLR were as follows:
<TABLE>
<S> <C>
Balance at December 31, 1991....................................... 31,356
Net income for the period.......................................... 10,289
Amounts paid by HLR on behalf of RBL............................... 6,573
--------
Balance at December 31, 1992....................................... 48,218
Net income for the period.......................................... 23,476
Amounts paid by HLR on behalf of RBL............................... 3,314
--------
Balance at December 31, 1993....................................... $75,008
Net income for the period.......................................... 27,939
--------
Balance at December 31, 1994....................................... $102,947
========
</TABLE>
F-10
<PAGE>
ROCHE BIOMEDICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994 (DOLLARS IN THOUSANDS)
11. PENSIONS
RBL has defined benefit retirement plans covering, in the aggregate,
substantially all employees. Under the terms of each plan, participants are
entitled to receive monthly retirement benefits after satisfying specified
eligibility requirements, or participants may elect certain optional forms of
retirement benefits in accordance with the articles of the particular plan.
Each of the plans provides retirement benefits based upon a participant's
defined compensation during a specified period before retirement.
The underlying plans' assets are primarily held in the Roche Retirement
Plans' Master Trust. Such assets are invested principally in equity securities,
bonds, real estate investment funds and contracts with insurance companies.
RBL's funding policy is to contribute amounts determined in accordance with
applicable regulations. The information which follows represents the
aggregation of data for all defined benefit retirement plans.
Net periodic pension expense is comprised of the following components:
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Service cost--benefits earned during the year.... $ 3,268 $ 4,231 $ 5,175
Interest cost on projected benefit obligation.... 2,429 2,979 3,442
Actual return on plan assets..................... (412) (1,281) 2,149
Net amortization and deferral.................... (2,570) (1,695) (5,558)
------- ------- -------
Net periodic pension cost........................ $ 2,715 $ 4,234 $ 5,208
======= ======= =======
</TABLE>
The following table sets forth the funded status of RBL's retirement plans
and the amounts recognized in RBL's balance sheet at December 31, 1993 and
1994.
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested
benefits of $27,856 in 1993 and $27,388 in 1994...... $(34,100) $(33,251)
======== ========
Projected benefit obligations......................... (47,038) (45,746)
Plan assets at fair value............................... 35,146 40,010
-------- --------
Plan assets less than projected benefit obligations..... (11,892) (5,736)
Unrecognized net loss................................... 5,981 2,279
Unrecognized prior service cost......................... 1,840 1,295
Unrecognized net assets................................. (4,709) (4,238)
-------- --------
Pension liability recognized in RBL's balance sheet..... $ (8,780) $ (6,400)
======== ========
</TABLE>
Assumptions used in the aforementioned information included:
<TABLE>
<CAPTION>
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
Approximate annual rate of increase in compensation...... 7.0% 5.9% 5.7%
Assumed discount rate.................................... 8.5% 7.5% 8.75%
Expected long-term rate of return on assets.............. 8.5% 8.5% 8.5%
</TABLE>
F-11
<PAGE>
ROCHE BIOMEDICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994 (DOLLARS IN THOUSANDS)
12. OTHER POSTRETIREMENT BENEFITS
RBL provides certain health and death benefits to its retirees. Current
retirees are generally covered by the same health benefits provided to active
employees, with the exception of those participants retiring on or after
February 1, 1990 who are required to contribute toward retiree medical coverage
based upon length of service. RBL is generally self-insured for these costs and
has no plan assets. RBL's policy is to fund these benefits as claims are
incurred.
Effective January 1, 1992, RBL adopted the provisions of SFAS No. 106. RBL
recognized the transition obligation of $16,151 on a before-tax basis (or
$9,818 after a deferred tax benefit of $6,333) as a cumulative effect of an
accounting change.
Net periodic postretirement benefits expense is comprised of the following
components:
<TABLE>
<CAPTION>
1992 1993 1994
------ ------ ------
<S> <C> <C> <C>
Service cost--benefits earned during the year.......... $2,130 $2,842 $3,307
Interest cost on accumulated postretirement benefit
obligation............................................ 1,455 2,009 2,157
Net amortization and deferral.......................... -- 105 112
------ ------ ------
Net periodic postretirement benefit cost............... $3,585 $4,956 $5,576
====== ====== ======
</TABLE>
The following table sets forth the funded status of RBL's postretirement
benefits plan and the amounts recognized in RBL's balance sheet as of December
31, 1993 and 1994.
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Accumulated postretirement benefit obligation........... $(27,623) $(27,552)
Unrecognized net loss (gain)............................ 3,712 (1,170)
-------- --------
Accrued postretirement benefit obligation recognized in
RBL's balance sheet.................................... $(23,911) $(28,722)
======== ========
</TABLE>
The assumption used to develop the obligation included a discount rate of
8.6%, 7.6% and 8.85% for 1992, 1993 and 1994, respectively. For 1994, the
health care cost trend rate was assumed to be 9.5%, declining gradually to 5.1%
in year 2005, then remaining level to the year 2020 in which it declines to
5.0%, and remaining level thereafter. For 1993, the assumed trend rate was 9.5%
declining gradually to 5.0% in year 2005, and remaining level thereafter. The
health care cost trend rate has a significant effect on the amounts reported.
To illustrate, a one percentage point increase in the assumed health care cost
trend rates would increase the accumulated postretirement benefit obligation as
of December 31, 1993 and 1994 by approximately $5,470 and $7,670, respectively,
and the total of the service and interest cost components of net periodic
postretirement benefit cost for the years then ended by approximately $630 and
$1,540, respectively.
In 1992, RBL established a qualified defined contribution savings plan
available to substantially all employees, whereby RBL matches one-half of the
first 6% of base compensation that a participant contributes. RBL's
contributions under the plan approximated $1,386 in 1992, $3,185 in 1993 and
$3,284 in 1994.
F-12
<PAGE>
ROCHE BIOMEDICAL LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994 (DOLLARS IN THOUSANDS)
13. COMMITMENTS
RBL leases various office facilities, vehicles and EDP equipment. Such rental
expense amounted to $17,926 in 1992, $20,797 in 1993 and $22,545 in 1994.
Minimum future rental commitments under noncancelable operating leases having
an initial or remaining term in excess of one year as of December 31, 1994 are
as follows:
<TABLE>
<S> <C>
1995................................................................ $19,483
1996................................................................ 11,177
1997................................................................ 8,308
1998................................................................ 6,765
1999................................................................ 5,492
Thereafter.......................................................... 12,994
-------
Total minimum rental payments required............................ $64,219
=======
</TABLE>
The unexpended balance of authorized capital projects for plant construction
and purchases of equipment and other significant commitments aggregated $13,207
at December 31, 1994
14. CONTINGENCIES
RBL is a defendant in various legal actions. In the opinion of management,
the disposition of such actions will not have a material adverse effect on
RBL's business operations or financial condition.
F-13
<PAGE>
ANNEX I
AGREEMENT AND PLAN OF MERGER
DATED AS OF
DECEMBER 13, 1994
AMONG
NATIONAL HEALTH LABORATORIES HOLDINGS INC.,
HLR HOLDINGS INC.
AND
ROCHE BIOMEDICAL LABORATORIES, INC.
<PAGE>
TABLE OF CONTENTS/1/
ARTICLE 1
THE MERGER
<TABLE>
<C> <S> <C>
PAGE
----
SECTION 1.1. The Merger................................................. I-1
SECTION 1.2. Conversion of Shares....................................... I-2
SECTION 1.3. Surrender and Payment...................................... I-3
SECTION 1.4. Warrants................................................... I-4
SECTION 1.5. Stock Options.............................................. I-5
ARTICLE 2
THE SURVIVING CORPORATION
SECTION 2.1. Certificate of Incorporation............................... I-5
SECTION 2.2. Bylaws..................................................... I-5
SECTION 2.3. Directors and Officers..................................... I-6
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF NHL
SECTION 3.1. Corporate Existence and Power.............................. I-6
SECTION 3.2. Corporate Authorization.................................... I-6
SECTION 3.3. Governmental Authorization................................. I-6
SECTION 3.4. Non-Contravention.......................................... I-7
SECTION 3.5. Capitalization............................................. I-7
SECTION 3.6. Subsidiaries............................................... I-7
SECTION 3.7. SEC Filings................................................ I-8
SECTION 3.8. Financial Statements....................................... I-8
SECTION 3.9. Disclosure Documents....................................... I-9
SECTION 3.10. Absence of Certain Changes................................. I-9
SECTION 3.11. No Undisclosed Material Liabilities........................ I-10
SECTION 3.12. Litigation................................................. I-10
SECTION 3.13. Taxes...................................................... I-10
SECTION 3.14. ERISA...................................................... I-11
SECTION 3.15. Compliance with Laws; Permits.............................. I-13
SECTION 3.16. Finders' Fees.............................................. I-13
SECTION 3.17. Other Information.......................................... I-14
SECTION 3.18. Environmental Matters...................................... I-14
SECTION 3.19. Takeover Statutes.......................................... I-15
SECTION 3.20. Opinion of Financial Advisor............................... I-15
SECTION 3.21. Vote Required.............................................. I-15
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF HLR AND RBL
SECTION 4.1. Corporate Existence and Power.............................. I-15
SECTION 4.2. Corporate Authorization.................................... I-16
SECTION 4.3. Governmental Authorization................................. I-16
</TABLE>
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1 This Table of Contents is not a part of this Agreement.
I-i
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<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
SECTION 4.4. Non-Contravention......................................... I-16
SECTION 4.5. Capitalization of RBL..................................... I-16
SECTION 4.6. Subsidiaries.............................................. I-17
SECTION 4.7. Financial Statements...................................... I-17
SECTION 4.8. Disclosure Documents...................................... I-17
SECTION 4.9. Absence of Certain Changes................................ I-17
SECTION 4.10. No Undisclosed Material Liabilities....................... I-18
SECTION 4.11. Litigation................................................ I-19
SECTION 4.12. Taxes..................................................... I-19
SECTION 4.13. ERISA..................................................... I-19
SECTION 4.14. Compliance with Laws; Permits............................. I-21
SECTION 4.15. Finders' Fees............................................. I-22
SECTION 4.16. Environmental Matters..................................... I-22
SECTION 4.17. HLR Cash Consideration.................................... I-23
SECTION 4.18. Takeover Statutes......................................... I-23
SECTION 4.19. Ownership of NHL Shares................................... I-23
ARTICLE 5
COVENANTS OF NHL
SECTION 5.1. Conduct of NHL............................................ I-23
SECTION 5.2. Stockholder Meeting; Proxy Material; Registration
Statement; Stock Exchange Listing......................... I-24
SECTION 5.3. Access to Information; Confidentiality.................... I-24
SECTION 5.4. Other Offers.............................................. I-25
SECTION 5.5. Notices of Certain Events................................. I-26
SECTION 5.6. Tax Matters............................................... I-26
SECTION 5.7. Board Composition......................................... I-27
ARTICLE 6
COVENANTS OF HLR AND RBL
SECTION 6.1. Conduct of RBL............................................ I-27
SECTION 6.2. Access to Information; Confidentiality.................... I-28
SECTION 6.3. Voting of Shares.......................................... I-28
SECTION 6.4. Notices of Certain Events................................. I-29
SECTION 6.5. Tax Matters............................................... I-29
SECTION 6.6. NHL Employment Agreements................................. I-29
SECTION 6.7. Certain Actions Regarding RBL............................. I-29
ARTICLE 7
COVENANTS OF HLR, RBL AND NHL
SECTION 7.1. Reasonable Efforts........................................ I-30
SECTION 7.2. Cash Consideration........................................ I-30
SECTION 7.3. Public Announcements...................................... I-30
SECTION 7.4. Further Assurances........................................ I-30
SECTION 7.5. HLR Stockholder Agreement................................. I-31
SECTION 7.6. Indemnification and Insurance............................. I-31
</TABLE>
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<PAGE>
ARTICLE 8
TAX MATTERS
<TABLE>
<CAPTION>
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<C> <S> <C>
SECTION 8.1. Definitions............. I-31
SECTION 8.2. Tax Covenants........... I-32
SECTION 8.3. Termination of Existing
Tax Sharing Agreements.. I-33
SECTION 8.4. Tax Sharing............. I-33
SECTION 8.5. Cooperation on Tax
Matters................. I-35
ARTICLE 9
CONDITIONS TO THE MERGER
SECTION 9.1. Conditions to the
Obligations of Each
Party................... I-35
SECTION 9.2. Conditions to the
Obligations of HLR and
RBL..................... I-36
SECTION 9.3. Conditions to the
Obligations of NHL...... I-37
ARTICLE 10
TERMINATION
SECTION 10.1. Termination............. I-38
SECTION 10.2. Effect of Termination... I-38
ARTICLE 11
MISCELLANEOUS
SECTION 11.1. Notices................. I-39
SECTION 11.2. Survival of Agreements
and Representations and
Warranties.............. I-39
SECTION 11.3. Amendments; No Waivers.. I-39
SECTION 11.4. Fees and Expenses....... I-40
SECTION 11.5. Successors and Assigns.. I-40
SECTION 11.6. Governing Law........... I-40
SECTION 11.7. Counterparts;
Effectiveness........... I-40
SECTION 11.8. Certain Definitions..... I-40
SECTION 11.9. Agreements of Roche..... I-41
</TABLE>
Exhibit A--Form of HLR Stockholder Agreement*
Exhibit B--Form of NHL Representations Letter*
Exhibit C--Form of HLR Representations Letter*
Exhibit D--Form of RBL/HLR Tax Opinion*
Exhibit E--Form of NHL Tax Opinion*
--------
* Not attached.
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<PAGE>
TABLE OF DEFINED TERMS(2)
<TABLE>
<CAPTION>
TERM SECTION
---- ----------------
<S> <C>
1933 Act...................................................... 3.3
1934 Act...................................................... 3.3
Acquisition Proposal.......................................... 5.4(a)(ii)(B)
Adjusted Option............................................... 1.5(b)
Affiliate..................................................... 11.8(a)
Anti-dilution Adjustment...................................... 1.2(b)
Borrowed Funds................................................ 6.7(a)
Cash Consideration............................................ 1.2(a)
Cash Consideration Fund....................................... 1.3(a)
CERCLA........................................................ 3.18(e)(iii)
Certificates.................................................. 1.3(b)
Code.......................................................... Recitals, page 1
Conversion Consideration...................................... 1.2(a)
Conversion Number............................................. 1.5(b)
CS Commitment Letter.......................................... 7.2
Delaware Law.................................................. Recitals, page 1
Dissenting Shares............................................. 1.2(e)
Dissenting Stockholder........................................ 1.2(e)
Effective Time................................................ 1.1(b)
Employee Stock Options........................................ 1.5(a)
Environmental Laws............................................ 3.18(e)(i)
ERISA......................................................... 3.14(a)
ERISA Affiliate............................................... 3.14(a)(ii)
Exchange Agent................................................ 1.3(a)
Excess Shares................................................. 1.2(d)(ii)
Exon-Florio................................................... 4.3
Expiration Date............................................... 1.4(a)
Fractional Shares Fund........................................ 1.2(d)(ii)
GAAP.......................................................... 3.8
Hazardous Substances.......................................... 3.18(e)(ii)
HLR........................................................... Recitals, page 1
HLR Adverse Condition......................................... 9.2(d)(iv)
HLR Cash Consideration........................................ 1.3(a)
HLR Group..................................................... 8.1
HLR-NHL Shares................................................ 1.2(b)
HLR Number.................................................... 1.2(b)
HLR Representations Letter.................................... 8.2(i)
HLR Stockholder Agreement..................................... Recitals, page 1
HLR/RBL Post-Signing Returns.................................. 6.5
HSR Act....................................................... 3.3
HSR Authority................................................. 10.1(g)
IRS........................................................... 3.13(h)
known to...................................................... 11.8
Liabilities................................................... 3.11
Lien.......................................................... 3.4
Merger........................................................ Recitals, page 1
MF & Co....................................................... Recitals, page 1
</TABLE>
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(2) This Table of Defined Terms is not part of the Agreement.
I-iv
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<TABLE>
<CAPTION>
TERM SECTION
---- ----------------
<S> <C>
Morgan Stanley................................................. 3.16
Multiemployer Plan............................................. 3.14(b)(i)
Net Debt Amount................................................ 6.7(a)
NHCG........................................................... Recitals, page 1
NHL............................................................ Recitals, page 1
NHL Adverse Condition.......................................... 9.3(d)(ii)
NHL Benefit Arrangements....................................... 3.14(e)(iii)
NHL Cash Consideration......................................... 1.3(a)
NHL Common Stock............................................... Recitals, page 1
NHL Disclosure Schedule........................................ Article 3
NHL Employee Plans............................................. 3.14(a)(ii)
NHL Environmental Liabilities.................................. 3.18(d)(ii)
NHL Group...................................................... 8.1
NHL Material Adverse Change.................................... 3.10(a)
NHL Material Adverse Effect.................................... 3.1
NHL Permits.................................................... 3.15(b)
NHL Post-Signing Returns....................................... 5.6
NHL Preferred Stock............................................ 3.5
NHL Proxy Statement............................................ 3.9(a)
NHL Representations Letter..................................... 8.2(h)
NHL Retirement Plans........................................... 3.14(b)(ii)
NHL Returns.................................................... 3.13(a)
NHL Securities................................................. 3.5
NHL Share...................................................... 1.2(a)
NHL Share Conversion........................................... 1.2(a)
NHL Stockholder Meeting........................................ 5.2
NHL Subsidiary Securities...................................... 3.6(b)(ii)
NLRB........................................................... 3.14(h)
Notice of Superior Proposal.................................... 5.4(b)(iii)
NYSE........................................................... 1.2(d)(ii)
Option Cash Amount............................................. 1.5(a)(ii)
Option Conversion Number....................................... 1.5(b)
Option Stock Amount............................................ 1.5(a)(ii)
Option Value Amount............................................ 1.5(a)(ii)
Person......................................................... 11.8(c)
Post-Merger Tax Period......................................... 8.1
Pre-Merger Tax Period.......................................... 8.1
Pro Forma Balance Sheet........................................ 6.7(a)
RIAS........................................................... 4.7
RBL............................................................ Recitals, page 1
RBL Balance Sheet.............................................. 4.7
RBL Balance Sheet Date......................................... 4.7
RBL Benefit Arrangements....................................... 4.13(e)(iii)
RBL Disclosure Schedule........................................ Article 4
RBL Employee Plans............................................. 4.13(a)(ii)(B)
RBL Environmental Liabilities.................................. 4.16(d)(ii)
RBL Financial Statements....................................... 4.7
RBL Material Adverse Change.................................... 4.9(a)
RBL Material Adverse Effect.................................... 4.1
RBL Permits.................................................... 4.14(b)
RBL Retirement Plans........................................... 4.13(b)(ii)
</TABLE>
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<TABLE>
<CAPTION>
TERM SECTION
---- ----------------
<S> <C>
RBL Returns.................................................... 4.12(a)
RBL Subsidiary Securities...................................... 4.6(b)(ii)
Registration Statement......................................... 3.9(a)
Release........................................................ 3.18(e)(iii)
Released....................................................... 3.18(e)(iii)
Roche.......................................................... Recitals, page 1
Roche Warrant Consideration.................................... 1.3(a)
Roche Warrants................................................. 1.3(a)
SEC............................................................ 3.1
SEC Documents.................................................. 3.7(a)
Share.......................................................... 1.2(b)
Sharing and Call Option Agreement.............................. Recitals, page 1
Significant Subsidiary......................................... 3.1
Subsidiary..................................................... 3.1
Superior Proposal.............................................. 5.4(b)(iii)
Surviving Corporation.......................................... 1.1(a)
Tax............................................................ 3.13
Tax Sharing Agreement.......................................... 8.1
to the knowledge of............................................ 11.8
Warrant........................................................ 1.4(a)
Warrant Agreement.............................................. 1.4(a)
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of December 13, 1994 among National
Health Laboratories Holdings Inc., a Delaware corporation ("NHL" and for
purposes of this Agreement references to NHL shall be deemed to include, as
appropriate in the context, National Health Laboratories Inc., a Delaware
corporation which is NHL's predecessor in interest), HLR Holdings Inc., a
Delaware corporation ("HLR"), and Roche Biomedical Laboratories, Inc. a New
Jersey corporation and a direct wholly-owned subsidiary of HLR ("RBL") and for
the purposes of Sections 1.4(b) and 11.9, Hoffmann-La Roche Inc., a New Jersey
corporation ("ROCHE").
WHEREAS, the respective Boards of Directors of HLR, RBL and NHL have approved
the merger of RBL with and into NHL (the "MERGER") upon the terms and subject
to the conditions of this Agreement and in accordance with the General
Corporation Law of the State of Delaware ("DELAWARE LAW"); and
WHEREAS, the Board of Directors of NHL has determined that the Merger is fair
to, and in the best interests of, the holders of NHL common stock, par value
$0.01 per share ("NHL COMMON STOCK"), and has approved this Agreement, the
Sharing and Call Option Agreement dated the date hereof among HLR, National
Health Care Group, Inc. ("NHCG"), a Delaware corporation, which is a
significant stockholder of NHL, and Mafco Holdings Inc., the ultimate parent
company of NHCG (the "SHARING AND CALL OPTION AGREEMENT") and the HLR
Stockholder Agreement to be entered into immediately prior to the Merger by HLR
and NHL which agreement shall be substantially in the form of Exhibit A hereto
(the "HLR STOCKHOLDER AGREEMENT") and the transactions contemplated hereby and
thereby, and recommended approval and adoption of this Agreement and such
transactions by the stockholders of NHL; and
WHEREAS, the Board of Directors of RBL has determined that the Merger is fair
to, and in the best interests of, RBL and HLR, and has approved this Agreement,
and the transactions contemplated hereby and the Board of Directors of HLR has
approved and adopted this Agreement and has approved the HLR Stockholder
Agreement and the Sharing and Call Option Agreement and the transactions
contemplated hereby and thereby; and
WHEREAS, the parties intend that the Merger qualify as a reorganization
within the meaning of Section 368(a)(i) of the Internal Revenue Code of 1986,
as amended (the "Code"); and
WHEREAS, in connection with the Merger, a portion of each share of NHL Common
Stock will be converted into the right to receive $5.60 in cash in a
transaction constituting a redemption within the meaning of Section 317(b) of
the Code; and
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, the parties hereto agree as follows:
ARTICLE 1
THE MERGER
SECTION 1.1. THE MERGER. (a) Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with Delaware Law, RBL shall be
merged with and into NHL at the Effective Time (as defined in Section 1.1(b)),
whereupon the separate existence of RBL shall cease, and NHL shall be the
surviving corporation (the "SURVIVING CORPORATION").
(b) As soon as practicable after satisfaction or, to the extent permitted
hereunder, waiver of all conditions to the Merger, NHL and RBL will file a
certificate of merger, in the form required by and executed in accordance with
Delaware Law, with the Secretary of State of the State of Delaware and make all
other filings or recordings required by Delaware Law in connection with the
Merger. The Merger shall become
<PAGE>
effective at such time as the certificate of merger is duly filed with the
Secretary of State of the State of Delaware, which shall be as soon as
practicable following the NHL Stockholder Meeting (as defined in Section 5.2
hereof) (the "EFFECTIVE TIME").
(c) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises and be subject to all
of the restrictions, disabilities and duties of NHL and RBL, all as provided
under Delaware Law.
SECTION 1.2. CONVERSION OF SHARES. At the Effective Time:
(a) each share of NHL Common Stock (each an "NHL SHARE") issued and
outstanding prior to the Effective Time (other than any NHL Shares held by RBL,
HLR or any Subsidiary) (as defined in Section 3.1) shall, subject to Section
1.2(d) be converted into (x) 0.72 of an NHL Share and (y) the right to receive
$5.60 in cash without interest thereon (the "CASH CONSIDERATION" and, together
with the NHL Shares to be issued pursuant to (x) above, the "CONVERSION
CONSIDERATION"; such conversion is referred to herein as the "NHL SHARE
CONVERSION");
(b) all RBL common shares, no par value (each a "SHARE" and collectively the
"SHARES"), outstanding immediately prior to the Effective Time shall (except as
provided in Section 1.2(c)) be converted into and become, in the aggregate, the
HLR Number (as defined below) of NHL Shares, newly issued as contemplated by
this Agreement (the "HLR-NHL SHARES"), each such HLR-NHL Share having the same
rights, powers and privileges as an NHL Share outstanding immediately prior to
the Effective Time. The "HLR NUMBER" shall be that number of NHL Shares as
would, in the aggregate and after giving effect to the Merger (including
issuance of the HLR-NHL Shares and the NHL Share Conversion) and the number of
NHL Shares held by HLR or any Affiliate immediately prior to the Merger, equal
49.9% of the total number of NHL Shares which would be outstanding immediately
after the Effective Time (after giving effect to the issuance under such
Section 1.5 of NHL Shares in respect of Employee Stock Options (as defined in
Section 1.5(a)). If between the date of this Agreement and the Effective Time,
the outstanding shares of NHL Common Stock shall have been changed into a
different number of shares or a different class, by reason of any stock
dividend, subdivision, reclassification, recapitalization, split, combination
or exchange of shares, the HLR Number shall be correspondingly adjusted to
reflect such stock dividend, subdivision, classification, recapitalization,
split, combination or exchange of shares (any such adjustment being referred to
herein as an "ANTI-DILUTION ADJUSTMENT"); and
(c) each Share held by RBL, HLR or any Subsidiary thereof as treasury stock
immediately prior to the Effective Time shall be canceled and no payment or
issuance of a HLR-NHL Share shall be made with respect thereto;
(d) no certificates or scrip representing less than one share of NHL Common
Stock shall be issued upon the surrender for exchange of Certificates pursuant
to Section 1.2. In lieu of any such fractional share, each holder of a
Certificate who would otherwise have been entitled to a fraction of a share of
NHL Common Stock upon surrender of Certificates for exchange pursuant to
Section 1.2 shall be paid upon such surrender cash (without interest) in an
amount equal to such holder's proportionate interest in the net proceeds from
the sale or sales in the open market by the Exchange Agent, (as defined in
Section 1.3) on behalf of all such holders, of the aggregate fractional NHL
Common Stock issued pursuant to this Section 1.2(d). As soon as practicable
following the Effective Time, the Exchange Agent shall determine the excess of
(i) the number of full shares of NHL Common Stock delivered to the Exchange
Agent by NHL over (ii) the sum of the number of full shares of NHL Common Stock
to be distributed to each holder of Certificates (such excess being herein
called the "EXCESS SHARES"), and the Exchange Agent, as agent for the former
holders of Certificates, shall sell the Excess Shares at the prevailing prices
on the New York Stock Exchange, Inc. ("NYSE"). The sales of the Excess Shares
by the Exchange Agent shall be executed on the NYSE through one or more member
firms of the NYSE and shall be executed in round lots to the extent
practicable. NHL shall pay all commissions, transfer taxes and other out-of-
pocket transaction costs, including the expenses and compensation of the
Exchange Agent, incurred in connection with such sale of Excess Shares. Until
the net proceeds of such sale have been distributed to the holders of
Certificates, the Exchange Agent will hold such
I-2
<PAGE>
proceeds in trust for such former holders of Certificates (the "FRACTIONAL
SHARES FUND"). As soon as practicable after the determination of the amount of
cash to be paid to holders of certificates in lieu of any fractional interests,
the Exchange Agent shall make available in accordance with this Agreement such
amounts to such holders of Certificates;
(e) notwithstanding anything in this Agreement, any issued and outstanding
NHL Shares held by a person who objects to the Merger (a "DISSENTING
STOCKHOLDER") and complies with all the provisions of Delaware Law concerning
the right of holders NHL Shares to dissent from the Merger and require
appraisal of their NHL Shares ("DISSENTING SHARES") shall not be converted as
described in Section 1.2(a) but shall become the right to receive such
consideration as may be determined to be due to such Dissenting Stockholder
pursuant to Delaware Law. If, after the Effective Time, such Dissenting
Stockholder withdraws his demand for appraisal or fails to perfect or otherwise
loses his right to appraisal, in any case pursuant to Delaware Law, his NHL
Shares shall be deemed to be converted as of the Effective Time into the
Conversion Consideration. NHL shall give HLR (i) prompt notice of any demands
for appraisal of NHL Shares received by NHL and (ii) the opportunity to
participate in and direct all negotiations and proceedings with respect to any
such demands. NHL shall not, without the prior written consent of HLR, make any
payment with respect to, or settle, offer to settle or otherwise negotiate, any
such demands.
SECTION 1.3. SURRENDER AND PAYMENT. (a) Prior to the Effective Time, HLR and
NHL shall appoint a mutually acceptable bank or trust company as agent (the
"EXCHANGE AGENT") for the purpose of exchanging certificates in connection with
the NHL Share Conversion in accordance with the terms of this Agreement. At or
prior to the Effective Time, HLR shall deposit in trust with the Exchange Agent
$135,651,100 (the "HLR CASH CONSIDERATION"). At or prior to the Effective Time,
Roche shall provide to NHL $51,048,900 (the "ROCHE WARRANT CONSIDERATION") in
respect of Roche's purchase of 8,325,000 Warrants (as defined in Section
1.4(a)) pursuant to Section 1.4(b) (the "ROCHE WARRANTS"). At or prior to the
Effective Time, NHL shall, subject to Section 7.2, deposit in trust with the
Exchange Agent (x) $288,000,000 (the "NHL CASH CONSIDERATION") and (y) the
Roche Warrant Consideration received from Roche. The HLR Cash Consideration,
the NHL Cash Consideration and the Roche Warrant Consideration are referred to
collectively as (the "CASH CONSIDERATION FUND"). The Exchange Agent shall,
pursuant to irrevocable instructions, deliver the Cash Consideration
contemplated to be issued as part of the NHL Share Conversion out of the Cash
Consideration Fund. The Cash Consideration Fund shall not be used for any other
purpose.
(b) As soon as reasonably practicable after the Effective Time, the Surviving
Corporation shall cause the Exchange Agent to mail to each holder of record of
a certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of NHL Shares (the "CERTIFICATES") (i) a letter
of transmittal (which shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such
other provisions as NHL may reasonably specify) and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for certificates
representing the NHL Shares and Cash Consideration into which such Certificates
shall have been converted pursuant to the NHL Share Conversion. Upon surrender
of a Certificate for cancellation to the Exchange Agent or to such other agent
or agents as may be appointed by NHL, together with such letter of transmittal,
duly executed, and such other documents as may reasonably be required by the
Exchange Agent, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing that number of NHL Shares and the
Cash Consideration which such holder has the right to receive pursuant to the
provisions of this Article 1 (and cash, if any, in lieu of fractional shares
pursuant to Section 1.2(d)). In the event of a transfer of ownership of NHL
Shares which is not registered in the transfer records of NHL, a certificate
representing the proper number of shares of NHL Shares may be issued and the
Cash Consideration may be paid (and cash, if any, in lieu of fractional shares)
to a Person other than the Person in whose name the Certificate so surrendered
is registered, if such Certificate shall be properly endorsed or otherwise be
in proper form for transfer and the Person requesting such payment shall pay
any transfer or other taxes required by reason of the issuance of NHL Shares
and payment of Cash Consideration (and cash, if any, in lieu of fractional
shares) to a Person other than the registered holder of such Certificate or
establish to the satisfaction of HLR that such tax has been paid or is not
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<PAGE>
applicable. Until surrendered as contemplated by this Section 1.3, each
Certificate shall be deemed at any time after the Effective Time to represent
only the number of NHL Shares and the right to receive Cash Consideration (and
cash, if any, in lieu of fractional shares) to which such holder is entitled
pursuant to the NHL Share Conversion, and the holder of such Certificate shall
cease to have any rights with respect to the number of NHL Shares represented
by such Certificate immediately prior to the Effective Time in excess of the
number of NHL Shares to which such holder is entitled pursuant to the NHL Share
Conversion except as otherwise provided herein or by law. No interest will be
paid or will accrue on any Conversion Consideration (or cash, if any, payable
in lieu of fractional shares).
(c) From and after the Effective Time, there shall be no further registration
of transfers of Certificates.
(d) The Cash Consideration Fund and the Fractional Shares Fund shall be
invested by the Exchange Agent as directed by HLR in consultation with the
Surviving Corporation (so long as such directions do not impair the rights of
the holders of NHL Shares) in direct obligations of the United States of
America, obligations for which the full faith and credit of the United States
of America is pledged to provide for the payment of principal and interest,
commercial paper rated of the highest quality by Moody's Investors Services,
Inc. or Standard & Poor's Corporation or certificates of deposit issued by a
commercial bank having combined capital, surplus and undivided profits
aggregating at least $500,000,000 (provided that no such investment made prior
to the thirtieth day after the Effective Time shall mature more than seven days
after such investment is made), and any net earnings with respect thereto shall
be paid to the Surviving Corporation as and when requested by the Surviving
Corporation.
(e) Any portion of the Cash Consideration Fund and the Fractional Shares Fund
which remains undistributed six months after the Effective Time shall be
delivered to the Surviving Corporation upon demand, and any holders of such NHL
Shares who have not theretofore complied with this Article 1 shall thereafter
look only to the Surviving Corporation for the Cash Consideration (and cash, if
any, payable in lieu of fractional shares) to which they are entitled.
(f) Neither HLR nor the Surviving Corporation shall be liable to any holder
of NHL Shares for any such Cash Consideration (or cash, if any, payable in lieu
of fractional shares) or any certificates for any NHL Shares delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(g) The Surviving Corporation shall be entitled to deduct and withhold from
the Cash Consideration (and cash, if any, payable in lieu of fractional shares)
otherwise payable pursuant to this Agreement to any holder of NHL Shares such
amounts as the Surviving Corporation is required to deduct and withhold with
respect to the making of such payment under the Code, or any provision of
state, local or foreign tax law. To the extent that amounts are so withheld,
such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of such NHL Shares in respect of which such
deduction and withholding was made by the Surviving Corporation.
SECTION 1.4. WARRANTS. (a) NHL currently intends to declare a dividend
payable to holders of NHL Common Stock of record as of the third Business Day
prior to the date of the NHL Stockholder Meeting, which dividend shall consist
of .16308 of a warrant for each NHL Share outstanding on such date, each such
Warrant (a "WARRANT" and together with the Roche Warrants, the "WARRANTS")
representing the right to purchase one newly issued share of NHL Common Stock
and which shall be in the form and have substantially the terms and conditions
set forth in the Warrant Agreement to be entered into between NHL and a warrant
agent, which Warrant Agreement shall be satisfactory to NHL and to Roche (the
"WARRANT AGREEMENT"). The Warrant Agreement will contain customary terms and
conditions and will provide, among other things, for the issuance of the
Warrants to be dividended to holders of record of NHL Common Stock on the third
Business Day preceding the date of the NHL Stockholder Meeting, for the
issuance of the Roche Warrants, that each Warrant may be exercised on the fifth
anniversary (the "EXPIRATION DATE") of issuance to purchase one share of Common
Stock at a purchase price of $22.00 per share (subject to adjustments), and
that NHL shall have the option, exercisable by notice 60 days prior to the
Expiration Date, to redeem the Warrants on the Expiration Date for a cash
redemption price per Warrant equal to the average closing price of the NHL
Common Stock over a specified period prior to the Expiration Date minus the
exercise price. It
I-4
<PAGE>
is understood and agreed by the parties hereto that the representations and
warranties of NHL with respect to the Warrant Agreement set forth in Article 3
hereof are based upon the assumption that the Warrant Agreement will conform to
the description set forth in the preceding sentence.
(b) At or prior to the Effective Time, Roche shall cause to be delivered to
NHL an amount in cash equal to the Roche Warrant Consideration in payment of
the aggregate purchase price of $51,048,900 payable in respect of the Roche
Warrants. In consideration of receipt of such payment, NHL shall issue and
deliver to Roche pursuant to the Warrant Agreement a warrant certificate or
certificates (in such denominations as requested by Roche) representing the
Roche Warrants so purchased.
SECTION 1.5. STOCK OPTIONS. (a) Each employee stock option or right to
acquire NHL Shares under NHL's 1988 and 1994 Stock Option Plans (such rights
being referred to as "EMPLOYEE STOCK OPTIONS") outstanding on the date hereof
shall be deemed fully vested and, immediately prior to the Effective Time, NHL
shall use reasonable efforts, including with respect to obtaining consents, to
cause each Employee Stock Option to be canceled and terminated in exchange for
an amount in cash and NHL Shares (in the proportions set forth below) equal to
the product of (i) the number of NHL Shares subject to such Employee Stock
Option immediately prior to the Effective Time and (ii) the excess of (1)
$18.50 over (2) the per share exercise price of such Employee Stock Option
(such product, the "OPTION VALUE AMOUNT"). The Option Value Amount shall be
payable at the Effective Time as follows: 40% of such amount (the "OPTION CASH
AMOUNT") shall be payable in cash, and 60% of such amount (the "OPTION STOCK
AMOUNT") shall be payable in the number of NHL Shares obtained by dividing the
Option Stock Amount by $15.42; provided that any fractional share resulting
from such calculation shall be paid in cash, with the value of a whole share
for such purpose assumed to be $15.42. All amounts payable to this Section
1.5(a) shall be subject to any required withholding of taxes and shall be paid
without interest thereon.
(b) Notwithstanding the foregoing Section 1.5(a), the Employee Stock Options
with respect to which the requisite consents are not obtained shall not be
canceled, but instead shall be immediately converted as of the Effective Time
into the right ("ADJUSTED OPTION") to purchase the Option Conversion Number (as
defined below) of NHL Shares. Each Adjusted Option will have substantially the
same terms as the Employee Stock Option to which it is related, except that:
(i) the Adjusted Option shall be deemed fully vested and (ii) the exercise
price of an Adjusted Option shall be an amount equal to the exercise price of
the Employee Stock Option related to such Adjusted Option as of the date of
this Agreement divided by the Conversion Number (as defined below). The "OPTION
CONVERSION NUMBER" for any Adjusted Option shall be equal to the number of NHL
Shares purchasable pursuant to the Employee Stock Option related to such
Adjusted Option as of the date of this Agreement multiplied by the Conversion
Number. The "CONVERSION NUMBER" shall be a number equal to (i) the sum of (x)
the product of (A) the average closing price of a share of NHL Common Stock on
the NYSE Composite Tape for the period of five consecutive trading days
beginning on the trading day following the date on which the Effective Time
occurs (the "POST MERGER VALUE") and (B) 0.72 and (y) $6.60 divided by (ii) the
Post Merger Value.
ARTICLE 2
THE SURVIVING CORPORATION
SECTION 2.1. CERTIFICATE OF INCORPORATION. The certificate of incorporation
of NHL in effect at the Effective Time shall, except as may be amended to give
effect, as necessary, to the provisions of this Agreement and the HLR
Stockholder Agreement, be the certificate of incorporation of the Surviving
Corporation until amended in accordance with applicable law.
SECTION 2.2. BYLAWS. The bylaws of NHL in effect at the Effective Time shall,
except as may be amended to give effect, as necessary, to the provisions of
this Agreement and the HLR Stockholder Agreement, be the bylaws of the
Surviving Corporation until amended in accordance with applicable law.
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SECTION 2.3. DIRECTORS AND OFFICERS. From and after the Effective Time, (i)
the number of directors constituting the Board of Directors of NHL shall be
seven and shall be comprised of three members designated by HLR and four
persons who are mutually acceptable to NHL and HLR, until successors are duly
elected or appointed and qualified in accordance with applicable law and the
HLR Stockholder Agreement, and (ii) the executive officers of the Surviving
Corporation shall be such Persons as are identified on a certificate delivered
by HLR to NHL prior to the Effective Time, which certificate, upon the delivery
thereof, shall be deemed to be incorporated into this Agreement for purposes
hereof.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF NHL
NHL represents and warrants to RBL and HLR that, except as set forth on the
disclosure schedule delivered by NHL to HLR prior to the execution of this
Agreement (the "NHL DISCLOSURE SCHEDULE"):
SECTION 3.1. CORPORATE EXISTENCE AND POWER. NHL is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated and has all corporate powers required
to carry on its business as now being conducted. NHL is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
where the character of the property owned or leased by it or the nature of its
activities makes such qualification necessary, except for those jurisdictions
where the failure to be so qualified would not, individually or in the
aggregate, have a material adverse effect on the business, financial condition,
assets, results of operations or prospects of NHL and its Subsidiaries, taken
as a whole (an "NHL MATERIAL ADVERSE EFFECT"), or NHL's ability to perform its
obligations under this Agreement, the HLR Stockholder Agreement, the Warrant
Agreement or the Sharing and Call Option Agreement. NHL has heretofore
delivered to HLR true and complete copies of its certificate of incorporation
and bylaws and the certificate of incorporation and bylaws of each of its
Subsidiaries, in each case as currently in effect. For purposes of this
Agreement, "SUBSIDIARY" of any Person means any entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other Persons performing similar functions are
directly or indirectly owned by such Person. For purposes of this Agreement, a
"SIGNIFICANT SUBSIDIARY" of a Person means any Subsidiary of such Person that
constitutes a Significant Subsidiary within the meaning of Rule 1-02 of
Regulation S-X of the Securities and Exchange Commission (the "SEC").
SECTION 3.2. CORPORATE AUTHORIZATION. The execution, delivery and performance
by NHL of this Agreement, the HLR Stockholder Agreement, the Warrant Agreement
and the Sharing and Call Option Agreement, the consummation by NHL of the
transactions contemplated hereby (including, without limitation, the Merger,
the delivery of the Conversion Consideration, the issuance of the HLR-NHL
Shares and of the Warrants and the NHL Common Stock issuable thereunder) and
thereby are within NHL's corporate powers and, except for any required approval
by NHL's stockholders in connection with the consummation of the Merger
(including any amendments to NHL's certificate of incorporation as referred to
in Section 2.1 and the treatment of the Employee Stock Options as referred to
in Section 1.5) have been duly authorized by all necessary corporate action.
Each of this Agreement and the Sharing and Call Option Agreement constitutes,
and each of the HLR Stockholder Agreement, and the Warrant Agreement when
executed and delivered by NHL, will constitute, a valid and binding agreement
of NHL.
SECTION 3.3. GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by NHL of this Agreement, the HLR Stockholder Agreement, the
Warrant Agreement and the Sharing and Call Option Agreement, and the
consummation by NHL of the transactions contemplated hereby (including, without
limitation, the Merger, the delivery of the Conversion Consideration, the
issuance of the HLR-NHL Shares and of the Warrants and the NHL Common Stock
issuable thereunder) and thereby require no action by, or filing with, any
governmental body, agency, official or authority other than (i) the filing of a
certificate of merger in accordance with Delaware Law and any amendments to
NHL's certificate of incorporation as
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referred to in Section 2.1, (ii) compliance with any applicable requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
ACT"), (iii) compliance with any applicable requirements of the Securities
Exchange Act of 1934, as amended (the "1934 ACT"), (iv) compliance with any
applicable requirements of the Securities Act of 1933, as amended (the "1933
ACT"), (v) compliance with any applicable foreign or state securities or "blue
sky" laws and (vi) such actions by or filings with governmental bodies,
agencies, officials or authorities, the failure of which to obtain or make
would not reasonably be expected to have, individually or in the aggregate (A)
an NHL Material Adverse Effect, (B) impair the ability of NHL to perform its
obligations under this Agreement, the HLR Stockholder Agreement, the Warrant
Agreement or the Sharing and Call Option Agreement, or (C) prevent the
consummation of any of the transactions contemplated by this Agreement, the HLR
Stockholder Agreement, the Warrant Agreement or the Sharing and Call Option
Agreement.
SECTION 3.4. NON-CONTRAVENTION. The execution, delivery and performance by
NHL of this Agreement, the HLR Stockholder Agreement, the Warrant Agreement and
the Sharing and Call Option Agreement do not, and the consummation by NHL of
the transactions contemplated hereby and thereby do not and will not (i)
contravene or conflict with the certificate of incorporation (taking into
account appropriate amendments contemplated by Section 2.1 hereof) or the
bylaws of NHL or the organizational documents of any of its Subsidiaries, (ii)
assuming compliance with the matters referred to in Section 3.3, contravene or
conflict with or constitute a violation of any provision of any law,
regulation, judgment, injunction, order or decree binding upon or applicable to
NHL or any of its Subsidiaries, (iii) constitute a default under or give rise
to a right of termination, cancellation or acceleration of any right or
obligation of NHL or any of its Subsidiaries or to a loss of any benefit to
which NHL or any of its Subsidiaries is entitled under any provision of any
agreement, contract or other instrument binding upon NHL or any of its
Subsidiaries or any license, franchise, permit or other similar authorization
held by NHL or any of its Subsidiaries, or (iv) result in the creation or
imposition of any Lien on any asset of NHL or any of its Subsidiaries, except,
with respect to clauses (ii), (iii) and (iv) above, for contraventions,
conflicts, defaults, rights of termination, cancellation or acceleration,
losses of benefits and creation or imposition of Liens that would not
reasonably be expected to have, individually or in the aggregate, an NHL
Material Adverse Effect. For purposes of this Agreement, "LIEN" means, with
respect to any asset, any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind in respect of such asset.
SECTION 3.5. CAPITALIZATION. The authorized capital stock of NHL consists of
10,000,000 shares of preferred stock, par value $0.10 per share ("NHL PREFERRED
STOCK"), and 220,000,000 NHL Shares. As of December 12, 1994, (a) there were
issued and outstanding 84,761,817 NHL Shares and no shares of NHL Preferred
Stock, (b) no NHL Shares were held in NHL's treasury and (c) 1,756,507 NHL
Shares were reserved for issuance upon exercise of outstanding Employee Stock
Options (of which options to purchase an aggregate of 3,527,876 NHL Shares were
vested and exercisable). All outstanding shares of capital stock of NHL are
validly issued, fully paid and nonassessable and free and clear of any
preemptive or similar rights. All shares of NHL Common Stock issuable as HLR-
NHL Shares in the Merger and all shares of NHL Common Stock issuable upon
exercise of the Warrants will be, upon issuance thereof, validly issued, fully
paid and nonassessable and free of any preemptive or similar rights. Except as
set forth in this Section 3.5, and except for the exercise or conversion of
Employee Stock Options outstanding on December 12, 1994 there are outstanding
(i) no shares of capital stock or other voting securities of NHL, (ii) no
securities of NHL convertible into or exchangeable for shares of capital stock
or voting securities of NHL and (iii) no options or other rights to acquire
from NHL, and no obligation of NHL to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
other voting securities of NHL (the items in clauses (i), (ii) and (iii) above
being referred to collectively as the "NHL SECURITIES"). There are no
outstanding obligations of NHL or any of its Subsidiaries to repurchase, redeem
or otherwise acquire any NHL Securities.
SECTION 3.6. SUBSIDIARIES. (a) Each Subsidiary of NHL is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, has all corporate powers
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required to carry on its business as now being conducted and is duly qualified
to do business as a foreign corporation and is in good standing in each
jurisdiction where the character of the property owned or leased by it or the
nature of its activities make such qualification necessary, except for those
jurisdictions where failure to be so qualified would not, individually or in
the aggregate, have an NHL Material Adverse Effect. NHL has delivered to HLR a
list of all of NHL's Subsidiaries. There are no partnerships or joint venture
arrangements or other business entities in which NHL or any Subsidiary of NHL
owns an equity interest that is material to the business of NHL and its
Subsidiaries, taken as a whole.
(b) All of the outstanding capital stock of each Subsidiary of NHL is owned
by NHL, directly or indirectly, free and clear of any Lien and free of any
other limitation or restriction (including any restriction on the right to
vote, sell or otherwise dispose of such capital stock) other than any such
limitations or restrictions imposed by statutes or regulations of general
applicability. There are no outstanding (i) securities of NHL or any of its
Subsidiaries convertible into or exchangeable for shares of capital stock or
other voting securities of any of NHL's Subsidiaries, or (ii) options or other
rights to acquire from NHL or any Subsidiary, and no other obligation of NHL or
any Subsidiary of NHL to issue, any capital stock, voting securities of, or any
securities convertible into or exchangeable for any capital stock or other
voting securities of any Subsidiary of NHL (the items in clauses (i) and (ii)
being referred to collectively as the "NHL SUBSIDIARY SECURITIES"). There are
no outstanding obligations of NHL or any Subsidiary of NHL to repurchase,
redeem or otherwise acquire any outstanding NHL Subsidiary Securities.
(c) Neither NHL nor any Affiliate of NHL:
(i) is currently engaged in the manufacture or production of drugs of
abuse reagent products in the United States; or
(ii) owns presently (or has owned within the two-year period prior
hereto):
(A) any stock, share capital, equity or other interest in any
concern, corporate or non-corporate, engaged in at the time of such
acquisition, or within the two years preceding such acquisition engaged
in, the manufacture or production of drugs of abuse reagent products in
the United States; or
(B) any assets used or previously used (and still suitable for use)
in the manufacture and production of drugs of abuse reagent products in
the United States to which annual sales of $3,000,000 or more of drugs
of abuse reagent products are or in the past have been attributable.
SECTION 3.7. SEC FILINGS. (a) NHL has filed all required reports, forms, and
other documents with the SEC since January 1, 1992 (the "SEC DOCUMENTS"). As of
their respective dates, the SEC Documents complied in all material respects
with the requirements of the 1933 Act or the 1934 Act, as the case may be, and
the rules and regulations of the SEC promulgated thereunder applicable to such
SEC Documents, and none of the SEC Documents contained any untrue statement of
a material fact or omitted to state a material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Except to the extent that information contained in any
SEC Document has been revised or superseded by a later-filed SEC Document filed
and publicly available prior to the date hereof, none of the SEC Documents
contains any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(b) No such registration statement referred to in Section 3.7(a), as amended
or supplemented, if applicable, filed pursuant to the 1933 Act as of the date
such statement or amendment became effective contained any untrue statement of
a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
SECTION 3.8. FINANCIAL STATEMENTS. The financial statements of NHL included
in the SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles ("GAAP") (except, in the case of unaudited statements, as
permitted
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by Form 10-Q of the SEC) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and fairly present
the consolidated financial position of NHL and its consolidated Subsidiaries as
of the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments).
SECTION 3.9. DISCLOSURE DOCUMENTS. (a) None of the information supplied or to
be supplied by NHL specifically for inclusion or incorporation by reference in
(i) the registration statement on Form S-4 to be filed with the SEC by NHL in
connection with the issuance of NHL Shares in the Merger (the "REGISTRATION
STATEMENT", which Registration Statement will include a resale prospectus)
will, at the time the Registration Statement is filed with the SEC, at any time
it is amended or supplemented or at the time it becomes effective under the
1933 Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (ii) the proxy statement relating to the approval by
the stockholders of NHL of the Merger and certain other matters, together with
all other related proxy materials prepared in connection with the NHL
Stockholder Meeting relating to the Merger (the "NHL PROXY STATEMENT") will, at
the date the NHL Proxy Statement is first mailed to NHL's stockholders or at
the time of the NHL Stockholder Meeting, contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The Registration Statement will comply as to form in all
material respects with the requirements of the 1933 Act and the rules and
regulations promulgated thereunder and the NHL Proxy Statement will comply as
to form in all material respects with the requirements of the 1934 Act and the
rules and regulations promulgated thereunder.
(b) The representations and warranties contained in Sections 3.9(a) will not
apply to statements included in or omissions from the Registration Statement or
the NHL Proxy Statement based upon information furnished to NHL by or on behalf
of HLR or RBL specifically for use therein or information that is omitted by
HLR or RBL.
SECTION 3.10. ABSENCE OF CERTAIN CHANGES. Except as disclosed in the SEC
Documents, since December 31, 1993 NHL has conducted its business only in the
ordinary course, and except as specifically contemplated by this Agreement
there has not been:
(a) any material adverse change in the business, financial condition, assets
or results of operations of NHL and its Subsidiaries, taken as a whole, or any
event, occurrence or development of or in a state of circumstances or facts
(including, without limitation, any development of or in a state of facts or
any change in the estimated or expected exposure arising or occurring after the
date hereof relating to any litigation or investigation disclosed, or required
to be disclosed, pursuant to Section 3.12 or Section 5.5 hereof or in any SEC
Document referred to in Section 3.12) known to NHL or any Subsidiary of NHL
which could reasonably be expected to result in such a material adverse change
(an "NHL MATERIAL ADVERSE CHANGE");
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of NHL, or any
repurchase, redemption or other acquisition by NHL or any of its Subsidiaries
of any outstanding shares of capital stock or other securities of, or other
ownership interests in, NHL or any of its Subsidiaries;
(c) any amendment of any material term of any outstanding NHL Securities or
any NHL Subsidiary Securities;
(d) any incurrence, assumption or guarantee by NHL or any of its Subsidiaries
of any indebtedness for borrowed money other than in the ordinary course of
business and in an amount not in excess of $25,000,000 and which is on terms
consistent with past practices;
(e) any creation or assumption by NHL or any of its Subsidiaries of any Lien
on any material asset other than in the ordinary course of business consistent
with past practices;
(f) any making of any loan, advance or capital contributions to or investment
in any Person other than loans, advances or capital contributions to or
investments in wholly-owned Subsidiaries made in the ordinary course of
business consistent with past practices;
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(g) any damage, destruction or other casualty loss (whether or not covered by
insurance) affecting the business or assets of NHL or any of its Subsidiaries
which, individually or in the aggregate, has had or would reasonably be
expected to have an NHL Material Adverse Effect;
(h) any transaction or commitment made, or any contract or agreement entered
into, by NHL or any of its Subsidiaries relating to its assets or business
(including the acquisition or disposition of any assets) or any relinquishment
by NHL or any of its Subsidiaries of any contract or other right, in either
case, material to NHL and its Subsidiaries taken as a whole, other than
transactions and commitments in the ordinary course of business consistent with
past practice;
(i) any change in any method of accounting or accounting practice by NHL or
any of its Subsidiaries, except for any such change required by reason of a
concurrent change in GAAP or which is disclosed in the SEC Documents;
(j) any (i) grant of any severance or termination pay other than pursuant to
existing contracts, plans or arrangements to any director, officer or employee
of NHL or any of its Subsidiaries whose total annual compensation and bonus is
in excess of $200,000, (ii) entering into of any employment, deferred
compensation or other similar agreement (or any amendment to any such existing
agreement) involving annual total compensation and bonus in excess of $200,000
with any director, officer or employee of NHL or any of its Subsidiaries, (iii)
any amendment or change that increases compensation or benefits payable under
any existing severance or termination pay plans, policies or employment
agreements which change or amendment is applicable to a class or classes of
employees or officers covered thereby other than as expressly required therein
or (iv) increase in compensation, bonus or other benefits payable to directors,
officers or employees of NHL or any of its Subsidiaries, whose total annual
compensation and bonus is in excess of $200,000, except as expressly required
by any existing employment agreements, or pursuant to compensation plans and
policies in effect December 31, 1993 or set forth on the NHL Disclosure
Schedule; or
(k) any labor dispute, other than routine individual grievances, or any
activity or proceeding by a labor union or representative thereof to organize
any employees of NHL or any of its Subsidiaries, which employees were not
subject to a collective bargaining agreement prior to or on December 31, 1993,
or any lockouts, strikes, slowdowns, work stoppages or threats thereof by or
with respect to such employees.
SECTION 3.11. NO UNDISCLOSED MATERIAL LIABILITIES. Except as set forth in the
SEC Documents, neither NHL nor any of its Subsidiaries has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
("LIABILITIES") required by GAAP to be set forth on a consolidated balance
sheet of NHL and its consolidated Subsidiaries or in the notes thereto and
neither NHL nor any of its Subsidiaries has, to the knowledge of NHL, incurred
any Liabilities since December 31, 1993 which, whether or not required by GAAP
to be set forth on such a consolidated balance sheet, when considered together
with any corresponding asset resulting from the event which gave rise to such
liability, individually or in the aggregate, have had or could reasonably be
expected to have an NHL Material Adverse Effect.
SECTION 3.12. LITIGATION. Except as set forth in the SEC Documents, there is
no action, suit, investigation or proceeding pending, or to the knowledge of
NHL threatened (or, to the knowledge of NHL or its Subsidiaries, any basis
therefor), against NHL or any of its Subsidiaries or any of their respective
properties before any court or arbitrator or any governmental body, agency or
official that could reasonably be expected to (A) have an NHL Material Adverse
Effect, (B) impair the ability of NHL to perform its obligations under this
Agreement, the HLR Stockholder Agreement, the Warrant Agreement or the Sharing
and Call Option Agreement or (C) prevent or materially delay the consummation
of any of the transactions contemplated by this Agreement, the HLR Stockholder
Agreement, the Warrant Agreement or the Sharing and Call Option Agreement.
SECTION 3.13. TAXES. Except as set forth in the SEC Documents, (a) NHL, its
Subsidiaries and the NHL Group (as defined in Section 8.1) have filed, been
included in or sent, all material returns, declarations and reports and
information returns and statements required to be filed or sent by or relating
to any of them relating to any Taxes (as defined below) with respect to any
material income, properties or operations of NHL,
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any of its Subsidiaries or the NHL Group prior to the Effective Time
(collectively, "NHL RETURNS"), (b) as of the time of filing, the NHL Returns
correctly reflected in all material respects the facts regarding the income,
business, assets, operations, activities and status of NHL, its Subsidiaries
and the NHL Group and any other information required to be shown therein, (c)
NHL, its Subsidiaries and the NHL Group have timely paid or made provision for
all material Taxes that have been shown as due and payable on the NHL Returns
that have been filed, (d) NHL, its Subsidiaries and the NHL Group have made or
will make provision for all material Taxes payable for any periods that end
before the Effective Time for which no NHL Returns have yet been filed and for
any periods that begin before the Effective Time and end after the Effective
Time to the extent such Taxes are attributable to the portion of any such
period ending at the Effective Time, (e) the charges, accruals and reserves for
Taxes reflected on the books of NHL, its Subsidiaries and the NHL Group are
adequate to cover the Tax liabilities accruing or payable by NHL, its
Subsidiaries and the NHL Group in respect of periods prior to the date hereof,
(f) none of NHL, any of its Subsidiaries or the NHL Group is delinquent in the
payment of any material Taxes or has requested any extension of time within
which to file or send any material NHL Return, which NHL Return has not since
been filed or sent, (g) no material deficiency for any Taxes has been proposed,
asserted or assessed in writing against NHL, any of its Subsidiaries or the NHL
Group other than those Taxes being contested in good faith, (h) the federal
income tax returns of the NHL Group have been examined by and settled with the
Internal Revenue Service (the "IRS") for all years through 1984, (i) none of
NHL, any of its Subsidiaries or the NHL Group has granted any extension of the
limitation period applicable to any material Tax claims (which period has not
since lapsed) other than those Taxes being contested in good faith, (j) none of
NHL, any of its Subsidiaries or the NHL Group has any contractual obligations
under any material Tax sharing agreement with any corporation which, as of the
Effective Time, is not a member of the NHL Group, and (k) neither NHL nor any
of its Subsidiaries has taken any action or has any knowledge of any fact or
circumstance that is reasonably likely to prevent the Merger from qualifying as
a reorganization within the meaning of Section 368(a)(1) of the Code.
"TAX" or "TAXES" means with respect to any Person (i) any net income, gross
income, gross receipts, sales, use, ad valorem, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, value-added or windfall profit tax, custom duty or other
tax, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest and any penalty, addition to tax or
additional amount imposed by any taxing authority (domestic or foreign) on such
Person and (ii) any liability of such Person or any of its Subsidiaries for the
payment of any amount of the type described in clause (i) as a result of being
a member of an affiliated or combined group.
SECTION 3.14. ERISA. (a) The NHL Disclosure Schedule identifies each
"employee benefit plan", as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974 ("ERISA"), which (i) is subject to any provision of
ERISA and (ii) is maintained, administered or contributed to by NHL or any
ERISA Affiliate (as defined below) and covers any employee or former employee
of NHL or any Subsidiary of NHL or under which NHL or any ERISA Affiliate has
any liability. Copies of such plans (and, if applicable, related trust
agreements, group annuity contracts and summary plan descriptions) and all
amendments thereto and written interpretations thereof have been furnished or
made available upon request to HLR and RBL together with (x) the most recent
annual report (Form 5500 including, if applicable, Schedule B thereto) prepared
in connection with any such plan and (y) the most recent actuarial valuation
report prepared in connection with any such plan. Such plans are referred to
collectively herein as "NHL EMPLOYEE PLANS". For purposes of this Section,
"ERISA AFFILIATE" of any Person means any other Person which, together with
such Person, would be treated as a single employer under Section 414 of the
Code.
(b) Except as otherwise identified in the NHL Disclosure Schedule:
(i) no NHL Employee Plan constitutes a "multiemployer plan", as defined
in Section 3(37) of ERISA (a "MULTIEMPLOYER PLAN"), and no NHL Employee
Plan is maintained in connection with any trust described in Section
501(c)(9) of the Code;
(ii) no NHL Employee Plans are subject to Title IV of ERISA (the "NHL
RETIREMENT PLANS");
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(iii) as of December 31, 1993, the fair market value of the assets of
each NHL Retirement Plan (excluding for these purposes any accrued but
unpaid contributions) exceeded the accumulated benefit obligation, as
determined in accordance with GAAP, under such NHL Retirement Plan;
(iv) no "accumulated funding deficiency", as defined in Section 412 of
the Code, has been incurred with respect to any NHL Retirement Plan,
whether or not waived;
(v) no "reportable event", within the meaning of Section 4043 of ERISA,
and no event described in Section 4041, 4042, 4062 or 4063 of ERISA has
occurred in connection with any NHL Employee Plan, other than a "reportable
event" that will not have an NHL Material Adverse Effect;
(vi) no condition exists and no event has occurred that could constitute
grounds for termination of any NHL Retirement Plan or, with respect to any
NHL Employee Plan which is a Multiemployer Plan, presents a material risk
of a complete or partial withdrawal under Title IV of ERISA;
(vii) neither NHL nor any of its ERISA Affiliates has incurred any
material liability under Title IV of ERISA arising in connection with the
termination of, or complete or partial withdrawal from, any plan covered or
previously covered by Title IV of ERISA;
(viii) if a "complete withdrawal" by NHL and all of its ERISA Affiliates
were to occur as of the Effective Time with respect to all NHL Employee
Plans which are Multiemployer Plans, neither NHL nor any ERISA Affiliate
would incur any withdrawal liability under Title IV of ERISA;
(ix) nothing done or omitted to be done and no transaction or holding of
any asset under or in connection with any NHL Employee Plan has made or
will make NHL or any of its Subsidiaries, any officer or director of NHL or
any of its Subsidiaries subject to any liability under Title I of ERISA or
liable for any Tax pursuant to Section 4975 of the Code that could have an
NHL Material Adverse Effect; and
(x) neither NHL nor any of its ERISA Affiliates (A) has engaged in a
transaction described in Section 4069 of ERISA that could subject NHL to
material liability at any time after the date hereof or (B) has acted in a
manner that could, or failed to act so as to, result in fines, penalties,
taxes or related charges under (x) Section 502(c), (i) or (1) or ERISA, (y)
Section 4071 of ERISA or (z) Chapter 43 of the Code, which penalties, taxes
or related charges, individually or in the aggregate, would constitute a
liability in a material amount.
(c) Each NHL Employee Plan which is intended to be qualified under Section
401(a) of the Code has received a favorable IRS determination letter to such
effect and NHL knows of no event or circumstance occurring or existing since
the date of such letter that would adversely affect such NHL Employee Plan's
qualified status. NHL has furnished or made available upon request to HLR and
RBL copies of the most recent IRS determination letters with respect to each
such Plan. Each NHL Employee Plan has been maintained in substantial compliance
with its terms and with the requirements prescribed by any and all statutes,
orders, rules and regulations, including but not limited to ERISA and the Code,
which are applicable to such Plan. There are no investigations by any
governmental agency, termination proceedings or other claims (except claims for
benefits payable in the normal operation of the NHL Employee Plans), suits or
proceedings against or involving any NHL Employee Plan or asserting any rights
to or claims for benefits under any NHL Employee Plan that could give rise to
any material liability, and there are not any facts that could give rise to any
material liability in the event of any such investigation, claim, suit or
proceeding.
(d) There is no contract, agreement, plan or arrangement covering any
employee or former employee of NHL or any ERISA Affiliate that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible pursuant to the terms of Section 280G of the Code. No employee of
NHL or any of its Subsidiaries will be entitled to any additional benefits or
any acceleration of the time of payment or vesting of any NHL benefits under
any NHL Benefit Arrangements (as defined below in Section 3.14(e)) as a result
of the transactions contemplated by this Agreement.
(e) NHL has furnished or made available upon request to RBL copies or
descriptions of each employment, severance or other similar contract,
arrangement or policy providing for annual compensation
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in excess of $200,000 and each plan or arrangement (written or oral) providing
for insurance coverage (including any self-insured arrangements), workers'
compensation, disability benefits, supplemental unemployment benefits, vacation
benefits, retirement benefits or for deferred compensation, profit-sharing,
bonuses, stock options, stock appreciation or other forms of incentive
compensation or post-retirement insurance, compensation or benefits which (i)
is not an Employee Plan, (ii) is entered into, maintained or contributed to, as
the case may be, by NHL or any of its Subsidiaries and (iii) covers any
employee or former employee of NHL or any of its Subsidiaries, to the extent
existing on the date hereof. The above arrangements (whether or not existing as
of the date hereof) are referred to collectively herein as the "NHL BENEFIT
ARRANGEMENTS"). Each NHL Benefit Arrangement has been maintained in substantial
compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations that are applicable to such NHL Benefit
Arrangement.
(f) Except as disclosed in the NHL Disclosure Schedule, neither NHL nor any
of its Subsidiaries has any current or projected liability in respect of post-
employment or post-retirement health and medical benefits for retired or former
employees of NHL and its Subsidiaries, except as required to avoid excise tax
under Section 4980B of the Code; and no condition exists that would prevent NHL
or any of its Subsidiaries from amending or terminating any NHL Employee Plan
or NHL Benefit Arrangement providing health or medical benefits in respect of
any active employee of NHL or any of its Subsidiaries other than limitations
imposed under the terms of a collective bargaining agreement.
(g) Except as disclosed in the NHL Disclosure Schedule, there has been no
amendment to, written interpretation or announcement (whether or not written)
by NHL or any of its ERISA Affiliates relating to, or change in employee
participation or coverage under, any NHL Employee Plan or NHL Benefit
Arrangement which would increase materially the expense of maintaining such NHL
Employee Plan or NHL Benefit Arrangement above the level of the expense
incurred in respect thereof for the fiscal year ended on December 31, 1993
(other than those that would not result in the representation and warranty set
forth in Section 3.10(j) becoming untrue as of the Effective Time).
(h) Neither NHL nor any of its Subsidiaries is a party to or subject to any
collective bargaining or other labor union contracts applicable to persons
employed by NHL or its Subsidiaries and no collective bargaining agreement is
being negotiated by NHL or any of its Subsidiaries. As of the date of this
Agreement, to the knowledge of NHL, neither NHL nor its Subsidiaries, nor their
respective representatives or employees, has committed any unfair labor
practices in connection with the operation of the respective businesses of NHL
or its Subsidiaries, and there is no pending or threatened in writing charge or
complaint against NHL or its Subsidiaries by the National Labor Relations Board
(the "NLRB") or any comparable state agency, except where such unfair labor
practice, charge or complaint would not have an NHL Material Adverse Effect.
SECTION 3.15. COMPLIANCE WITH LAWS; PERMITS. (a) Except as set forth in the
SEC Documents and except for violations which do not have and would not
reasonably be expected to have, individually or in the aggregate, an NHL
Material Adverse Effect, neither NHL nor any of its Subsidiaries is in
violation of, or has violated, any applicable provisions of any laws, statutes,
ordinances or regulations or any term of any judgment, decree, injunction or
order outstanding against it.
(b) As of the date of this Agreement, each of NHL and each of its
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
identification numbers, approvals and orders (collectively, the "NHL PERMITS")
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted, and there is no action, proceeding or
investigation pending or, to the knowledge of NHL, threatened regarding
suspension or cancellation of any of the NHL Permits, except where the failure
to possess, or the suspension or cancellation of, such NHL Permits would not
reasonably be expected to have, individually or in the aggregate, an NHL
Material Adverse Effect.
SECTION 3.16. FINDERS' FEES. Except for Morgan Stanley & Co. Incorporated
("MORGAN STANLEY"), whose fees in the amount previously disclosed to HLR will
be paid by NHL, and as contemplated herein, there is no investment banker,
broker, finder or other intermediary which has been retained by or is
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authorized to act on behalf of, NHL or any of its Subsidiaries which might be
entitled to any fee or commission from HLR or any of its Affiliates upon
consummation of the transactions contemplated by this Agreement.
SECTION 3.17. OTHER INFORMATION. NHL's projections and forward-looking
information furnished by NHL to HLR were prepared in good faith and represent
NHL's best estimate as of the date hereof as to the subject matter thereof;
provided that NHL makes no representation or warranty as to the completeness or
accuracy of the projections or forward-looking information furnished by NHL to
HLR.
SECTION 3.18. ENVIRONMENTAL MATTERS. Except as set forth in the SEC
Documents:
(a) (i) no notice, notification, notice of violation, demand, request for
information, investigation (whether civil or criminal), citation, summons,
complaint, order or other similar document has been received by, or, to the
knowledge of NHL or any of its Subsidiaries, is pending or threatened by any
Person against, NHL or any of its Subsidiaries, nor has any material penalty
been assessed against NHL or any of its Subsidiaries in either case with
respect to any (A) alleged violation of any Environmental Law or liability
thereunder, (B) alleged failure to have any permit, certificate, license,
approval, registration or authorization required under any Environmental Law,
(C) generation, treatment, storage, recycling, transportation or disposal of
any Hazardous Substance or (D) Release of any Hazardous Substance;
(ii) no Hazardous Substance has been Released or is present at any
property now owned, leased or operated by NHL or any of its Subsidiaries
nor, to the knowledge of NHL, has any Hazardous Substance been Released at
any property formerly owned, leased or operated by NHL, which Release or
presence, individually or in the aggregate, could reasonably be expected to
result in an NHL Material Adverse Effect;
(iii) there are no NHL Environmental Liabilities that have had or may
reasonably be expected to have, individually or in the aggregate, an NHL
Material Adverse Effect; and
(iv) there are no circumstances relating to the disposal of Hazardous
Substances from any properties at the time they were owned, leased or
operated by NHL that could give rise to liabilities under Environmental
Laws which could reasonably be expected to result in, individually or in
the aggregate, an NHL Material Adverse Effect.
(b) There has been no environmental investigation, study, audit, test, review
or other analysis conducted since 1989 of which NHL has knowledge in relation
to the current or prior business of NHL or any property or facility now or
previously owned, leased or operated by NHL or any of its Subsidiaries the
contents of which could reasonably be expected to result in an NHL Material
Adverse Effect.
(c) Neither NHL nor any of its Subsidiaries owns or leases any real property
or an industrial facility, or conducts any operations, in New Jersey or
Connecticut.
(d) For purposes of this Section 3.18, the following terms shall have the
meanings set forth below:
(i) "NHL" and "SUBSIDIARY" shall include any entity which is, in whole or
in part, a predecessor of NHL or any of its Subsidiaries.
(ii) "NHL ENVIRONMENTAL LIABILITIES" means any and all liabilities of or
relating to NHL and any of its Subsidiaries, whether vested or unvested,
contingent or fixed, actual or potential, known or unknown, which (A) arise
under or relate to matters covered by Environmental Laws and (B) arose from
actions occurring or conditions existing on or prior to the Effective Time.
(e) For purposes of this Section 3.18 and Section 4.16, the following terms
shall have the meanings set forth below:
(i) "ENVIRONMENTAL LAWS" means any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, codes, injunctions, permits, licenses,
agreements and governmental restrictions (whether now or hereinafter in
effect), relating to human health, the environment or to emissions,
discharges, Releases or threatened Releases of Hazardous
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Substances or wastes into the environment, including, without limitation,
ambient air, surface water, ground water or land, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Substances or wastes or the
investigation, clean-up, remediation or monitoring thereof.
(ii) "HAZARDOUS SUBSTANCES" means any toxic, radioactive, caustic,
corrosive, infectious, mutagenic, carcinogenic or otherwise hazardous
waste, material or substance, including petroleum, its derivatives, by-
products and other hydrocarbons, or any substance having any constituent
elements displaying any of the foregoing characteristics, including,
without limitation, any substance which meets the definition of "hazardous
substance" contained in 42 U.S.C. (S)9601(14).
(iii) "RELEASE" means any discharge, emission or release, including a
Release as defined in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA") at 42 U.S.C.
(S)9601(22). The term "RELEASED" has a corresponding meaning.
SECTION 3.19. TAKEOVER STATUTES. The Board of Directors of NHL has approved
the HLR Stockholder Agreement, the Merger, the Warrants, the Sharing and Call
Option Agreement and this Agreement, and such approval is sufficient to render
inapplicable to the HLR Stockholder Agreement, the Merger, the Warrants, the
Sharing and Call Option Agreement and this Agreement and the transactions
contemplated or permitted thereby and hereby, the provisions of Section 203 of
Delaware Law. To NHL's knowledge, no other state takeover statute or similar
statute or regulation applicable to NHL applies or purports to apply to the HLR
Stockholder Agreement, the Merger, the Warrants, the Sharing and Call Option
Agreement or this Agreement, or any of the transactions contemplated thereby
and hereby.
SECTION 3.20. OPINION OF FINANCIAL ADVISOR. NHL has received the opinion of
Morgan Stanley & Co. Incorporated dated the date of this Agreement to the
effect that the aggregate consideration to be received by the stockholders of
NHL in connection with the Merger, when taken together with the Warrants to be
dividended to such stockholders, is fair, from a financial point of view, to
such stockholders.
SECTION 3.21. VOTE REQUIRED. The affirmative vote of the holders of a
majority of the outstanding shares of NHL Common Stock is the only vote of the
holders of any class or series of NHL securities necessary to approve the
Merger and the other transactions contemplated by this Agreement and any
amendments to the certificate of incorporation of NHL as referred to in Section
2.1.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF HLR AND RBL
HLR and RBL represent and warrant to NHL that, except as set forth on the
disclosure schedule delivered by RBL to NHL prior to the execution of this
Agreement (the "RBL DISCLOSURE SCHEDULE"):
SECTION 4.1. CORPORATE EXISTENCE AND POWER. Each of HLR and RBL is a
corporation duly incorporated, validly existing and in good standing under the
laws of the jurisdiction in which it is incorporated and has all corporate
powers required to carry on its business as now being conducted. Each of HLR
and RBL is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualification
necessary, except for those jurisdictions where the failure to be so qualified
would not, individually or in the aggregate, have a material adverse effect on
the business, financial condition, results of operations or prospects of RBL
and its Subsidiaries, taken as a whole (a "RBL MATERIAL ADVERSE EFFECT"), or
RBL's ability to perform its obligations hereunder or under the HLR Stockholder
Agreement. RBL has heretofore delivered to NHL true and complete copies of its
certificate of incorporation and bylaws and the certificate of incorporation
and bylaws of each of its Subsidiaries, in each case as currently in effect.
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SECTION 4.2. CORPORATE AUTHORIZATION. The execution, delivery and performance
by each of HLR and RBL of this Agreement, the HLR Stockholder Agreement and the
Sharing and Call Option Agreement and the consummation by HLR and RBL of the
transactions contemplated hereby and thereby are within their respective
corporate powers and, except for any required approval by HLR as RBL's sole
stockholder in connection with the consummation of the Merger, have been duly
authorized by all necessary corporate action. This Agreement constitutes a
valid and binding agreement of each of HLR and RBL, and the HLR Stockholder
Agreement when executed and delivered by HLR will constitute, a valid and
binding agreement of HLR.
SECTION 4.3. GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by each of HLR and RBL of this Agreement and by HLR of each of the
HLR Stockholder Agreement and the Sharing and Call Option Agreement and the
consummation of the Merger by RBL and the other transactions contemplated
hereby and thereby require no action by, or filing with, any governmental body,
agency, official or authority other than (i) the filing of a certificate of
merger in accordance with Delaware Law, (ii) compliance with any applicable
requirements of the HSR Act, (iii) compliance with any applicable requirements
of the 1933 Act, (iv) compliance with any applicable requirements of the 1934
Act, (v) compliance with any applicable foreign or state securities or "blue
sky" laws, (vi) the filing of a notice pursuant to Section 721 of the Defense
Production Act of 1950 ("EXON-FLORIO"), and (vii) such actions by or filings
with governmental bodies, agencies, officials or authorities, the failure of
which to obtain or make would not reasonably be expected to have, individually
or in the aggregate (A) a RBL Material Adverse Effect, (B) impair the ability
of HLR or RBL to perform any of their respective obligations under this
Agreement or impair HLR's ability to perform its obligations under the HLR
Stockholder Agreement or the Sharing and Call Option Agreement or (C) prevent
the consummation of any of the transactions contemplated by this Agreement, the
HLR Stockholder Agreement or the Sharing and Call Option Agreement.
SECTION 4.4. NON-CONTRAVENTION. The execution, delivery and performance by
HLR and RBL of this Agreement and by HLR of the HLR Stockholder Agreement do
not, and the consummation by HLR and RBL of the transactions contemplated
hereby and thereby do not and will not (i) contravene or conflict with the
certificate of incorporation or bylaws of HLR, RBL or any of RBL's
Subsidiaries, (ii) assuming compliance with the matters referred to in Section
4.3, contravene or conflict with or constitute a violation of any provision of
any law, regulation, judgment, injunction, order or decree binding upon or
applicable to HLR, RBL or any of RBL's Subsidiaries, (iii) constitute a default
under or give rise to a right of termination, cancellation or acceleration of
any right or obligation of HLR, RBL or any of RBL's Subsidiaries or to a loss
of any benefit to which HLR, RBL or any of RBL's Subsidiaries is entitled under
any provision of any agreement, contract or other instrument binding upon HLR,
RBL or any of RBL's Subsidiaries or any license, franchise, permit or other
similar authorization held by HLR, RBL or any of RBL's Subsidiaries or (iv)
result in the creation or imposition of any Lien on any asset of HLR, RBL or
any of RBL's Subsidiaries, except, with respect to clauses (ii), (iii) and (iv)
above, for contraventions, conflicts, defaults, rights of termination,
cancellation or acceleration, losses of benefits and creation or imposition of
Liens that would not reasonably be expected to have, individually or in the
aggregate, a RBL Material Adverse Effect.
SECTION 4.5. CAPITALIZATION OF RBL. The authorized capital stock of RBL
consists of 1000 shares of common stock, no par value per share, 100 shares of
which are issued and outstanding and no shares of which are held in RBL's
treasury. All of the issued and outstanding capital stock of RBL is validly
issued, fully paid and nonassessable and is owned by HLR. Except for such
common stock, there are outstanding (i) no shares of capital stock or other
voting securities of RBL, (ii) no securities of RBL convertible into or
exchangeable for shares of capital stock or voting securities of RBL and (iii)
no options or other rights to acquire from RBL, and no obligation of RBL to
issue, any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of RBL. RBL has no
liability or obligation in respect of the financing of the HLR Cash
Consideration or the Roche Warrant Consideration.
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SECTION 4.6. SUBSIDIARIES. (a) Each Subsidiary of RBL is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, has all corporate powers required to carry on
its business as now being conducted and is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
make such qualification necessary, except for those jurisdictions where failure
to be so qualified would not, individually or in the aggregate, have a RBL
Material Adverse Effect. RBL has delivered to NHL a list of all of RBL's
Subsidiaries. There are no partnerships or joint venture arrangements or other
business entities in which RBL or any Subsidiary of RBL owns an equity interest
that is material to the business of RBL and its Subsidiaries, taken as a whole.
(b) All of the outstanding capital stock of each Subsidiary of RBL is owned
by RBL, directly or indirectly, free and clear of any Lien and free of any
other limitation or restriction (including any restriction on the right to
vote, sell or otherwise dispose of such capital stock) other than any such
limitations or restrictions imposed by statutes or regulations of general
applicability. There are no outstanding (i) securities of RBL or any Subsidiary
of RBL convertible into or exchangeable for shares of capital stock or other
voting securities of any of RBL's Subsidiaries or (ii) options or other rights
to acquire from RBL or any Subsidiary of RBL, and no other obligation of RBL or
any Subsidiary of RBL to issue, any capital stock, voting securities of, or any
securities convertible into or exchangeable for any capital stock or other
voting securities of any of RBL's Subsidiaries (the items in clauses (i) and
(ii) being referred to collectively as the "RBL SUBSIDIARY SECURITIES"). There
are no outstanding obligations of RBL or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any outstanding RBL Subsidiary Securities.
SECTION 4.7. FINANCIAL STATEMENTS. RBL has delivered to NHL the audited
consolidated balance sheet of RBL as of each of December 31, 1993 and December
31, 1992 and the audited statements of income and cash flows for each of the
three fiscal years ended December 31, 1993, together with the notes thereto and
the report of Price Waterhouse thereon and its unaudited interim financial
statements for the nine months ended September 30, 1994 (the "RBL FINANCIAL
STATEMENTS"). The RBL Financial Statements have been prepared in accordance
with GAAP applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto) and fairly present the consolidated
financial position of RBL and its consolidated Subsidiaries, excluding Roche
Image Analysis Systems ("RIAS"), as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended. For
purposes of this Agreement, "RBL BALANCE SHEET" means the consolidated balance
sheet of RBL as of December 31, 1993, and the notes thereto, contained in the
RBL Financial Statements and "RBL BALANCE SHEET DATE" means December 31, 1993.
SECTION 4.8. DISCLOSURE DOCUMENTS. (a) None of the information supplied or to
be supplied by HLR or RBL specifically for inclusion or incorporation by
reference in (i) the Registration Statement will, at the time the Registration
Statement is filed with the SEC, at any time it is amended or supplemented or
at the time it becomes effective under the 1933 Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(ii) the NHL Proxy Statement will, at the date the NHL Proxy Statement is first
mailed to NHL's stockholders or at the time of the NHL Stockholder Meeting,
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
SECTION 4.9. ABSENCE OF CERTAIN CHANGES. Since the RBL Balance Sheet Date,
RBL and its Subsidiaries have in all material respects conducted their business
in the ordinary course and, except as specifically contemplated by this
Agreement, there has not been:
(a) any material adverse change in the business, financial condition, assets
or results of operations of RBL and its Subsidiaries, taken as a whole, or any
event, occurrence or development of or in a state of circumstances or facts
(including, without limitation, any development of or in a state of facts or
any change in the estimated or expected exposure arising or occurring after the
date hereof relating to any litigation or
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investigation disclosed, or required to be disclosed, pursuant to Section 4.11
or Section 6.4 or in any document referred to in Section 4.11) known to RBL or
any Subsidiary of RBL which could reasonably be expected to result in such a
material adverse change (a "RBL MATERIAL ADVERSE CHANGE");
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of RBL, or any
repurchase, redemption or other acquisition by RBL or any of its Subsidiaries
of any outstanding shares of capital stock or other securities of, or other
ownership interests in, RBL or any of its Subsidiaries;
(c) any amendment of any material term of any outstanding RBL Securities or
any RBL Subsidiary Securities;
(d) any incurrence, assumption or guarantee by RBL or any of its Subsidiaries
of any indebtedness for borrowed money other than in the ordinary course of
business and in an amount not in excess of $25,000,000 and which is on terms
consistent with past practices;
(e) any creation or assumption by RBL or any of its Subsidiaries of any Lien
on any material asset other than in the ordinary course of business consistent
with past practices;
(f) any making of any loan, advance or capital contributions to or investment
in any Person other than loans, advances or capital contributions to or
investments in wholly-owned Subsidiaries made in the ordinary course of
business consistent with past practices;
(g) any damage, destruction or other casualty loss (whether or not covered by
insurance) affecting the business or assets of RBL or any of its Subsidiaries
which, individually or in the aggregate, has had or would reasonably be
expected to have a RBL Material Adverse Effect;
(h) other than mergers or consolidations of one or more of its Subsidiaries
into and with another Subsidiary or into RBL and activities in connection with
the transfer of the business and assets of RIAS, any transaction or commitment
made, or any contract or agreement entered into, by RBL or any of its
Subsidiaries relating to its assets or business (including the acquisition or
disposition of any assets) or any relinquishment by RBL or any of its
Subsidiaries of any contract or other right, in either case, material to RBL
and its Subsidiaries taken as a whole, other than transactions and commitments
in the ordinary course of business consistent with past practice;
(i) any change in any method of accounting or accounting practice by RBL or
any of its Subsidiaries, except for any such change required by reason of a
concurrent change in GAAP;
(j) any (i) grant of any severance or termination pay (other than pursuant to
existing contracts, plans or arrangements), to any director, officer or
employee of RBL or any of its Subsidiaries whose total annual compensation and
bonus is in excess of $200,000, (ii) entering into of any employment, deferred
compensation or other similar agreement (or any amendment to any such existing
agreement) involving annual total compensation and bonus in excess of $200,000
with any director, officer or employee of RBL or any of its Subsidiaries, (iii)
any amendment or change that increases compensation or benefits payable under
any existing severance or termination pay plans, policies or employment
agreements which change or amendment is applicable to a class or classes of
employees or officers covered thereby other than as expressly required therein
or (iv) increase in compensation, bonus or other benefits payable to directors,
officers or employees of RBL or any of its Subsidiaries, whose total annual
compensation and bonus is in excess of $200,000, except as expressly required
by any existing employment agreements or pursuant to compensation plans and
policies in effect December 31, 1993 or set forth on the RBL Disclosure
Schedule; or
(k) any labor dispute, other than routine individual grievances, or any
activity or proceeding by a labor union or representative thereof to organize
any employees of RBL or any of its Subsidiaries, which employees were not
subject to a collective bargaining agreement at the RBL Balance Sheet Date, or
any lockouts, strikes, slowdowns, work stoppages or threats thereof by or with
respect to such employees.
SECTION 4.10. NO UNDISCLOSED MATERIAL LIABILITIES. Except as set forth in the
RBL Financial Statements, neither RBL nor any of its subsidiaries has any
Liabilities required by GAAP to be set forth on a
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consolidated balance sheet of RBL and its consolidated Subsidiaries or in the
notes thereto and neither RBL nor any of its Subsidiaries has, to its
knowledge, incurred any Liabilities since December 31, 1993 which, whether or
not required by GAAP to be set forth on such a consolidated balance sheet, when
considered together with any corresponding asset resulting from the event which
gave rise to such liability, individually and in the aggregate, have had or
could reasonably be expected to have an RBL Material Adverse Effect.
SECTION 4.11. LITIGATION. Except as set forth in the RBL Financial
Statements, there is no action, suit, investigation or proceeding pending, or
to the knowledge of RBL or its Subsidiaries threatened (or, to the knowledge of
RBL or its Subsidiaries, any basis therefor), against RBL or any of its
Subsidiaries or any of their respective properties before any court or
arbitrator or any governmental body, agency or official that could reasonably
be expected to (A) have an RBL Material Adverse Effect, (B) impair the ability
of RBL or HLR to perform their respective obligations under this Agreement or
impair the ability of HLR to perform its obligations under the HLR Stockholder
Agreement or the Sharing and Call Option Agreement or (C) prevent or materially
delay the consummation of any of the transactions contemplated by this
Agreement, the HLR Stockholder Agreement or the Sharing and Call Option
Agreement.
SECTION 4.12. TAXES. Except as set forth in the RBL Financial Statements, (a)
RBL, its Subsidiaries and the HLR Group (as defined in Section ) have filed,
been included in or sent, all material returns, declarations and reports and
information returns and statements required to be filed or sent by or relating
to any of them relating to any Taxes with respect to any material income,
properties or operations of RBL, any of its Subsidiaries or the HLR Group prior
to the Effective Time (collectively, "RBL RETURNS"), (b) as of the time of
filing, the Returns correctly reflected in all material respects the facts
regarding the income, business, assets, operations, activities and status of
RBL, its Subsidiaries and the HLR Group and any other information required to
be shown therein, (c) RBL, its Subsidiaries and the HLR Group have timely paid
or made provision for all material Taxes that have been shown as due and
payable on the RBL Returns that have been filed, (d) RBL, its Subsidiaries and
the HLR Group have made or will make provision for all material Taxes payable
for any periods that end before the Effective Time for which no RBL Returns
have yet been filed and for any periods that begin before the Effective Time
and end after the Effective Time to the extent such Taxes are attributable to
the portion of any such period ending at the Effective Time, (e) the charges,
accruals and reserves for Taxes reflected on the books of RBL, its Subsidiaries
and the HLR Group are adequate to cover the Tax liabilities accruing or payable
by RBL, its Subsidiaries and the HLR Group in respect of periods prior to the
date hereof, (f) none of RBL, any of its Subsidiaries or the HLR Group is
delinquent in the payment of any material Taxes or has requested any extension
of time within which to file or send any material RBL Return, which RBL Return
has not since been filed or sent, (g) no material deficiency for any Taxes has
been proposed, asserted or assessed in writing against RBL, any of its
Subsidiaries or the HLR Group other than those Taxes being contested in good
faith, (h) the federal income tax returns of the HLR Group have been examined
by and settled with the IRS for all years through 1989, (i) none of RBL, any of
its Subsidiaries or the HLR Group has granted any extension of the limitation
period applicable to any material Tax claims (which period has not since
lapsed) other than those Taxes being contested in good faith, (j) none of RBL,
any of its Subsidiaries or the HLR Group has any contractual obligations under
any material Tax sharing agreement with any corporation which, as of the
Effective Time, is not a member of the HLR Group, (k) none of HLR, RBL or its
Subsidiaries has taken any action or has any knowledge of any fact or
circumstance that is reasonably likely to prevent the Merger from qualifying as
a reorganization within the meaning of Section 368(a)(1) of the Code, and (l)
except as provided in Section 2.1, HLR has no current plan or intention to
cause the Surviving Corporation to amend its certificate of incorporation.
SECTION 4.13. ERISA. (a) The RBL Disclosure Schedule lists each "employee
benefit plan", as defined in Section 3(3) of ERISA, which (i) is subject to any
provision of ERISA and (ii)(A) is maintained, administered or contributed to by
RBL or any ERISA Affiliate and covers any employee of RBL or any Subsidiary of
RBL or under which RBL or any Subsidiary has any liability or (B) is
maintained, administered or contributed to by RBL or any Subsidiary and covers
any former employee of RBL or any Subsidiary or
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under which RBL or any Subsidiary has any liability. Copies of such plans (and,
if applicable, related trust agreements, group annuity contracts and summary
plan descriptions) and all amendments thereto and written interpretations
thereof have been furnished or made available upon request to NHL together with
(x) the most recent annual report (Form 5500 including, if applicable, Schedule
B thereto) prepared in connection with any such plan and (y) the most recent
actuarial valuation report prepared in connection with any such plan. Such
plans are referred to collectively herein as the "RBL EMPLOYEE PLANS".
(b) Except as otherwise identified in the RBL Disclosure Schedule;
(i) no RBL Employee Plan constitutes a Multiemployer Plan, and no RBL
Employee Plan is maintained in connection with any trust described in
Section 501(c)(9) of the Code;
(ii) no RBL Employee Plans are subject to Title IV of ERISA (the "RBL
RETIREMENT PLANS");
(iii) as of the RBL Balance Sheet Date, the fair market value of the
assets of each RBL Retirement Plan (excluding for these purposes any
accrued but unpaid contributions) exceeded the accumulated benefit
obligation, as determined in accordance with GAAP under such RBL Retirement
Plan;
(iv) no "accumulated funding deficiency", as defined in Section 412 of
the Code, has been incurred with respect to any RBL Retirement Plan,
whether or not waived;
(v) no "reportable event", within the meaning of Section 4043 of ERISA,
and no event described in Section 4041, 4042, 4062 or 4063 of ERISA has
occurred in connection with any RBL Employee Plan, other than a "reportable
event" that will not have a Material Adverse Effect;
(vi) no condition exists and no event has occurred that could constitute
grounds for termination of any RBL Retirement Plan or, with respect to any
RBL Employee Plan which is a Multiemployer Plan, presents a material risk
of a complete or partial withdrawal under Title IV of ERISA;
(vii) neither RBL nor any of its ERISA Affiliates has incurred any
material liability under Title IV of ERISA arising in connection with the
termination of, or complete or partial withdrawal from, any plan covered or
previously covered by Title IV of ERISA that would become a liability of
RBL after the Effective Time;
(viii) if a "complete withdrawal" by RBL and all of its ERISA Affiliates
were to occur as of the Effective Time with respect to all RBL Employee
Plans which are Multiemployer Plans, neither RBL nor any ERISA Affiliate
would incur any withdrawal liability under Title IV of ERISA that would
become a liability of RBL after the Effective Time;
(ix) nothing done or omitted to be done and no transaction or holding of
any asset under or in connection with any RBL Employee Plan has made or
will make RBL or any of its Subsidiaries, any officer or director of RBL or
any of its Subsidiaries subject to any liability under Title I of ERISA or
liable for any Tax pursuant to Section 4975 of the Code that could have a
RBL Material Adverse Effect; and
(x) neither RBL nor any of its ERISA Affiliates (A) has engaged in a
transaction described in Section 4069 of ERISA that could subject RBL to
material liability at any time after the date hereof or (B) has acted in a
manner that could, or failed to act so as to, result in material fines,
penalties, taxes or related charges under (x) Section 502(c), (i) or (1) or
ERISA, (y) Section 4071 of ERISA or (z) Chapter 43 of the Code, which
penalties, taxes or related charges, individually or in the aggregate,
would constitute a liability in a material amount.
(c) Each RBL Employee Plan which is intended to be qualified under Section
401(a) of the Code has received a favorable IRS determination letter to such
effect and RBL knows of no event or circumstance occurring or existing since
the date of such letter that would adversely affect such RBL Employee Plan's
qualified status. RBL has furnished or made available upon request to NHL
copies of the most recent IRS determination letters with respect to each such
Plan. Each Employee Plan has been maintained in substantial compliance with its
terms and with the requirements prescribed by any and all statutes, orders,
rules and regulations, including but not limited to ERISA and the Code, which
are applicable to such Plan. There are no investigations by any governmental
agency, termination proceedings or other claims (except claims for
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benefits payable in the normal operation of the RBL Employee Plans), suits or
proceedings against or involving any RBL Employee Plan or asserting any rights
to or claims for benefits under any RBL Employee Plan that could give rise to
any material liability, and there are not any facts that could give rise to any
material liability in the event of any such investigation, claim, suit or
proceeding.
(d) There is no contract, agreement, plan or arrangement covering any
employee or former employee of RBL or any Subsidiary that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible pursuant to the terms of Section 280G of the Code. No employee of
NHL or any of its Subsidiaries will be entitled to any additional benefits or
any acceleration of the time of payment or vesting of any RBL benefits under
any RBL Benefit Arrangements (as defined below in Section 4.13(e)) as a result
of the transactions contemplated by this Agreement.
(e) RBL has furnished or made available upon request to NHL copies or
descriptions of each employment, severance or other similar contract,
arrangement or policy providing for annual compensation in excess of $200,000
and each plan or arrangement (written or oral) providing for insurance coverage
(including any self-insured arrangements), workers' compensation, disability
benefits, supplemental unemployment benefits, vacation benefits, retirement
benefits or for deferred compensation, profit-sharing, bonuses, stock options,
stock appreciation or other forms of incentive compensation or post-retirement
insurance, compensation or benefits which (i) is not an Employee Plan, (ii) is
entered into, maintained or contributed to, as the case may be, by RBL or any
of its Subsidiaries and (iii) covers any employee or former employee of RBL or
any of its Subsidiaries, to the extent existing on the date hereof. The above
arrangements (whether or not existing as of the date hereof) are referred to
collectively herein as the "RBL BENEFIT ARRANGEMENTS". Each RBL Benefit
Arrangement has been maintained in substantial compliance with its terms and
with the requirements prescribed by any and all statutes, orders, rules and
regulations that are applicable to such RBL Benefit Arrangement.
(f) Except as disclosed in the RBL Disclosure Schedule, neither RBL nor any
of its Subsidiaries has any current or projected liability in respect of post-
employment or post-retirement health and medical benefits for retired employees
of RBL and its Subsidiaries, except as required to avoid excise Tax under
Section 4980B of the Code; and no condition exists that would prevent RBL or
any of its Subsidiaries from amending or terminating any RBL Employee Plan or
RBL Benefit Arrangement providing health or medical benefits in respect of any
active employee of RBL or any of its Subsidiaries other than limitations
imposed under the terms of a collective bargaining agreement.
(g) Except as disclosed in the RBL Disclosure Schedule, there has been no
amendment to, written interpretation or announcement (whether or not written)
by RBL or any of its ERISA Affiliates relating to, or change in employee
participation or coverage under, any RBL Employee Plan or RBL Benefit
Arrangement which would increase materially the expense of maintaining such RBL
Employee Plan or RBL Benefit Arrangement above the level of the expense
incurred in respect thereof for the fiscal year ended on the RBL Balance Sheet
Date (other than those that would not result in the representation and warranty
set forth in Section 4.9(i) becoming untrue as of the Effective Time).
(h) Neither RBL nor any of its Subsidiaries is a party to or subject to any
collective bargaining or other labor union contracts applicable to Persons
employed by RBL or its Subsidiaries and no collective bargaining agreement is
being negotiated by RBL or any of its Subsidiaries. As of the date of this
Agreement, to the knowledge of RBL, neither RBL nor its Subsidiaries, nor their
respective representatives or employees, has committed any unfair labor
practices in connection with the operation of the respective businesses of RBL
or its Subsidiaries, and there is no pending or threatened in writing charge or
complaint against RBL or its Subsidiaries by the NLRB or any comparable state
agency, except where such unfair labor practice, charge or complaint would not
have a RBL Material Adverse Effect.
SECTION 4.14. COMPLIANCE WITH LAWS; PERMITS. (a) Except for violations which
do not have and would not reasonably be expected to have, individually or in
the aggregate, a RBL Material Adverse Effect, neither RBL nor any of its
Subsidiaries is in violation of, or has violated, any applicable provisions of
any
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laws, statutes, ordinances or regulations or any term of any judgment, decree,
injunction or order outstanding against it.
(b) As of the date of this Agreement, each of RBL and its Subsidiaries is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, identification
numbers, approvals and orders (collectively, the "RBL PERMITS") necessary to
own, lease and operate its properties and to carry on its business as it is now
being conducted, and there is no action, proceeding or investigation pending
or, to the knowledge of RBL, threatened regarding suspension or cancellation of
any of the RBL Permits, except where the failure to possess, or the suspension
or cancellation of, such RBL Permits would not have reasonably be expected to
have, individually or in the aggregate, a RBL Material Adverse Effect.
SECTION 4.15. FINDERS' FEES. Except for CS First Boston Corporation, whose
fees will be paid by as referred to in Section 11.4 hereof and as contemplated
herein, there is no investment banker, broker, finder or other intermediary
which has been retained by or is authorized to act on behalf, of RBL or any of
its Subsidiaries who might be entitled to any fee or commission from NHL or any
of its Affiliates upon consummation of the transactions contemplated by this
Agreement or any of the related agreements. The amount of the fees of CS First
Boston Corporation have previously been disclosed to NHL.
SECTION 4.16. ENVIRONMENTAL MATTERS. Except as set forth in the RBL Financial
Statements or in writing to NHL:
(a) (i) no notice, notification, notice of violation, demand, request for
information, investigation (whether civil or criminal), citation, summons,
complaint, order or other similar document has been received by, or, to the
knowledge of RBL or any of its Subsidiaries, is pending or threatened by any
Person against, RBL or any of its Subsidiaries, nor has any material penalty
been assessed against RBL or any of its Subsidiaries in either case with
respect to any (A) alleged violation of any Environmental Law or liability
thereunder, (B) alleged failure to have any permit, certificate, license,
approval, registration or authorization required under any Environmental Law,
(C) generation, treatment, storage, recycling, transportation or disposal of
any Hazardous Substance or (D) Release of any Hazardous Substance;
(ii) no Hazardous Substance has been Released or is present at any
property now owned, leased or operated by RBL or any of its Subsidiaries
nor, to the knowledge of RBL, has any Hazardous Substance been Released at
any property formerly owned, leased or operated by RBL, which Release or
presence, individually or in the aggregate, could reasonably be expected to
result in a RBL Material Adverse Effect;
(iii) there are no RBL Environmental Liabilities that have had or may
reasonably be expected to have, individually or in the aggregate, a RBL
Material Adverse Effect; and
(iv) there are no circumstances relating to the disposal of Hazardous
Substances from any properties at the time they were owned, leased or
operated by RBL that could give rise to liabilities under Environmental
Laws which could reasonably be expected to result, individually or in the
aggregate, in a RBL Material Adverse Effect.
(b) There has been no environmental investigation, study, audit, test, review
or other analysis conducted since 1989 of which RBL has knowledge in relation
to the current or prior business of RBL or any property or facility now or
previously owned, leased or operated by RBL or any of its Subsidiaries, the
contents of which could reasonably be expected to result in a RBL Material
Adverse Effect.
(c) Neither RBL nor any of its Subsidiaries owns or leases any real property
or industrial facility, or conducts any operations, in New Jersey or
Connecticut.
(d) For purposes of this Section 4.16, the following terms shall have the
meanings set forth below:
(i) "RBL" and "SUBSIDIARY" shall include any entity which is, in whole or
in part, a predecessor of RBL or any of its Subsidiaries;
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(ii) "RBL ENVIRONMENTAL LIABILITIES" means any and all liabilities of or
relating to RBL and any of its Subsidiaries, whether vested or unvested,
contingent or fixed, actual or potential, known or unknown, which (A) arise
under or relate to matters covered by Environmental Laws and (B) arose from
actions occurring or conditions existing on or prior to the Effective Time.
SECTION 4.17. HLR CASH CONSIDERATION. HLR and its Affiliates have sufficient
funds, investments and credit facilities available to pay the HLR Cash
Consideration.
SECTION 4.18. TAKEOVER STATUTES. To the best of RBL's knowledge, no state
takeover statute or similar statute or regulation applicable to RBL or HLR
applies or purports to apply to the HLR Stockholder Agreement, the Merger, the
Warrants, the Sharing and Call Option Agreement or this Agreement or any of the
transactions contemplated thereby and hereby.
SECTION 4.19. OWNERSHIP OF NHL SHARES. As of the date hereof, HLR, RBL and
their Subsidiaries beneficially own, collectively, no more than 100 NHL Shares.
ARTICLE 5
COVENANTS OF NHL
NHL agrees that:
SECTION 5.1. CONDUCT OF NHL. From the date hereof until the Effective Time,
NHL and its Subsidiaries shall in all material respects conduct their business
in the ordinary course and shall use all reasonable efforts to preserve intact
their business organizations and relationships with third parties and to keep
available the services of their present officers and employees. Without
limiting the generality of the foregoing, from the date hereof until the
Effective Time:
(a) NHL will not adopt or propose any change in its certificate of
incorporation or bylaws, except as referred to in Section 2.1;
(b) Except as contemplated by this Agreement or as set forth on the NHL
Disclosure Schedule, NHL will not, and will not permit any of its Subsidiaries
to (i) enter into any contract, agreement, plan or arrangement covering any
director, officer or employee of NHL or any of its Subsidiaries that provides
for the making of any payments, the acceleration of vesting of any benefit or
right or any other entitlement contingent upon (A) the Merger, the exercise by
HLR of any of its rights under the HLR Stockholder Agreement or any acquisition
by HLR of securities of NHL (whether by merger, tender offer, private or market
purchases or otherwise) not prohibited by the HLR Stockholder Agreement or (B)
the termination of employment after the occurrence of any such contingency if
such payment, acceleration or entitlement would not have been provided but for
such contingency or (ii) amend any existing contract, agreement, plan or
arrangement to so provide;
(c) Except for the Merger or as set forth on the NHL Disclosure Schedule, NHL
will not, and will not permit any Subsidiary of NHL to (i) adopt a plan of
complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization or (ii) make any
acquisition of any business or other material assets of any Person, whether by
means of merger, consolidation or otherwise;
(d) Except as set forth on the NHL Disclosure Schedule, NHL will not, and
will not permit any Subsidiary of NHL to, sell, lease, license or otherwise
dispose of any material assets or property except (i) pursuant to existing
contracts or commitments or (ii) in the ordinary course of business consistent
with past practice;
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(e) Except for (i) borrowings under existing credit facilities, replacements
therefor and refinancings thereof and (ii) borrowings in the ordinary course of
business consistent with past practice, NHL will not, and will not permit any
Subsidiary of NHL to, incur any indebtedness for borrowed money or guarantee
any such indebtedness except for the financing contemplated by Section 7.2
hereof;
(f) Except pursuant to outstanding Employee Stock Options and as contemplated
by this Agreement, NHL will not issue any NHL Securities; and
(g) NHL will not, and will not permit any of its Subsidiaries to, take any
action that would result in (i) any of the representations and warranties of
such party set forth in this Agreement that are qualified as to materiality
becoming untrue, (ii) any of such representations and warranties that are not
so qualified becoming untrue in any material respect or (iii) any of the
conditions to the Merger set forth in Sections 9.1 or 9.2 not being satisfied.
SECTION 5.2. STOCKHOLDER MEETING; PROXY MATERIAL; REGISTRATION STATEMENT;
STOCK EXCHANGE LISTING. (a) NHL shall cause a meeting of its stockholders (the
"NHL Stockholder Meeting") to be duly called and held as soon as reasonably
practicable for the purpose of voting on the approval and adoption of this
Agreement (and the approval of any amendments to NHL's certificate of
incorporation as referred to in Section 2.1 and the treatment of the Employee
Stock Options pursuant to Section 1.5). The Board of Directors of NHL shall,
subject to their fiduciary duties as determined in good faith by the Board of
Directors based on the advice of outside legal counsel, recommend approval and
adoption of this Agreement (and approve any such amendments and such treatment
of holders of Employee Stock Options. In connection with such meeting, NHL (i)
will promptly prepare and file with the SEC, will use all reasonable efforts to
have cleared by the SEC the NHL Proxy Statement, (ii) will, subject to the
fiduciary duties of its Board of Directors, use all reasonable efforts to
obtain the approval and adoption by NHL's stockholders of this Agreement (and
approve any such amendments and such treatment) and (iii) will otherwise comply
with all legal requirements applicable to such meeting.
(b) As soon as practicable after resolving any comments of the SEC staff with
respect to the NHL Proxy Statement, NHL shall promptly prepare and file with
the SEC the Registration Statement, in which the NHL Proxy Statement will be
included as a prospectus. NHL shall use its best efforts to have the
Registration Statement declared effective under the 1933 Act as promptly as
practicable after such filing. NHL will use its best efforts to cause the NHL
Proxy Statement to be mailed to its stockholders as promptly as practicable
after the Registration Statement is declared effective under the 1933 Act. NHL
shall also take any action (other than qualifying to do business in any
jurisdiction in which it is not now so qualified) required to be taken under
any applicable state securities laws in connection with the issuance of NHL
Shares in the Merger. HLR and RBL shall furnish all information concerning the
HLR and RBL as may be reasonably requested in connection with any action
contemplated by this Section 5.2.
(c) NHL shall use all reasonable efforts to cause the Warrants to be issued
as contemplated hereby to be listed on the NYSE, subject to official notice of
issuance and evidence of satisfactory distribution.
(d) Prior to the date on which the Warrants shall become exercisable, in
accordance with their terms, NHL shall, if required by the Warrant Agreement
and applicable law, prepare and file with the SEC a registration statement
relating to the NHL Shares issuable upon exercise of the Warrants. NHL shall
use its best efforts to cause the registration statement to be declared
effective prior to the date the Warrants become exercisable.
SECTION 5.3. ACCESS TO INFORMATION; CONFIDENTIALITY. (a) From the date
hereof until the Effective Time, NHL will give HLR, RBL, their counsel,
financial advisors, auditors and other authorized representatives reasonable
access during normal business hours to the offices, properties, books and
records of NHL and its Subsidiaries, will furnish to HLR, RBL and their
counsel, financial advisors, auditors and other authorized representatives such
financial and operating data and other information as such Persons may
reasonably request and will instruct NHL's employees, counsel and financial
advisors to cooperate with HLR and RBL in their investigation of NHL and its
Subsidiaries, provided that no investigation pursuant to
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this Section shall affect any representation or warranty given by NHL to HLR
and RBL hereunder and provided further that the foregoing shall not require
NHL to permit any inspection, or to disclose any information, which in the
reasonable judgment of NHL would result in the disclosure of any trade secrets
of third parties or violate any obligation of NHL with respect to
confidentiality if NHL shall have used reasonable efforts to obtain the
consent of such third party to such inspection or disclosure. All requests for
information made pursuant to this Section 5.3 shall be directed to an
executive officer of NHL or such Person as may be designated by the Chief
Executive Officer of NHL
(b) Prior to the Effective Time and after any termination of this Agreement,
NHL will hold, and will use its best efforts to cause its officers, directors,
employees, counsel, financial advisors, auditors and other advisors and agents
to hold, in confidence, unless compelled to disclose by judicial or
administrative process or by other requirements of law, all confidential
documents and information concerning HLR, RBL and RBL's Subsidiaries furnished
to NHL in connection with the transactions contemplated by this Agreement,
except to the extent that such information can be shown to have been (i)
previously known by NHL on a nonconfidential basis or on a basis which permits
use on a less restrictive basis than this Section 5.3(b), (ii) in the public
domain through no fault of NHL or (iii) later lawfully acquired by NHL from
sources other than RBL or HLR or their Affiliates, advisors or
representatives, provided that NHL may disclose such information to its
officers, directors, employees, accountants, counsel, consultants, advisors
and agents in connection with the transactions contemplated by this Agreement
and to its lenders in connection with obtaining the financing for the
transactions contemplated by this Agreement so long as such Persons are
informed by NHL of the confidential nature of such information and are
directed by NHL to treat such information confidentially. NHL's obligation to
hold any such information in confidence shall be satisfied if it exercises the
same care with respect to such information as it would take to preserve the
confidentiality of its own similar information. If this Agreement is
terminated, NHL will, and will use its best efforts to cause its officers,
directors, employees, accountants, counsel, consultants, advisors and agents
to, destroy or deliver to RBL or HLR, upon request, all documents and other
materials, and all copies thereof, obtained by NHL or on its behalf from RBL
or HLR in connection with this Agreement that are subject to such confidence.
SECTION 5.4. OTHER OFFERS. (a) From the date hereof until the termination of
this Agreement in accordance with Section 10.1, NHL shall not, nor shall it
permit any of its Subsidiaries to, nor shall it authorize or permit any
officer, director or employee of, or any investment banker, attorney or other
advisor or representative of NHL or any of its Subsidiaries to, directly or
indirectly, (i) solicit, initiate or encourage the submission of any
"Acquisition Proposal" (as defined below) or (ii) participate in any
discussions or negotiations regarding, or furnish to any Person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Acquisition Proposal, provided, however, that to the
extent required by the fiduciary obligations of the Board of Directors of NHL,
as determined in good faith by the Board of Directors based on the advice of
outside counsel, NHL may, (A) in response to an unsolicited request therefor,
furnish information with respect to NHL to any Person pursuant to a customary
confidentiality agreement (as determined by NHL's outside counsel) and discuss
(1) such information (but not the terms of any possible Acquisition Proposal)
and (2) the terms of this Section 5.4 with such Person and (B) upon receipt by
NHL of an Acquisition Proposal, following delivery to HLR of the notice
required pursuant to Section 5.4(c) , participate in negotiations regarding
such Acquisition Proposal. Without limiting the foregoing, it is understood
that any violation of the restrictions set forth in the preceding sentence by
any officer, director or employee of NHL or any of its Subsidiaries or any
investment banker, attorney or other advisor or representative of NHL or any
of its Subsidiaries, whether or not such Person is purporting to act on behalf
of NHL or any of its Subsidiaries or otherwise, shall be deemed to be a breach
of this Section 5.4 by NHL. For purposes of this Agreement, "ACQUISITION
PROPOSAL" means any proposal for a merger or other business combination
involving NHL or any of its Subsidiaries or any proposal or offer to acquire
in any manner, directly or indirectly, an equity interest in securities
representing not less than 20% of the outstanding voting securities of, or
assets representing not less than 10% of the annual revenues of NHL or any of
its Subsidiaries, other than the transactions contemplated by this Agreement
or the Sharing and Call Option Agreement.
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(b) Neither the Board of Directors of NHL nor any committee thereof shall (i)
withdraw or modify, or propose to withdraw or modify, in a manner adverse to
RBL or HLR, the approval or recommendation by such Board of Directors or any
such committee of this Agreement or the Merger (or the other transactions
contemplated hereby), (ii) approve or recommend, or propose to approve or
recommend, any Acquisition Proposal or (iii) enter into any agreement with
respect to any Acquisition Proposal. Notwithstanding the foregoing, in the
event the Board of Directors of NHL receives an Acquisition Proposal that, in
the exercise of its fiduciary obligations (as determined in good faith by the
Board of Directors after reviewing the advice of outside counsel), it
determines to be a Superior Proposal (as defined below), the Board of Directors
may (subject to the following sentences) withdraw or modify its approval or
recommendation of this Agreement or the Merger, approve or recommend any such
Superior Proposal, enter into an agreement with respect to such Superior
Proposal or terminate this Agreement, in each case at any time after the second
business day following HLR's receipt of written notice (a "NOTICE OF SUPERIOR
PROPOSAL") advising HLR that the Board of Directors has received a Superior
Proposal, specifying the material terms and conditions of such Superior
Proposal and identifying the Person making such Superior Proposal. For purposes
of this Agreement, a "SUPERIOR PROPOSAL" means any bona fide Acquisition
Proposal on terms which the Board of Directors of NHL determines in its good
faith reasonable judgment (after reviewing the advice of a financial advisor of
nationally recognized reputation) to be more favorable to NHL's stockholders
than the Merger and the transactions contemplated hereby.
(c) In addition to the obligations of NHL set forth in Section 5.4(b) above,
NHL shall promptly advise HLR orally and in writing of any request for
information or of any Acquisition Proposal, or any inquiry with respect to or
which could lead to any Acquisition Proposal, the material terms and conditions
of such request, Acquisition Proposal or inquiry, and the identity of the
Person making any such Acquisition Proposal or inquiry. NHL will keep HLR fully
informed of the status and details of any such request, Acquisition Proposal or
inquiry.
(d) NHL shall immediately cease and cause to be terminated all existing
discussions and negotiations, if any, with any parties (other than RBL or HLR)
conducted heretofore with respect to any Acquisition Proposal.
SECTION 5.5. NOTICES OF CERTAIN EVENTS. NHL shall promptly notify HLR of:
(a) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(b) any notice or other communication from any governmental or regulatory
agency or authority in connection with the transactions contemplated by this
Agreement; and
(c) any actions, suits, claims, investigations or proceedings commenced or,
to the best of its knowledge threatened against, relating to or involving or
otherwise affecting NHL or any of its Subsidiaries which, if pending on the
date of this Agreement, would have been required to have been disclosed
pursuant to Section 3.12 or which relate to the consummation of the
transactions contemplated by this Agreement, the HLR Stockholder Agreement, the
Warrant Agreement or the Sharing and Call Option Agreement.
SECTION 5.6. TAX MATTERS. From the date hereof until the Effective Time, (i)
NHL and its Subsidiaries will file all material Tax returns, statements,
reports and forms (collectively, the "NHL POST-SIGNING RETURNS") required to be
filed with any taxing authority in accordance with all applicable laws, (ii)
NHL and its Subsidiaries will timely pay all Taxes shown as due and payable on
the NHL Post-Signing Returns that are so filed and as of the time of filing,
the NHL Post-Signing Returns will correctly reflect the facts regarding the
income, business, assets, operations, activities and the status of NHL and its
Subsidiaries in all material respects, (iii) NHL and its Subsidiaries will make
provision for all Taxes payable by NHL and its Subsidiaries for which no NHL
Post-Signing Return is due prior to the Effective Time, and (iv) NHL and its
Subsidiaries will promptly notify HLR of any action, suit, proceeding,
investigation, audit or claim pending against or with respect to NHL or any of
its Subsidiaries in respect of any Tax where there is a reasonable
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possibility of a determination or decision which would reasonably be expected
to have a significant adverse effect on NHL's Tax liabilities or other Tax
attributes.
SECTION 5.7. BOARD COMPOSITION. Prior to the Effective Time, the Board of
Directors of NHL shall take all action as is necessary to make effective as of
the Effective Time the resignations from the NHL Board of Directors of any
Persons then serving on the Board of Directors who are not identified on the
certificate delivered by HLR to NHL pursuant to Section 2.3 and to cause each
of the persons designated to be directors in such certificate to be duly
appointed to the Surviving Corporation's Board of Directors, in each case
effective at the Effective Time.
ARTICLE 6
COVENANTS OF HLR AND RBL
HLR and RBL agree that:
SECTION 6.1. CONDUCT OF RBL. From the date hereof until the Effective Time,
RBL and its Subsidiaries shall in all material respects conduct their business
in the ordinary course and shall use all reasonable efforts to preserve intact
their business organizations and relationships with third parties and to keep
available the services of their present officers and employees. Without
limiting the generality of the foregoing, from the date hereof until the
Effective Time:
(a) RBL will not adopt or propose any change in its certificate of
incorporation or bylaws;
(b) Except as contemplated by this Agreement or as set forth on the RBL
Disclosure Schedule, RBL will not, and will not permit any of its Subsidiaries
to, (i) enter into any contract, agreement, plan or arrangement covering any
director, officer or employee of RBL or any of its Subsidiaries that provides
for the making of any payments, the acceleration of vesting of any benefit or
right or any other entitlement contingent upon (A) the Merger or any
acquisition by HLR of securities of NHL (whether by merger, tender offer,
private or market purchases or otherwise) not prohibited by the HLR Stockholder
Agreement or (B) the termination of employment after the occurrence of any such
contingency if such payment, acceleration or entitlement would not have been
provided but for such contingency or (ii) amend any existing contract,
agreement, plan or arrangement to so provide;
(c) Except for the Merger or as set forth on the RBL Disclosure Schedule, RBL
will not, and will not permit any Subsidiary of RBL to (i) adopt a plan of
complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization other than into or with
RBL or any Subsidiary of RBL or (ii) make any acquisition of any business or
other material assets of any Person, whether by means of merger, consolidation
or otherwise;
(d) Except as set forth on the RBL Disclosure Schedule, RBL will not, and
will not permit any Subsidiary of RBL to, sell, lease, license or otherwise
dispose of any material assets or property except (i) pursuant to existing
contracts or commitments, (ii) in the ordinary course of business consistent
with past practice, (iii) as NHL agrees in writing or (iv) that RBL or a
Subsidiary thereof may dispose of or transfer that certain business known as
RIAS the assets and liabilities of which have been disclosed in writing to NHL
prior to the date hereof, and the proceeds of such disposition may be paid in a
dividend or otherwise to HLR or any other Person;
(e) Except as set forth on the RBL Disclosure Schedule or as contemplated by
Section 6.7 hereof, RBL will not, and will not permit any Subsidiary of RBL to,
declare, set aside, or apply any dividend or make any other distribution with
respect to any shares of RBL capital stock;
(f) Except for (i) borrowings under existing credit facilities, replacements
therefor and refinancings thereof and (ii) borrowings in the ordinary course of
business consistent with past practice, RBL will not,
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and will not permit any Subsidiary of RBL to, incur any indebtedness for
borrowed money or guarantee any such indebtedness;
(g) RBL will not issue any RBL Securities other than to HLR;
(h) RBL will not, and will cause its Affiliates not to, directly or
indirectly, acquire any NHL Shares prior to any termination fee becoming
payable to HLR pursuant to Section hereof; and
(i) RBL will not, and will not permit any of its Subsidiaries to, take any
action that would result in (i) any of the representations and warranties of
such party set forth in this Agreement that are qualified as to materiality
becoming untrue, (ii) any of such representations and warranties that are not
so qualified becoming untrue in any material respect or (iii) any of the
conditions to the Merger set forth in Sections 9.1 or 9.3 not being satisfied.
SECTION 6.2. ACCESS TO INFORMATION; CONFIDENTIALITY. (a) From the date hereof
until the Effective Time, HLR and RBL will give NHL, its counsel, financial
advisors, auditors and other authorized representatives reasonable access
during normal business hours to the offices, properties, books and records of
RBL and its Subsidiaries, will furnish to NHL and its counsel, financial
advisors, auditors and other authorized representatives such financial and
operating data and other information as such Persons may reasonably request and
will instruct RBL's employees, counsel and financial advisors to cooperate with
NHL in its investigation of RBL and its Subsidiaries, provided that no
investigation pursuant to this Section 6.2 shall affect any representation or
warranty given by HLR or RBL to NHL hereunder and provided further that the
foregoing shall not require RBL or HLR to permit any inspection, or to disclose
any information, which in the reasonable judgment of RBL or HLR would result in
the disclosure of any trade secrets of third parties or violate any obligation
of RBL or HLR with respect to confidentiality if RBL or HLR, as the case may
be, shall have used reasonable efforts to obtain the consent of such third
party to such inspection or disclosure. All requests for information made
pursuant to this Section 6.2 shall be directed to an executive officer of RBL
or such Person as may be designated by the Chief Executive Officer of RBL.
(b) Prior to the Effective Time and after any termination of this Agreement,
each of HLR and RBL will hold, and will use its best efforts to cause its
officers, directors, employees, counsel, financial advisors, auditors and other
advisors and agents to hold, in confidence, unless compelled to disclose by
judicial or administrative process or by other requirements of law, all
confidential documents and information concerning NHL and its Subsidiaries
furnished to each of HLR and RBL in connection with the transactions
contemplated by this Agreement, except to the extent that such information can
be shown to have been (i) previously known by HLR or RBL on a nonconfidential
basis or on a basis which permits use on terms less restrictive than this
Section 6.2(b), (ii) in the public domain through no fault of each of HLR or
RBL or (iii) later lawfully acquired by HLR or RBL from sources other than NHL
or its Affiliates, advisors or representatives, provided that each of HLR and
RBL may disclose such information to its officers, directors, employees,
accountants, counsel, consultants, advisors and agents in connection with the
transactions contemplated by this Agreement and to its lenders in connection
with obtaining the financing for the transactions contemplated by this
Agreement so long as such Persons are informed by each of HLR and RBL of the
confidential nature of such information and are directed by each of HLR and RBL
to treat such information confidentially. Each of HLR's and RBL's obligation to
hold any such information in confidence shall be satisfied if it exercises the
same care with respect to such information as it would take to preserve the
confidentiality of its own similar information. If this Agreement is
terminated, each of HLR and RBL will, and will use its best efforts to cause
its officers, directors, employees, accountants, counsel, consultants, advisors
and agents to, destroy or deliver to NHL, upon request, all documents and other
materials, and all copies thereof, obtained by either of HLR and RBL or on its
behalf from NHL in connection with this Agreement that are subject to such
confidence.
SECTION 6.3. VOTING OF SHARES. Each of HLR and RBL agrees to vote any NHL
Shares beneficially owned by it in favor of adoption of this Agreement and the
Merger (including any amendments to NHL's certificate of incorporation as
referred to in Section 1.5 and the treatment of any Employee Stock Options
pursuant to Section at the NHL Stockholder Meeting.
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SECTION 6.4. NOTICES OF CERTAIN EVENTS. RBL shall promptly notify NHL of:
(a) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(b) any notice or other communication from any governmental or regulatory
agency or authority in connection with the transactions contemplated by this
Agreement; and
(c) any actions, suits, claims, investigations or proceedings commenced or,
to the best of its knowledge threatened against, relating to or involving or
otherwise affecting RBL or any of its Subsidiaries which, if pending on the
date of this Agreement, would have been required to have been disclosed
pursuant to Section 4.11 or which relate to the consummation of the
transactions contemplated by this Agreement or the Sharing and Call Option
Agreement.
SECTION 6.5. TAX MATTERS. From the date hereof until the Effective Time, (i)
HLR/RBL and RBL's Subsidiaries will file all material Tax returns, statements,
reports and forms (collectively, the "HLR/RBL POST-SIGNING RETURNS") required
to be filed with any taxing authority in accordance with all applicable laws,
(ii) HLR/RBL and RBL's Subsidiaries will timely pay all Taxes shown as due and
payable on the respective HLR/RBL Post-Signing Returns that are so filed and as
of the time of filing, the HLR/RBL Post-Signing Returns will correctly reflect
the facts regarding the income, business, assets, operations, activities and
the status of HLR/RBL and RBL's Subsidiaries in all material respects, (iii)
HLR/RBL and RBL's Subsidiaries will make provision for all respective Taxes
payable by HLR/RBL and RBL's Subsidiaries for which no HLR/RBL Post-Signing
Return is due prior to the Effective Time and (iv) HLR/RBL and RBL's
Subsidiaries will promptly notify NHL of any action, suit, proceeding,
investigation, audit or claim pending against or with respect to HLR/RBL or any
of RBL's Subsidiaries in respect of any Tax where there is a reasonable
possibility of a determination or decision which would reasonably be expected
to have a significant adverse effect on HLR/RBL's Tax liabilities or other Tax
attributes.
SECTION 6.6. NHL EMPLOYMENT AGREEMENTS. HLR will not and will use its best
efforts to cause its Affiliates not to take any action to prevent NHL from
honoring the financial terms of the existing employment agreements between NHL
and its employees to the extent that copies of such agreements have been
provided to HLR prior to the date hereof (or if not so provided, if such
agreements were entered into after the date hereof and would not result in any
of the representations and warranties of NHL hereunder becoming untrue at the
Effective Time and which are otherwise entered into in compliance with this
Agreement).
SECTION 6.7. CERTAIN ACTIONS REGARDING RBL. (a) Prior to the Effective Time,
HLR and RBL will prepare a pro forma balance sheet for RBL and its Subsidiaries
(excluding RIAS) as of December 31, 1994 (the "PRO FORMA BALANCE SHEET") to
eliminate any outstanding intercompany account balances (other than current
trade payables but including any intercompany balances with respect to Taxes)
as of that date and to remove and eliminate as liabilities of RBL and any of
its Subsidiaries indebtedness for borrowed money ("BORROWED FUNDS"), such that
the aggregate liabilities of RBL and its Subsidiaries (excluding RIAS) for
Borrowed Funds as of December 31, 1994, reduced by cash and cash equivalents as
of that date, shall not exceed $44,000,000 (the "NET DEBT AMOUNT"). HLR and RBL
will cause the assets and liabilities of RBL and its Subsidiaries at the
Effective Time to be consistent with the amounts set forth in the Pro Forma
Balance Sheet (other than intercompany account balances relating to federal
income Taxes of RBL and its Subsidiaries for the Pre-Merger Tax Period (as
defined in Section 8.1) that begins on January 1, 1995 and ends on the date on
which the Effective Time occurs, which shall be settled in the manner provided
in Section 8.4(a)), adjusted to give effect to the operations (on an arm's
length basis) of RBL and its Subsidiaries since January 1, 1995.
(b) From January 1, 1995 until the Effective Time, no interest will be
charged or paid on any intercompany account or on any Borrowed Funds, except to
the extent of the interest that would accrue during the period beginning on
January 1, 1995 and ending at the Effective Time on the Net Debt Amount at the
interest rate provided under the agreement with the Swiss Bank Corporation, or
if any interest is paid during such period to a third party, HLR will repay to
RBL the excess over the amount which would be payable at such Swiss Bank
Corporation interest rate.
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ARTICLE 7
COVENANTS OF HLR, RBL AND NHL
The parties hereto agree that:
SECTION 7.1. REASONABLE EFFORTS. Upon the terms and subject to the conditions
set forth in this Agreement, each of the parties agrees to use reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including (i) the obtaining of all necessary
actions or nonactions, waivers, consents and approvals from governmental
entities and the making of all necessary registrations and filings (including
filings with governmental entities, if any) and the taking of all reasonable
steps as may be necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by, any governmental entity provided, however that in so
doing none of HLR, RBL or their respective Affiliates shall be obligated to
accept or be subject to an HLR Adverse Condition (as defined in Section 9.2(d)
and NHL shall not be obligated to accept or be subject to an NHL Adverse
Condition as defined in Section 9.3(d)), (ii) the obtaining of all necessary
consents, approvals or waivers from third parties and (iii) the execution and
delivery of any additional instruments necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, this Agreement;
provided that the foregoing shall not (a) require HLR to furnish, other than
for RBL and RBL's Subsidiaries, financial statements prepared in accordance
with United States GAAP or any reconciliation of financial statements with
United States GAAP or (b) prohibit the Board of Directors of NHL from taking
any action permitted by Section 5.4.
SECTION 7.2. CASH CONSIDERATION. Each of HLR and RBL will use their good
faith best efforts from and after the date hereof to assist NHL in NHL's
effecting of the refinancing of NHL's existing indebtedness and obtaining new
financing sufficient for NHL to pay the NHL Cash Consideration as contemplated
hereby. NHL will use its good faith best efforts from and after the date hereof
to effect the refinancing of NHL's existing indebtedness and to obtain new
financing sufficient for NHL to pay the NHL Cash Consideration as contemplated
hereby (and NHL will deposit the NHL Cash Consideration with the Exchange Agent
as contemplated by Section 1.3 hereof), it being understood and agreed by the
parties hereto that none of the parties hereto shall have any liability to any
other party hereto or any other Person if such financing and refinancing,
including sufficient financing for the NHL Cash Consideration, is not obtained
by NHL and the parties have complied with the provisions of this Section 7.2.
HLR will deposit the HLR Cash Consideration with the Exchange Agent as
contemplated by Section 1.3.
Each of HLR and NHL acknowledge receipt of the Credit Suisse commitment
letter to NHL dated December 13, 1994 relating to possible financing of the NHL
Cash Consideration (the "CS COMMITMENT LETTER").
SECTION 7.3. PUBLIC ANNOUNCEMENTS. NHL, HLR and RBL will use all reasonable
efforts to consult with each other before issuing any press release or making
any public statement with respect to this Agreement and the transactions
contemplated hereby or thereby and, except as may be required by applicable law
or any listing agreement with any national securities exchange, will use all
reasonable efforts not to issue any such press release or make any such public
statement prior to such consultation and agreement among the parties with
respect to the substance thereof.
SECTION 7.4. FURTHER ASSURANCES. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of NHL or RBL, any deeds, bills
of sale, assignments or assurances and to take and do, in the name and on
behalf of NHL or RBL, any other actions and things to vest, perfect or confirm
of record or otherwise in the Surviving Corporation any and all right, title
and interest in, to and under any of the rights, properties or assets of NHL
acquired or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger.
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SECTION 7.5. HLR STOCKHOLDER AGREEMENT. HLR and NHL each agree to execute and
deliver the HLR Stockholder Agreement immediately prior to the Effective Time.
SECTION 7.6. INDEMNIFICATION AND INSURANCE. (a) The certificate of
incorporation and the bylaws of the Surviving Corporation shall contain the
provisions with respect to indemnification set forth in NHL's certificate of
incorporation and bylaws on the date of this Agreement, which provisions shall
not be amended, repealed or otherwise modified for a period of six years from
the Effective Time in any manner that would adversely affect the rights
thereunder of individuals who on or prior to the Effective Time were directors,
officers, employees or agents of NHL or RBL, unless such modification is
required by law, and the Surviving Corporation shall indemnify and hold
harmless the present and former officers and directors of NHL and RBL in
respect of acts or omissions occurring prior to the Effective Time to the
maximum extent provided thereunder; provided that such indemnification shall
(to the maximum extent permitted by law) be mandatory rather than permissive
except in instances involving wilful misconduct or bad faith and that the
Surviving Corporation shall advance expenses, including attorneys' fees
promptly on demand and delivery of any required undertaking. For six years
after the Effective Time, the Surviving Corporation will cause to be maintained
the current policies of officers' and directors' liability insurance in respect
of acts or omissions occurring prior to the Effective Time covering each such
Person currently covered by RBL's officers' and directors' liability insurance
policy or NHL's officers' and directors' liability insurance policy or who
becomes covered thereby prior to the Effective Time, provided that the
Surviving Corporation may substitute therefor policies of at least the same
coverage containing terms and conditions which in all material respects are no
less favorable than those of the policies in effect on the date hereof for so
long as such substitution does not result in gaps or lapses in coverage; and
provided further that in satisfying its obligation under this Section, the
Surviving Corporation shall not be obligated to pay premiums in excess of 200%
of the aggregate amount per annum which RBL and NHL paid in their last full
fiscal years, but provided further, that the Surviving Corporation shall be
obligated to provide such coverage as may be obtained for such amount. The
Surviving Corporation shall pay all expenses (including attorneys' fees) that
may be incurred by any indemnified party in enforcing the indemnity and other
obligations provided for in this Section 7.6. The obligations of the Surviving
Corporation under this Section 7.6 shall not be terminated or modified in such
manner as to adversely affect directors and officers to whom this Section 7.6
applies without the consent of such director or officer. RBL's and NHL's
directors and officers, present and former, and their heirs, executors and
personal representatives to whom this Section 7.6 applies shall be third party
beneficiaries of this Section.
ARTICLE 8
TAX MATTERS
SECTION 8.1. DEFINITIONS. The following terms, as used herein, have the
following meanings:
"HLR GROUP" means, with respect to federal income Taxes, the Affiliated group
of corporations (as defined in Section 1504(a) of the Code) of which HLR is a
member and, with respect to state income or franchise Taxes, the consolidated,
combined or unitary group of which HLR or any of its Affiliates is a member.
"NHL GROUP" means, with respect to federal income Taxes, the Affiliated group
of corporations (as defined in Section 1504(a) of the Code) of which NHL (or,
after the Effective Time, the Surviving Corporation) is a member and, with
respect to state income or franchise Taxes, the consolidated, combined or
unitary group of which NHL or any of its Affiliates is a member.
"POST-MERGER TAX PERIOD" means any Tax period that is not a Pre-Merger Tax
Period.
"PRE-MERGER TAX PERIOD" means any Tax period ending on or before the date on
which the Effective Time occurs, and the portions ending on such date of any
Tax Period that includes (but does not end on) such day.
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"TAX SHARING AGREEMENT" means all existing written or unwritten Tax sharing
agreements or arrangements, including agreements or arrangements based on past
practices, binding RBL or any of its Subsidiaries.
SECTION 8.2. TAX COVENANTS. (a) The Surviving Corporation shall promptly pay
or shall cause prompt payment to be made to HLR of all refunds of Taxes and
interest thereon received by the Surviving Corporation or any Subsidiary of the
Surviving Corporation attributable to Taxes paid by HLR, RBL or any Subsidiary
of RBL (or any predecessor of HLR or any Subsidiary of HLR) with respect to any
Pre-Merger Tax Period, provided that (i) in the case of refunds attributable to
RBL or any of its Subsidiaries relating to federal income Taxes for Pre-Merger
Tax Periods with respect to which no return has been filed (and is not yet due)
at the Effective Time, the Surviving Corporation shall be obligated to pay or
cause prompt payment to be made to HLR of such refunds only to the extent that
such refunds exceed the amount paid by RBL or the Surviving Corporation to HLR
pursuant to Section 8.4(a) or (b), and (ii) the Surviving Corporation shall not
be obligated to pay or cause to be paid to HLR any refunds with respect to
Taxes (other than federal income Taxes) with respect to any Pre-Merger Tax
Period with respect to which no return has been filed (and is not yet due) at
the Effective Time.
(b) All transfer, real estate gains, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement shall be borne and paid by
the Surviving Corporation, and the Surviving Corporation will, at its own
expense, file all necessary Tax returns and other documentation with respect to
all such Taxes and fees, and, if required by applicable law, HLR will, and will
cause its Subsidiaries to, join in the execution of any such Tax returns and
other documentation.
(c) In the event that it is determined that the Surviving Corporation or any
of its Subsidiaries is a member of the HLR Group on a consolidated, combined or
unitary basis for purposes of any income or franchise Tax imposed by any state
or local taxing jurisdiction, HLR and the Surviving Corporation agree to
negotiate in good faith with each other and with the other members of such HLR
Group in an attempt to enter into an agreement regarding the allocation of
liability for and/or indemnification with respect to such Tax among the members
of such HLR Group on such basis as the parties may agree is appropriate and
equitable.
(d) (i) Neither NHL nor any of its Subsidiaries will take or permit any
action prior to the Effective Time that is reasonably likely to prevent the
Merger from qualifying as a reorganization within the meaning of Section
368(a)(1) of the Code.
(ii) The Surviving Corporation shall promptly indemnify HLR or any other
member of the HLR Group for any liability for Taxes or loss arising as a
result of the breach by NHL or any of its Subsidiaries of its obligations
under Section 8.2(d)(i) the representation contained in Section 3.13(k) or
the representations and covenants contained in the NHL Representations
Letter (as defined in Section 8.2(h) (other than covenant (3) therein))
that results in the Merger failing to qualify as a reorganization within
the meaning of Section 368(a)(1) of the Code (or any comparable provision
of state or local tax law).
(e) (i) During the period beginning on the date hereof and ending two years
after the Effective Time, neither HLR nor any of its Subsidiaries will take or
permit any action or, after the Effective Time, cause the Surviving Corporation
or any of its Subsidiaries to take or permit any action, that is reasonably
likely to prevent the Merger from qualifying as a reorganization within the
meaning of Section 368(a)(1) of the Code.
(ii) HLR shall promptly indemnify the Surviving Corporation or any other
member of the NHL Group for any liability for Taxes or loss arising as a
result of the breach by HLR or any of its Subsidiaries of its obligations
under Section 8.2(e)(i), the representation contained in Section 4.12(k) or
the representations and covenants contained in the HLR Representations
Letter (as defined in Section 8.2(i)) that results in the Merger failing to
qualify as a reorganization within the meaning of Section 368(a)(1) of the
Code (or any comparable provision of state or local tax law), or in the
recognition of gain by RBL pursuant to Section 357(c) of the Code (or any
other provision of state or local tax law).
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(f) HLR shall promptly indemnify the Surviving Corporation or any other
member of the NHL Group for (i) all Taxes of RBL and its Subsidiaries for any
Pre-Merger Tax Period, but, with respect to Taxes (other than federal income
taxes) for any Pre-Merger Tax Period with respect to which no return has been
filed (and is not yet due) at the Effective Time, only to the extent in each
case that such Tax exceeds the portion of the Tax shown as due on the return
which includes such Pre-Merger Tax Period that is attributable to such Pre-
Merger Tax Period; and (ii) all Taxes of any member of the HLR Group (other
than RBL and its Subsidiaries, and for any Post-Merger Tax Period, the
Surviving Corporation and its Subsidiaries) with respect to any Pre-Merger or
Post-Merger Tax Period.
(g) None of the Surviving Corporation, any other member of the NHL Group,
HLR, or any other member of the HLR Group shall settle or pay any claim for
Taxes with respect to which the Surviving Corporation or HLR, as the case may
be, is obligated to make any payment pursuant to Sections 8.2(d)(ii),
8.2(e)(ii) or 8.2(f), without the consent of the Surviving Corporation or HLR,
as the case may be, which consent shall not be unreasonably withheld.
(h) NHL agrees to execute and deliver a letter, dated as of the date on which
the Effective Time occurs, in the form set forth in Exhibit B hereto (the "NHL
REPRESENTATIONS LETTER") to each of counsel for NHL and counsel for RBL and HLR
prior to the Effective Time.
(i) HLR agrees to execute and deliver a letter, dated as the date on which
the Effective Time occurs, in the form set forth in Exhibit C hereto (the "HLR
REPRESENTATIONS LETTER") to each of counsel for NHL and counsel for RBL and HLR
prior to the Effective Time.
SECTION 8.3. TERMINATION OF EXISTING TAX SHARING AGREEMENTS. Any and all
existing Tax Sharing Agreements between RBL or any Subsidiary of RBL and any
member of the HLR Group shall be terminated as of the date on which the
Effective Time occurs. After such date neither RBL, any Subsidiary of RBL, HLR
nor any Subsidiary of HLR shall have any further rights or liabilities
thereunder. This Agreement shall be the sole Tax sharing agreement relating to
RBL or any Subsidiary of RBL for all Pre-Merger and Post-Merger Tax Periods.
SECTION 8.4. TAX SHARING. (a) (i) Immediately before the Effective Time, RBL
shall pay to HLR an amount equal to the federal income Taxes of RBL and its
Subsidiaries with respect to the Pre-Merger Tax Period that ends on the date of
the Effective Time. The amount of such payment in respect of such Taxes shall
be based upon HLR's reasonable good faith estimates of the amounts of federal
taxable income of RBL and its Subsidiaries (determined as if RBL and its
Subsidiaries filed a consolidated federal income Tax return with RBL as the
common parent) for such Pre-Merger Tax Period and an effective federal tax rate
of 35%, and reduced by the amount of any payments on account of such Taxes
previously paid by RBL or any of its Subsidiaries to HLR, any other member of
the HLR Group (other than RBL and its Subsidiaries) or the IRS.
(ii) At such time as the HLR Group prepares its federal income tax return
for such Pre-Merger Tax Period, it shall deliver to the Surviving
Corporation a pro forma return (each a "Pro Forma Return") for RBL and its
Subsidiaries which calculates the amount of federal income Taxes that RBL
and its Subsidiaries would have paid with respect to such Pre-Merger Tax
Period had RBL timely filed its own consolidated federal income Tax return
including its Subsidiaries (with RBL as the common parent) for such Pre-
Merger Tax Period. The Surviving Corporation shall have the right at its
expense to review all work papers and procedures used to prepare such Pro
Forma Return. Unless the Surviving Corporation timely objects as specified
in this Section 8.4(a)(ii) such Pro Forma Return shall be binding on the
parties without further adjustment. If the Surviving Corporation objects to
any item on such Pro Forma Return, it shall notify HLR in writing that it
so objects, specifying with particularity any such item and the factual or
legal basis for its objection, within 10 days after delivery of such Pro
Forma Return. If HLR and the Surviving Corporation are unable to reach
agreement on such items within 20 days after HLR receives such notice, the
disputed items shall be resolved by a nationally recognized accounting firm
with no material relationship to the Surviving Corporation, HLR or any of
their Affiliates, chosen within 5 days of the date upon which the need to
retain such firm arises by and
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mutually acceptable to both HLR and the Surviving Corporation. The costs
and expenses of retaining such firm shall be borne equally by HLR and the
Surviving Corporation. Upon resolution by such firm of all such items and
adjustment of the Pro Forma Return to reflect such resolution, the Pro
Forma Return shall be binding on the parties without further adjustment.
Once the Pro Forma Return has become binding, HLR shall promptly pay the
Surviving Corporation, or the Surviving Corporation shall promptly pay HLR,
as appropriate, an amount equal to (A) the difference between (x) the sum
of the liabilities shown on the Pro Forma Return and (y) the sum of all
payments previously made by RBL (including any payment pursuant to Section
8.4(a)(i)) or any Subsidiary with respect thereto to HLR, any other member
of the HLR Group (other than RBL and its Subsidiaries) or the IRS, and (B)
interest on such difference, which shall accrue at a rate equal to the
three-month London Interbank Offered Rate plus 0.5% from the Effective Time
until the date payment is made pursuant to this sentence.
(b) At such time as the HLR Group prepares its federal income tax return for
its 1994 tax year, it shall deliver to the Surviving Corporation a pro forma
return (each a "Pro Forma Return") for RBL and its Subsidiaries which
calculates the amount of federal income Taxes that RBL and its Subsidiaries
would have paid with respect to such tax year had RBL timely filed its own
consolidated federal income Tax return including its Subsidiaries (with RBL as
the common parent) for such tax year. The Surviving Corporation shall have the
right at its expense to review all work papers and procedures used to prepare
such Pro Forma Return. Unless the Surviving Corporation timely objects as
specified in this Section 8.4(b) such Pro Forma Return shall be binding on the
parties without further adjustment. If the Surviving Corporation objects to any
item on such Pro Forma Return, it shall notify HLR in writing that it so
objects, specifying with particularity any such item and the factual or legal
basis for its objection, within 10 days after delivery of such Pro Forma
Return. If HLR and the Surviving Corporation are unable to reach agreement on
such items within 20 days after HLR receives such notice, the disputed items
shall be resolved by a nationally recognized accounting firm with no material
relationship to the Surviving Corporation, HLR or any of their Affiliates,
chosen within 5 days of the date upon which the need to retain such firm arises
by and mutually acceptable to both HLR and the Surviving Corporation. The costs
and expenses of retaining such firm shall be borne equally by HLR and the
Surviving Corporation. Upon resolution by such firm of all such items and
adjustment of the Pro Forma Return to reflect such resolution, the Pro Forma
Return shall be binding on the parties without further adjustment. Once the Pro
Forma Return has become binding, HLR shall promptly pay the Surviving
Corporation, or the Surviving Corporation shall promptly pay HLR, as
appropriate, an amount equal to (A) the difference between (x) the sum of the
liabilities shown on the Pro Forma Return and (y) the sum of all payments
previously made by RBL or any Subsidiary with respect thereto to HLR, any other
member of the HLR Group (other than RBL and its Subsidiaries) or the IRS,
provided that, where (x) exceeds (y), the Surviving Corporation shall be
obligated to pay to HLR such difference only to the extent that it does not
exceed the greatest amount of intercompany account balances in respect of such
Taxes that, if in existence as of December 31, 1994, in addition to the other
intercompany account balances existing as of that date and actually taken into
account in formulating the Pro Forma Balance Sheet pursuant to Section 6.7(a),
could have been eliminated by payment rather than capitalization in formulating
such Pro Forma Balance Sheet, and (B) interest on the amount required to be
paid pursuant to clause (A) (determined taking into account the proviso
thereto), which shall accrue at a rate equal to the three-month London
Interbank Offered Rate plus 0.5% from the Effective Time until the date payment
is made pursuant to this sentence.
(c) The Surviving Corporation shall prepare or cause to be prepared, and
shall deliver to HLR, each return with respect to state or local income,
franchise, sales and use Taxes for any Pre-Merger Tax Period for which no
return has been filed (and is not yet due) as of the Effective Time and which
relates, in whole or in part, to Taxes with respect to which HLR may be
required to indemnify the Surviving Corporation or any other member of the N
Co. Group at least 90 days prior to the due date for such return. HLR shall
have the right at its expense to review all work papers and procedures used to
prepare such return. Unless HLR timely objects as specified in this Section
8.4(c), the Surviving Corporation or its Subsidiary, as appropriate, shall file
such return without further adjustment with the appropriate taxation authority,
and pay the Tax shown as due thereon. If HLR objects to any item on such
return, it shall notify the Surviving Corporation in writing
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that it so objects, specifying with particularity any such item and the factual
or legal basis for its objection, within 10 days after delivery of such return.
If HLR and the Surviving Corporation are unable to reach agreement on such
items within 20 days after the Surviving Corporation receives such notice, the
disputed items shall be resolved by a nationally recognized accounting firm
with no material relationship to the Surviving Corporation, HLR or any of their
Affiliates, chosen within 5 days of the date upon which the need to retain such
firm arises by and mutually acceptable to both HLR and the Surviving
Corporation. The costs and expenses of retaining such firm shall be borne
equally by HLR and the Surviving Corporation. Upon resolution by such firm of
all such items and adjustment of the return to reflect such resolution, the
Surviving Corporation or its Subsidiary, as appropriate, shall file such return
without further adjustment with the appropriate taxation authority, and pay the
Tax shown as due thereon.
SECTION 8.5. COOPERATION ON TAX MATTERS. The Surviving Corporation and HLR
agree to furnish or cause to be furnished to each other, upon request, as
promptly as practicable, such information (including access to books and
records) and assistance relating to RBL and its Subsidiaries as is reasonably
necessary for the filing of any return, for the preparation for any audit, and
for the prosecution or defense of any claim, suit or proceeding relating to any
proposed adjustment, provided that (i) HLR shall not be obligated to furnish or
cause to be furnished any information with respect to Genentech, Inc. and any
of its Subsidiaries, and (ii) in the case of information which also relates, in
whole or in part, to members of the HLR Group other than RBL and its
Subsidiaries, in order to ensure the confidentiality of the HLR Group's
commercial or proprietary information to the maximum extent feasible HLR shall
be obligated to furnish or to be caused to be furnished such information upon
request only to an independent advisor with no material relationship to the
Surviving Corporation, HLR or any of their Affiliates chosen by and mutually
acceptable to both HLR and the Surviving Corporation. The Surviving Corporation
and HLR agree to retain or cause to be retained all books and records pertinent
to RBL and its Subsidiaries until the end of the fifth year after the Effective
Time, and to abide by or cause the abidance with all record retention
agreements entered into with any taxation authority, in the case of the
Surviving Corporation, but only to the extent such agreements have been
disclosed in writing to NHL prior to the date hereof. The Surviving Corporation
agrees to give HLR reasonable notice prior to transferring, discarding or
destroying any such books and records relating to Tax matters and, if HLR so
requests, the Surviving Corporation shall allow HLR to take possession of such
books and records at HLR's cost and expense. The Surviving Corporation and HLR
shall cooperate with each other in the conduct of any audit or other
proceedings involving RBL or any of its Subsidiaries for any Tax purposes and
each shall execute and deliver such powers of attorney and other documents as
are necessary to carry out the intent of this subsection.
ARTICLE 9
CONDITIONS TO THE MERGER
SECTION 9.1. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The obligations of
NHL, HLR and RBL to consummate the Merger are subject to the satisfaction or
waiver as of the Effective Time of the following conditions:
(a) this Agreement, the HLR Stockholder Agreement and any amendments to the
Surviving Corporation's certificate of incorporation to be effected by the
Merger and any amendments to the Employee Stock Options contemplated by Section
1.5 shall have been approved by the stockholders of NHL in accordance with
Delaware Law;
(b) any applicable waiting period under the HSR Act relating to the Merger
shall have expired or been terminated;
(c) no provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the Merger;
(d) the Warrant Agreement shall have been executed and delivered by NHL and
the warrant agent to be named therein and such agreement shall be in full force
and effect and the Warrants shall have been approved for listing on the NYSE
subject to official notice of issuance and satisfactory distribution;
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(e) the Registration Statement shall have been declared effective and no stop
order suspending the effectiveness of the Registration Statement shall be in
effect and no proceedings for such purpose shall be pending before or
threatened by the SEC;
(f) the HLR Stockholder Agreement shall have been executed and delivered by
HLR and NHL and shall be in full force and effect;
(g) NHL shall have obtained sufficient financing to effect the refinancing of
NHL's existing indebtedness, if required, and to pay for the NHL Cash
Consideration on terms reasonably acceptable to HLR and NHL with financing
obtained on the terms no less favorable than those referred to in the CS
Commitment Letter being for this purpose deemed reasonably acceptable to HLR
and NHL; and
(h) there shall not be in effect any banking moratorium or suspension of
payments in respect of banks in the United States or Switzerland, or any
general suspension in trading in, or limitation on prices for, securities on
the NYSE.
SECTION 9.2. CONDITIONS TO THE OBLIGATIONS OF HLR AND RBL. The obligations of
HLR and RBL to consummate the Merger are subject to the satisfaction of the
following further conditions:
(a) (i) NHL shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Effective Time, (ii) the representations and warranties of NHL set forth in
Article 3 that are qualified as to materiality shall be true and correct and
the representations and warranties of NHL set forth in Article 3 that are not
so qualified shall be true and correct in all material respects, in each case
as of the Effective Time as though made on and as of the Effective Time, except
to the extent such representations and warranties speak only as of a particular
earlier date, and (iii) HLR shall have received a certificate or certificates
signed by such executive officers of NHL as reasonably requested by HLR to the
foregoing effect;
(b) HLR shall have received all documents it may reasonably request relating
to the existence of NHL and its Subsidiaries and the authority of NHL for this
Agreement and the HLR Stockholder Agreement, all in form and substance
reasonably satisfactory to HLR;
(c) either (i) the Committee on Foreign Investment in the United States shall
have determined not to investigate the Merger under Exon-Florio (either by
action or nonaction) or (ii) if such Committee shall have determined to make
such an investigation, such investigation shall have been completed and the
President shall have determined (either by action or nonaction) not to take any
action under Exon-Florio with respect to the transactions contemplated by this
Agreement;
(d) there shall be no order, decree, injunction of any court or governmental
authority of competent jurisdiction that would, and there shall not be
threatened or pending by any governmental authority any litigation or
investigation that seeks to, (i) prohibit or enjoin consummation of, or
materially impair or diminish the intended benefits of, the transactions
contemplated hereby, or by the HLR Stockholder Agreement or the Warrant
Agreement, (ii) restrain the ownership or operation by HLR or any of its
Affiliates of all or any material portion of the assets or business of the
Surviving Corporation or any of its Subsidiaries or to compel HLR or any of its
Affiliates to dispose of all or any material portion of the business or assets
of the Surviving Corporation or HLR or any of its Affiliates, (iii) impose or
confirm limitations on the ability of HLR effectively to exercise full rights
and privileges of ownership of the HLR-NHL Shares, the Warrants or other NHL
Securities HLR may acquire except as limited by the HLR Stockholder Agreement,
including, without limitation, the right to exercise the Warrants or to vote
any NHL Shares on all matters properly presented to the Surviving Corporation's
stockholders, or (iv) require divestiture by HLR or any of its Affiliates or
any NHL Shares or other NHL Securities (each such circumstance described in
clauses (i) through (iv) being referred to herein as an "HLR ADVERSE
CONDITION");
(e) all action by, or filings with, any governmental body, agency, official
or authority referred to in clauses (i) through (v) of Section 3.3 shall have
been obtained and made;
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(f) the NHL Cash Consideration and the Roche Warrant Consideration received
by NHL pursuant to Section 1.4(b) shall have been deposited with the Exchange
Agent as contemplated by Section 1.3 hereof;
(g) HLR shall have received from counsel to NHL an opinion in form and
substance reasonably satisfactory to HLR to the effect that the HLR-NHL Shares
have been duly authorized and upon delivery to HLR at the Effective Time will
be validly issued, fully paid and nonassessable and that the Roche Warrants
have been duly authorized and upon payment of the Roche Warrant Consideration
will be validly issued; and
(h) RBL and HLR shall have received from their counsel an opinion
substantially in the form attached as Exhibit D hereto to the effect that the
Merger will constitute a reorganization pursuant to Section 368(a)(1) of the
Code.
SECTION 9.3. CONDITIONS TO THE OBLIGATIONS OF NHL. The obligations of NHL to
consummate the Merger are subject to the satisfaction of the following further
conditions:
(a) (i) HLR and RBL shall have performed in all material respects all of
their respective obligations hereunder required to be performed by them at or
prior to the Effective Time, (ii) the representations and warranties of HLR and
RBL set forth in Article 4 that are qualified as to materiality shall be true
and correct and the representations and warranties of HLR and RBL set forth in
Article 4 that are not so qualified shall be true and correct in all material
respects, in each case as of the Effective Time as though made on and as of the
Effective Time, except to the extent such representations and warranties speak
only as of a particular earlier date, and (iii) NHL shall have received a
certificate or certificates signed by such executive officers of Roche as
reasonably requested by NHL to the foregoing effect;
(b) NHL shall have received all documents it may reasonably request relating
to the existence of HLR or RBL and the authority of HLR or RBL for this
Agreement and the HLR Stockholder Agreement, all in form and substance
reasonably satisfactory to NHL;
(c) HLR shall have deposited the HLR Cash Consideration with the Exchange
Agent as contemplated by Section 1.3 hereof and Roche shall have paid the Roche
Warrant Consideration to NHL;
(d) there shall be no order, decree, injunction of any court or governmental
authority of competent jurisdiction that would, and there shall not be
threatened or pending by any governmental authority any litigation that seeks
to (i) prohibit or enjoin consummation of, or materially impair or diminish the
intended benefits to NHL's stockholders of, the transactions contemplated
hereby or by the Warrant Agreement or (ii) restrain the ownership or operation
by NHL or any of its Affiliates or the Surviving Corporation of all or any
material portion of the assets or business of either NHL or RBL or any
Subsidiary of either or to compel NHL or any of its Affiliates to dispose of
all or any material portion of the business or assets of NHL or RBL or any
Subsidiary of either (each such circumstances described in clauses (i) and (ii)
being referred to herein as an "NHL ADVERSE CONDITION");
(e) NHL shall have received from its counsel an opinion substantially in the
form attached as Exhibit E hereto to the effect that the Merger will constitute
a reorganization pursuant to Section 368(a)(1) of the Code;
(f) all actions by, or filings with, any governmental body, agency, official
or authority referred to in clauses (i) through (v) of Section 4.3 shall have
been obtained and made; and
(g) (i) Roche shall have performed in all material respects its obligations
under Section 11.9 required to be performed at or prior to the Effective Time,
(ii) the representations and warranties of Roche set forth in Section 11.9 that
are qualified as to materiality shall be true and correct and the
representations and warranties of Roche set forth in Section 11.9 that are not
so qualified shall be true and correct in all material respects, in each case
as of the Effective Time as though made on and as of the Effective Time, except
to the extent such representations and warranties speak only as of a particular
earlier date, and (iii) NHL shall have received a certificate or certificates
signed by such executive officers of Roche as reasonably requested by NHL to
the foregoing effect.
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ARTICLE 10
TERMINATION
SECTION 10.1. TERMINATION. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time (notwithstanding any
approval of this Agreement by the stockholders of NHL):
(a) by mutual written consent of NHL and HLR;
(b) by either NHL or HLR, if the Merger has not been consummated by September
1, 1995;
(c) (i) by either NHL or HLR, if there shall be any law or regulation that
makes consummation of the Merger illegal or otherwise prohibited or any
judgment, injunction, order or decree (other than a temporary restraining order
or a preliminary injunction) enjoining consummation of the Merger or (ii) by
NHL if any such law or regulation or any judgment, injunction, order or decree,
which, if applicable, would in NHL's reasonable judgment constitute an NHL
Adverse Condition or (iii) by HLR, if any such law or regulation or any
judgment, injunction, order or decree, which, if applicable, would in HLR's
reasonable judgment constitute an HLR Adverse Condition;
(d) by NHL in accordance with Section 5.4;
(e) by either HLR or NHL, if the NHL Stockholder Meeting shall have been held
and the stockholders of NHL shall have failed to approve, in accordance with
Delaware Law, this Agreement (including any amendments to the certificate of
incorporation of the Surviving Corporation to be effected thereby, if any, as
referred to in Section 2.1);
(f) by HLR, if it is not in material breach of its obligations under this
Agreement, if the Board of Directors of NHL shall have (i) withdrawn its
recommendation of the Merger or this Agreement (or the transactions
contemplated hereby) or (ii) recommended or approved any Acquisition Proposal
(other than an Acquisition Proposal made by HLR or a controlled Affiliate of
HLR); or
(g) by HLR or NHL if HLR, RBL or NHL shall have received any communication
from the Department of Justice or Federal Trade Commission (each an "HSR
AUTHORITY") (which communication shall be confirmed to the other parties by the
HSR Authority) that causes such party to reasonably believe that any HSR
Authority has authorized the institution under United States antitrust laws of
litigation seeking an order, decree or injunction that, if entered, would (in
the reasonable judgment of the party invoking this Section 10.1(g)), be
reasonably likely to constitute an NHL Adverse Condition, if NHL is the
invoking party, or an HLR Adverse Condition, if HLR is the invoking party.
SECTION 10.2. EFFECT OF TERMINATION. If this Agreement is terminated pursuant
to Section 10.1, this Agreement shall become void and of no effect with no
liability on the part of any party hereto, except for liability or damages
resulting from a wilful breach of this Agreement and except that the agreements
contained in this Section 10.2 and in Sections 5.3(b), 6.2(b) and 11.4 shall
survive the termination hereof.
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ARTICLE 11
MISCELLANEOUS
SECTION 11.1. NOTICES. All notices, requests and other communications to any
party hereunder shall be in writing (including telecopy or similar writing) and
shall be given:
if to HLR, to: HLR Holdings Inc.
1403 Foulk Road
Suite 102
P.O. Box 8985
Wilmington, Delaware 19899
Attn.: William D. Johnston
if to RBL, to: Roche Biomedical Laboratories, Inc.
358 South Main Street
Burlington, North Carolina 27215
Attn.: Bradford T. Smith, Esq.
with a copy to: Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attn: Peter R. Douglas, Esq.
Telecopy: (212) 450-4800
and
if to NHL, to: National Health Laboratories Holdings Inc.
4225 Executive Square
La Jolla, California 92037
Attn: James G. Richmond, Esq.
Telecopy: (619) 658-6693
with a copy to: Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attn: Allen Finkelson, Esq.
Telecopy: (212) 474-3700
or such other address or telecopy number as such party may hereafter specify
for the purpose by notice to the other parties hereto. Each such notice,
request or other communication shall be effective (i) if given by telecopy,
when such telecopy is transmitted to the telecopy number specified in this
Section 11.1 and the appropriate confirmation of transmittal is received or
(ii) if given by any other means, when delivered at the address specified in
this Section 11.1.
SECTION 11.2. SURVIVAL OF AGREEMENTS AND REPRESENTATIONS AND
WARRANTIES. Except for the representations, warranties and agreements contained
in Articles 1.2, and 8 and Sections 3.13(k), 4.12(k), 7.4, 7.5, and 7.6, the
NHL Representations Letter, the HLR Representations Letter, and this Section
hereof, the representations and warranties and agreements contained herein and
in any certificate or other writing delivered pursuant hereto (other than the
HLR Stockholder Agreement) shall not survive the Effective Time.
SECTION 11.3. AMENDMENTS; NO WAIVERS. (a) Any provision of this Agreement may
be amended or waived prior to the Effective Time if, and only if, such
amendment or waiver is in writing and signed, in
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the case of an amendment, by NHL, HLR and RBL or in the case of a waiver, by
the party against whom the waiver is to be effective, provided that after the
adoption of this Agreement by the stockholders of NHL, no such amendment or
waiver shall, without the further approval of such stockholders, alter or
change (i) the NHL Share Conversion, (ii) any term of the certificate of
incorporation of the Surviving Corporation or (iii) any of the terms or
conditions of this Agreement if such alteration or change would adversely
affect the holders of any shares of capital stock of NHL.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 11.4. FEES AND EXPENSES. (a) Except as otherwise provided in this
Section 11.4, all costs and expenses incurred in connection with this Agreement
shall be paid by the party incurring such cost or expense, provided however in
the event RBL's legal and financial advisory fees and expenses exceed in the
aggregate those of NHL, HLR or an Affiliate thereof (other than RBL or NHL or
any of their respective Subsidiaries) shall pay such excess amount.
(b) So long as each of HLR and RBL shall not have materially breached its
obligations under this Agreement, NHL will pay HLR, in immediately available
funds, the amounts referred to below, promptly after the termination of this
Agreement (x) pursuant to clause (d) or (f)(i) of Section 10.1 if any Person or
group (as defined in Section 13(d)(iii) of the 1934 Act) (other than HLR or an
Affiliate of HLR) shall have made an Acquisition Proposal (excluding for this
purpose any indication of interest that has not resulted in an offer or
proposal) or become the beneficial owner (as defined in Rule 13d-3 promulgated
under the 1934 Act) of at least 20% of the outstanding NHL Shares or (y)
pursuant to clause (f)(ii) of Section 10.1. The amounts referred to in the
preceding sentence are (A) a termination fee of $30,000,000 and (B) up to an
additional $7,000,000 as reimbursement for expenses actually incurred by HLR
and RBL in connection with this Agreement and the transactions contemplated
hereby. For purposes of the foregoing, the reimbursement referred to in clause
(B), above, shall be payable only if and to the extent HLR and RBL provide
written statements to NHL that they have incurred such expenses and such back-
up data as may be reasonably be requested.
SECTION 11.5. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto. Section 11.4(b) is intended to
be for the benefit of and grant to HLR the rights specified therein, and HLR
shall be entitled to enforce the covenants contained therein. Except as
provided in the preceding sentence or in Section 7.6, this Agreement shall be
binding upon and is solely for the benefit of each of the parties hereto and
their respective successors and assigns, and nothing in this Agreement (other
than Section 7.6) is intended to confer upon any other Person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
SECTION 11.6. GOVERNING LAW. This Agreement shall be construed in accordance
with and governed by the law of the State of Delaware.
SECTION 11.7. COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have
received counterparts hereof signed by all of the other parties hereto.
SECTION 11.8. CERTAIN DEFINITIONS. For purposes of this Agreement the phrases
"TO THE KNOWLEDGE OF" or "KNOWN TO" mean with respect to such Person (x) in the
case of NHL, or any of its Subsidiaries, actually known to any regional manager
(which is a person in charge of an individual laboratory) of NHL or any
Subsidiary or actually known to or which could reasonably be expected to be
known by an executive of NHL more senior than a regional manager and (y) in the
case of RBL, or any of its Subsidiaries, actually known to
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a subregional laboratory manager (which is a person in charge of a sub-regional
laboratory) of RBL or any Subsidiary or actually known to or which could
reasonably be expected to be known by an executive of RBL more senior than a
sub-regional manager. Additionally, as used in this Agreement, the following
terms have the following meanings:
(a) "AFFILIATE" means, with respect to any Person, any other Person that
directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with such first Person.
(b) "BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banking institutions in New York City are authorized by law or
executive order to close.
(c) "PERSON" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a
governmental or political subdivision or any agency or instrumentality thereof.
SECTION 11.9. AGREEMENTS OF ROCHE. (a) Roche represents and warrants to NHL
that: Roche is a corporation duly incorporated, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated and has
all corporate powers required to carry on its business as now being conducted.
The execution, delivery and performance by Roche of this Agreement are within
Roche's corporate powers and have been duly authorized by all necessary
corporate action. This Agreement constitutes a valid and binding agreement of
Roche. The execution, delivery and performance by Roche of this Agreement
require no action by, or filing with, any governmental body, agency, official
or authority other than compliance with any applicable requirements of the HSR
Act. The execution, delivery and performance by Roche of this Agreement do not
and will not (i) contravene or conflict with the certificate of incorporation
or the bylaws of Roche or conflict with or constitute a violation of any
provision of any law, regulation, judgment, injunction, order or decree binding
upon or applicable to Roche, (ii) constitute a default under or give rise to a
right of termination, cancellation or acceleration of any right or obligation
of Roche or to a loss of any benefit to which Roche is entitled under any
provision of any agreement, contract or other instrument binding upon Roche or
(iii) result in the creation or imposition of any Lien on any asset of Roche,
except in each case for contraventions, conflicts, violations, defaults, rights
of termination, cancellation or acceleration, losses of benefits or creation or
imposition of Liens that would not be reasonably expected to have, individually
or in the aggregate, a material adverse effect on the business, financial
condition, assets, results of operations or prospects of Roche and its
Subsidiaries, taken as a whole.
(b) Roche agrees to use its best efforts to cause RBL and HLR to perform
their obligations under this Agreement.
(c) Roche and its Affiliates have sufficient funds, investments and credit
facilities available to it to pay the Roche Warrant Consideration and will to
the extent necessary make funds available to HLR to enable HLR to satisfy the
obligation of HLR to deposit the HLR Cash Consideration pursuant to Section
1.3.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
NATIONAL HEALTH LABORATORIES
HOLDINGS INC.
/s/ James R. Maher
By: _________________________________
Name: James R. Maher
Title: President and Chief
Executive Officer
HLR HOLDINGS INC.
/s/ Bradford T. Smith
By: _________________________________
Name: Bradford T. Smith
Title: Assistant Secretary
ROCHE BIOMEDICAL LABORATORIES, INC.
/s/ James B. Powell
By: _________________________________
Name: James B. Powell
Title: President
HOFFMANN-LA ROCHE INC.
/s/ Thomas P. Mac Mahon
By: _________________________________
Name: Thomas P. Mac Mahon
Title: Senior Vice President
I-42
<PAGE>
ANNEX II
WARRANT AGREEMENT
DATED AS OF APRIL , 1995
BETWEEN
NATIONAL HEALTH LABORATORIES HOLDINGS INC.
AND
AMERICAN STOCK TRANSFER & TRUST COMPANY, AS WARRANT AGENT
<PAGE>
TABLE OF CONTENTS(1)
<TABLE>
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ARTICLE 1
DEFINITIONS
<C> <S> <C>
SECTION 1.1 Definitions............................................... II-1
ARTICLE 2
ISSUE, FORM, EXERCISE
SECTION 2.1 Amount Issued............................................. II-2
SECTION 2.2 Initial Issuance.......................................... II-2
SECTION 2.3 Form of Warrant Certificate............................... II-4
SECTION 2.4 Execution of Warrant Certificates......................... II-4
SECTION 2.5 Notice to Holders with Respect to Exercise and Redemption. II-4
SECTION 2.6 Exercise of Warrants...................................... II-4
SECTION 2.7 Redemption................................................ II-5
SECTION 2.8 Certain Action............................................ II-6
SECTION 2.9 No Voting Rights.......................................... II-6
SECTION 2.10 Warrant Shares to be Fully Paid and Nonassessable......... II-6
SECTION 2.11 No Fractional Warrants.................................... II-6
SECTION 2.12 No Fractional Warrant Shares.............................. II-7
ARTICLE 3
TRANSFER, EXCHANGE AND REPLACEMENT OF WARRANTS, LISTING
SECTION 3.1 Ownership of Warrants..................................... II-7
SECTION 3.2 Registration and Countersignature......................... II-7
SECTION 3.3 Registration of Transfers and Exchanges................... II-7
SECTION 3.4 Cancellation of Warrants.................................. II-8
SECTION 3.5 Payments of Taxes......................................... II-8
SECTION 3.6 Mutilated or Missing Warrant Certificates................. II-8
SECTION 3.7 Governmental Approvals and Stock Exchange Listing......... II-8
SECTION 3.8 Transfer to Comply with the Securities Laws............... II-9
SECTION 3.9 Company Option to Repurchase Warrants..................... II-9
ARTICLE 4
ANTI-DILUTION PROVISIONS
SECTION 4.1 Adjustment of Exercise Price and Number of Shares
Purchasable or Number of Warrants......................... II-9
Stock Dividends, Stock Splits, Combinations and Stock
SECTION 4.2 Reclassifications......................................... II-9
SECTION 4.3 Rights, Options and Warrants.............................. II-9
SECTION 4.4 Certain Distributions..................................... II-10
SECTION 4.5 Capital Reorganizations and Reclassifications............. II-10
SECTION 4.6 Consolidations, Mergers, Sales and Conveyances............ II-10
SECTION 4.7 Adjustment Rules.......................................... II-11
SECTION 4.8 Notice to Holders with Respect to Adjustments............. II-12
ARTICLE 5
WARRANT AGENT
SECTION 5.1 Appointment of Warrant Agent.............................. II-12
SECTION 5.2 Warrant Agent............................................. II-12
SECTION 5.3 Change of Warrant Agent................................... II-14
SECTION 5.4 Merger, Consolidation or Change of Name of Warrant Agent.. II-14
</TABLE>
II-i
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<TABLE>
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PAGE
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ARTICLE 6
MISCELLANEOUS
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SECTION 6.1 Notices..................................................... II-15
SECTION 6.2 Supplements and Amendments.................................. II-15
SECTION 6.3 Termination................................................. II-15
SECTION 6.4 Governing Law............................................... II-16
SECTION 6.5 Persons Benefiting.......................................... II-16
SECTION 6.6 Counterparts................................................ II-16
SECTION 6.7 Headings.................................................... II-16
</TABLE>
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(1) This Table of Contents is not a part of the Agreement.
II-ii
<PAGE>
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (the "AGREEMENT") is dated as of April , 1995
between National Health Laboratories Holdings Inc., a Delaware corporation (the
"COMPANY"), and American Stock Transfer & Trust Company as warrant agent (the
"WARRANT AGENT").
WHEREAS, as described in the succeeding two recitals, the Company proposes to
issue and deliver its warrant certificates (the "WARRANT CERTIFICATES")
evidencing Common Stock Purchase Warrants (the "WARRANTS") to purchase, under
certain circumstances, up to an aggregate of 23,000,000 shares (the "WARRANT
SHARES"), subject to adjustment, of its Common Stock (as defined below);
WHEREAS, the Company currently intends to declare a dividend to holders of
record of Common Stock as of April 21, 1995 (the "WARRANT DISTRIBUTION RECORD
DATE") of 0.16308 of a Warrant per share of Common Stock which dividend shall
be paid April 24, 1995 (the "WARRANT DISTRIBUTION");
WHEREAS, the Company intends to issue and sell on the terms and subject to
the conditions set forth in the Merger Agreement (as defined below) and herein
to Hoffmann-La Roche Inc. ("ROCHE") 8,325,000 Warrants (the "ROCHE WARRANTS")
for an aggregate purchase price of $51,048,900;
WHEREAS, each Warrant shall entitle the registered holder thereof, on the
terms and conditions hereof, to acquire from the Company one share of Common
Stock, subject to adjustment; and
WHEREAS, the Warrant Agent, at the request of the Company, has agreed to act
as the agent of the Company in connection with the issuance, registration,
transfer, exchange, exercise and conversion of Warrants.
NOW, THEREFORE, in consideration of the premises and mutual agreements herein
set forth, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 DEFINITIONS. As used in this Agreement, the following terms shall
have the following respective meanings:
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on which
commercial banking institutions in New York City are authorized by law or
executive order to close.
"CLOSE OF BUSINESS" means 5:00 P.M. New York City time.
"CLOSING PRICE" means, with respect to the Warrants or shares of Common
Stock, for any day the last sale price, regular way, or, if no such sale takes
place on such day, the average of the closing bid and asked prices, regular
way, for such day, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the NYSE or, if the Warrants or shares of Common Stock, as the case
may be, are not listed or admitted to trading on such exchange, as reported on
the principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which the
Warrants or shares of Common Stock, respectively, are listed or admitted to
trading, or if the Warrants or shares of Common Stock, as the case may be, are
not listed or admitted to trading on any national securities exchange, as
reported on NASDAQ/NMS or, if the Warrants or shares of Common Stock, as the
case may be, are not listed or admitted to trading on NASDAQ/NMS, as reported
on NASDAQ.
<PAGE>
"COMMON STOCK" means the common stock, par value $0.01 per share, of the
Company.
"COMPANY" has the meaning set forth in the preamble to this Warrant Agreement
and its successors and assigns.
"EXERCISE PRICE" means the purchase price per share of Common Stock to be
paid upon the exercise of each Warrant in accordance with the terms hereof,
which price shall be $22.00 per share, subject to adjustment from time to time
pursuant to Article 4 hereof.
"EXPIRATION DATE" means April 28, 2000, or such other date as may be
determined pursuant to Section 2.7 hereof.
"FRACTIONAL WARRANT" has the meaning set forth in Section 2.11 hereof.
"FRACTIONAL WARRANT HOLDER" has the meaning set forth in Section 2.11 hereof.
"FRACTIONAL WARRANT PROCEEDS" has the meaning set forth in Section 2.11
hereof.
"FRACTIONAL WARRANT SHARE" has the meaning set forth in Section 2.12 hereof.
"FRACTIONAL WARRANT SHARE HOLDER" has the meaning set forth in Section 2.12
hereof.
"FRACTIONAL WARRANT SHARE PROCEEDS" has the meaning set forth in Section 2.12
hereof.
"HOLDER" means, at any time, a registered holder as shown in the Warrant
Register of a Warrant outstanding at such time.
"MARKET DISRUPTION EVENT" means one of the following events, circumstances or
causes: (i) the suspension of or an imposition of a material limitation on
trading in shares generally or (ii) any outbreak or escalation of hostilities
or other national or international calamity or crisis.
"MARKET PRICE" as at any date of determination means the average of the daily
Closing Prices of a share of Common Stock over the Valuation Period applicable
to such date of determination.
"MERGER AGREEMENT" means the Agreement and Plan of Merger dated as of
December 13, 1994, among the Company, HLR Holdings Inc., Roche Biomedical
Laboratories, Inc. and, for the purposes stated therein, Roche.
"NASD" means the National Association of Securities Dealers, Inc.
"NASDAQ" means the NASD Automated Quotation System.
"NASDAQ/NMS" means the NASDAQ--National Market System or its successor.
"NHL STOCKHOLDER MEETING" shall have the meaning ascribed thereto in the
Merger Agreement.
"NYSE" means the New York Stock Exchange, Inc.
"PERSON" means an individual, a partnership, a corporation, a joint venture,
a trust, an incorporated or unincorporated organization, a government or any
department or agency thereof.
"REDEMPTION" has the meaning set forth in Section 2.7 hereof.
II-2
<PAGE>
"REDEMPTION AMOUNT" means, in respect of any Warrant, the amount equal to the
excess (if any) of the Market Price for the Valuation Period applicable to the
Expiration Date over the Exercise Price.
"ROCHE" has the meaning set forth in the recitals of this Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
"TRADING DAY" means any day on which either the Warrants or shares of Common
Stock, as the case may be, are traded on the applicable securities exchange or
in the applicable securities market.
"TRANSFER AGENT" has the meaning set forth in Section 2.6(c) hereof.
"VALUATION PERIOD" for any computation of Market Price shall mean the 10
consecutive Trading Days (each, a "VALUATION DATE") commencing 15 Trading Days
and ending five Trading Days before the applicable date as of which the Market
Price is being determined.
"WARRANT AGENT" means the warrant agent named in the preamble of this
Agreement or the successor or successors of such Warrant Agent appointed in
accordance with the terms hereof.
"WARRANT AGENT OFFICE" means the office or agency maintained by the Warrant
Agent in New York, New York (or such other offices or agencies as may be
designated by the Warrant Agent) for the purpose of exchanging, transferring
and exercising the Warrants.
"WARRANT CERTIFICATE" has the meaning set forth in the recitals of this
Agreement.
"WARRANT DISTRIBUTION" has the meaning set forth in the recitals of this
Agreement
"WARRANT DISTRIBUTION RECORD DATE" has the meaning set forth in the recitals
hereof.
"WARRANT REGISTER" means the register maintained by the Warrant Agent in
which the issue, transfer and cancellation of the Warrants are registered.
"WARRANTS" has the meaning set forth in the recitals of this Agreement.
"WARRANT SHARE" has the meaning set forth in the recitals of this Agreement.
All references herein to "DAYS" shall mean calendar days unless otherwise
specified. All terms defined in this Agreement in the singular shall have a
comparable meaning in the plural and vice versa.
ARTICLE 2
ISSUE, FORM, EXERCISE
SECTION 2.1 AMOUNT ISSUED. Subject to the other provisions of this Agreement
(including Article 4), Warrants to purchase no more than 23,000,000 Warrant
Shares may be issued and delivered hereunder.
SECTION 2.2 INITIAL ISSUANCE. Warrant Certificates representing the Warrants
shall be initially issued by the Warrant Agent at the time, in the
denominations and to the Persons so directed by the Company. Upon the
declaration of the Warrant Distribution, the Company shall execute and deliver
to the Warrant Agent for countersignature Warrant Certificates representing a
number of Warrants equal to the product of (x) the number of outstanding shares
of Common Stock on the Warrant Distribution Record Date and (y) 0.16308. At or
prior to the Effective Time (as defined in the Merger Agreement) the Company
shall execute and deliver to the Warrant Agent for countersignature Warrant
Certificates representing the Roche Warrants.
II-3
<PAGE>
SECTION 2.3 FORM OF WARRANT CERTIFICATE. The Warrant Certificates shall be in
registered form only. The Warrant Certificates and the forms of election to
exercise Warrants and of assignment to be printed on the reverse side thereof
shall be in substantially the form set forth in Exhibit A hereto together with
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Agreement, and may have such letters, numbers
or other marks of identification and such legends or endorsements placed
thereon as may be required to comply with any law or with any rules made
pursuant thereto or with any rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Warrants,
as evidenced by their execution of the Warrants.
SECTION 2.4 EXECUTION OF WARRANT CERTIFICATES. (a) Warrant Certificates shall
be signed on behalf of the Company by the Chairman of its Board of Directors,
its Chief Executive Officer, its President, a Vice President or its Treasurer
and attested by its Secretary or Assistant Secretary, under its corporate seal.
Each such signature upon the Warrant Certificates may be in the form of a
facsimile signature of the current or any future Chairman of the Board, Chief
Executive Officer, President, Vice President, Treasurer, Secretary or Assistant
Secretary and may be imprinted or otherwise reproduced on the Warrant
Certificates and for that purpose the Company may adopt and use the facsimile
signature of any person who shall have been Chairman of the Board, Chief
Executive Officer, President, Vice President, Treasurer, Secretary or Assistant
Secretary, notwithstanding the fact that at the time the Warrant Certificates
shall be countersigned and delivered or disposed of such person shall have
ceased to hold such office. The seal of the Company may be in the form of a
facsimile thereof and may be impressed, affixed, imprinted or otherwise
reproduced on the Warrant Certificates.
(b) If any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be such officer before the Warrant Certificates so
signed shall have been countersigned by the Warrant Agent or disposed of by the
Company, such Warrant Certificates nevertheless may be countersigned and
delivered or disposed of as though such person had not ceased to be such
officer of the Company; and any Warrant Certificate may be signed on behalf of
the Company by any person who, at the actual date of the execution of such
Warrant Certificate, shall be a proper officer of the Company to sign such
Warrant Certificate, although at the date of the execution of this Agreement
any such person was not such officer.
SECTION 2.5 NOTICE TO HOLDERS WITH RESPECT TO EXERCISE AND REDEMPTION. Not
earlier than 90 days nor later than 60 days prior to the Expiration Date, the
Company shall deliver to the Warrant Agent notice in writing, which notice
shall be irrevocable, stating whether or not it shall have elected to redeem
the Warrants on the Expiration Date in accordance with Section 2.7. Promptly
after receipt of the Company's notice, the Warrant Agent shall mail a notice to
all Holders at the addresses set forth on the Warrant Register to the effect
that (as applicable) each outstanding Warrant shall be redeemed for the
Redemption Amount on the Expiration Date or that such Warrants shall not be
redeemed and describing the exercise procedure set forth in Section 2.6 (which
notice shall include the statement that the Warrants will terminate and become
void as of the Close of Business on the Expiration Date and that failure by a
Holder to comply with the exercise procedures will result in the forfeiture of
such Holder's rights with respect to such Holder's Warrants).
SECTION 2.6 EXERCISE OF WARRANTS. (a) Subject to the provisions of this
Agreement, each Warrant shall be exercisable only prior to the Close of
Business on the Expiration Date and only if the Company shall not have duly
elected to effect a Redemption pursuant to Section 2.7. The Warrants shall
expire at and become null and void and have no value and no Person shall have
any rights thereto as of the Close of Business on the Expiration Date,
provided, however, that, notwithstanding such expiration, Holders that have
properly exercised Warrants in accordance with this Section 2.6 shall be
entitled to receive Warrant Shares with respect to such Holders' Warrants as
provided in subsection (b) unless the Company shall have elected to effect a
Redemption pursuant to Section 2.7, in which case each Holder shall be entitled
to received the Redemption Amount as described in Section 2.7.
(b) Subject to Section 2.7, for each Warrant held, the Holder thereof shall
have the right to purchase from the Company (and the Company shall issue and
sell to such Holder) one fully paid and non-assessable
II-4
<PAGE>
share of Common Stock at the Exercise Price (in each case subject to adjustment
as hereinafter provided) upon (i) surrender to the Warrant Agent, at a Warrant
Agent Office of the Warrant Certificate evidencing such Warrant, with the form
of election to exercise on the reverse thereof properly completed and signed by
the Holder or Holders thereof or by the duly appointed legal representative
thereof or by a duly authorized attorney, and (ii) payment of the Exercise
Price for the number of Warrant Shares in respect of which such Warrant is
being exercised. Such surrender and payment (if applicable) may be made and
shall be accepted by the Warrant Agent at any time during the 45 day period
immediately preceding the Close of Business on the Expiration Date, but any
Warrants so surrendered shall not be deemed to be exercised until the
Expiration Date. Payment of the Exercise Price shall be made by a certified or
official bank check payable to the order of the Warrant Agent for the account
of the Company or by wire transfer of funds to an account designated by the
Company for such purpose. The Warrants evidenced by a Warrant Certificate shall
be exercisable, at the election of the Holder thereof, either in their entirety
or in part. Except as expressly provided to the contrary in Article 4, no
adjustments shall be made for any cash dividends or other cash distributions on
Warrant Shares issuable upon the exercise of a Warrant.
(c) Upon the surrender of each Warrant Certificate in accordance with
subsection (b) above and payment of the per share Exercise Price (and an amount
representing any transfer taxes payable with respect to the issuance of the
relevant Warrant Shares) immediately following the Expiration Date, the Company
shall issue and cause its transfer agent for the Common Stock ("TRANSFER
AGENT") to deliver with all reasonable dispatch to or upon the written order of
the Holder and in such name or names as such Holder may designate, a
certificate or certificates for the number of full Warrant Shares so purchased
upon the exercise of such Warrant or Warrants together with cash as provided in
Section 2.12 in respect of any Fractional Warrant Share (as defined below)
otherwise issuable upon such exercise. Such certificate or certificates shall
be deemed to have been issued and any person so designated to be named therein
shall be deemed to have become a holder of record of such Warrant Shares as of
the Expiration Date; provided, however, that if, at such date, the transfer
books for the Warrant Shares shall be closed, the certificates for the Warrant
Shares in respect of which such Warrants are then exercised shall be issuable
as of the date on which such books shall next be opened and until such date
Holders shall be under no duty to deliver any certificates for such Warrant
Shares; provided further, however, that such transfer books, unless otherwise
required by law, shall not be closed at any one time for a period longer than
20 calendar days.
SECTION 2.7 REDEMPTION. (a) Notwithstanding Section 2.6, the Company shall
have the right to redeem all, but not less than all, of the Warrants on the
Expiration Date by payment to each Holder as of the Expiration Date in cash of
the Redemption Amount with respect to the Warrants held by such Holder as of
the Expiration Date (a "REDEMPTION"), but only if the Company shall have timely
delivered to the Warrant Agent the notice of its election to redeem the
Warrants referred to in Section 2.5. If the Company has elected to redeem the
Warrants as herein provided, at or immediately prior to the Expiration Date,
the Company shall cause to be transferred to the Warrant Agent an amount in
immediately available funds equal to the aggregate Redemption Amount for all
outstanding Warrants for payment by the Warrant Agent to the Holders as of the
Expiration Date in respect of the Warrants held as of the Expiration Date. If
the Company shall have duly elected to redeem the Warrants but the aggregate
Redemption Amount is zero or less than zero, no amount shall be required to be
paid by the Company in respect of the redemption of the Warrants but the
Warrants shall nonetheless be deemed to have been redeemed.
(b) If the Company has duly elected to redeem the Warrants and the Company
determines in its sole discretion that a Market Disruption Event has occurred
and is continuing on any day that but for the occurrence of a Market Disruption
Event would have been a Valuation Date with respect to the determination of the
Redemption Amount, then such day shall not be deemed to be a Valuation Date and
the Valuation Date shall instead be deemed to be the next Trading Day on which
the Company determines that no Market Disruption Event is continuing and the
Valuation Period shall be extended accordingly. If the Valuation Period shall
have been so extended, then the Expiration Date for purposes of the Redemption
shall be deemed to be the fifth Trading Day after the end of the Valuation
Period as so extended. In the event that the Company determines that a Market
Disruption Event has occurred, the Company shall give telephonic notice
(promptly confirmed in writing) of such event to the Warrant Agent.
II-5
<PAGE>
SECTION 2.8 CERTAIN ACTION. Before taking any action that would cause an
adjustment pursuant to Article 4 reducing the Exercise Price below the then par
value (if any) of the Warrant Shares issuable upon exercise of the Warrants,
the Company will take any corporate action that may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue
fully paid and nonassessable Warrant Shares at the Exercise Price as so
adjusted.
SECTION 2.9 NO VOTING RIGHTS. Prior to the exercise of the Warrants and the
issuance of Warrant Shares in respect thereof, no Holder, as such, shall be
entitled to any rights of a stockholder of the Company including, without
limitation, the right to receive dividends or subscription rights, the right to
vote, to consent, to exercise any preemptive right, to receive any notice of
meetings of stockholders for the election of directors of the Company or any
other matter or to receive any notice of any proceedings of the Company, except
as may be specifically provided for herein.
SECTION 2.10 WARRANT SHARES TO BE FULLY PAID AND NONASSESSABLE. The Company
covenants that all Warrant Shares issued upon exercise of the Warrants will,
upon payment of the applicable Exercise Price, delivery of properly completed
forms of election to exercise and issuance of such Warrant Shares in accordance
with the terms of this Agreement, be fully paid and nonassessable and free from
all liens, charges and security interests created by or imposed upon the
Company with respect to the issuance and holding thereof. The Company shall no
less than 50 days prior to the Expiration Date (unless the Company shall have
elected to effect a Redemption pursuant to Section 2.7) at all times thereafter
until issuance of Warrant Shares in accordance herewith keep reserved out of
its authorized shares of Common Stock a number of shares of Common Stock
sufficient to provide for the exercise of all outstanding Warrants.
SECTION 2.11 NO FRACTIONAL WARRANTS. (a) No certificates or scrip
representing fractional Warrants shall be issued to any Holder in the Warrant
Distribution. As promptly as practicable following the Warrant Distribution
Record Date, the Warrant Agent shall determine with respect to each Person
entitled to receive Warrants pursuant to the Warrant Distribution the excess of
(x) the number of Warrants delivered to the Warrant Agent by the Company
pursuant to Section 2.2 with respect to each such Person over (y) the number of
whole Warrants to be distributed with respect to such Person (such excess
fraction of a Warrant being hereinafter referred to in connection with each
such Person as a "FRACTIONAL WARRANT"). As soon after the Warrant Distribution
Record Date as practicable, the Warrant Agent, as agent for Holders otherwise
entitled to receive Fractional Warrants (each, a "FRACTIONAL WARRANT HOLDER"),
shall aggregate and sell in normal transactions the Fractional Warrants for all
Fractional Warrant Holders at then available prices on the NYSE. Until the net
proceeds of such sale or sales (the "FRACTIONAL WARRANT PROCEEDS") have been
distributed to the Fractional Warrant Holders, the Warrant Agent shall hold the
Fractional Warrant Proceeds in trust for the Fractional Warrant Holders. The
Company shall pay, and deduct from the Fractional Warrant Proceeds, all
commissions, transfer taxes and other out-of-pocket transaction costs,
including the expenses and compensation of the Warrant Agent, incurred in
connection with such sale of the Fractional Warrants. The Warrant Agent shall
determine the portion of the net Fractional Warrant Proceeds to which each
Fractional Warrant Holder shall be entitled, if any, by multiplying the net
Fractional Warrant Proceeds amount by a fraction, the numerator of which is the
Fractional Warrant to which such Fractional Warrant Holder would otherwise be
entitled and the denominator of which is the aggregate Fractional Warrants to
which all Fractional Warrant Holders would otherwise be entitled. As soon as
practicable after the determination of the amount of Fractional Warrant
Proceeds, if any, to be paid in cash to each Fractional Warrant Holder in lieu
of any Fractional Warrants, the Warrant Agent shall make available such
amounts, without interest, to each such Fractional Warrant Holder.
(b) If Warrants are to be issued Holders pursuant to Section 4.7(h), the
Company and the Warrant Agent shall, prior to such issuance, establish a
procedure corresponding to the procedure described in subsection (a) above such
that Holders that would otherwise receive Fractional Warrants shall instead
receive the appropriate amount of the Fractional Warrant Proceeds thereof.
II-6
<PAGE>
SECTION 2.12 NO FRACTIONAL WARRANT SHARES. Notwithstanding any adjustment
pursuant to Article 4 in the number of Warrant Shares purchasable upon the
exercise of a Warrant, no certificates or scrip representing fractional Warrant
Shares shall be issued upon exercise of a Warrant. As promptly as practicable
following the Expiration Date, if the Company shall not have elected to effect
a Redemption pursuant to Section 2.7, the Transfer Agent shall determine the
excess of (x) the number of Warrant Shares delivered to the Transfer Agent by
the Company with respect to each Holder pursuant to Section 2.6 over (y) the
aggregate number of whole Warrant Shares to be issued with respect to such
Holder (such excess being hereinafter referred to in connection with each such
Holder as the "FRACTIONAL WARRANT SHARE"). As soon after the Expiration Date as
practicable, the Transfer Agent, as agent for Holders otherwise entitled to
receive Fractional Warrant Shares (each, a "FRACTIONAL WARRANT SHARE HOLDER"),
unless the Company has elected to effect a Redemption pursuant to Section 2.7,
shall aggregate and sell in normal transactions the Fractional Warrant Shares
for all the Fractional Warrant Share Holders at then available prices on the
NYSE or on the principal United States securities exchange on which the Common
Stock is listed, if any, or on NASDAQ, if the Common Stock is quoted on NASDAQ.
Until the net proceeds of such sale or sales (the "FRACTIONAL WARRANT SHARE
PROCEEDS") have been distributed to such Holders, the Transfer Agent will hold
the Fractional Warrant Share Proceeds in trust for the Fractional Warrant Share
Holders. The Company shall pay, and deduct from the Fractional Warrant Share
Proceeds, all commissions, transfer taxes and other out-of-pocket transaction
costs, including the expenses and compensation of the Transfer Agent, incurred
in connection with such sale of the Fractional Warrant Shares. The Transfer
Agent shall determine the portion of the net Fractional Warrant Share Proceeds
to which each Fractional Warrant Share Holder shall be entitled, if any, by
multiplying the net Fractional Warrant Share Proceeds amount by a fraction, the
numerator of which is the Fractional Warrant Share to which such Fractional
Warrant Share Holder would otherwise be entitled and the denominator of which
is the aggregate amount of Fractional Warrant Shares to which all such
Fractional Warrant Share Holders would otherwise be entitled. As soon as
practicable after the determination of the amount of the net Fractional Warrant
Share Proceeds, if any, to be paid in cash to each such Fractional Warrant
Share Holder in lieu of its Fractional Warrant Share, the Transfer Agent shall
make available such amounts, without interest, to each such Fractional Warrant
Share Holder.
ARTICLE 3
TRANSFER, EXCHANGE AND REPLACEMENT OF WARRANTS, LISTING
SECTION 3.1 OWNERSHIP OF WARRANTS. The Company and the Warrant Agent may deem
and treat any Holder as the absolute owner for all purposes, notwithstanding
any notation of ownership or other writing on the relevant Warrant Certificate
made by anyone, and shall not be affected by any notice to the contrary until
due presentation of such Warrant Certificate for registration and transfer as
provided in this Article 3.
SECTION 3.2 REGISTRATION AND COUNTERSIGNATURE. Warrant Certificates shall be
countersigned manually or by facsimile and dated the date of countersignature
by the Warrant Agent and shall not be valid for any purpose unless so
countersigned. The Warrant Certificates shall be numbered and shall be
registered in the Warrant Register. The countersignature of the Warrant Agent
shall be that of a duly authorized employee of the Warrant Agent.
SECTION 3.3 REGISTRATION OF TRANSFERS AND EXCHANGES. (a) The Warrant Agent
shall from time to time register the transfer of any outstanding Warrant
Certificate in the Warrant Register, upon surrender of such Warrant
Certificate, duly endorsed, and accompanied by a written instrument or
instruments of transfer in a form satisfactory to the Warrant Agent, duly
signed by the Holder or Holders thereof or by the duly appointed legal
representative thereof or by a duly authorized attorney, such signature to be
guaranteed by (i) a bank or trust company, (ii) a broker or dealer that is a
member of the NASD or (iii) a member of a national securities exchange, and
funds sufficient to pay any transfer taxes payable with respect to such
transfer. Upon any such registration or transfer, a new Warrant Certificate
shall be issued to the transferee.
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(b) Warrant Certificates may be exchanged at the option of the holder or
holders thereof, when surrendered to the Warrant Agent at a Warrant Agent
Office, or at the offices of any successor Warrant Agent as provided in Section
5.3 hereof, for another Warrant Certificate or other Warrant Certificates of
like tenor and representing in the aggregate a like number of Warrants.
(c) Notwithstanding paragraphs (a) and (b) above, the Warrant Agent shall not
be required to transfer or exchange any Warrant Certificate from and after the
105th day preceding the scheduled Expiration Date provided that if, in the
notice provided by the Company pursuant to Section 2.5, the Company shall not
have elected to redeem the Warrants, then the Warrant Agent shall permit
transfers or exchanges of Warrant Certificates from and after the mailing of
the notice to Holders referred to in Section 2.5 but shall not be required to
transfer or exchange any Warrant Certificate from and after the 15th day
preceding the Expiration Date.
SECTION 3.4 CANCELLATION OF WARRANTS. If the Company shall purchase or
otherwise acquire Warrants, the Company may deliver the Warrant Certificates
representing such Warrants to the Warrant Agent to be canceled by it and
retired. The Warrant Agent shall cancel all Warrant Certificates so
surrendered.
SECTION 3.5 PAYMENTS OF TAXES. The Company will pay any documentary stamp
taxes attributable to the initial issuance of Warrants and of Warrant Shares
upon the exercise of Warrants; provided, that the Company shall not be required
to pay any tax or taxes which may be payable in respect of any transfer
involved in the issue of any Warrant Certificates or any certificates for
Warrant Shares in a name other than the registered holder of a Warrant
Certificate surrendered upon the exercise of a Warrant, and the Company shall
not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the
Company the amount of such tax or shall have established to the satisfaction of
the Company that such tax has been paid.
SECTION 3.6 MUTILATED OR MISSING WARRANT CERTIFICATES. (a) If (i) any
mutilated Warrant Certificate is surrendered to the Warrant Agent or (ii) the
Company and the Warrant Agent receive evidence to their satisfaction of the
destruction, loss or theft of any Warrant Certificate, and there is delivered
to the Company and the Warrant Agent such security or indemnity as may be
reasonably required by them to hold each of them harmless with respect thereto,
then, in the absence of notice to the Company or the Warrant Agent that such
Warrant Certificate has been acquired by a bona fide purchaser, the Company
shall execute and upon its written request the Warrant Agent shall countersign
and deliver, in exchange for any such mutilated Warrant Certificate or in lieu
of any such destroyed, lost or stolen Warrant Certificate, a new Warrant
Certificate of like tenor and for a like aggregate number of Warrants.
(b) Upon the issuance of any new Warrant Certificate under this Section 3.6
the Company may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and other
expenses (including the reasonable fees and expenses of the Warrant Agent and
of counsel to the Company) in connection therewith.
(c) Every new Warrant Certificate executed and delivered pursuant to this
Section 3.6 in lieu of any destroyed, lost or stolen Warrant Certificate shall
constitute an original contractual obligation of the Company, whether or not
the destroyed, lost or stolen Warrant Certificate shall be at any time
enforceable by anyone, and shall be entitled to the benefits of this Warrant
Agreement equally and proportionately with any and all other Warrant
Certificates duly executed and delivered hereunder.
SECTION 3.7 GOVERNMENTAL APPROVALS AND STOCK EXCHANGE LISTING. The Company
from time to time will use its best efforts (a) to obtain and keep effective
any and all permits, consents and approvals of governmental agencies and
authorities and to file such documents under federal and state securities acts
and laws, which may be or become requisite in connection with the issuance,
sale, transfer and delivery of the Warrant Certificates, the exercise of the
Warrants and the issuance, sale, transfer and delivery of the Warrant Shares
issued upon exercise of Warrants (including, without limitation, causing a
registration statement under
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the Securities Act in respect of the Warrant Shares to be filed and declared
effective but, subject to the Company's other contractual obligations, not
including maintaining an effective registration statement for purposes of
resale of Warrant Shares), provided, however, if any such permits, consents,
approvals or documents are not so obtained or effective, the Company will
immediately notify the Warrant Agent; (b) to have the Warrants listed on the
NYSE or on the principal United States securities exchange on which the Common
Stock is listed, if any, or quoted on NASDAQ if the Common Stock is so quoted;
and (c) immediately upon the issuance of Warrant Shares upon exercise of
Warrants, to have such Warrant Shares listed on the NYSE or on the principal
United States securities exchange or exchanges on which the Common Stock is
listed, if any, or quoted on NASDAQ if the Common Stock is so quoted. The
Company shall cause the Warrants to be delisted on the NYSE or cease to be
quoted, as the case may be, effective as of the Close of Business on the
Expiration Date. Notwithstanding anything in this Agreement to the contrary, in
no event shall a Holder be entitled to exercise a Warrant unless a registration
statement filed under the Securities Act in respect of the Warrant Shares is
then effective (unless in the opinion of counsel to the Company an exemption
from the registration requirements is available under the Securities Act at the
time of such exercise).
SECTION 3.8 TRANSFER TO COMPLY WITH THE SECURITIES LAWS. Neither the Warrants
nor any of the Warrant Shares, nor any interest in either, may be sold,
assigned, pledged, hypothecated, encumbered or in any other manner transferred
or disposed of, in whole or in part, except in compliance with applicable
United States federal and state securities laws and the terms and conditions
hereof and thereof.
SECTION 3.9 COMPANY OPTION TO REPURCHASE WARRANTS. The Company and its
subsidiaries shall have the option, in their sole discretion, at any time or
from time to time, to purchase Warrants (i) in the public market, (ii) by
tender or exchange offer available to all Holders at any price or (iii) in
private transactions at a price not more than ten percent (10%) over the Market
Price of the Warrants as of closing date of each such transaction respectively.
Warrants acquired by the Company or its subsidiaries shall be canceled and
shall not be available for reissuance or resale.
ARTICLE 4
ANTI-DILUTION PROVISIONS
SECTION 4.1 ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES PURCHASABLE OR
NUMBER OF WARRANTS. The Exercise Price, the number of Warrant Shares
purchasable upon the exercise of each Warrant and the number of Warrants
outstanding are subject to adjustment from time to time upon the occurrence of
the events enumerated in this Article 4.
SECTION 4.2 STOCK DIVIDENDS, STOCK SPLITS, COMBINATIONS AND STOCK
RECLASSIFICATIONS. If the Company shall (i) pay a dividend on its shares of
capital stock (including Common Stock) in shares of Common Stock, (ii)
subdivide its outstanding shares of Common Stock, (iii) combine its outstanding
shares of Common Stock into a smaller number of shares of Common Stock or (iv)
issue any shares of its capital stock in a reclassification of the Common Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing corporation), in each case, other
than the Merger pursuant to the Merger Agreement, the number of Warrant Shares
purchasable upon exercise of each Warrant immediately prior thereto shall be
adjusted so that each Holder shall be entitled upon exercise to receive the
kind and number of Warrant Shares or other securities of the Company which such
Holder would have owned or have been entitled to receive after the happening of
any of the events described above, had such Warrant been exercised immediately
prior to the happening of such event or any record date with respect thereto.
An adjustment made pursuant to this Section 4.2 shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.
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SECTION 4.3 RIGHTS, OPTIONS AND WARRANTS. If the Company shall issue any
rights, options or warrants to holders of its outstanding Common Stock (other
than pursuant hereto, pursuant to stock option plans or similar plans approved
by the Board of Directors of the Company or pursuant to the Merger Agreement),
without payment of additional consideration by such holders, entitling them
(for a period expiring within 45 days after the record date mentioned below) to
subscribe for or purchase shares of Common Stock at a price per share that is
lower than the Market Price per share of Common Stock at the record date
mentioned below, the number of Warrant Shares thereafter purchasable upon the
exercise of each Warrant shall be determined by multiplying the number of
Warrant Shares theretofore purchasable upon exercise of each Warrant by a
fraction, of which the numerator shall be (i) the number of shares of Common
Stock outstanding on the record date for the issuance of such rights, options
or warrants plus the number of additional shares of Common Stock offered for
subscription or purchase, and of which the denominator shall be (ii) the number
of shares of Common Stock outstanding on the record date for the issuance of
such rights, options or warrants plus the number of shares which the aggregate
offering price of the total number of shares of Common Stock so offered would
purchase at the Market Price per share of Common Stock at such record date.
Such adjustment shall be made whenever such rights, options or warrants are
issued, and shall become effective immediately on the date of issuance
retroactive to the record date for the determination of stockholders entitled
to receive such rights, options or warrants.
SECTION 4.4 CERTAIN DISTRIBUTIONS. If the Company shall distribute to all
holders of its shares of Common Stock evidences of its indebtedness or assets
(excluding cash dividends or distributions payable out of consolidated earnings
or earned surplus and dividends or distributions referred to in Section 4.2) or
rights, options or warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase shares of Common Stock
(excluding those referred to in Section 4.3), then in each case the number of
Warrant Shares thereafter purchasable upon the exercise of each Warrant shall
be determined by multiplying the number of Warrant Shares theretofore
purchasable upon the exercise of each Warrant, by a fraction, of which the
numerator shall be (i) the then current Market Price per share of Common Stock
on the date of such distribution, and of which the denominator shall be (ii)
the then current Market Price per share of Common Stock on the date of such
distribution, less the then fair value (as determined in good faith by the
Board of Directors of the Company, whose determination shall be conclusive and
shall be evidenced by a resolution filed with the Warrant Agent) of the portion
of the assets or evidences of indebtedness so distributed or of such
subscription rights, options or warrants or convertible or exchangeable
securities applicable to one share of Common Stock. Such adjustment shall be
made whenever any such distribution is made, and shall become effective on the
date of distribution retroactive to the record date for the determination of
stockholders entitled to receive such distribution.
SECTION 4.5 CAPITAL REORGANIZATIONS AND STOCK RECLASSIFICATIONS. In the event
of any capital reorganization or any reclassification of the Common Stock
(except as provided in Section 4.2, 4.3, 4.4 or 4.6), any Holder of Warrants
upon exercise thereof shall be entitled to receive, in lieu of the Common Stock
to which such Holder would have become entitled upon exercise immediately prior
to such reorganization or reclassification, the shares (of any class or
classes) or other securities or property of the Company that such Holder would
have been entitled to receive at the same aggregate Exercise Price upon such
reorganization or reclassification if such Holder's Warrants had been exercised
immediately prior thereto; and in any such case, appropriate provision (as
determined in good faith by the Board of Directors of the Company, whose
determination shall be conclusive and shall be evidenced by a resolution filed
with the Warrant Agent) shall be made for the application of this Article 4
with respect to the rights and interests thereafter of the Holders (including
the allocation of the adjusted Exercise Price between or among shares of
classes of capital stock), to the end that this Article 4 (including the
adjustments of the number of shares of Common Stock or other securities
purchasable and the Exercise Price thereof) shall thereafter be reflected, as
nearly as reasonably practicable, in all subsequent exercises of the Warrants
for any shares or securities or other property thereafter deliverable upon the
exercise of the Warrants.
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SECTION 4.6 CONSOLIDATIONS, MERGERS, SALES AND CONVEYANCES. In case of any
consolidation of the Company with or merger of the Company into another
corporation or in case of any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, the
Company or such successor or purchasing corporation, as the case may be, shall
execute with the Warrant Agent an agreement that each Holder shall have the
right thereafter upon payment of the Exercise Price in effect immediately prior
to such action to purchase upon exercise of each Warrant the kind and amount of
shares and other securities and property which such holder would have owned or
have been entitled to receive after the happening of such consolidation,
merger, sale or conveyance had such Warrant been exercised immediately prior to
such action. The Company shall mail by first-class mail, postage prepaid, to
each Holder, notice of the exception of any such agreement. Such agreement
shall provide for adjustments, which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article 4. The provisions
of this Section 4.6 shall similarly apply to successive consolidations,
mergers, sales or conveyances. The Warrant Agent shall be under no duty or
responsibility to determine the correctness of any provisions contained in any
such agreement relating either to the kind or amount of shares of stock or
other securities or property receivable upon exercise of Warrants or with
respect to the method employed and provided therein for any adjustments and
shall be entitled to rely upon the provisions contained in any such agreement.
SECTION 4.7 ADJUSTMENT RULES. (a) For the purposes of adjustments required by
Section 4.2 and Section 4.3, the shares of Common Stock that the holder of any
rights, options, warrants or convertible or exchangeable securities shall be
entitled to subscribe for or purchase shall be deemed to be issued and
outstanding as of the date of sale, issuance or distribution of such securities
and the consideration, if any, received by the Company therefor shall be deemed
to be the consideration received by the Company for such securities, plus the
consideration or premiums stated in such securities to be paid for the shares
of Common Stock covered thereby.
(b) Except for adjustments required by Section 4.6, no adjustment in the
number of Warrant Shares purchasable hereunder shall be required unless such
adjustment would require an increase or decrease of at least one percent in the
number of Warrant Shares purchasable upon the exercise of each Warrant;
provided, however, that any adjustments which by reason of this Section 4.7(b)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations shall be made to the nearest cent
and to the nearest one-hundredth of a share, as the case may be.
(c) Whenever the number of Warrant Shares purchasable upon the exercise of
each Warrant is adjusted as herein provided (whether or not the Company then or
thereafter elects to issue additional Warrants in substitution for an
adjustment in the number of Warrant Shares as provided in Section 4.7(h)), the
Exercise Price payable upon exercise of each Warrant shall be adjusted by
multiplying such Exercise Price immediately prior to such adjustment by a
fraction, of which the numerator shall be the number of Warrant Shares
purchasable upon the exercise of each Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of Warrant Shares
so purchasable immediately thereafter, provided, however, that the Exercise
Price shall not be reduced below par unless the Company has taken action
pursuant to Section 2.8.
(d) For the purpose of this Article 4, the term "SHARES OF COMMON STOCK"
shall mean (i) the class of stock designated as the Common Stock of the Company
at the date of this Agreement, or (ii) any other class of stock resulting from
successive changes or reclassification of such shares consisting solely of
changes in par value, or from par value to no par value, or from no par value
to par value. If at any time, as a result of an adjustment made pursuant to
Section 4.2 or Section 4.5 above, the holders of Warrants shall become entitled
to purchase any shares of the Company other than shares of Common Stock,
thereafter the number of such other shares so purchasable upon exercise of each
Warrant and the Exercise Price with respect to such shares shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Warrant Shares contained in
Section 4.2 through Section 4.5 and subsections (a), (b) and (c) of this
Section 4.7, inclusive, above, and the provisions of Sections 3.2, 3.5, 3.7 and
4.9, with respect to the Warrant Shares, shall apply on like terms to any such
other shares.
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(e) Except as provided in Sections 4.2, 4.3 and 4.4, no adjustment in respect
of any dividends shall be made during the term of a Warrant or upon the
exercise of a Warrant.
(f) Irrespective of any adjustments in the Exercise Price or the number or
kind of shares purchasable upon the exercise of the Warrants, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the Warrants initially issuable
pursuant to this Agreement.
(g) Upon the expiration of any rights, options, warrants or conversion or
exchange privileges, if any thereof shall not have been exercised, the Exercise
Price and the number of Warrant Shares purchasable upon the exercise of each
Warrant shall, upon such expiration, be readjusted and shall thereafter be such
as it would have been had it been originally adjusted (or had the original
adjustment not been required, as the case may be) as if (i) the only shares of
Common Stock so issued were the shares of Common Stock, if any, actually issued
or sold upon the exercise of such rights, options, warrants or conversions or
exchange rights and (ii) such shares of Common Stock, if any, were issued or
sold for the consideration actually received by the Company upon such exercise
plus the aggregate consideration, if any, actually received by the Company for
the issuance, sale or grant of all of such rights, options, warrants or
conversion or exchange rights whether or not exercised; provided, that no such
readjustment shall have the effect of increasing the Exercise Price or
decreasing the number of shares by an amount in excess of the amount of the
readjustment initially made in respect to the issuance, sale or grant of such
rights, options, warrants or conversion or exchange rights.
(h) The Company may elect, on or after the date of any adjustment required by
Section 4.2 through Section 4.5, to adjust the number of Warrants in
substitution for an adjustment in the number of Warrant Shares purchasable upon
the exercise of a Warrant. Each of the Warrants outstanding after such
adjustment of the number of Warrants shall be exercisable for the same number
of Warrant Shares as immediately prior to such adjustment. Each Warrant held of
record prior to such adjustment of the number of Warrants shall become that
number of Warrants (calculated to the nearest hundredth) obtained by dividing
the Exercise Price in effect prior to adjustment of the Exercise Price by the
Exercise Price in effect after adjustment of the Exercise Price. The Company
shall notify the Holders in the same manner as provided in Section 4.8, of its
election to adjust the number of Warrants, indicating the record date for the
adjustment, and, if known at the time, the amount of the adjustment to be made.
This record date may be the date on which the Exercise Price is adjusted or any
date thereafter. Upon each adjustment of the number of Warrants pursuant to
this Section 4.7(h) the Company shall, as promptly as practicable, cause to be
distributed to Holders as of such record date Warrant Certificates evidencing,
subject to Sections 2.8 and 2.11, the additional Warrants to which such holders
shall be entitled as a result of such adjustment, or, at the option of the
Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Warrant Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Warrant Certificates evidencing all the Warrants to be issued,
executed and registered in the manner specified in Sections 3.2 and 3.3 (and
which may bear, at the option of the Company, the adjusted Exercise Price) and
shall be registered in the names of the Holders on the record date specified in
the notice.
SECTION 4.8 NOTICE TO HOLDERS WITH RESPECT TO ADJUSTMENTS. Not more than 30
days following the record date or effective date, as the case may be, of any
adjustment or readjustment pursuant to this Article 4, the Company shall
forthwith file in the custody of its Secretary or an Assistant Secretary at its
principal executive office and with the Warrant Agent, an officers' certificate
showing the adjusted number of Warrant Shares purchasable upon exercise of the
Warrants, the additional number of Warrants to be issued for each outstanding
Warrant or the adjusted Exercise Price, as the case may be, determined as
herein provided, setting forth in reasonable detail the facts requiring such
adjustment and the manner of computing such adjustment. Each such officers'
certificate shall be signed by the Chairman, President or Chief Financial
Officer of the Company and by the Secretary or any Assistant Secretary of the
Company. Each such officers' certificate shall be made available at the Warrant
Agent Office all reasonable times for inspection by the Holder or any Holder of
a Warrant and then upon written request of a Holder the Warrant Agent shall
mail a copy of such certificate by first-class mail to such Holder.
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ARTICLE 5
WARRANT AGENT
SECTION 5.1 APPOINTMENT OF WARRANT AGENT. The Company hereby appoints the
Warrant Agent to act as agent for the Company in accordance with the
instructions hereinafter in this Agreement set forth; and the Warrant Agent
hereby accepts such appointment, upon the terms and conditions hereinafter set
forth.
SECTION 5.2 WARRANT AGENT. (a) The Warrant Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions,
by all of which the Company and the Holders, by their acceptance of the
Warrants, shall be bound:
(i) The statements contained herein and in the Warrant Certificates shall
be taken as statements of the Company, and the Warrant Agent assumes no
responsibility for the correctness of any of the same except such as
describes the Warrant Agent or action taken or to be taken by it. Except as
herein otherwise provided, the Warrant Agent assumes no responsibility with
respect to the execution, delivery or distribution of the Warrant
Certificates.
(ii) The Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the covenants contained in this Agreement or
in the Warrant Certificates to be complied with by the Company nor shall it
at any time be under any duty or responsibility to any Holder to make or
cause to be made any adjustment in the Exercise Price or in the number of
Warrant Shares issuable upon exercise of any Warrant (except as instructed
by the Company), or to determine whether any facts exist which may require
any such adjustments, or with respect to the nature or extent of or method
employed in making any such adjustments when made.
(iii) The Warrant Agent may consult at any time with counsel satisfactory
to it (who may be counsel for the Company) and the Warrant Agent shall
incur no liability or responsibility to the Company or any holder of any
Warrant Certificate in respect of any action taken, suffered or omitted by
it hereunder in good faith and in accordance with the opinion or the advice
of such counsel.
(iv) The Warrant Agent shall incur no liability or responsibility to the
Company or to any Holder for any action taken in reliance on any notice,
resolution, waiver, consent, order, certificate or other paper, document or
instrument believed by it to be genuine and to have been signed, sent or
presented by the proper party or parties.
(v) The Company agrees promptly to pay the Warrant Agent the compensation
to be agreed upon with the Company for all services rendered by the Warrant
Agent and to reimburse the Warrant Agent for its reasonable out-of-pocket
expenses (including attorneys' fees and expenses) incurred by the Warrant
Agent without negligence, bad faith or breach of this Agreement on its part
in connection with the services rendered by it hereunder. The Company also
agrees to indemnify the Warrant Agent for, and to hold it harmless against,
any loss, liability or expense (including reasonable attorneys' fees and
expenses) incurred without negligence, bad faith or breach of this
Agreement on the part of the Warrant Agent, arising out of or in connection
with its acting as such Warrant Agent hereunder, as well as the reasonable
costs and expenses of defending against any claim of liability in the
premises. The obligations of the Company under this Section 5.2 shall
survive the termination of this Agreement.
(vi) The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to
involve expense unless the Company or one or more registered holders of
Warrant Certificates shall furnish the Warrant Agent with reasonable
security and indemnity for any costs or expenses which may be incurred. All
rights of action under this Agreement or under any of the Warrants may be
enforced by the Warrant Agent without the possession of any of the Warrant
Certificates or the production thereof at any trial or other proceeding
relative thereto, and any such action, suit or proceeding instituted by the
Warrant Agent shall be brought in its name as Warrant Agent, and any
recovery or judgment shall be for the ratable benefit of the Holders, as
their respective rights or interests may appear.
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(vii) The Warrant Agent, and any stockholder, director, officer or
employee thereof, may buy, sell or deal in any of the Warrants or other
securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or
lend money to the Company or otherwise act as fully and freely as though
they were not the Warrant Agent under this Agreement, or a stockholder,
director, officer or employee of the Warrant Agent, as the case may be.
Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
(viii) The Warrant Agent shall act hereunder solely as agent for the
Company, and its duties shall be determined solely by the provisions
hereof. The Warrant Agent shall not be liable for anything which it may do
or refrain from doing in connection with this Agreement except for its own
negligence or bad faith.
(ix) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably
be required by the Warrant Agent for the carrying out or performing of the
provisions of this Agreement.
(x) The Warrant Agent shall not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except
the due execution hereof by the Warrant Agent) or in respect of the
validity or execution of any Warrant Certificate (except its
countersignature thereof), nor shall the Warrant Agent by any act hereunder
be deemed to make any representation or warrant as to the authorization or
reservation of the Warrant Shares to be issued pursuant to this Agreement
or any Warrant Certificate or as to whether the Warrant Shares will when
issued be validly issued, fully paid and nonassessable or as to the
Exercise Price or the number of Warrant Shares issuable upon exercise of
any Warrant.
(xi) The Warrant Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from
the Chairman of the Board, the Chief Executive Officer, the President, any
Vice President, the Treasurer, the Secretary or an Assistant Secretary of
the Company, and to apply to such officers for advice or instructions in
connection with its duties, and shall not be liable for any action taken or
suffered to be taken by it in good faith in accordance with instruction of
any such officer or in good faith reliance upon any statement signed by any
one of such officers of the Company with respect to any fact or matter
(unless other evidence in respect thereof is herein specifically
prescribed) which may be deemed to be conclusively proved and established
by such signed statement.
SECTION 5.3 CHANGE OF WARRANT AGENT. If the Warrant Agent shall resign (such
resignation to become effective not earlier than 60 days after the giving of
written notice thereof to the Company and the Holders) or shall become
incapable of acting as Warrant Agent or if the Board of Directors of the
Company shall by resolution remove the Warrant Agent (such removal to become
effective not earlier than 30 days after the filing of a certified copy of such
resolution with the Warrant Agent and the giving of written notice of such
removal to the registered holders of Warrant Certificates), the Company shall
appoint a successor to the Warrant Agent. If the Company shall fail to make
such appointment within a period of 30 days after such removal or after it has
been so notified in writing of such resignation or incapacity by the Warrant
Agent, then any Holder may apply to any court of competent jurisdiction for the
appointment of a successor to the Warrant Agent. Pending appointment of a
successor to the Warrant Agent, either by the Company or by such a court, the
duties of the Warrant Agent shall be carried out by the Company. Any successor
Warrant Agent, whether appointed by the Company or by such a court, shall be a
bank or trust company, in good standing, incorporated under the laws of any
state or of the United States of America. As soon as practicable after
appointment of the successor Warrant Agent, the Company shall cause written
notice of the change in the Warrant Agent to be given to each of the Holders at
such Holder's address appearing on the Warrant Register. After appointment, the
successor Warrant Agent shall be vested with the same powers, rights, duties
and responsibilities as if it had been originally named as Warrant Agent
without further act or deed. The former Warrant Agent shall deliver and
transfer to the successor Warrant Agent any property at the time held by it
hereunder and execute and deliver, at the expense of the Company, any further
assurance,
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conveyance, act or deed necessary for the purpose. Failure to give any notice
provided for in this Section 5.3 or any defect therein, shall not affect the
legality or validity of the removal of the Warrant Agent or the appointment of
a successor Warrant Agent, as the case may be.
SECTION 5.4 MERGER, CONSOLIDATION OR CHANGE OF NAME OF WARRANT AGENT. (a) Any
corporation into which the Warrant Agent may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Warrant Agent shall be a party, or any
corporation succeeding to the shareholder services business of the Warrant
Agent, shall be the successor to the Warrant Agent hereunder without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, provided that such corporation would be eligible for
appointment as a successor Warrant Agent under the provisions of Section 5.3.
If at the time such successor to the Warrant Agent shall succeed under this
Agreement, any of the Warrant Certificates shall have been countersigned but
not delivered, any such successor to the Warrant Agent may adopt the
countersignature of the original Warrant Agent, and if at that time any of the
Warrant Certificates shall not have been countersigned, any successor to the
Warrant Agent may countersign such Warrant Certificates either in the name of
the predecessor Warrant Agent or in the name of the successor Warrant Agent;
and in all such cases such Warrant Certificates shall have the full force
provided in the Warrant Certificates and in this Agreement.
(b) If at any time the name of the Warrant Agent shall be changed and at such
time any of the Warrant Certificates shall have been countersigned but not
delivered, the Warrant Agent whose name has changed may adopt the
countersignature under its prior name; and if at that time any of the Warrant
Certificates shall not have been countersigned, the Warrant Agent may
countersign such Warrant Certificates either in its prior name or in its
changed name; and in all such cases such Warrant Certificates shall have the
full force provided in the Warrant Certificates and in this Agreement.
ARTICLE 6
MISCELLANEOUS
SECTION 6.1 NOTICES. (a) Except as otherwise provided in Section 6.1(b) any
notice, demand or delivery authorized by this Warrant Agreement shall be
sufficiently given or made when mailed if sent by first-class mail, postage
prepaid, addressed to any Holder of a Warrant at such Holder's address shown on
the Warrant Register and to the parties as follows:
If to the Company:
National Health Laboratories Holdings Inc.
4225 Executive Square
Suite 805
La Jolla, CA 92037
Attention: General Counsel
If to the Warrant Agent:
American Stock Transfer & Trust Company
6201 Fifteenth Avenue
Brooklyn, NY 11219
Attention: Joseph Wolf
or such other address as shall have been furnished to the party giving or
making such notice, demand or delivery.
(b) Any notice required to be given by the Company to the Holders shall be
made by mailing by registered mail, return receipt requested, to the Holders at
their respective addresses shown on the Warrant
II-15
<PAGE>
Register. The Company hereby irrevocably authorizes the Warrant Agent, in the
name and at the expense of the Company, to mail any such notice upon receipt
thereof from the Company. Any notice that is mailed in the manner herein
provided shall be presumed to have been duly given when mailed.
SECTION 6.2 SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant Agent may
from time to time supplement or amend this Agreement without the approval of
any Holders in order to cure any ambiguity, manifest error or other mistake in
this Agreement, or to correct or supplement any provision contained herein that
may be defective or inconsistent with any other provision herein, or to make
any other provisions in regard to matters or questions arising hereunder that
the Company and the Warrant Agent may deem necessary or desirable and that
shall not adversely affect, alter or change the interest of the Holders.
SECTION 6.3 TERMINATION. This Agreement shall terminate immediately after (i)
the Company has paid the Redemption Amount with respect to all Holders in the
case of a Redemption or (ii) all Warrant Shares in respect of properly
exercised Warrants have been issued in the case the Company does not elect to
effect a Redemption pursuant to Section 2.7, provided, that the provisions of
Section 5.2 shall survive such termination until such time that the obligations
contemplated thereunder have been performed.
SECTION 6.4 GOVERNING LAW. This Agreement and each Warrant Certificate issued
hereunder shall be deemed to be a contract made under the laws of the State of
New York and for all purposes shall be governed by and construed in accordance
with the internal laws of such State.
SECTION 6.5 PERSONS BENEFITING. This Warrant Agreement shall be binding upon
and inure to the benefit of the Company and the Warrant Agent, and their
respective successors, assigns, beneficiaries, executors and administrators,
and the Holders of the Warrants. Nothing in this Warrant Agreement is intended
or shall be construed to confer upon any person, other than the Company, the
Warrant Agent and the Holders of the Warrants, any right, remedy or claim under
or by reason of this Warrant Agreement or any part hereof.
SECTION 6.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
SECTION 6.7 HEADINGS. The headings of sections of this Agreement have been
inserted for convenience of reference only, are not to be considered a part
hereof and shall in no way modify or restrict any of the terms or provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement to
be executed and delivered as of the day and year first above written.
NATIONAL HEALTH LABORATORIES
HOLDINGS INC.
By __________________________________
Title:
ATTEST:
-------------------------------------
AMERICAN STOCK TRANSFER & TRUST
COMPANY
By __________________________________
Title:
ATTEST:
-------------------------------------
II-16
<PAGE>
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
VOID AFTER APRIL 28, 2000
CERTIFICATE NUMBER NUMBER OF WARRANTS
CUSIP
NATIONAL HEALTH LABORATORIES HOLDINGS INC.
WARRANTS TO ACQUIRE COMMON STOCK, PAR VALUE $0.01 PER SHARE, OF
NATIONAL HEALTH LABORATORIES HOLDINGS INC.
This Warrant Certificate certifies that or registered assigns, is
the registered holder (the "HOLDER") of the number of warrants set forth above
(each, a "WARRANT") issued by National Health Laboratories Holdings Inc., a
Delaware corporation (the "COMPANY"), subject to the terms and conditions set
forth herein and in the Warrant Agreement referred to on the reverse side
hereof. Each Warrant entitles the Holder thereof to purchase from the Company
one fully paid and nonassessable share (a "WARRANT SHARES") of common stock,
$0.01 par value (the "COMMON STOCK"), of the Company at the initial exercise
price per share of $22.00 (the "EXERCISE PRICE"), payable in lawful money of
the United States of America, subject to adjustment as described below. The
Warrants evidenced by this Certificate expire at the Close of Business on April
28, 2000 (the "EXPIRATION DATE"), unless such date is extended at the option of
the Company as set forth in the Warrant Agreement referred to on the reverse
side hereof.
Subject to the terms and conditions set forth herein and in the Warrant
Agreement referred to on the reverse hereof, a Warrant may be exercised upon
proper surrender of this Warrant Certificate and payment of the aggregate
Exercise Price to American Stock Transfer & Trust Company (the "WARRANT AGENT")
at or such other of its offices notified to Warrant Holders (the
"WARRANT AGENT OFFICE").
The number of Warrants, Exercise Price and the number of Warrant Shares
purchasable upon exercise of a Warrant are subject to adjustment upon the
occurrence of certain events as set forth in Article 4 of the Warrant Agreement
referred to on the reverse side hereof.
Upon notice to the Warrant Agent in accordance with the Warrant Agreement,
the Company may at its sole option elect to redeem all but not less than all of
the Warrants on the Expiration Date by payment of an amount in cash in respect
of each Warrant equal to the Redemption Amount (as defined in the Warrant
Agreement). If the Company shall have duly elected to redeem the Warrants but
the aggregate Redemption Amount is zero or less than zero, no amount shall be
required to be paid by the Company in respect of the redemption of the Warrants
but the Warrants shall nonetheless be deemed to have been redeemed.
A Warrant may only be exercised prior to the Close of Business on the
Expiration Date and only if the Company shall not have elected to redeem the
Warrants (provided that the Warrant Agent will accept surrenders of Warrant
Certificates and payments of the Exercise Price in respect of Warrants to be
exercised during the 45-day period preceding the Expiration Date, but such
Warrants will not be deemed to have been exercised until the Expiration Date).
As of the Close of Business on the Expiration Date, the Warrants will become
wholly void and of no value.
This Warrant Certificate shall be governed by and construed in accordance
with the internal laws of the State of New York.
REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS WARRANT
CERTIFICATE SET FORTH ON THE REVERSE SIDE. SUCH FURTHER PROVISIONS SHALL FOR
ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY SET FORTH AT THIS PLACE.
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent.
II-A-1
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate to be executed by
its duly authorized officer, and the corporate seal hereunto affixed.
Dated:
NATIONAL HEALTH LABORATORIES
HOLDINGS INC.
By __________________________________
Title:
[Corporate Seal of National Health
Laboratories Holdings Inc.]
ATTEST:
By __________________________________
Countersigned:
AMERICAN STOCK TRANSFER & TRUST
COMPANY, AS WARRANT AGENT
By __________________________________
II-A-2
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
NATIONAL HEALTH LABORATORIES HOLDINGS INC.
THIS WARRANT CERTIFICATE IS ISSUED UNDER AND IN ACCORDANCE WITH A WARRANT
AGREEMENT, DATED AS OF APRIL , 1995 BETWEEN THE COMPANY AND THE WARRANT AGENT
(THE "WARRANT AGREEMENT"), AND IS SUBJECT TO THE TERMS AND CONDITIONS CONTAINED
IN THE WARRANT AGREEMENT. THE WARRANT AGREEMENT IS HEREBY INCORPORATED BY
REFERENCE IN AND MADE A PART OF THIS INSTRUMENT AND IS HEREBY REFERRED TO FOR A
DESCRIPTION OF THE RIGHTS, LIMITATION OF RIGHTS, OBLIGATIONS, DUTIES AND
IMMUNITIES THEREUNDER OF THE WARRANT AGENT, THE COMPANY AND THE HOLDERS. A COPY
OF THE WARRANT AGREEMENT MAY BE INSPECTED AT THE WARRANT AGENT OFFICE AND IS
AVAILABLE UPON WRITTEN REQUEST ADDRESSED TO THE WARRANT AGENT AT THE WARRANT
AGENT OFFICE. ALL TERMS USED HEREIN THAT ARE DEFINED IN THE WARRANT AGREEMENT
HAVE THE MEANINGS ASSIGNED TO THEM THEREIN.
Warrants may be exercised to purchase Warrant Shares from the Company on the
Expiration Date, at the Exercise Price set forth on the face hereof, subject to
adjustment as described in the Warrant Agreement, but only if the Company shall
not have elected to redeem the Warrants as described below. The registered
Holder of the Warrants evidenced by this Warrant Certificate may exercise such
Warrants by surrendering to the Warrant Agent the Warrant Certificate, with the
form of election to exercise set forth hereon properly completed and executed,
together with payment of the aggregate Exercise Price, in lawful money of the
United States of America, and any applicable transfer taxes, to the Warrant
Agent at the Warrant Agent Office. Although such surrender and payment will be
accepted during the 45-day period preceding the Expiration Date, Warrants will
not be deemed to have been exercised until the Expiration Date.
No adjustment shall be made for any cash dividends on any Warrant Shares
issuable upon exercise of this Warrant.
Upon notice to the Warrant Agent, the Company may at its sole option elect to
redeem all but not less than all Warrants on the Expiration Date by payment of
an amount in cash in respect of each Warrant equal to the Redemption Amount (as
defined in the Warrant Agreement). If the Company shall have duly elected to
redeem the Warrants but the aggregate Redemption Amount is zero or less than
zero, no amount shall be required to be paid by the Company in respect of the
redemption of the Warrants but the Warrants shall nonetheless be deemed to have
been redeemed.
Warrants shall expire at and become null and void and have no value and no
Person shall have any rights thereto as of the Close of Business on the
Expiration Date, provided, however, that, notwithstanding such expiration,
Holders that have properly exercised Warrants in accordance herewith and with
the Warrant Agreement shall be entitled to receive Warrant Shares with respect
to such Holders' Warrants unless the Company shall have elected to redeem the
Warrants as described below, in which case each Holder shall be entitled to
receive the Redemption Amount.
No certificates or scrip representing fractional Warrant Shares shall be
issued upon exercise of a Warrant. As promptly as practicable following the
Expiration Date, if the Company shall not have elected to redeem the Warrants,
the Company shall pay to each Holder otherwise entitled to receive fractional
Warrant Shares, if any, a cash amount in lieu of such fractional Warrant Shares
which shall be equal to the proceeds from the sale of such Holder's fractional
Warrant Shares, without interest thereon and after deduction of all
commissions, transfer taxes and other out-of-pocket transaction costs,
including the expenses and compensation of the Transfer Agent, incurred in
connection with such sale of the fractional Warrant Shares.
Warrant Certificates, when surrendered at the Warrant Agent Office thereof in
person or by a legal representative or attorney duly authorized in writing, may
be exchanged, in the manner and subject to the
II-A-3
<PAGE>
limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing a Warrant to purchase in the aggregate a like number of
Warrant Shares.
A new Warrant Certificate or Warrant Certificates of like tenor and
evidencing a Warrant or Warrants to purchase in the aggregate a like number of
Warrant Shares shall be issued to a transferee designated by a Holder upon
surrender of a Warrant Certificate, duly endorsed, and accompanied by a written
instrument or instruments of transfer in a form satisfactory to the Warrant
Agent, duly signed by the Holder or Holders or by the duly appointed legal
representative thereof or by a duly authorized attorney, such signature to be
guaranteed by (i) a bank or trust company, (ii) a broker or dealer that is a
member of the National Association of Securities Dealers, Inc. or (iii) a
member of a national securities exchange, and funds sufficient to pay any
transfer taxes payable on such transfer.
Notwithstanding the foregoing, the Warrant Agent shall not be required to
transfer or exchange any Warrant Certificate from and after the 105th day
preceding the scheduled Expiration Date provided that if, in the notice
provided by the Company pursuant to Section 2.5 of the Warrant Agreement, the
Company shall not have elected to redeem the Warrants, then the Warrant Agent
shall permit transfers or exchanges of Warrant Certificates from and after the
mailing of the notice to Holders referred to in Section 2.5 of the Warrant
Agreement but shall not be required to transfer or exchange any Warrant
Certificate from and after the 15th day preceding the Expiration Date.
The Company and its subsidiaries shall have the option, in their sole
discretion, at any time or from time to time, to purchase Warrants (i) in the
public market, (ii) by tender or exchange offer available to all Holders at any
price or (iii) in private transactions at a price not more than ten percent
(10%) over the Market Price (as defined in the Warrant Agreement) of the
Warrants as of the closing date of each such transaction respectively. Warrants
acquired by the Company or its subsidiaries shall be canceled and shall not be
available for reissuance or resale.
The Company and the Warrant Agent may deem and treat the registered holder
hereof as the absolute owner of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone) for the purpose
of any exercise hereof and for all other purposes, and neither the Company nor
the Warrant Agent shall be affected by any notice to the contrary.
II-A-4
<PAGE>
FORM OF ELECTION TO EXERCISE
(TO BE EXECUTED UPON EXERCISE OF WARRANT)
The undersigned hereby irrevocably elects to exercise the right represented
by this Warrant Certificate to receive shares of Common Stock and
herewith tenders payment for such shares to the order of in the
amount of $ in lawful money of the United States of America by certified
or official bank check or by wire transfer in accordance with the terms hereof
(which amount includes $ in payment of applicable transfer taxes, if
any.) The undersigned requests that a certificate for such shares be registered
in the name of whose address is and that such
shares be delivered to whose address is and that
such Warrant Certificate is delivered to whose address is
.
Dated: , 19 Signature: __________________________
Note: The above signature must
correspond with the name as written
upon the face of the Warrant
Certificate in every particular
without alteration or enlargement or
any change whatsoever.
Signature
Guaranteed: _________________________
The following abbreviations, when used in the inscription on the face of this
instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
UNIF GIFT MIN ACT- under Uniform Gift to Minors Act
(custodian) (partner) (citation)
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants and not as tenants
Additional abbreviations may also be used though not in the above list.
II-A-5
<PAGE>
FORM OF ASSIGNMENT
(TO BE EXECUTED BY REGISTERED HOLDER UPON ASSIGNMENT OF THE WARRANT)
FOR VALUE RECEIVED, the undersigned registered Holder hereby sells, assigns,
and transfers unto whose address is the
Warrants represented by this Warrant Certificate, together with all right,
title and interest therein, and does hereby irrevocably constitute and appoint
attorney, to transfer the within Warrant Certificate on the books
of the Warrant Agent, with full power of substitution.
Dated: , 19 Signature: __________________________
Note: The above signature must
correspond with the name as written
upon the face of the Warrant
Certificate in every particular
without alteration or enlargement or
any change whatsoever.
Signature
Guaranteed: _________________________
II-A-6
<PAGE>
ANNEX III
STOCKHOLDER AGREEMENT
DATED AS OF APRIL , 1995
AMONG
HLR HOLDINGS INC.,
HOFFMANN-LA ROCHE INC.
AND
NATIONAL HEALTH LABORATORIES HOLDINGS INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
ARTICLE 1
DEFINITIONS
<C> <S> <C>
1.1. Definitions...................................................... III-1
ARTICLE 2
CORPORATE GOVERNANCE
2.1. Composition of the Board of Directors............................ III-5
2.2. Solicitation and Voting of Shares................................ III-7
2.3. Committees of the Board of Directors............................. III-7
2.4. Management Committee............................................. III-8
2.5. Notice for Board and Committee Meetings.......................... III-9
2.6. Vacancies on Board Committees and the Management Committee....... III-9
2.7. Approval Required for Certain Actions............................ III-9
2.8. Enforcement of this Agreement.................................... III-11
2.9. Certificate of Incorporation and Bylaws.......................... III-11
2.10. Governance of Company Subsidiaries............................... III-11
2.11. Strategic Planning Process....................................... III-11
2.12. Operating Planning Processes..................................... III-12
2.13. Headquarters of the Company...................................... III-12
ARTICLE 3
ANTI-DILUTIVE RIGHTS
3.1. Anti-dilutive Rights............................................. III-12
ARTICLE 4
ACQUISITIONS OF ADDITIONAL EQUITY SECURITIES
4.1. Limitation on Additional Acquisitions............................ III-13
ARTICLE 5
TRANSFERS OF EQUITY SECURITIES
5.1. Transfers of Equity Securities................................... III-13
ARTICLE 6
REGISTRATION RIGHTS
6.1. Demand Registration.............................................. III-14
6.2. Conditions to Demand Registrations............................... III-14
6.3. Additional Conditions to Demand Offerings........................ III-15
6.4. Piggyback Registration........................................... III-15
6.5. Reduction of Offering............................................ III-15
6.6. Filings; Registration Procedures................................. III-16
6.7. Registration Expenses............................................ III-18
6.8. Indemnification by the Company................................... III-18
6.9. Indemnification by the Investor.................................. III-18
6.10. Conduct of Indemnification Proceedings........................... III-18
6.11. Contribution..................................................... III-19
</TABLE>
III-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
------
ARTICLE 7
FURNISHING OF INFORMATION
<C> <S> <C>
7.1. Furnishing of Information........................................ III-20
ARTICLE 8
COVENANTS
8.1. Rule 144 and Rule 144A........................................... III-21
8.2. No Inconsistent Agreements....................................... III-21
ARTICLE 9
MISCELLANEOUS
9.1. Notices.......................................................... III-22
9.2. Amendments; Waivers.............................................. III-22
9.3. Severability..................................................... III-22
9.4. Entire Agreement................................................. III-23
9.5. Successors and Assigns........................................... III-23
9.6. Parties in Interest.............................................. III-23
9.7. Counterparts; Effectiveness...................................... III-23
9.8. Governing Law.................................................... III-23
9.9. Specific Performance............................................. III-23
9.10. Termination...................................................... III-23
9.11. Waiver of Jury Trial............................................. III-24
</TABLE>
III-ii
<PAGE>
STOCKHOLDER AGREEMENT
STOCKHOLDER AGREEMENT dated as of April , 1995 among HLR Holdings Inc., a
Delaware corporation ("HLR" or the "INVESTOR"), Hoffmann-La Roche Inc., a New
Jersey corporation (the "ROCHE HOLDER" and, for purposes of Articles 6 and 8,
the Roche Holder shall be deemed to be, together with HLR, the "INVESTOR"), and
National Health Laboratories Holdings Inc., a Delaware corporation (the
"COMPANY").
WHEREAS, the Company, the Investor and Roche Biomedical Laboratories, Inc., a
wholly-owned subsidiary of the Investor ("RBL"), entered into an Agreement and
Plan of Merger dated as of December 13, 1994 (the "MERGER AGREEMENT") pursuant
to which among other things (i) RBL is being merged with and into the Company
(the "MERGER"), (ii) all of the issued and outstanding stock of RBL (except for
shares held by RBL in its treasury) is being converted in the Merger into
shares of Common Stock (as defined below) of the Company, (iii) Roche Holder is
purchasing certain warrants (the "ROCHE WARRANTS") from the Company at the
Effective Time and (iv) shares of the Company's Common Stock are being
converted in the Merger into the Conversion Consideration (as defined in the
Merger Agreement), all upon the terms and subject to the conditions set forth
in the Merger Agreement; and
WHEREAS, the Investor, the Company, Mafco Holdings Inc., a Delaware
corporation ("MAFCO") and National Health Care Group, Inc., a Delaware
corporation ("NHCG") and a significant stockholder of the Company, have entered
into the Sharing and Call Option Agreement dated as of December 13, 1994
providing, among other things, certain rights and obligations with respect to
the Company's Common Stock held by NHCG (the "SHARING AND CALL OPTION
AGREEMENT"); and
WHEREAS, in connection with the Merger, the Investor, Roche Holder and the
Company desire to set forth certain agreements and understandings regarding the
Investor's and Roche Holder's interests in the Company;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises and
agreements contained herein, the Investor, Roche Holder and the Company hereby
agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1. DEFINITIONS. Capitalized terms used and not defined herein
shall have the meanings assigned to them in the Merger Agreement. As used in
this Agreement, the following terms shall have the following meanings:
"AFFILIATE" means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with such
Person, provided that no member of the Investor Group shall be deemed an
Affiliate of any other stockholder solely by reason of any investment in the
Company. For the purpose of this definition, the term "control" (including with
correlative meanings, the terms "controlling", "controlled by" and "under
common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or by contract or otherwise.
"ANNUAL OPERATING PLAN" means, for any year, the operating plan of the
Company and its Subsidiaries which plan shall provide for an analysis of gross
profits, summary of operating expenses, personnel levels, pricing, budgets for
niche businesses, cash flows, capital expenditures and return on funds
assigned, and shall be consistent with the then applicable Strategic Plan or
the Initial Synergy Plan (as applicable) of the Company.
"ANTI-DILUTIVE RIGHTS" has the meaning set forth in Section 3.1(a) hereof.
"ASSOCIATE" has the same meaning as in Rule 12b-2 promulgated under the
Exchange Act as in effect on the date hereof.
<PAGE>
"AUDIT COMMITTEE" means the Audit Committee of the Board of Directors
described in Section 2.3(a)(i) hereof.
"BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the Company
except where the context requires otherwise.
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on which
commercial banking institutions in New York City are authorized by law or
executive order to close.
"BY-LAWS" means the by-laws of the Company, as amended from time to time in
accordance herewith.
"CERTIFICATE OF INCORPORATION" means the certificate of incorporation of the
Company, as amended from time to time in accordance herewith.
"COMMON STOCK" means the common stock of the Company, par value $.01 per
share.
"COMPANY" has the meaning set forth in the recitals of this Agreement.
"DEMAND REGISTRATION" has the meaning described in Section 6.1(a) hereof.
"DIRECTOR" means a member of the Board of Directors.
"DISCRIMINATORY TRANSACTION" means any transaction or other corporate action
(other than those imposed pursuant to the express terms of this Agreement and
other than those imposed with identical effect on all stockholders) which would
(x) impose limitations on the legal rights of the Investor or any of its
Affiliates or Associates as a stockholder of the Company, including, without
limitation, any action which would impose restrictions based upon the size of
security holding, nationality of a securityholder, the business in which a
securityholder is engaged or other considerations applicable to the Investor
and not to stockholders generally, (y) deny any benefit to the Investor or any
of its Affiliates or Associates, proportionately as a holder of any class of
Voting Stock, that is made available to other holders of any class of Voting
Stock or (z) otherwise materially adversely discriminate against the Investor,
its Affiliates or its Associates as stockholders of the Company.
"EFFECTIVENESS OF THIS AGREEMENT" means the Effective Time (as defined in the
Merger Agreement).
"EMPLOYEE BENEFITS COMMITTEE" means the Employee Benefits Committee of the
Board of Directors described in Section 2.3(a)(iii) hereof.
"EQUITY SECURITY" means (i) any Common Stock or other Voting Stock, (ii) any
debt or equity securities of the Company convertible into or exchangeable for
Common Stock or other Voting Stock or (iii) any options, rights or warrants
(including the Warrants and any similar securities) issued by the Company to
acquire Common Stock or other Voting Stock.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
"GAAP" means generally accepted accounting principles in effect in the United
States.
"HLR" has the meaning set forth in the recitals of this Agreement.
"INDEBTEDNESS" of any Person means, without duplication, (i) all obligations
of such Person for borrowed money, (ii) all obligations of such Person under
conditional sale or other title retention agreements relating to property or
assets purchased by such Person, (iii) all obligations of such Person issued or
assumed as the deferred purchase price of property or services, (iv) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any lien on
property owned or acquired by such Person, whether or not the obligations
secured thereby have been
III-2
<PAGE>
assumed, (v) all guarantees by such Person of Indebtedness of others, (vi) all
obligations of such Person in respect to interest rate protection agreements,
foreign currency exchange agreements or other interest or exchange rate hedging
arrangements, in each case other than those entered into primarily as a hedge,
and (vii) all capital lease obligations of such Person.
"INDEMNIFIED PARTY" has the meaning set forth in Section 6.10 hereof.
"INDEMNIFYING PARTY" has the meaning set forth in Section 6.10 hereof.
"INDEPENDENT DIRECTOR" means a Director of the Company who is none of (i) an
officer, employee, Affiliate or Associate of the Company or an officer,
employee or director of any Affiliate or Associate of the Company, (ii) an
officer, employee, director, Affiliate or Associate of the Investor or (iii) an
Investor Director.
"INITIAL PERIOD" has the meaning set forth in Section 2.1(b) hereof.
"INITIAL SYNERGY PLAN" means the Strategic Plan applicable to the initial
two-year period following the Effectiveness of this Agreement.
"INSPECTORS" has the meaning set forth in Section 6.6(h) hereof.
"INVESTOR" has the meaning set forth in the recitals of this Agreement.
"INVESTOR DIRECTOR" means a Director who has been designated for such
position by the Investor in accordance with Section 2.1(b) hereof.
"INVESTOR GROUP" means the Investor and its Affiliates (other than the
Company and its Subsidiaries).
"INVESTOR GROUP INTEREST" means the percentage of Total Voting Power,
determined on the basis of the number of shares of Voting Stock actually
outstanding, that is controlled, directly or indirectly, by the Investor and
its Affiliates (other than the Company and its Subsidiaries).
"MAINTENANCE SECURITIES" has the meaning set forth in Section 3.1(a) hereof.
"MANAGEMENT COMMITTEE" means the Management Committee of the Company as
described in Section 2.4 hereof.
"MARKET PURCHASE" means an acquisition of Equity Securities that is within
the definition of "Rule 10b-18 purchase" under Rule 10b-18(a)(3) promulgated
under the Exchange Act as in effect on the date hereof that satisfies the
conditions of Rule 10b-18(b).
"MERGER" has the meaning set forth in the recitals of this Agreement.
"MERGER AGREEMENT" has the meaning set forth in the recitals of this
Agreement.
"NOMINATING COMMITTEE" means the Nominating Committee of the Board of
Directors as described in Section 2.3(a)(ii) hereof.
"OTHER HOLDERS" means holders of Equity Securities other than any member of
the Investor Group.
"PERSON" means an individual, a partnership, a joint venture, a corporation,
a trust, an incorporated or unincorporated organization, a government or any
department or agency thereof.
"PIGGYBACK REGISTRATION" has the meaning set forth in Section 6.4 hereof.
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"PUBLIC OFFERING" means an underwritten public offering of Equity Securities
pursuant to an effective Registration Statement under the Securities Act.
"RBL" has the meaning set forth in the recitals of this Agreement.
"RECORDS" has the meaning set forth in Section 6.6(h) hereof.
"REGISTRABLE SECURITIES" means Equity Securities (including any Common Stock
or other Voting Stock issuable upon any conversion or exercise of any Equity
Securities which are convertible securities) held by the Investor Group which
are Restricted Securities until (i) a registration statement covering such
securities has been declared effective by the SEC and such securities have been
disposed of pursuant to such effective registration statement, (ii) such
securities are sold under circumstances in which all of the applicable
conditions of Rule 144 (or any similar provisions then in force) are met, or
such securities may be sold pursuant to Rule 144(k) or (iii) such securities
are otherwise transferred, the Company has delivered a new certificate or other
evidence of ownership for such securities not bearing a legend restricting
transfer of such securities and such securities may be resold without
subsequent registration under the Securities Act.
"REGISTRATION EXPENSES" means (i) all registration and filing fees, (ii) fees
and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the securities registered), (iii) printing expenses, (iv)
internal expenses of the Issuer (including, without limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties), (v) reasonable fees and disbursements of counsel for the Company and
customary fees and expenses for independent certified public accountants
retained by the Company (including the expenses of any comfort letters or costs
associated with the delivery by independent certified public accountants of a
comfort letter or comfort letters), (vi) the reasonable fees and expenses of
any special experts retained by the Company in connection with such
registration, (vii) reasonable fees and expenses of one counsel for the
Investor selected by the Investor, (viii) fees and expenses in connection with
any review of underwriting arrangements by the National Association of
Securities Dealers, Inc. including fees and expenses of any "qualified
independent underwriter" and (ix) fees and disbursements of underwriters
customarily paid by issuers or sellers of securities; but shall not include any
underwriting fees, discounts or commissions attributable to the sale of
Registrable Securities, or any out-of-pocket expenses (except as set forth in
clause (vii) above) of the Investor (or the agents who manage their accounts)
or any fees and expenses of underwriter's counsel.
"REGISTRATION STATEMENT" means a registration statement filed by the Company
with the SEC in accordance with the Securities Act.
"RESTRICTED SECURITIES" means any Equity Securities which are restricted
securities within the meaning of Rule 144(a)(3) (or any successor provision)
promulgated under the Securities Act.
"ROCHE HOLDER" has the meaning set forth in the recitals of this Agreement.
"ROCHE WARRANTS" has the meaning set forth in the recitals of this Agreement.
"RULE 144" and "RULE 144A" means Rule 144 and Rule 144A, as amended,
respectively (or any successor provisions), promulgated under the Securities
Act.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
"SHARING AND CALL OPTION AGREEMENT" has the meaning set forth in the recitals
of this Agreement.
"SPECIAL MAJORITY VOTE OF THE BOARD" means approval by a majority of the
entire Board of Directors, which majority includes a majority of all Investor
Directors and at least one Independent Director.
"STRATEGIC PLAN" means the strategic plan of the Company and its Subsidiaries
which sets forth the strategic direction for the Company and its Subsidiaries
and their businesses (by strategic business units) for
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a period of five fiscal years and which provides for, among other things: an
analysis of the business environment, business objectives and strategies,
business revenues, financial forecasts, capital plans, acquisition and
divestiture plans, if any, business segment analysis, and niche business plans.
"STRATEGIC REVIEW" means a review and process that determines whether the
Strategic Plan is still valid, reviews progress to date, updates key elements
of the Strategic Plan, if deemed necessary, and proposes modifications in
objectives and strategies if deemed necessary. Such process shall include a
review of (i) whether assumptions (including, as to market factors,
competition, regulation, patents, etc.) are still valid; (ii) whether
objectives are still realistic; (iii) whether strategies and programs are on
track; (iv) whether resource assessments are still valid; and (v) and updated
outlook (financial and nonfinancial) if material deviations are expected.
"SUBSIDIARY" has the same meaning as in Rule 12b-2 promulgated under the
Exchange Act, as in effect on the date hereof.
A "SUBSTANTIAL PART" of any Person means, as of any date of determination,
more than 10% of the fair market value of the total assets of such Person and
its Subsidiaries as of the end of such Person's most recent fiscal quarter
ending prior to such date of determination.
"13D GROUP" means any group of Persons formed for the purpose of acquiring,
holding, voting or disposing of Voting Stock which would be required under
Section 13(d) of the Exchange Act, and the rules and regulations thereunder (as
in effect, and based on legal interpretations thereof existing, on the date
hereof), to file a statement on Schedule 13D with the SEC as a "person" within
the meaning of Section 13(d)(3) of the Exchange Act if such group beneficially
owned Voting Stock representing more than 5% of any class of Voting Stock then
outstanding.
"TOTAL VOTING POWER" means the aggregate number of votes entitled to be voted
in an election of Directors of the Company by all of the outstanding Voting
Stock.
"VOTING POWER" means the ability to vote or to control, directly or
indirectly, by proxy or otherwise, the voting of any Voting Stock in the
election of Directors.
"VOTING STOCK" means securities having the right to vote generally in any
election of Directors of the Company.
"WARRANT AGREEMENT" means the agreement between the Company and the warrant
agent designated therein pursuant to which warrants, including the Roche
Warrants, are being issued as contemplated by the Merger Agreement.
"WARRANT SHARES" means Common Stock issued upon exercise of the Warrants.
"WARRANTS" means the warrants issued pursuant to the Warrant Agreement,
including the Roche Warrants.
All terms defined in this Agreement in the singular shall have a comparable
meaning when used in the plural, and vice versa. For the purpose of this
Agreement, the phrases "TO THE KNOWLEDGE OF" or "KNOWN TO" mean, with respect
to any Person, (i) known to any officer or senior manager of such Person or any
Subsidiary of such Person or (ii) could reasonably be expected to be known to
any such officer or senior manager.
ARTICLE 2
CORPORATE GOVERNANCE
SECTION 2.1. COMPOSITION OF THE BOARD OF DIRECTORS. In consideration of the
Investor's interest in the Company following consummation of the Merger, the
composition of the Board of Directors shall be
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determined as provided in this Article 2. The composition of the Board of
Directors and the manner of selecting members thereof shall be as follows:
(a) At and after the Effectiveness of this Agreement, the Board of Directors
shall be comprised of seven Directors. The number of Directors comprising the
Board may be changed only with the approval of the Board in accordance with
Section 2.7.
(b) Immediately upon the Effectiveness of this Agreement, the Company,
through its Board of Directors, shall cause to be duly appointed to its Board
three individuals designated prior to the Merger by the Investor to the
Company, which individuals shall include Mr. Jean-Luc Belingard, Mr. Thomas P.
Mac Mahon and Dr. James Powell (unless any such individual is unable to serve
in such capacity, in which event the Board shall duly elect as a Director one
or more substitute individuals designated by the Investor prior to the Merger),
provided that any individual so designated other than the aforementioned
Persons shall be reasonably acceptable to a majority of the Independent
Directors in office immediately prior to the Effectiveness of this Agreement.
(Each individual designated by the Investor to be a Director pursuant to the
terms of this Agreement shall be referred to herein as an "INVESTOR DIRECTOR"
and all such Persons shall be referred to herein as the "INVESTOR DIRECTORS".)
For a period commencing at the Effectiveness of this Agreement and ending at
the first anniversary thereof (the "INITIAL PERIOD"), Mr. James R. Maher shall
(unless he is unwilling or unable to serve) be a Director and shall be elected
by the Board of Directors to serve as Chairman of the Board for such Initial
Period. During the Initial Period, Mr. Mac Mahon shall be elected by the Board
of Directors to serve as Vice Chairman of the Board. Following the Initial
Period (or at such earlier time as Mr. Maher shall die, resign, retire or be
disqualified or removed from office), (i) Mr. Maher shall resign his positions
and not stand for reelection as a Director or as a member of any committee of
the Board or of the Management Committee (if he is then serving on any such
committee) and (ii) Mr. Mac Mahon shall be elected by the Board of Directors to
serve as the Chairman of the Board. The position of Vice Chairman will be
eliminated after the Initial Period. During the Initial Period, the remaining
three Directors shall be Independent Directors and shall be Persons mutually
acceptable to the Investor and a majority of the members of the Board of
Directors in office immediately prior to the Effectiveness of this Agreement
and may include one or more Persons who were Independent Directors prior to the
Effective Time, such Persons to serve in each case until the expiration of the
term of his respective election (or any earlier termination, resignation or
removal).
(c) Except as otherwise provided in Section 2.1(b) with respect to the
Initial Period, at all times from and after the Effectiveness of this
Agreement, the Directors shall be nominated as follows (it being understood
that such nomination shall include any nomination of any incumbent Director for
reelection to the Board of Directors):
(i) the Investor shall have the right to designate three Investor
Directors, each of whom shall be nominated for Director by the Nominating
Committee; and
(ii) the Nominating Committee shall nominate the remaining Directors,
each of whom (A) shall have an outstanding reputation for personal
integrity and distinguished achievement in areas relevant to the Company
(in applying the foregoing criteria the Nominating Committee shall be
guided by the quality of the individuals currently serving as Directors of
the Company) and (B) shall qualify as an Independent Director.
The composition of the Board of Directors may be changed only with the approval
of the Board in accordance with Section 2.7.
(d) If (i) at any time the Investor Group Interest is less than 30% but at
least 20%, the Investor shall have the right to designate for nomination two
Investor Directors and (ii) at any time the Investor Group Interest shall be
less than 20% but at least 10%, the Investor shall have the right to designate
for nomination one Investor Director.
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(e) If at any time when Mr. Mac Mahon (or any successor) shall be serving as
Chairman of the Board, he (or such successor) dies, resigns, retires, is
disqualified or is removed from office, such position shall be filled by the
Board in accordance with Section 2.7.
(f) The Investor and the Nominating Committee, respectively, shall have the
right to designate any replacement for a Director designated for nomination or
nominated in accordance with this Section 2.1 by the Investor or the Nominating
Committee, respectively, upon the death, resignation, retirement,
disqualification or removal from office for other cause of such Director. Such
replacement for any Independent Director shall also be an Independent Director
conforming to the standard set forth in Section 2.1(c)(ii). The Board of
Directors shall duly appoint as a Director each Person so designated to fill a
vacancy on the Board.
(g) Without limiting the generality of Section 2.1(c), in the event that at
any time after the Effectiveness of this Agreement the number of Investor
Directors on the Board of Directors differs from the number that the Investor
has the right (and desire) to designate, (i) if the number of Investor
Directors exceeds such number, the Investor shall promptly take all appropriate
action to cause to resign that number of the Investor Directors as is required
to make the remaining number of such Investor Directors conform to the
provisions of this Agreement or (ii) if the number of Investor Directors
otherwise is less than such number, the Board shall take all necessary action
to create sufficient vacancies on the Board to permit the Investor to designate
the full number of Investor Directors which it is entitled (and desires) to
designate pursuant to the provisions of this Agreement (such action may include
but need not be limited to seeking the resignation or removal of Directors or,
at the request of the Investor and/or calling a special meeting of the
shareholders of the Company for the purpose of removing Directors to create
such vacancies to the extent permitted by applicable law). Upon the creation of
any vacancy pursuant to the preceding sentence, the Investor shall designate
the Person to fill any such vacancy in accordance with the provisions of this
Agreement and the Board of Directors shall elect each Person so designated.
SECTION 2.2. SOLICITATION AND VOTING OF SHARES. (a) With respect to each
meeting of stockholders of the Company at which Directors are to be elected,
the Company shall use its best efforts to solicit from the stockholders of the
Company eligible to vote in the election of Directors proxies in favor of the
nominees selected in accordance with Section 2.1.
(b) In any election of Directors or any meeting of the stockholders of the
Company called expressly for the removal of Directors, so long as the Board of
Directors includes (and will include after any such election or removal) the
number of Investor Directors (and the proportion of the entire Board the
Investor is entitled (and desires) to designate as nominees for Investor
Directors hereunder) contemplated by Section 2.1, the Investor shall be, and
shall use its best efforts to cause its Affiliates to be, present for purposes
of establishing a quorum, and shall vote all of their shares of Voting Stock
(i) in favor of any nominee or Director selected in accordance with Section
2.1, (ii) in favor of removal of any Director as contemplated by Section
2.1(g), and (iii) against the removal of any Director designated in accordance
with Section 2.1 other than (A) for cause and (B) pursuant to Section 2.1(g).
In any other matter submitted to a vote of the stockholders of the Company, the
Investor Group may vote any or all of its shares of Voting Stock and other
Equity Securities in its sole discretion unless such matter was approved by the
Investor or a majority of the Investor Directors in accordance with Section
2.7, in which case the Investor shall, and shall use its best efforts to cause
its Affiliates to, vote all of their Voting Stock and any other Equity
Securities in favor of such matter.
(c) The Investor agrees that it will, and will use its best efforts to cause
its Affiliates (other than the Company and its Subsidiaries) to, take all
action as a stockholder of the Company or as is otherwise reasonably within its
control, as necessary to effect the provisions of this Agreement.
SECTION 2.3. COMMITTEES OF THE BOARD OF DIRECTORS. (a) Subject to the general
oversight and authority of the full Board of Directors, the Board of Directors
shall establish, empower, maintain and elect
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the members of the following committees of the Board of Directors at all times
while this Agreement is in effect:
(i) an Audit Committee, comprised solely of Independent Directors;
(ii) a Nominating Committee which shall, subject to Section 2.1, be
responsible for recommending the nomination of Directors and be comprised
and conduct itself as follows:
(A) after the Effectiveness of this Agreement, the Nominating
Committee shall be composed of two Independent Directors and one
Investor Director;
(B) a majority of the Independent Directors shall designate the
Independent Directors who shall serve on the Nominating Committee and a
majority of the Investor Directors shall designate the Investor
Director who shall serve on the Nominating Committee;
(C) a quorum of the Nominating Committee required for any action
thereby shall require the attendance of all members thereof; and
(D) the Nominating Committee shall act by majority vote of the entire
Nominating Committee;
(iii) an Employee Benefits Committee, responsible, among other things,
for (A) recommending to the Board of Directors, for approval by a majority
of the Board of Directors (subject to Section 2.7), (I) the adoption and
amendment of all employee benefit plans and arrangements and (II) the
engagement of, terms of any employment agreements and arrangements with and
termination of employment of, all Persons who are or would be designated by
the Company as "officers" for purposes of Section 16 of the Exchange Act
(such Persons being referred to herein as "SECTION 16 OFFICERS") and (B)
granting under and administering the Company's stock option incentive plans
with respect to the participation therein of Section 16 Officers, which
committee shall be comprised solely of Investor Director(s) and Independent
Directors (with Independent Directors constituting a majority), who
constitute "DISINTERESTED PERSONS" (as such term is defined in Rule 16b-
3(c) under the Exchange Act), and the Chairman of which committee shall,
subject to Section 2.1(b), be Mr. Jean-Luc Belingard until his successor is
duly elected; and
(iv) such other committees as the Board of Directors deems necessary or
desirable to establish, empower and maintain, provided that such committees
are approved by a Special Majority Vote of the Board and are established in
compliance with the terms of this Agreement.
(b) Except as otherwise provided in this Agreement or as agreed by a majority
of the Independent Directors and the Investor Directors, the number of Investor
Directors serving on each committee of the Board of Directors shall be the same
proportion of the total membership of such committee as the number of Investor
Directors is of the entire Board of Directors, with a minimum of one member so
long as the Investor is entitled hereunder to designate one Investor Director.
Any members of any committee which are Investor Directors shall, in the event
of any vacancy in such membership, be replaced by a majority of the Investor
Directors.
(c) If the Investor Group Interest shall be less than 30% but more than 20%,
the number of Investor Directors serving on each committee of the Board of
Directors (other than the Audit Committee) shall be (x) two, if such committee
shall have five or more total members, or (y) one, in all other cases. If the
Investor Group Interest shall be less than 20% but more than 10%, the number of
Investor Directors serving on each committee of the Board of Directors (other
than the Audit Committee) shall be one. Any members of any committee which are
Investor Directors shall, in the event of any vacancy in such membership, be
replaced by a majority of the Investor Directors.
SECTION 2.4. MANAGEMENT COMMITTEE. (a) Immediately after the Effectiveness of
this Agreement, the Company shall establish a Management Committee, which shall
be comprised and conduct itself as follows:
(i) the Management Committee shall be comprised of (A) the President and
Chief Executive Officer of the Company, who shall serve as the Chairman of
the Management Committee, (B) the Chief
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Operating Officer of the Company, (C) the Chief Financial Officer of the
Company, (D) the Chief Administrative Officer of the Company, (E) the
General Counsel for the Company, (F) the Executive Vice President, Sales
and Marketing of the Company, (G) the Executive Vice President, Human
Resources of the Company, (H) the Chairman of the Board and (I) the Vice
Chairman of the Board, if any, and may include other Board members or
executive officers of the Company, in each case in accordance with Section
2.7; and
(ii) the Management Committee shall act by a consensus of the members
thereof, provided that such consensus includes the approval of the Chairman
of the Management Committee.
(b) The Management Committee shall have the following responsibilities,
authority and duties, and such other responsibilities, authority and duties as
the Board (acting by Special Majority Vote of the Board) may from time to time
grant, subject to the other provisions of this Agreement, the Certificate of
Incorporation and the By-laws:
(i) review and approval of the Strategic Plan prior to consideration and
approval by the Board in accordance with Section 2.7;
(ii) review and approval of the Annual Operating Plan and annual
operating budget of the Company prior to consideration and approval of the
Board in accordance with Section 2.7; and
(iii) overseeing the implementation of the Initial Synergy Plan,
including the attainment of the synergy goals of such Plan and the
integration of the businesses of RBL and its Subsidiaries (prior to the
Merger) and the Company.
(c) Meetings of the Management Committee shall be conducted at least six
times per year or more often as determined by the Chairman of the Management
Committee, in his discretion.
SECTION 2.5. NOTICE FOR BOARD AND COMMITTEE MEETINGS. (a) No action by the
Board of Directors or any committee of the Board of Directors shall be valid
unless taken at a meeting for which seven days prior notice has been duly given
or waived by the Directors or the members of such committee, as the case may
be. Such notice shall include a description of the general nature of the
business to be transacted at the meeting, and no other business may be
transacted at such meeting unless all Directors or members of the committee as
the case may be, are present and consent to the consideration of such other
business.
(b) In the case of committee meetings, any committee member unable to
participate in Person at any meeting shall be given the opportunity to
participate by telephone.
(c) Each of the committees established by the Board of Directors pursuant to
Section 2.3 and the Management Committee established pursuant to Section 2.4
shall establish and adopt such other rules and procedures for its operation and
governance (consistent with the terms of this Agreement and the Company's
Certificate of Incorporation and By-laws) as it shall determine appropriate and
may seek such consultation and advice as to matters within its purview as it
shall require.
SECTION 2.6. VACANCIES ON BOARD COMMITTEES AND THE MANAGEMENT COMMITTEE. In
the event that any Investor Director or Independent Director ceases to serve on
any committee of the Board of Directors or on the Management Committee, the
majority of the Investor Directors and the majority of the Independent
Directors shall designate, respectively, a replacement member. If after a
reasonable time, no successor to such Director is designated in accordance with
the terms hereof to serve on such committee, the number of members of such
committee may be reduced if such reduction does not (and no such reduction is
intended to) result in a change of the relative authorities within such
committee among the Investor Directors (taken as a group) and the Independent
Directors (taken as a group).
SECTION 2.7. APPROVAL REQUIRED FOR CERTAIN ACTIONS. (a) So long as the
Investor Group Interest shall be 30% or more, no action by the Company or any
Subsidiary (including but not limited to any action by their respective boards
of directors or any committee thereof) shall be taken with respect to any of
the
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following matters without the approval of the Board which approval shall be by
a Special Majority Vote of the Board:
(i) the appointment of any of the Chairman of the Board, Chief Executive
Officer, President, Secretary, Treasurer, General Counsel, Chief Financial
Officer, Chief Operating Officer or Chief Administrative Officer or other
executive officer in any similar capacity of the Company or any Subsidiary
thereof (and the election of any directors to the board of directors of any
such Subsidiary);
(ii) the approval of each Strategic Plan and each Annual Operating Plan
developed subsequent to the Effectiveness of this Agreement and any
material amendment to, modification of, or deviation from, the Initial
Synergy Plan or any other Strategic Plan;
(iii) any merger or consolidation of the Company or any of its
Subsidiaries with or into any Person other than the Company or any of its
Subsidiaries;
(iv) any amendment to the Certificate of Incorporation or By-laws or any
adoption of or amendment to the certificate of incorporation or by-laws of
any Subsidiary of the Company;
(v) any acquisition of assets, business, operations or securities by the
Company or any Subsidiary thereof by merger or otherwise (whether in one
transaction or a series of related transactions) which assets, business,
operations or securities would constitute a Substantial Part of the Company
measured prior to such transaction;
(vi) any sale, asset exchange, lease, exchange, mortgage, pledge,
transfer or other disposition by merger or otherwise by the Company or any
of its Subsidiaries (in one transaction or a series of related
transactions) of any Subsidiary of the Company or assets of the Company or
any Subsidiary thereof which constitutes a Substantial Part of the Company;
(vii) the settling of any litigation, investigation or proceeding
involving (A) any governmental authority or (B) any amount proposed to be
paid in settlement is in excess of $5,000,000;
(viii) any material transaction between (x) the Company or any of its
Subsidiaries, on the one hand, and (y) any stockholder or Affiliate of the
Company (other than any Subsidiary of the Company and other than the
Investor and its Affiliates), on the other hand (other than as specifically
contemplated by the Sharing and Call Option Agreement);
(ix) the issuance of any security of the Company or any Subsidiaries of
the Company (other than as specifically contemplated by the Merger
Agreement or the Warrant Agreement or pursuant to the exercise of existing
employee stock options);
(x) capital expenditures individually in excess of $1,000,000 or in the
aggregate in excess of $50,000,000 per annum or which represent in the
aggregate 110% or more of the total amount provided for in the Annual
Operating Plan for such year;
(xi) a reclassification, combination, split, subdivision or redemption,
purchase or other acquisition, directly or indirectly, of any debt or
equity securities or other capital stock of the Company except as provided
in the Merger Agreement and the Warrant Agreement;
(xii) any change in the size or composition of the Board of Directors or
any committee thereof or of the Management Committee or the establishment
of a new committee of the Board;
(xiii) any incurrence, assumption or issuance by the Company or any of
its Subsidiaries of Indebtedness other than (x) Indebtedness existing
immediately after the Effective Time) and any refinancings thereof and (y)
other Indebtedness in an aggregate principal amount at any one time
outstanding not to exceed $25,000,000;
(xiv) the declaration of any dividend or the making of any other
distribution with respect to, or the redemption, repurchase or other
acquisition of, any class of securities of the Company or any of its
Subsidiaries, except as expressly otherwise provided in the Merger
Agreement or the Warrant Agreement;
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(xv) the proposal or entry into by the Company or any of its Subsidiaries
of any Discriminatory Transaction;
(xvi) any relocation of the headquarters of the Company;
(xvii) the determination of compensation, benefits, perquisites and other
incentives for executive officers (other than officers whose total
compensation including employee stock options and similar incentives does
not exceed $150,000 annually) and the approval or amendment of any plans or
contracts in connection therewith;
(xviii) the adoption or implementation of any takeover defense measures,
including the institution, amendment or redemption by the Company or any of
its Subsidiaries of any stockholder rights plan or similar plan or device,
or any change of control matters (including change of control provisions in
agreements to which the Company or any Subsidiary thereof is a party);
(xix) any transaction involving or any action by the Company or any
Subsidiary (A) leading to a circumstance in which any Person or 13D Group
(other than the Investor and/or its Affiliates) shall beneficially own
Equity Securities representing a percentage of Total Voting Power, or any
equity interest in the Company greater than 15% or (B) requiring the
approval of holders of a majority of the Voting Stock or Equity Securities;
(xx) any change in the fiscal year or the accounting or tax principles,
or policies with respect to the financial statements, records or affairs of
the Company or any Subsidiary, except as required by GAAP or by law; or
(xxi) the dissolution of the Company or any of its Subsidiaries thereof;
the adoption of a plan of liquidation of the Company or any Subsidiaries;
or any action by the Company or any of its Subsidiaries to commence any
suit, case, proceeding or other action (A) under any existing or future law
of any jurisdiction relating to bankruptcy, insolvency, reorganization or
relief of debtors seeking to have an order for relief entered with respect
to the Company or any of its Subsidiaries, or seeking to adjudicate the
Company or any of its Subsidiaries a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding up, liquidation,
dissolution, composition or other relief with respect to the Company or any
of its Subsidiaries or (B) seeking appointment of a receiver, trustee,
custodian or other similar official for the Company or any of its
Subsidiaries thereof, or for all or any Substantial Part of the Company or
any of its Subsidiaries thereof, or making a general assignment for the
benefit of the creditors of the Company or any of its Subsidiaries thereof.
SECTION 2.8. ENFORCEMENT OF THIS AGREEMENT. A majority of the Independent
Directors shall have full and complete authority on behalf of the Company to
enforce the terms of this Agreement.
SECTION 2.9. CERTIFICATE OF INCORPORATION AND BY-LAWS. The Company and the
Investor shall take or cause to be taken all lawful action necessary to ensure
at all times that the Company's Certificate of Incorporation and By-laws are
not at any time inconsistent with the provisions of this Agreement. Not later
than the Effectiveness of this Agreement, the Board of Directors shall amend
the Company's By-laws to reflect the provisions of this Article 2 . At the
Investor's request the Board of Directors shall adopt (and if necessary submit
and recommend for approval by stockholders) such other amendments to the
Company's Certificate of Incorporation or By-laws as may be reasonably
necessary to implement the provisions of this Agreement.
SECTION 2.10. GOVERNANCE OF COMPANY SUBSIDIARIES. The governance of each
Subsidiary of the Company shall be conducted in a manner consistent with the
governance of the Company as provided in this Agreement. In particular, a
Subsidiary shall not take or agree to take any action which, if taken by the
Company would require approval of the Investor or a Special Majority Vote of
the Board pursuant to the terms of this Agreement, unless such action is first
approved by the Investor or a Special Majority Vote of the Board, as the case
may be. The Board of Directors shall select the Persons who from time to time
shall be elected as the directors of the Company's Subsidiaries subject to
Section 2.7.
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SECTION 2.11. STRATEGIC PLANNING PROCESS. (a) The parties have cooperated in
preparing the Initial Synergy Plan. The President and Chief Executive Officer
of the Company shall, on an annual basis, cause to be prepared and proposed to
the Management Committee, a Strategic Plan covering a five-year period
beginning with the period 1997-2001. Each year the Strategic Plan shall be
proposed to the Management Committee not later than May 1st. In connection with
the preparation of each Strategic Plan, the President and Chief Executive
Officer shall confer on a reasonable basis with the Management Committee and
the Board of Directors.
(b) From time to time, at the request of the President and Chief Executive
Officer, and at least once a year during the fourth and fifth fiscal years of a
Strategic Plan and prior to the budgeting process for the following year, the
President and Chief Executive Officer will hold a Strategic Review with the
Management Committee of the Company and, in light of such review, the
Management Committee of the Company may propose to the Board of Directors
revisions or updates to the Strategic Plan in light of changed circumstance.
(c) Any proposed Strategic Plan or any revisions or updates to the current
Strategic Plan will require approval of the Board of Directors, subject to
Section 2.7.
SECTION 2.12. OPERATING PLANNING PROCESSES. The President and Chief Executive
Officer will be responsible for the preparation, on an annual basis, of a
proposed Annual Operating Plan for each fiscal year which shall be consistent
with the then applicable Initial Synergy Plan or Strategic Plan, as the case
may be, and shall be submitted to the Management Committee not later than two
months before the beginning of such fiscal year. The financial and operating
performance goals in each Annual Operating Plan shall be determined by
reference to the applicable Strategic Plan, taking into account such factors as
the President and Chief Executive Officer determines are appropriate. Any
proposed Annual Operating Plan will require approval of the Board of Directors,
subject to Section 2.7.
SECTION 2.13. HEADQUARTERS OF THE COMPANY. As of the Effective Time, the
headquarters of the Company shall be the location designated by the Management
Committee in accordance with Section 2.4(a).
ARTICLE 3
ANTI-DILUTIVE RIGHTS
SECTION 3.1. ANTI-DILUTIVE RIGHTS. (a) Except as provided in Section 3.1(c)
below, the Company shall not issue, sell or transfer any Equity Securities to
any Person unless the Investor is offered in writing the right to purchase, at
the same price and on the same terms proposed to be issued and sold, an amount
of such Equity Securities (the "MAINTENANCE SECURITIES") as is necessary for
the Investor Group to maintain the Investor Group Interest as it existed
immediately prior to such issuance (the "ANTI-DILUTIVE RIGHTS"). The Investor
shall have the right, during the period specified in Section 3.1(b) to accept
the offer for any or all of the Maintenance Securities.
(b) If the Investor does not deliver to the Company written notice of
acceptance of any offer made pursuant to Section 3.1(a) within 20 Business Days
after the Investor's receipt of such offer, the Investor shall be deemed to
have waived its right to purchase all or any part of its Maintenance Securities
as set forth in such offer but the Investor shall retain its rights under this
Article 3 with respect to future offers.
(c) The Anti-dilutive Rights set forth above shall not apply to (i) the grant
or exercise of options to purchase Common Stock or the issuance of shares of
Common Stock to employees of the Company or any of its Subsidiaries (other than
employees who are also employees of a stockholder, their Affiliates or any
subsidiary of a stockholder) or otherwise pursuant to a stock option or similar
plan in existence on the date hereof or otherwise adopted by the Board of
Directors hereafter, (ii) the issuance of Warrant Shares, or of shares of
Common Stock issuable upon exercise of any option, warrant, convertible
security or other rights
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to purchase or subscribe for Common Stock which, in each case, had been issued
in compliance with Section 3.1(a) or Section 3.1(c)(i), (iii) securities issued
pursuant to any stock split, stock dividend or other similar stock
recapitalization, or (iv) shares of Common Stock issued pursuant to any Public
Offering, provided that the action referred to in clause (i), (iii) or (iv) of
this Section 3.1(c) as the case may be, shall have been approved (to the extent
required) in accordance with the provisions of this Agreement.
(d) A closing for the purchase of Maintenance Securities pursuant to this
Section 3.1(d) shall occur on the later of (i) the date on which such public or
private issuance occurs and (ii) such date as may be agreed to by the Investor
and the Company, at a time and place specified by the Investor in a notice
provided to the Company at least ten (10) days prior to such specified closing
date. In connection with such closing, the Company and the Investor shall
provide such customary closing certificates and opinions as the Investor or the
Company, as appropriate, shall reasonably request.
ARTICLE 4
ACQUISITIONS OF ADDITIONAL EQUITY SECURITIES
SECTION 4.1. LIMITATION ON ADDITIONAL ACQUISITIONS. (a) From the
Effectiveness of this Agreement until the first anniversary thereof, the
Investor shall not, and shall use its best efforts to cause each member of the
Investor Group not to, directly or indirectly, purchase or otherwise acquire
any Equity Securities of the Company if, after giving effect thereto, the
Investor Group Interest would exceed 49.99%. Notwithstanding the foregoing, the
Investor Group or one or more members thereof may acquire, directly or
indirectly, by purchase or otherwise, Equity Securities resulting in the
Investor Group Interest exceeding such limitation in the event (i) any Person
or Group makes an Acquisition Proposal (as defined in the Merger Agreement);
(ii) Mafco or any Affiliate thereof shall after the Effective Time acquire
Equity Securities representing 1% or more of the Total Voting Power; (iii) any
Person or Group acquires beneficial ownership of Equity Securities representing
5% or more of Total Voting Power (10% or more in the case of beneficial
ownership permitted to be reported on Schedule 13G under the Exchange Act); or
(iv) there shall have been a material adverse change in the business, financial
condition or operations of the Company for, or which would reasonably be
expected to continue for, a sustained period and the Investor shall have
determined in good faith that the acquisition of additional Equity Securities
is reasonably necessary to protect its investment in the Company.
(b) From the first anniversary of the Effectiveness of this Agreement until
the third anniversary of the Effectiveness of this Agreement, the Investor
shall not and shall use its best efforts to cause each member of the Investor
Group not to, directly or indirectly, purchase or otherwise acquire, or propose
or offer to purchase or acquire, any Equity Securities of the Company, whether
by tender offer, Market Purchase, privately negotiated purchase, merger or
otherwise, except that the Investor Group may acquire Equity Securities to the
extent that after giving effect thereto, the Investor Group Interest would not
exceed 75%.
(c) Anything to the contrary notwithstanding in Section 4.1(a) or (b), the
Investor Group may acquire Equity Securities, notwithstanding the fact that,
after giving effect thereto, the Investor Group Interest would exceed 75%, if
the Investor Group (or a member or Affiliate thereof, as the case may be)
offers, prior to consummating such purchase, to purchase all outstanding Equity
Securities and holders of Equity Securities representing more than 50% of the
outstanding Equity Securities (excluding any Equity Securities held by the
Investor Group) accept such offer and the Investor Group ( or a member or
Affiliate thereof, as the case may be) consummates such purchase.
ARTICLE 5
TRANSFERS OF EQUITY SECURITIES
SECTION 5.1. TRANSFERS OF EQUITY SECURITIES. The Investor agrees not to sell
or otherwise transfer any Equity Securities except pursuant to (x) Section 9.5
hereof and (y) (i) a Public Offering in accordance
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with Article 6, (ii) Rule 144 or Rule 144A, or (iii) any other transaction in
compliance with the Securities Act, state securities laws and other applicable
laws.
ARTICLE 6
REGISTRATION RIGHTS
SECTION 6.1. DEMAND REGISTRATION. (a) From and after the Effectiveness of
this Agreement, the Investor may make a written request to the Company for
registration under the Securities Act of Registrable Securities subject to the
conditions set forth in Section 6.2 and Section 6.3 hereof (a "DEMAND
REGISTRATION"). Such request will specify the number of shares of or warrants
constituting Registrable Securities proposed to be sold and will also specify
the intended method of disposition thereof. Following the Investor's request,
the Company will use its best efforts to effect, as expeditiously as possible,
the registration under the Securities Act of the Registrable Securities which
the Company has been so requested to register by the Investor so as to permit
the disposition (in accordance with the intended methods thereof as aforesaid)
of such Registrable Securities.
(b) If the Investor so elects, the offering of such Registrable Securities
pursuant to such Demand Registration shall be in the form of Public Offering.
The Investor shall select the managing underwriters and any additional
investment bankers and managers to be used in connection with a Demand
Registration pursuant to a Public Offering, provided that such managing
underwriters shall be of national standing and any additional investment
bankers or managers must be reasonably satisfactory to the Company.
SECTION 6.2. CONDITIONS TO DEMAND REGISTRATIONS. The obligations of the
Company to take the actions contemplated by Section 6.1 with respect to an
offering of Registrable Securities shall be subject to the following
conditions:
(a) the Registrable Securities requested to be registered shall (unless
reduced pursuant to Section 6.5) constitute at least 2% of the equivalent
outstanding Equity Securities or at least 5% of the Registrable Securities at
such time, whichever amount is smaller;
(b) there shall not have been consummated more than one offering pursuant to
a Demand Registration within the preceding 12 month period;
(c) (x) if the Investor Group Interest shall be less than 30% but more than
20%, no more than three other Demand Registrations shall have been effected
after the date on which the Investor Group Interest was reduced to less than
30%, (y) if the Investor Group Interest shall be less than 20% but more than
10%, no more than two other Demand Registrations shall have been effected after
the date on which the Investor Group Interest was reduced to less than 20% and
(z) if the Investor Group Interest shall be less than 10%, no more than one
other Demand Registration shall have been effected after the date on which the
Investor Group Interest was reduced to less than 10%;
(d) the Investor shall conform to all applicable requirements of the
Securities Act and the Exchange Act with respect to the offering and sale of
securities and shall advise each underwriter, broker or dealer through which
any of the Registrable Securities are offered that the Registrable Securities
are part of a distribution that is subject to the prospectus delivery
requirements of the Securities Act; and
(e) the Investor shall use all reasonable efforts to effect as wide a
distribution of such Registrable Securities as is reasonably practicable, and
in no event shall any sale of Registrable Securities be made knowingly to any
Person who beneficially owns 5% or more of the Total Voting Power (including
such Person's Affiliates and any Person which to the knowledge of the Investor
is, or who, after giving effect to such sale, would be part of any 13D Group).
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<PAGE>
SECTION 6.3. ADDITIONAL CONDITIONS TO DEMAND OFFERINGS. Notwithstanding the
provisions of Sections 6.1 and 6.2, the Company's obligations pursuant to
Section 6.1 shall be suspended if (a) the fulfillment of such obligations would
require the Company to make a disclosure that would, in the reasonable good
faith judgment of the Company's Board of Directors, be materially detrimental
to the Company and premature, (b) the Company has filed a Registration
Statement with respect to Equity Securities to be distributed in a Public
Offering and it is advised by its lead or managing underwriter that an offering
by the Investor of the Registrable Securities would materially adversely affect
the distribution of such Equity Securities or (c) the fulfillment of such
obligations would require the Company to prepare audited financial statements
not required to be prepared for the Company to comply with its obligations
under the Exchange Act as of any date not coincident with the last day of any
fiscal year of the Company. Such obligations of the Company shall be reinstated
(x) in the case of clause (a) above, upon the making of such disclosure by the
Company (or, if earlier, when such disclosure would either no longer be
necessary for the fulfillment of such obligations or no longer be detrimental),
(y) in the case of clause (b) above, upon the conclusion of any period during
which the Company would not, pursuant to the terms of its underwriting
arrangements, be permitted to sell securities of the Company for its own
account and (z) in the case of clause (c) above, as soon as it would no longer
be necessary to prepare such financial statements to comply with the Exchange
Act.
SECTION 6.4. PIGGYBACK REGISTRATION. If the Company proposes to file a
Registration Statement under the Securities Act with respect to an offering of
any securities of the Company (a) for the Company's own account (other than a
Registration Statement on Form S-4 or S-8 (or any substitute form that may be
adopted by the SEC) or (b) the account of any Other Holder (other than Mafco or
any of its Affiliates), then the Company shall give written notice of such
proposed filing to the Investor as soon as practicable (but in no event less
than 20 Business Days before the anticipated filing date), and such notice
shall offer the Investor the opportunity to register such number of shares of
(or Warrants constituting) Registrable Securities as the Investor may request
on the same terms and conditions as those applicable to the Securities of the
Company or of the Other Holders in the offering (a "PIGGYBACK REGISTRATION").
Upon the written request of the Investor made within ten days after the receipt
of notice from the Company (which request shall specify the amount and types of
Registrable Securities intended to be issued or disposed of), the Company will
use its best efforts to effect the registration under the Securities Act of all
such Registrable Securities which the Company has been so requested to register
by such Investor, to the extent requisite to permit the disposition of such
Registrable Securities to be so registered, provided that (i) if such
registration involves a Public Offering, the Investor must sell its Registrable
Securities to the underwriters on the same terms and conditions as apply to the
Company and (ii) if, at any time after giving written notice of its intention
to register any securities of the Company pursuant to this Section 6.4 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 such securities, the Company shall give written notice to the Investor
and, thereupon, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (without prejudice, however, to
rights of the Investor under Section 6.1 hereof). No registration effected
under this Section 6.4 shall relieve the Company of its obligations to effect
any Demand Registration to the extent required by Section 6.1 hereof.
SECTION 6.5. REDUCTION OF OFFERING. Notwithstanding anything contained
herein, if the managing underwriter of an offering described in Section 6.1 or
Section 6.4 delivers a written opinion to the Company advising that (a) the
size of the offering that the Investor, the Company and any Other Holders
intend to make or (b) the combination of securities that the Investor, the
Company and such Other Holders intend to include in such offering are such that
the success of the offering would be materially and adversely affected, then
(A) if the size of the offering is the basis of such underwriter's opinion, the
amount of Registrable Securities to be offered for the account of the Investor
shall be reduced to the extent necessary to reduce the total amount of
securities to be included in such offering to the amount recommended by such
managing underwriter, provided that (x) in the case of a Demand Registration,
the amount of Registrable Securities to be offered for the account of the
Investor shall be reduced only after the amount of securities to be offered for
the account of the Company and such Other Holders has been reduced to zero, and
(y) in the case of a Piggyback Registration, if securities are being offered
for the account of Other Holders, then the proportion
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<PAGE>
by which the amount of such Registrable Securities intended to be offered for
the account of the Investor is reduced shall not exceed the proportion by which
the amount of such securities intended to be offered for the account of such
Other Holders is reduced; and (B) if the combination of securities to be
offered is the basis of such underwriter's opinion, (x) the Registrable
Securities to be included in such offering shall be reduced as described in
clause (A) above (subject to the proviso in clause (A)), and (y) in the case of
a Piggyback Registration, if the actions described in sub-clause (x) of this
clause (B) would, in the judgment of the managing underwriter, be insufficient
substantially to eliminate the adverse effect that inclusion of the Registrable
Securities requested to be included would have on such offering, such
Registrable Securities will be excluded from such offering.
SECTION 6.6. FILINGS; REGISTRATION PROCEDURES. Whenever the Investor requests
that any Registrable Securities be registered pursuant to Section 6.1 hereof,
the Company will use its reasonable efforts to effect the registration of such
Registrable Securities as promptly as is practicable, and in connection with
any such request:
(a) The Company will as expeditiously as possible prepare and file with the
SEC a Registration Statement on any form for which the Company then qualifies
and which counsel for the Company shall deem appropriate and available for the
sale of the Registrable Securities to be registered thereunder in accordance
with the intended method of distribution thereof. A registration will not count
as a Demand Registration until a Registration Statement shall have become
effective under the Securities Act and remained effective for at least 270 days
(or such shorter period in which all Registrable Securities of the Investor
included in such registration have actually been sold thereunder), provided
that, if after any Registration Statement requested pursuant to Section 6.1
becomes effective, such Registration Statement is interfered with by any stop
order, injunction or other order or requirement of the Commission or other
governmental agency or court solely due to the actions or omissions to act of
the Company, such registration shall not be considered a Demand Registration.
(b) The Company will, if requested, prior to filing such Registration
Statement or any amendment or supplement thereto, furnish to the Investor and
each applicable managing underwriter, if any, copies thereof, and thereafter
furnish to the Investor and each such underwriter such number of copies of such
Registration Statement, amendment and supplement thereto (in each case
including all exhibits thereto and documents incorporated by reference therein)
and the prospectus included in such Registration Statement (including each
preliminary prospectus) as the Investor or each such underwriter may reasonably
request in order to facilitate the sale of the Registrable Securities.
(c) The Company will use all reasonable efforts to cause the Registerable
Securities to be registered with or approved by such other governmental
agencies or authorities as may be necessary by virtue of the business and
operations of the Company to enable the Investor to consummate the disposition
of such Registrable Securities.
(d) After the filing of the Registration Statement, the Company will (i)
prepare and file with the SEC such amendments and post-effective amendments to
the registration statement as may be necessary to keep such registration
statement effective for a reasonable period not to exceed 270 days; cause the
related prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed pursuant to Rule 424 under the Securities
Act, and (ii) comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement during
the applicable period in accordance with the intended methods of disposition by
the sellers thereof set forth in such registration statement or supplement to
such prospectus and promptly notify the Investor of any stop order issued or,
to the Company's knowledge, threatened to be issued by the SEC and take all
reasonable actions required to prevent the entry of such stop order or to
remove it if entered.
(e) The Company will endeavor to qualify the Registrable Securities for offer
and sale under such other securities or blue sky laws of such jurisdictions in
the United States as the Investor reasonably requests,
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<PAGE>
provided that the Company will not be required to (i) qualify generally to do
business in any jurisdiction where it would not otherwise be required to
qualify but for this Section 6.6(e), (ii) subject itself to taxation in any
such jurisdiction or (iii) consent to general service of process in any such
jurisdiction.
(f) The Company will as promptly as is practicable notify the Investor, at
any time when a prospectus relating to the sale of the Registrable Securities
is required by law to be delivered in connection with sales by an underwriter
or dealer, of the occurrence of any event requiring the preparation of a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, and
promptly make available to the Investor and to the underwriters, if any such
supplement or amendment. The Investor agrees that, upon receipt of any notice
from the Company of the occurrence of any event of the kind described in the
preceding sentence, the Investor will forthwith discontinue the offer and sale
of Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until receipt by the Investor and the underwriters, if
any, of the copies of such supplemented or amended prospectus and, if so
directed by the Company, the Investor will deliver to the Company all copies,
other than permanent file copies then in the Investor's possession, of the most
recent prospectus covering such Registrable Securities at the time of receipt
of such notice. In the event the Company shall give such notice, the Company
shall extend the period during which such Registration Statement shall be
maintained effective as provided in Section 6.6(a) hereof by the number of days
during the period from and including the date of the giving of such notice to
the date when the Company shall make available to the Investor such
supplemented or amended prospectus.
(g) The Company will enter into customary agreements (including an
underwriting agreement in customary form) and take such other actions as are
reasonably required in order to expedite or facilitate the sale of the
Registrable Securities covered by a Registration Statement in accordance
herewith.
(h) The Company shall make available for inspection by the Investor, any
underwriter participating in any disposition pursuant to such registration, and
any attorney, accountant or other agent retained by the Investor or any such
underwriter (collectively, the "INSPECTORS"), all financial and other records,
pertinent corporate documents and properties of the Company (collectively, the
"RECORDS") as shall be reasonably necessary to enable them to exercise their
due diligence responsibility, and cause the officers, directors and employees
of the Company to supply all information reasonably requested by any such
Inspector in connection with such registration, provided that (i) records and
information obtained hereunder shall be used by such Persons only to exercise
their due diligence responsibility and (ii) records or information which the
Company determines, in good faith, to be confidential shall not be disclosed by
the Inspectors unless (x) the disclosure of such Records or information is
necessary to avoid or correct a misstatement or omission in the Registration
Statement or (y) the release of such Records or information is ordered pursuant
to a subpoena or other order from a court or governmental authority of
competent jurisdiction. The Investor shall use reasonable efforts, prior to any
such disclosure, to inform the Company that such disclosure is necessary to
avoid or correct a misstatement or omission in the Registration Statement. The
Investor further agrees that it will, upon learning that disclosure of such
Records or information is sought in a court or governmental authority, give
notice to the Company and allow the Company, at the expense of the Company, to
undertake appropriate action to prevent disclosure of the Records or
information deemed confidential; the Investor agrees that information obtained
by it as a result of such inspections shall be deemed confidential and shall
not be used by it as the basis for any market transactions in the securities of
the Company or its Affiliates unless and until such information is made
generally available to the public.
(i) The Company will furnish to the Investor and to each underwriter, if any,
a signed counterpart, addressed to the Investor or such underwriter, if any, of
(i) an opinion or opinions of counsel to the Company and (ii) a comfort letter
or comfort letters from the Company's independent public accountants, each in
customary form and covering such matters of the type customarily covered by
opinions or comfort letters, as the case may be, as the Investor or the
managing underwriter reasonably requests.
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<PAGE>
(j) The Company will make generally available to its security holders, as
soon as reasonably practicable, an earnings statement covering a period of 12
months, beginning within three months after the effective date of the
Registration Statement, which earnings statement shall satisfy the provisions
of Section 11(a) of the Securities Act.
(k) The Company will use its reasonable efforts to cause all such Registrable
Securities to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(l) The Company may require the Investor promptly to furnish in writing to
the Company such information regarding the Investor, the plan of distribution
of the Registrable Securities and other information as the Company may from
time to time reasonably request or as may be legally required in connection
with such registration.
SECTION 6.7. REGISTRATION EXPENSES. In connection with any Demand
Registration or any Piggyback Registration, the Company shall pay the
Registration Expenses.
SECTION 6.8. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify,
to the fullest extent permitted by law, the Investor and directors, officers
and controlling Persons of the Investor (within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act) against any and all
losses, claims, damages, liabilities and expenses (including attorneys' fees)
caused by any untrue or alleged untrue statement of material fact contained in
any Registration Statement or prospectus (each as amended and or supplemented,
if the Company shall have furnished any amendments or supplements thereto) or
preliminary prospectus relating to the Registrable Securities, or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein (in the case of a
prospectus, in the light of the circumstances under which they were made) not
misleading, provided that the Company shall not be required to indemnify the
Investor or the officers, directors or controlling Persons of the Investor for
any losses, claims, damages, liabilities or expenses resulting from any such
untrue statement or omission if such untrue statement or omission is made in
reliance on and conformity with any information with respect to the Investor
furnished to the Company by the Investor expressly for use therein, and further
provided that the foregoing indemnity agreement with respect to any preliminary
prospectus shall not inure to the benefit of the Investor if a copy of the most
current at the time of the delivery of the Registrable Securities prospectus
was not provided to purchaser and such current prospectus would have cured the
defect giving rise to such loss, claim, damage or liability. In connection with
an underwritten offering, the Company will indemnify any underwriter thereof,
the officers and directors of such underwriter, and each Person who controls
such underwriter (within the meaning of either Section 15 of the Securities Act
or Section 20 of the Exchange Act) to the same extent as provided above with
respect to the indemnification of the Investor, provided that such underwriter
agrees to indemnify the Company to the same extent as provided below with
respect to the indemnification of the Company by the Investor.
SECTION 6.9. INDEMNIFICATION BY THE INVESTOR. In connection with any
registration in which the Investor is participating, the Investor will furnish
to the Company in writing such information and affidavits with respect to the
Investor as the Company reasonably requests for use in connection with any such
registration, prospectus, or preliminary prospectus and agrees to indemnify the
Company, its directors, its officers who sign the Registration Statement and
each Person, if any, who controls the Company (within the meaning of either
Section 15 of the Securities Act or of Section 20 of the Exchange Act) to the
same extent as the foregoing indemnity from the Company to the Investor, but
only with respect to information relating to the Investor furnished to the
Company in writing by the Investor expressly for use in the Registration
Statement, the prospectus, any amendment or supplement thereto, or any
preliminary prospectus.
SECTION 6.10. CONDUCT OF INDEMNIFICATION PROCEEDINGS. In case any proceeding
(including any governmental investigation) shall be instituted involving any
Person in respect of which indemnity may be sought pursuant to Section 6.8 or
Section 6.9, such Person (the "INDEMNIFIED PARTY") shall promptly notify the
Person against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in
writing and the
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Indemnifying Party, upon request of the Indemnified Party, shall retain counsel
reasonably satisfactory to the Indemnified Party to represent the Indemnified
Party and any others the Indemnifying Party may designate in such proceeding
and shall pay the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any Indemnified Party shall have the right
to retain its own counsel, but the fees and expenses of such counsel shall be
at the expense of such Indemnified Party unless (i) the Indemnifying Party and
the Indemnified Party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the Indemnifying Party and the Indemnified
Party and the Indemnified Party shall have been advised by counsel that
representation of both parties by the same counsel would be inappropriate due
to actual or potential differing interests between them. It is understood that
the Indemnifying Party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm (in addition to any local counsel) at any time for
all such Indemnified Parties, and that all such fees and expenses shall be
reimbursed as they are incurred. In the case of any such separate firm for the
Indemnified Parties, such firm shall be designated in writing by the
Indemnified Parties. The Indemnifying Party shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff,
the Indemnifying Party agrees to indemnify the Indemnified Party from and
against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an Indemnified Party
shall have requested an Indemnifying Party to reimburse the Indemnified Party
for fees and expenses of counsel as contemplated by the third sentence of this
Section 6.10, the Indemnifying Party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (A) such
settlement is entered into more than 30 days after receipt by such Indemnifying
Party of the aforesaid request and (B) such Indemnifying Party shall not have
reimbursed the Indemnified Party in accordance with such request or reasonably
objected in writing, on the basis of the standards set forth herein, to the
propriety of such reimbursement prior to the date of such settlement. No
Indemnifying Party shall, without the prior written consent of the Indemnified
Party, effect any settlement of any pending or threatened proceeding in respect
of which any Indemnified Party is or could have been a party and indemnity
could have been sought hereunder by such Indemnified Party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such proceeding.
SECTION 6.11. CONTRIBUTION. (a) If the indemnification provided for in this
Article 6 from the Indemnifying Party is unavailable to an Indemnified Party
hereunder in respect of any losses, claims, damages, liabilities or expenses
referred to in this Article 6, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages,
liabilities or expenses (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company, the Investor and the underwriters
from the offering of the securities, or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
but also the relative fault of the Company, the Investor and the underwriters
in connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company, the Investor and
the underwriters shall be deemed to be in the same respective proportions as
the total proceeds from the offering (net of underwriting discounts and
commissions but before deducting expenses) received by each of the Company and
the Investor Group and the total underwriting discounts and commissions
received by the underwriters, in each case as set forth in the table on the
cover of the prospectus, bear to the aggregate public offering price of the
securities. The relative fault of the Company, the Investor and the
underwriters shall be determined by reference to, among other things, whether
any action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, each such party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action. The amount paid or payable by a party as a
result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth in
Section 6.10, any legal or other fees or expenses reasonably incurred by such
party in connection with any investigation or proceeding.
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<PAGE>
(b) The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6.11 were determined by pro rata
allocation (even if the underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the immediately preceding Section
6.11(a). Notwithstanding the provisions of this Article 6, no underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Equity Securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which such
underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and the Investor
shall not be required to contribute any amount in excess of the amount by which
the net proceeds of the offering (before deducting expenses) received by the
Investor Group exceeds the amount of any damages which the Investor has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
(c) If indemnification is available under this Article 6, the Indemnifying
Party shall indemnify each Indemnified Party to the full extent provided in
Sections 6.8 and 6.9 without regard to the relative fault of said Indemnifying
Party or Indemnified Party or any other equitable consideration provided for in
this Section 6.11.
ARTICLE 7
FURNISHING OF INFORMATION
SECTION 7.1. FURNISHING OF INFORMATION. (a) The Company will furnish or make
available to the Investor any documents filed by the Company pursuant to
Section 13, 14 and 15(d) of the Exchange Act (or successor provisions) and all
annual, quarterly or other reports furnished to the Company's public security
holders and all such other information concerning the Company and its
Subsidiaries as the Investor may reasonably request.
(b) From and after the Effectiveness of this Agreement, the Company shall
furnish to the Investor:
(i) within 60 days after the end of each fiscal year, its consolidated
balance sheet and related statements of income and changes in financial
position, showing the financial condition of the Company and its
consolidated Subsidiaries as of the close of such fiscal year and the
results of its operations and the operations of such Subsidiaries during
such year, all audited by the Company's independent public accountants of
recognized international standing and accompanied by an opinion of such
accountants (which shall not be qualified in any material respect) to the
effect that such consolidated financial statements fairly present the
financial condition and results of operations of the Company on a
consolidated basis in accordance with GAAP consistently applied; and
(ii) within 30 days after the end of each of the first three fiscal
quarters of each fiscal year, its consolidated balance sheet and related
statements of income and changes in financial position, showing the
financial condition of the Company and its consolidated Subsidiaries as of
the close of such fiscal quarter and the results of its operations and the
operations of such Subsidiaries during such fiscal quarter and the then
elapsed portion of the fiscal year, all certified by one of the senior
financial officers as fairly presenting the financial condition and results
of operations of the Company on a consolidated basis in accordance with
GAAP consistently applied, subject to normal year-end audit adjustments.
(c) At the request of the Investor, at such time as the Investor is required
to include the financial results of the Company in the Investor's financial
statements, the Company shall cooperate with and assist the Investor in the
translation of the financial statements referred to in Subsection (a) above in
order to conform such financial statements to international accounting
standards.
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<PAGE>
(d) The Company shall deliver to the Investor, within a reasonable period of
time after receipt of a request from the Investor, the statement required by
Treasury Department Regulation Section 1.897-2(h)(1) (relating to the Company's
and each of its Subsidiaries' status as a United States Real Property Holding
Corporation) without regard to whether the Company's Equity Securities are
publicly traded at the time such statement is requested.
ARTICLE 8
COVENANTS
SECTION 8.1. RULE 144 AND RULE 144A. (a) The Company covenants that it will
file the reports required to be filed by it under the Securities Act and the
Exchange Act and the rules and regulations adopted by the SEC thereunder, and
it will take such further action as the Investor may reasonably request, all to
the extent required from time to time to enable the Investor to sell Shares
without registration under the Securities Act within the limitation of the
exemptions provided by (i) Rule 144 under the Securities Act, as such Rule may
be amended from time to time, or (ii) any similar rule or regulation hereafter
adopted by the SEC. Upon the request of the Investor, the Company will deliver
to the Investor a written statement as to whether it has complied with such
reporting requirements.
(b) If the Investor desires to transfer any of its securities of the Company
pursuant to Rule 144A, the Company will promptly, upon request by the Investor,
use its best efforts to facilitate the consummation of such Rule 144A
transaction in accordance with the requirements of such Rule and with such
request and shall take all necessary or appropriate actions in connection
therewith, including but not limited to (i) preparing of an offering memorandum
with respect to such transaction containing information customarily included in
connection with Rule 144A transactions of the type contemplated by the request,
(ii) taking the actions, to the extent requested by the Investor, referred to
in Section 6.6(e), (h) and (i) and (iii) conducting "road show" presentations
as reasonably requested by such Investor. Notwithstanding the previous
sentence, if the Investor Group Interest shall be less than 30%, the Company
will only be required to facilitate the consummation of such Rule 144A
transaction as follows: (x) if the Investor Group Interest shall be less than
30% but more than 20%, no more than three other Rule 144A transactions shall
have been effected after the date on which the Investor Group Interest was
reduced to less than 30%, (y) if the Investor Group Interest shall be less than
20% but more than 10%, no more than two other Rule 144A transactions shall have
been effected after the date on which the Investor Group Interest was reduced
to less than 20% and (z) if the Investor Group Interest shall be less than 10%,
no more than one other Rule 144A transaction shall have been effected after the
date on which the Investor Group Interest was reduced to less than 10%. The
Company shall pay all expenses in connection with any Rule 144A transaction
pursuant hereto to the same extent the Company would be obligated to pay
Registration Expenses in connection with a Demand or Piggyback Registration
pursuant to Section 6.7.
SECTION 8.2. NO INCONSISTENT AGREEMENTS. The Company is not bound by any
agreement and will not hereafter enter into any agreement, with respect to its
securities which conflicts or is inconsistent with the rights granted to the
Investor, the Investor Group or Investor Directors.
III-21
<PAGE>
ARTICLE 9
MISCELLANEOUS
SECTION 9.1. NOTICES. All notices, requests and other communications to any
party hereunder shall be in writing (including by telecopy or similar writing)
and shall be given:
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if to the Investor, to:
HLR Holdings Inc.
1403 Foulk Road
Suite 102
P.O. Box 8985
Wilmington, Delaware 19899
if to the Roche Holder, to:
Hoffmann-La Roche Inc.
340 Kingsland Street
Nutley, New Jersey 07110
Attention: General Counsel
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Peter R. Douglas, Esq.
Telecopy: (212) 450-4800
if to the Company, to:
National Health Laboratories Holdings Inc.
Attention: General Counsel
</TABLE>
if to Directors, to their respective business addresses with a copy to the
Investor and to the Company,
or such other address or telecopy number as such party may hereafter specify
for the purpose by notice to each the other party hereto. Each such notice,
request or other communication shall be effective (a) if given by telecopy,
when such telecopy is transmitted to the telecopy number specified in this
Section and the appropriate confirmation is received or (b) if given by any
other means, when delivered at the address specified in this Section.
SECTION 9.2. AMENDMENTS; WAIVERS. (a) Any provision of this Agreement may be
amended or waived if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by the Investor and the Company, or in the
case of a waiver, by the party against whom the waiver is to be effective,
provided that no such amendment or waiver by the Company shall be effective
without the approval of a majority of the Independent Directors.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 9.3. SEVERABILITY. If any provision of this Agreement or the
application thereof to either party or set of circumstances shall, in any
jurisdiction and to any extent, be finally held invalid or
III-22
<PAGE>
unenforceable, such term or provision shall only be ineffective as to such
jurisdiction, and only to the extent of such invalidity or unenforceability,
without invalidating or rendering unenforceable any other terms or provisions
of this Agreement or under any other circumstances, and the parties shall
negotiate in good faith a substitute provision which comes as close as possible
to the invalidated or unenforceable term or provision, and which puts each
party in a position as nearly comparable as possible to the position it would
have been in but for the finding of invalidity or unenforceability, while
remaining valid and enforceable.
SECTION 9.4. ENTIRE AGREEMENT. The Merger Agreement, this Agreement, and the
agreements contemplated hereby and thereby constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof
and supersede all prior agreements and undertakings, both written and oral,
between the parties with respect to the subject matter hereof.
SECTION 9.5. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that no party may assign, delegate
or otherwise transfer all or any of its rights or obligations under this
Agreement without the consent of the other party hereto, except that the
Investor may assign, delegate or otherwise transfer all or any of its rights or
obligations under this Agreement to any other member of the Investor Group
without the consent of the Company, provided that such member agrees in writing
to be bound by the provisions hereof. The Investor shall cause any Person who
shall have acquired 30% of the Total Voting Power from the Investor to agree in
writing to assume the obligations of the Investor hereunder and to be bound by
the provisions hereof whereupon such Person shall become entitled to all of the
rights and benefits accruing to the Investor hereunder.
SECTION 9.6. PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and each Person who becomes a
party hereto or bound by the terms of this Agreement, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
Person, other than the parties hereto and their respective permitted successors
and assigns, any right, benefit or remedy of any nature or kind whatsoever
under or by reason of this Agreement.
SECTION 9.7. COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective upon the Effectiveness of this Agreement.
SECTION 9.8. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware applicable to
contracts executed and to be fully performed in that State. All actions and
proceedings arising out of or relating to this Agreement shall be brought by
the parties and heard and determined only in a Delaware state court or a
federal court sitting in that State and the parties hereto consent to
jurisdiction before and waive any objections of venue to the Delaware Chancery
Court.
SECTION 9.9. SPECIFIC PERFORMANCE. The Company and the Investor each
acknowledge and agree that the Investor's and the Company's respective remedies
at law for a breach or threatened breach of any of the provisions of this
Agreement would be inadequate and, in recognition of that fact, each agrees
that, in the event of a breach or threatened breach by the Company or the
Investor of the provisions of this Agreement, in addition to any remedies at
law, the Investor and the Company, respectively, without posting any bond shall
be entitled to obtain equitable relief in the form of specific performance, a
temporary restraining order, a temporary or permanent injunction or any other
equitable remedy which may then be available.
SECTION 9.10. TERMINATION. Except as provided below, the provisions of this
Agreement shall terminate if the Investor Group Interest shall be less than
30%, provided, however, that (x) the provisions of Sections 2.1(a), 2.1(d),
2.1(f) (insofar as it relates to the replacement of an Investor Director),
2.1(g), 2.2, 2.3(b), 2.3(c), 2.6 (insofar as it relates to the replacement of
an Investor Director) and 2.9 (insofar as the first
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<PAGE>
sentence thereof) shall not terminate unless the Investor Group Interest shall
be less than 10%, (y) the provisions of Articles 6 and 8 shall not terminate
until such time as the Investor Group does not own any Registrable Securities
(except for Section 6.4, which shall terminate if the Investor Group Interest
shall be less than 20%) and (z) Article 7 shall not terminate unless the
Investor Group Interest shall be less than 20%. Article 1 and Article 9 shall
not terminate unless as set forth above all other provisions of this Agreement
shall have terminated. In the event that the Investor Group Interest shall be
greater than 50%, then the provisions of Article 2 shall terminate but shall be
reinstated, at the request of the Investor, if the Investor Group Interest
shall later be 50% or lower.
SECTION 9.11. WAIVER OF JURY TRIAL. Each of the parties hereto hereby
irrevocably waives all right to trial by jury in any action, proceeding or
counterclaim (whether based on contract, tort or otherwise) arising out of or
relating to this Agreement or the actions of any of them in the negotiation,
administration, performance and enforcement thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
HLR HOLDINGS INC.
By: _________________________________
Name:
Title:
HOFFMANN-LA ROCHE INC.
By: _________________________________
Name:
Title:
NATIONAL HEALTH LABORATORIES
HOLDINGS INC.
By: _________________________________
Name:
Title:
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<PAGE>
ANNEX IV
[LETTERHEAD]
December 14, 1994
Board of Directors
National Health Laboratories Holdings Inc.
4225 Executive Square
Suite 805
La Jolla, CA 92037
Ladies and Gentlemen:
We understand that National Health Laboratories Holdings Inc. ("NHL" or the
"Company"), HLR Holdings Inc. ("HLR"), and Roche Biomedical Laboratories, Inc.
("RBL"), have entered into an Agreement and Plan of Merger, dated as of
December 13, 1994 (the "Merger Agreement"), which provides, among other things,
for the merger of RBL with and into NHL (the "Merger"). NHL will be the
surviving corporation, in which HLR will hold a 49.9% stake and existing NHL
shareholders will hold a 50.1% stake. Pursuant to the Merger, the holders of
all the issued and outstanding shares of common stock, par value $.01 per share
(the "Common Stock") of NHL, other than shares held in treasury or held by HLR
or any affiliate of HLR or as to which dissenters' rights have been perfected,
shall be converted into (i) 0.72 shares of NHL; and (ii) the right to receive
$5.60 in cash. Such conversion is referred to herein collectively as the "NHL
Share Conversion". The terms and conditions of the NHL Share Conversion and of
the Merger are more fully set forth in the Merger Agreement. It is also
contemplated that NHL will declare a dividend prior to the effective date of
the Merger of a fraction of an NHL warrant which is intended to have a value of
$1.00 per share.
You have asked for our opinion as to whether the consideration, in the
aggregate, to be received by the holders of shares of NHL Common Stock, when
considered together with the fraction of a warrant to be distributed to such
holders prior to the Merger, is fair from a financial point of view to such
holders.
For purposes of the opinion set forth herein, we have:
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(i) analyzed certain publicly available financial statements and other information
of the Company;
(ii) analyzed certain internal financial statements and other financial and operating
data concerning the Company prepared by the management of the Company;
(iii) analyzed certain financial projections prepared by the management of the
Company;
(iv) discussed the past and current operations and financial condition and the
prospects of the Company with senior executives of the Company;
(v) reviewed the reported prices and trading activity for the Common Stock;
(vi) compared the financial performance of the Company and the prices and trading
activity of the Common Stock with that of certain other comparable publicly-
traded companies and their securities;
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(vii) reviewed the financial terms, to the extent publicly available, of certain
comparable acquisition transactions;
(viii) analyzed certain internal financial statements and other financial and operating
data concerning RBL prepared by the management of RBL;
(ix) discussed the past and current operations and financial condition and the
prospects of RBL with senior executives of RBL;
(x) participated in discussions and negotiations among representatives of the
Company and HLR and their financial and legal advisors;
(xi) discussed with managements of both NHL and RBL certain cost savings and
synergies expected to be derived from the Merger;
(xii) reviewed the Merger Agreement and certain related documents; and
(xiii) performed such other analyses as we have deemed appropriate.
</TABLE>
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of the
Company. We have also relied upon the assumptions of managements of NHL and RBL
regarding certain cost savings and synergies that are expected to result from
the Merger. We have not made any independent valuation or appraisal of the
assets or liabilities of the Company, nor have we been furnished with any such
appraisals. Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof.
We would also like to note that we have not reviewed or been provided with
any unaudited or other financial information of RBL for any period prior to
1993.
In arriving at our opinion, we were not authorized to actively solicit
interest from any party with respect to a transaction with the Company. We did
consider, however, certain unsolicited proposals made to the Company by certain
parties other than HLR.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for the Company and have received
fees for the rendering of these services.
Based on the foregoing, we are of the opinion on the date hereof that the
consideration, in the aggregate, to be received by the holders of shares of NHL
Common Stock pursuant to the Merger Agreement, when considered together with
the fraction of a warrant to be distributed to such holders prior to the
Merger, is fair from a financial point of view to such holders.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: _________________________________
Charles R. Cory
Managing Director
IV-2
<PAGE>
ANNEX V
DELAWARE GENERAL CORPORATION LAW
SECTION 262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to (S) 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share"
mean and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation, and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series
of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S)(S) 251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc., or (ii)
held of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of (S) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to (S)(S)
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation or depository receipts in
respect thereof which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on
a national securities exchange shares of stock or depository receipts
or held of record by more than 2,000 stockholders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
<PAGE>
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof, that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228 or
253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court or Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been
received and the aggregate number of holders of such shares. Such written
statement shall be mailed to the stockholder within 10 days after his written
request for such a statement is received by the surviving or resulting
corporation or within 10 days after expiration of the period for delivery of
demands for appraisal under subsection (d) hereof, whichever is later.
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<PAGE>
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by one or more
publications at least one week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted his certificates of stock to the Register
in Chancery, if such is required, may participate fully in all proceedings
until it is finally determined that he is not entitled to appraisal rights
under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other degrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled to
an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other
V-3
<PAGE>
distributions payable to stockholders of record at a date which is prior to the
effective date of the merger or consolidation); provided, however, that if no
petition for an appraisal shall be filed within the time provided in subsection
(e) of this section, or if such stockholder shall deliver to the surviving or
resulting corporation a written withdrawal of his demand for an appraisal and
an acceptance of the merger or consolidation, either within 60 days after the
effective date of the merger or consolidation as provided in subsection (e) of
this section or thereafter with the written approval of the corporation, then
the right of such stockholder to an appraisal shall cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed
as to any stockholder without the approval of the Court, and such approval may
be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
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<PAGE>
NATIONAL HEALTH LABORATORIES HOLDINGS INC.
STOCKHOLDER'S PROXY SOLICITED BY THE BOARD OF DIRECTORS OF NATIONAL HEALTH
LABORATORIES HOLDINGS INC.
To: National Health Laboratories Holdings Inc.
I appoint James R. Maher, David C. Flaugh and James G. Richmond, individually
and together, as my proxies, with power of substitution, to vote all of my
National Health Laboratories Holdings Inc. common stock at the Special Meeting
of stockholders of National Health Laboratories Holdings Inc. to be held at the
Sheraton New York Hotel, 811 Seventh Avenue, New York, NY 10019, on April 28,
1995, at 9:00 a.m., New York City Time, and at any adjournment or postponement
of the meeting.
MY PROXIES WILL VOTE THE SHARES REPRESENTED BY THIS PROXY AS DIRECTED ON THE
OTHER SIDE OF THIS CARD, BUT IN THE ABSENCE OF ANY INSTRUCTIONS FROM ME, MY
PROXIES WILL VOTE "FOR" ITEM 1 AND "FOR" ITEM 2. MY PROXIES MAY VOTE ACCORDING
TO THEIR DISCRETION ON ANY OTHER MATTER WHICH MAY PROPERLY COME BEFORE THE
MEETING. I MAY REVOKE THIS PROXY PRIOR TO ITS EXERCISE.
Please sign and date the other side of this card.
(Please fill in the appropriate boxes on the other side)
<PAGE>
(Continued from the other side)
NATIONAL HEALTH LABORATORIES HOLDINGS INC.
PLEASE MARK YOUR CHOICES LIKE THIS [X] IN BLUE OR BLACK INK
ACCOUNT NUMBER COMMON
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" ITEM NO. 1 AND ITEM NO. 2
Item No. 1. Approval and adoption of the Agreement and Plan of Merger dated as
of December 13, 1994, among National Health Laboratories Holdings Inc., HLR
Holdings Inc., Roche Biomedical Laboratories, Inc. and Hoffmann-La Roche Inc.
FOR [_] AGAINST [_] ABSTAIN [_]
Item No. 2. Approval of the proposal to amend Article FIRST of the Certificate
of Incorporation of National Health Laboratories Holdings Inc. to change the
name of National Health Laboratories Holdings Inc. to Laboratory Corporation of
America Holdings upon the effectiveness of National Health Laboratories
Holdings Inc.'s proposed merger with Roche Biomedical Laboratories, Inc.
FOR [_] AGAINST [_] ABSTAIN [_]
Date: April , 1995
X
-------------------------------------
Signature
X
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Signature
Please sign exactly as name(s) appear(s) to the left. If acting as an executor,
administrator, trustee, guardian, etc., you should so indicate in signing. If
the stockholder is a corporation, please sign the full corporate name, by duly
authorized officer. If shares are held jointly, each stockholder named should
sign. Date and promptly return this card in the envelope provided.
