UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1994
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OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ________________
Commission file number 1-11353
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NATIONAL HEALTH LABORATORIES HOLDINGS INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3757370
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4225 Executive Square, Suite 805, La Jolla, California 92037
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(Address of principal executive offices) (Zip Code)
619-657-9382
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
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Common Stock, $0.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90
days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. X
State the aggregate market value of the voting stock held by
non-affiliates of the registrant, by reference to the price at which
the stock was sold as of a specified date within 60 days prior to the
date of filing: $904,251,320 at February 21, 1995.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 84,766,109
shares at February 21, 1995, of which 20,176,729 shares are held by an
indirect wholly owned subsidiary of Mafco Holdings Inc.<PAGE>
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PART I
Item 1. DESCRIPTION OF BUSINESS
National Health Laboratories Holdings Inc. ("NHL Holdings"
and together with its subsidiaries, the "Company") was
incorporated in Delaware in 1994 in connection with a corporate
reorganization approved by the stockholders of National Health
Laboratories Incorporated ("NHLI") on June 7, 1994. As a result
of the reorganization, NHL Holdings now owns, through NHL
Intermediate Holdings Corp. I, a Delaware corporation and a
wholly owned subsidiary of NHL Holdings ("Intermediate Holdings
I"), and NHL Intermediate Holdings Corp. II, a Delaware
corporation and a wholly owned subsidiary of Intermediate
Holdings I ("Intermediate Holdings II"), all of the outstanding
common stock of the NHLI. The Company's principal executive
offices are located at 4225 Executive Square, Suite 805, La
Jolla, California 92037, and its telephone number is (619)
657-9382.
Until the initial public offering of approximately 5% of the
Company's common stock in July 1988, the Company was an indirect
wholly owned subsidiary of Revlon Holdings Inc. ("Revlon"), then
known as Revlon, Inc., which, in turn, is an indirect wholly
owned subsidiary of Mafco Holdings Inc. ("Mafco"), a corporation
that is 100% owned by Ronald O. Perelman. Following the
completion of successive secondary public offerings of the
Company's common stock, a self tender offer by the Company and
the purchase by the Company of outstanding shares of its common
stock, Mafco's indirect ownership has been reduced to
approximately 24%.
On June 23, 1994, the Company acquired Allied Clinical
Laboratories, Inc. ("Allied"), then the sixth largest
independent clinical laboratory testing company in the United
States (in terms of 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").
The Company is one of the leading clinical laboratory
companies in the United States. Through a national network of
laboratories, the Company offers a broad range of testing
services used by the medical profession in the diagnosis,
monitoring and treatment of disease and other clinical states.
Office-based physicians constitute approximately 90% of the
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Company's clients. The remainder is comprised primarily of
clinics, nursing homes, hospitals and other clinical
laboratories.
Since its founding in 1971, the Company has grown into a
network of 23 major laboratories, including a national reference
laboratory which performs esoteric testing and tests for the
presence of drugs of abuse, and approximately 950 service sites
consisting of sales ports, patient service centers and STAT
laboratories, serving customers in 45 states.
Recent Developments
The Company has entered into an Agreement and Plan of Merger
dated as of December 13, 1994 (the "Merger Agreement") with 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 the Company with the Company as the
surviving corporation (the "Merger"), and pursuant to which,
subject to certain exceptions, each outstanding share of common
stock, par value $0.01 per share, of the Company, will be
converted into (i) 0.72 of a share of common stock of the Company
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 Company common stock as would, in the
aggregate and after giving effect to the Merger and the Company
common stock owned by HLR, RBL and their subsidiaries immediately
after the effective time of the Merger, equal 49.9% of the total
number of shares of Company common stock outstanding immediately
after the effective
time of the Merger (after giving effect to the issuance of
Company common stock in respect of the Company employee stock
options in connection with the Merger).
In connection with the Merger, the Company currently intends
to declare a dividend, payable to holders of record of shares of
Company common stock as of the third business day prior to the
date of the special meeting of the stockholders to consider and
vote on the approval and adoption of the Merger, which dividend
will consist of 0.16308 of a warrant per outstanding share of
Company common stock, each such warrant (a "Warrant")
representing the right to purchase one newly issued share of
Company common stock for $22.00 (subject to adjustments) on the
fifth anniversary of the issuance of the Warrant. In addition,
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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 Company common stock (the "Roche
Warrants"), which Warrants will have the terms described in the
preceding sentence.
The aggregate cash consideration of approximately
$474,700,000 to be paid to stockholders of the Company in the
Merger will be financed from three sources: a cash contribution
by the Company of approximately $288,000,000 out of proceeds of
borrowings by the Company in an equal amount, a cash contribution
to be made by HLR in the amount of approximately $135,651,100 and
the proceeds from the issuance of the Roche Warrants.
The Company has obtained a commitment for a credit facility,
which will include a term loan facility of not more than
$800,000,000 and a revolving credit facility of not more than
$400,000,000, to refinance the Company's existing indebtedness
and to finance the Company's portion of the total cash
consideration to be paid to stockholders of the Company in the
Merger. The specific terms and conditions of the credit facility
are currently under negotiation.
Restructuring costs of approximately $84,000,000 are
expected to be recorded by the Company at the close of the
Merger. These costs will reflect the write-off of deferred
financing costs related to the repayment of the Company's
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 the
Company associated with the Merger.
The Clinical Laboratory Industry
Clinical laboratory tests are used by physicians, hospitals
and other health care providers to diagnose, monitor and treat
diseases and other clinical states through the examination of
substances in blood or tissue samples and other specimens.
Clinical laboratory tests are primarily performed by hospitals
in-house, by physicians in their offices or in physician-owned
laboratories and by independent laboratory companies like the
Company. The Company views the clinical laboratory industry as
highly fragmented and intensively competitive with many local and
regional competitors, including numerous physician-owned and
hospital-owned laboratories as well as several large independent
laboratory companies.
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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. The Company believes that
acquisition activity will continue in the clinical laboratory
business due to legislative initiatives and increasing demand for
quality service and efficiency at lower prices. See "--
Competition".
Laboratory Testing Operations and Services
The Company has 23 major laboratories, and approximately 950
service sites consisting of sales ports, patient service centers
and STAT laboratories. A "sales port" is a central office which
collects specimens in a region for shipment to one of the
Company'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 the Company
to serve the physicians in a medical professional building. The
patient service center collects the specimens as requested by the
physician. The specimens are sent, principally through the
Company's in-house courier system (and, to a lesser extent,
through independent couriers), to one of the Company's major
laboratories for testing. Some of the Company's patient service
centers also function as "STAT labs", which are laboratories that
have the ability to perform certain routine tests quickly and
report results to the physician immediately.
The Company processes approximately 152,000 patient
specimens on an average day. Patient specimens are delivered to
the Company 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 through computer interface or
manually, depending upon the tests and the type of equipment
involved. Most of the Company's computer testing equipment is
directly linked with the Company'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
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offices. Clients who request that they be called with a result
are so notified in the morning. It is Company policy to notify
the client immediately if at any time in the course of the
testing process a life-threatening result is found.
The following discussion describes the different types of
tests performed by the Company:
Routine Clinical Testing. The vast majority of the number
of tests performed by the Company are considered by the Company
to be routine. The Company performs all such routine tests in
its own laboratories. A routine test generally is a higher
volume, simpler test capable of being performed and reported
within 24 hours. The Company performs many routine clinical
tests with sophisticated and computerized laboratory testing
equipment. These tests provide information used by physicians in
determining the existence or absence of disease or abnormalities.
The Company performs this core group of routine tests in each of
its 23 major regional laboratories for a total of approximately
104 million routine tests annually.
Esoteric Clinical Testing. Esoteric tests are specialized
laboratory tests performed in cases where information is needed
to confirm a diagnosis or when the physician requires additional
information to develop a plan of therapy for a complicated
medical case. Esoteric tests are generally more complex tests,
requiring more sophisticated technology and more expensive
equipment and materials, as well as a higher degree of technical
skill to perform. The number of esoteric tests continually
increases as new medical discoveries are made. The Company
operates a state-of-the-art national reference laboratory
("National Reference Laboratory") in Nashville, Tennessee. This
laboratory provides a central location for esoteric testing for
all of the Company's major laboratories. The Company performs
approximately 90% of all types of tests considered by the Company
to be esoteric at this facility, representing approximately
2,300,000 tests annually. With the operation of this facility,
the Company reduces both the types and numbers of esoteric tests
that are referred to outside laboratories to be performed.
Cytology. Cytology, which involves both routine and
esoteric anatomical testing, is the examination of cells under a
microscope to detect abnormalities in composition, form or
structure which are associated with disease. Cytology is divided
into two testing services, Gynecologic and Non-Gynecologic. The
Gynecologic (Papanicolaou ("Pap") Smear) is the most common
cytologic test, accounting for approximately 99% of all of the
Company's testing in this area. The additional cytology tests,
Non-Gynecologic, are performed on specimens from other body sites
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(i.e., Sputums, Breast, Urine and Fine Needle Aspirations
("FNA's")). The Company performs approximately 4.0 million
Gynecologic and Non-Gynecologic tests annually.
Anatomical Testing. Routine and esoteric anatomical tests
require the examination of a small piece of tissue which either
is cut from the body surgically or taken in a biopsy. These
tissue specimens are examined by a pathologist both visually and
microscopically to detect abnormalities in composition, form or
structure which are associated with disease. The Company
performs approximately 810,000 anatomical tests annually.
Contract Management Services
The Company provides management services in a variety of
health care settings. The Company 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, the Company maintains a data processing system to
organize and report test results and to provide billing and other
pertinent information related to the tests performed in the
managed laboratory. Under the typical laboratory management
agreement, the laboratory manager, who is employed by the
Company, 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.
An important advantage the Company offers to its clients is
the flexibility of the Company's information systems used in
management contract services. In addition to the ability to be
customized for a particular user's needs, the Company's
information systems also interface with several hospital and
clinic systems, giving the user more efficient and effective
information flow.
The Company's existing management service contracts expire
between 1995 and 1998. However, each contract contains a clause
that permits termination prior to the contract expiration date.
The termination terms vary but they generally fall into one of
the following categories: (i) termination without cause by
either the Company or the contracted provider after written
notice (generally 60 to 90 days prior to termination); (ii)
termination by the contracted provider only if there are
uncorrected deficiencies in the Company's performance under the
contract after notice by the contracted provider; or (iii)
termination by the contracted provider if there is a loss of
accreditation held by any Company laboratory that services the
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contracted provider, which accreditation is not reinstated within
30 days of the loss, or upon 30 days' notice if there is a
decline in the quality of services provided under such contract
which remains uncorrected after a 15 day period. While the
Company believes that it will maintain and renew its existing
contracts, there can be no assurance of such maintenance or
renewal.
As part of its marketing efforts, and as a way to focus on a
contract management client's particular needs, the Company has
developed several different pricing formulas for its management
services agreements. In certain cases, profitability may depend
on the Company's ability to accurately predict test volumes,
patient encounters or the number of admissions in the case of an
inpatient facility.
Quality Assurance
The Company considers the quality of its tests to be of
critical importance to its growth and retention of accounts. It
has established a comprehensive quality assurance program for all
of its laboratories designed to help assure accurate and timely
test results. All regional laboratories are certified by the
Health Care Financing Administration ("HCFA") of the Department
of Health and Human Services ("HHS") for participation in the
Medicare program and licensed under the Clinical Laboratory
Improvement Act of 1967, as amended by the Clinical Laboratory
Improvement Amendments of 1988 (as amended, "CLIA") and must
participate in basic quality assurance programs. In addition to
the compulsory external inspections and proficiency programs
demanded by CLIA, the Company has adopted a substantial number of
additional quality assurance programs. See "-- Governmental and
Industry Regulation".
Each regional laboratory is equipped with sophisticated
testing equipment which is monitored daily in accordance with the
Company's preventive maintenance program. In addition, each
regional laboratory is supervised by a medical director who is a
physician, assisted by a technical director who meets certain
regulatory requirements, and is staffed with medical
professionals. The primary role of such professionals is to
ensure the accuracy of the Company's tests.
The Company employs inspectors with doctorate and masters
degrees in the biological sciences who visit and inspect each of
the laboratories on an unannounced basis. Inspections are based
on CLIA guidelines and Company policies and, for the most part,
occur on a semi-annual basis. The Company attempts to have such
inspections conducted in the same manner as the biennial
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inspections conducted by Federal and state government officials.
Any major deficiencies which appear are corrected immediately,
and other deficiencies are corrected promptly, and typically
within one month.
As part of its commitment to quality, the Company
established a state-of-the-art Technology Center at its
headquarters in La Jolla, California. The center houses the
Company's Quality Assurance Group and enhances its ability to
monitor the testing results of the individual laboratories. A
computerized data-capture network has been established allowing
virtual on-line examination of test results and monitoring of the
laboratories.
The Company also participates in a number of proficiency
testing programs which, generally, entail submitting pretested
samples to a laboratory to verify the laboratory test results
against the known proficiency test value. These proficiency
programs are conducted both by the Company on its own and in
conjunction with groups such as the College of American
Pathologists ("CAP") and state and Federal government regulatory
agencies.
The CAP is an independent non-governmental organization
(which has recently been accredited by HCFA to inspect clinical
laboratories to determine CLIA standards) of board certified
pathologists which offers an accreditation program to which
laboratories can voluntarily subscribe. The CAP accreditation
program involves both on-site inspections of the laboratory and
participation in the CAP's proficiency testing program for all
categories in which the laboratory is accredited by the CAP. A
laboratory's receipt of accreditation by the CAP satisfies the
Medicare requirement for participation in proficiency testing
programs administered by an external source. See "--Governmental
and Industry Regulation".
Sales, Marketing and Client Service
The Company places a great deal of emphasis on sales,
marketing and client service since they are and have been key
ingredients in the Company's growth.
In 1994, the Company's net new growth (new accounts minus
lost accounts) returned to previous historical levels and was 20%
higher than the rate experienced in 1993. The traditional
physician office sales force continued to have excellent success
in a market which has always been the Company's strongest.
Managed care revenues grew considerably from a fee-for-service as
well as a capitated rate perspective.
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The Company believes that the shift toward managed care
experienced in 1994 will continue for the foreseeable future. To
address this, the Company expanded its dedicated managed care
sales force from 20 to 25 while maintaining its traditional sales
force at approximately 300. At the end of the year, managed care
revenues were approximately 8% to 9% of total revenues covering
over forty million lives. During 1994, the Company signed over
200 new contracts with various managed care organizations
including U.S. Health Care, Health Plus, Humana, MetLife and
Prudential.
The Company believes that given the increasing complexity of
the clinical laboratory marketplace, training of its sales force
is of paramount importance. With this goal in mind, during 1994
the Company enhanced its comprehensive sales training program.
This project involved a complete revision of the sales training
material. Two comprehensive manuals, covering basic sales skills
and specialized laboratory sales, were produced and distributed
to the Company's sales representatives. A national sales
management training seminar was held for associate and sales
managers. This seminar provided training classes on management
skills, responsibilities, and in-depth technical sales sessions.
In addition, a new 90 day evaluation follow-up program was
created to determine if a satisfactory level of training was
achieved.
The volume of hospital reference and testing for drugs of
abuse also increased in 1994. Monthly accession volume at
National Reference Laboratory was up over 100% for testing of
drugs of abuse and 30% for reference laboratory testing. New
accounts sold in 1994 for these two market segments are expected
to have annualized revenues of approximately $6 million.
The Company has always stressed the importance of customer
service and its contribution to growth. Through its Client
Service Coordinators, the Company continuously monitors and
assesses service levels, maintains client relationships and
attempts to identify and respond to client needs. During 1994,
the Company continued to expand the client service force; at
year-end, there were approximately 230 Client Service
Coordinators.
Potential New Markets
Health care reform, the shift toward managed care and
increased competition by hospitals all had an impact on the
clinical laboratory testing industry in 1994. The Company
expects these trends to continue and plans to respond by shifting
additional sales staff to support the managed care market
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segment.
The Company believes that specialty sales of testing and
related services for use in renal dialysis, nursing homes,
clinical trials, detection of drugs of abuse and hospital
reference testing will also continue to offer opportunities for
additional revenue growth in 1995.
The Company views hospitals in general as a major
competitive force in the marketplace today. To that end, a
hospital business venture group has been formed whose primary
goal is to identify potential hospital joint venture
arrangements. These arrangements are likely to include
management agreements, hospital laboratory operations ventures
and hospital laboratory purchases. The Company views this market
as having exceptional future potential for 1995 and beyond.
The Allied Acquisition has provided the Company with
increased geographic coverage in Utah, Nevada, Idaho, Alabama and
Northern California. This increased coverage provides for
increased physician office penetration and managed care
opportunities in these states.
Information Systems
The Company believes that the health care provider's need
for data will continue to place high demands on its information
systems staff. During 1994, staffing levels were increased to
help meet this demand. Information systems resources were also
expanded during 1994 to accommodate the Allied Acquisition.
Support for and enhancements to the managed care data system
including Health Plan Employer Data and Information Set ("HEDIS")
reporting capability also required heavy involvement from the
Company's information systems staff. Additionally, the Company
continued to test and refine its next generation comprehensive
billing system. Live installation of this new system is
currently scheduled for mid-year 1995.
Customers
To date, the Company has focused its marketing efforts
primarily on office-based physicians, whose orders account for
approximately 90% of its net sales. The remaining 10% of net
sales is derived from hospital reference testing, nursing homes,
clinics, referrals from other clinical laboratories and other
clients. The largest client of the Company accounts for less
than 1% of net sales. The Company believes that the loss of any
one client would not have a material adverse effect on its
financial condition. Payment for the Company's services is made
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by the patients directly, physicians who in turn bill their
patients, or third party payors, including public and private
parties such as Medicare, Medicaid and Blue Shield.
Employees
At December 31, 1994, the Company employed approximately
14,000 people. These include approximately 10,500 full-time
employees and approximately 3,500 part-time employees, which
represents the equivalent of approximately 11,800 persons full-
time. Of the approximately 11,800 full-time equivalent
employees, approximately 325 are sales personnel, approximately
10,200 are laboratory and distribution personnel and
approximately 1,275 are administrative and data processing
personnel. The Company has no collective bargaining agreements
with any unions and believes that its overall relations with its
employees are excellent.
Governmental and Industry Regulation
The clinical laboratory industry is subject to significant
governmental regulation at the Federal, state and local levels.
The Company's major laboratories are certified under the
Federal Medicare program (which principally serves patients 65
and older), state Medicaid programs (which principally serve
indigent patients) and CLIA. Where applicable, licensure is
maintained under the laws of state or local governments that have
clinical laboratory regulation programs. In addition, in
facilities where radioimmunoassay testing is performed, the
facilities are licensed by the Federal Nuclear Regulatory
Commission and, where applicable, by state nuclear regulatory
agencies. All of the Company's 23 major laboratories are
accredited by the CAP. In addition, the Company's STAT
laboratories are also certified or licensed, as necessary, under
Federal, state or local programs.
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
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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 facilities of the Company are certified by
CLIA to perform high complexity testing. The remaining smaller
testing sites of the Company 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 Company.
The Company is 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 example, certain of the Company's laboratories are
subject to the State of New York's clinical laboratory
regulations, which contain provisions that are more stringent
than Federal law.
The Company is 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 of the Company's laboratories are
operated in accordance with applicable Federal and state laws and
regulations relating to biohazardous disposal of all laboratory
specimens, and the Company utilizes outside vendors for disposal
of such specimens. Although the Company believes that it is
currently in compliance in all material respects with such
Federal, state and local laws, failure to comply could subject
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the Company to denial of the right to conduct business, fines,
criminal penalties and/or other enforcement actions.
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 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 the Company performs such testing, it must be certified as
meeting SAMSHA standards. The Company's Herndon, Virginia;
Nashville, Tennessee; Redmond, Washington; Reno, Nevada; and
Winston Salem, North Carolina laboratories are SAMSHA certified.
The use of controlled substances in testing for drugs of
abuse is regulated by the Federal Drug Enforcement
Administration.
Regulations of the Department of Transportation, the Public
Health Service and the Postal Service apply to the transportation
of clinical laboratory specimens.
In 1994, 1993 and 1992, approximately 35%, 41% and 42%,
respectively, of the Company's revenues were derived from tests
performed for beneficiaries of Medicare and Medicaid programs.
Furthermore, the conduct of the Company's other business depends
substantially on continued participation in these programs
because clients often want a single laboratory to perform all of
their testing services. 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 tests that are
subject to reimbursement under the fee schedule methodology and
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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. 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). 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 the Company's costs are relatively fixed, these
Medicare reimbursement reductions have a direct adverse effect on
the Company's net earnings and cash flows. Additional future
changes in Federal, state or local regulations (or in the
interpretation of current regulations) affecting governmental
reimbursement for clinical laboratory testing or the methods for
choosing laboratories eligible to perform tests could have a
material adverse effect on the Company.
On January 1, 1993, numerous changes in the Physicians'
Current Procedural Terminology ("CPT") were published. The CPT
is a coding system that is published by the American Medical
Association. It lists descriptive terms and identifying codes
for reporting medical and medically related services. The
Medicare and Medicaid programs require suppliers, including
laboratories, to use the CPT codes when they bill the programs
for services performed. HCFA implemented these CPT changes for
Medicare and Medicaid on August 1, 1993. The CPT changes have
altered the way the Company bills Medicare and Medicaid for some
of its services, thereby reducing the reimbursement the Company
receives from those programs for some of its services. For
example, certain codes for calculations, such as LDL cholesterol,
were deleted and are no longer a payable service under Medicare
and Medicaid.
In November 1994, 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
15 <PAGE>
<PAGE>
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.
In November 1990, the Company 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 Office of
Inspector General (the "OIG") of HHS. On December 18, 1992, the
Company announced that it had entered into agreements that
concluded the investigation (the "Government Settlement"). The
settlement revolved around the government's contention that the
Company improperly included its tests for HDL cholesterol and
serum ferritin (a measure of iron in the blood) in its basic
Health Survey 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 Health
Survey Profile at no extra charge. As a result, the government
contended, the Company's marketing activities denied physicians
the ability to exercise their judgment as to the medical
necessity of these tests.
Pursuant to the Government Settlement, the Company 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, the Company also agreed to
pay $100 million to the Federal government, of which $89 million
has been paid and $11 million will be paid in quarterly
installments through September 30, 1995. Concurrently, the
Company settled related Medicaid claims with states that account
for over 99.5% of its Medicaid business and has paid $10.4
million to the settling states.
As a result of these settlements, the Company took a one-
time pre-tax charge of $136.0 million in the fourth quarter of
1992, which reduced net earnings for the quarter and year ended
December 31, 1992 by $80.3 million. Earnings per share for the
fourth quarter and year were each reduced by $0.85. The charge
covered all estimated costs related to the investigation and the
settlement agreements. The Company will continue to receive
reimbursements from all government third party reimbursement
programs, including Medicare, Medicaid and CHAMPUS, under the
settlement agreements. (The Company made changes to requisition
16 <PAGE>
<PAGE>
forms, pricing and compendia of tests following the settlement.
See "--Managements' Discussion and Analysis of Financial
Condition and Results of Operations").
In September 1993, the Company was served with a subpoena
issued by the OIG, which required the Company to provide
documents to the OIG concerning its regulatory compliance
procedures. The Company has provided documents to the OIG in
response to the subpoena and continues to be in contact with the
OIG through its outside attorneys.
In August 1993, Allied received a subpoena from the OIG
requesting a broad range of documents and certain information
relating to its pricing and billing practices. According to
published reports, other independent clinical laboratories also
received subpoenas as part of what appears to be a nationwide
audit and investigation.
The OIG subpoena received by 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 filed 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, the Company believes that the
OIG's investigation is primarily focused on two alleged
practices. The first alleged practice consists of offering the
automated chemistry profile as 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 when 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. Allied's laboratories
17 <PAGE>
<PAGE>
have included some of the 14 tests in its "standard" blood
chemistry profile 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.
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
connection with Allied's assembling of documents responding to
this subpoena, representatives of the Company and Allied became
aware that the nature of the possible problems associated with
the billing practices of that laboratory may have been both
different and greater than previously perceived by Allied and the
Company. As a result, Allied and the Company agreed to reduce
the acquisition price for the Allied Acquisition from $23.00 per
share to $21.50 per share, or an aggregate of $12.6 million. The
Company and Allied are continuing to investigate these possible
problems and have communicated with the OIG and the United States
Department of Justice regarding its subpoena and a related qui
tam action commenced in a Cincinnati, Ohio Federal court, and
they are cooperating fully with the governmental investigation of
Allied's Cincinnati laboratory. The Company has established
reserves which it believes are adequate to cover any liability
associated with these matters.
Potential sanctions in connection with the OIG investigation
for violations of the laws related to the Medicare and Medicaid
programs 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 Allied and is
successful in pursuing such a claim, the Company's business and
financial condition could be adversely affected. Although
neither the Government Settlement nor, based on published
reports, any settlement agreements with 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 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 Company's non-Medicare and
non-Medicaid testing business. No claim has been asserted by the
18 <PAGE>
<PAGE>
OIG against Allied, however, no prediction can be made as to the
outcome of the investigation or the impact of such outcome on the
Company's financial condition or results of operations.
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 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 March 1992, HCFA published proposed regulations to
implement the Medicare statute's prohibition (with certain
exceptions) on referrals by physicians who have an investment
interest in or a compensation arrangement with laboratories. The
prohibition on referrals also applies where an immediate family
member of a physician has an investment interest or compensation
arrangement with a laboratory. The proposed regulations would
define remuneration that gives rise to a compensation arrangement
as including discounts granted by a laboratory to a physician who
sends testing business to the laboratory and who pays the
laboratory for such services. If that definition of remuneration
were to have become effective, it could have had an impact on the
way the Company prices its services to physicians. However, in
August 1993, the referenced Medicare statute was amended by OBRA
'93. One of these amendments makes it clear that day-to-day
transactions between laboratories and their customers, including,
but not limited to, discounts granted by laboratories to their
customers, are not affected by the compensation arrangement
provisions of the Medicare statute. Thus, the Company expects
the definition of remuneration in HCFA's proposed regulations
will be changed to reflect this amendment to the Medicare
statute. Currently, these proposed regulations have not been
finalized.
In October 1994, the OIG 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
19 <PAGE>
<PAGE>
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 as well as the extent to
which such arrangements might be unlawful.
The health care industry is undergoing significant change as
third party payers, such as Medicare and Medicaid 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, the
Company believes 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. The Company cannot 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 Company's business and
20 <PAGE>
<PAGE>
operations.
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."
Compliance Program
Because of evolving interpretations of regulations and the
national debate over health care, compliance with all Medicare,
Medicaid and other government-established rules and regulations
has become a significant factor throughout the clinical
laboratory industry. The Company began the implementation of a
new compliance program in late 1992 and early 1993. The
objective of the program is to develop aggressive and reliable
compliance safeguards. Emphasis is placed on developing training
programs for personnel to attempt to assure the strict
implementation of all rules and regulations. Further, in-depth
reviews of procedures, personnel and facilities are conducted to
assure regulatory compliance throughout the Company. Such
sharpened focus on regulatory standards and procedures will
continue to be priority for the Company in the future.
The Company believes 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 the Company. Potential sanctions for violation of these
21 <PAGE>
<PAGE>
statutes and regulations include significant fines and the loss
of various licenses, certificates and authorizations.
Competition
The clinical laboratory testing business is highly
fragmented and intensively competitive. The Company believes
that there are many clinical laboratory companies which provide a
broad range of laboratory testing services in the same markets
serviced by the Company. Among the Company's national
competitors are MetPath Inc. (a subsidiary of Corning, Inc.
("Corning")), RBL (see "Recent Developments") and SmithKline
Beecham Clinical Laboratories, Inc. According to HCFA, there are
over 151,000 federally regulated clinical laboratories, of which
approximately 5,700 are independent laboratories and the
remainder were hospital-based laboratories and physician-owned
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. In June 1994, the Company acquired
Allied. Also in 1994, Corning, Inc. acquired Nichols Institute
in exchange for Corning common stock. In 1993, Corning acquired
the stock of Damon Corporation. In December 1994, the Company
entered into the Merger Agreement providing for, among other
things, the merger of RBL with and into the Company. The Company
believes 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.
The Company 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. The
Company 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.
22 <PAGE>
<PAGE>
Item 2. PROPERTIES
The principal properties of the Company are its leased
corporate headquarters located in La Jolla, California, Allied's
corporate offices located in Nashville, Tennessee and the
following major laboratory facilities:
Approximate
Area Nature of
Location (in square feet) Occupancy
------------------- --------------- ------------------------
Birmingham, Alabama 20,854 Lease expires 1997; one
4 year renewal option
Phoenix, Arizona 43,024 Lease expires 2001; one
5 year renewal option
San Diego, California 40,167 Lease expires 2000
Denver, Colorado 19,982 Lease expires 2001; two
5 year renewal options
Hollywood, Florida 46,500 Lease expires 1997; three
5 year renewal options
St. Petersburg, Florida 26,667 Lease expires 1995; two
5 year renewal options
Tampa, Florida 26,600 Lease expires 2002; one
5 year renewal option
Chicago, Illinois 40,065 Lease expires 2003; two
5 year renewal options
Louisville, Kentucky 60,000 Lease expires 2002; three
5 year renewal options
Detroit, Michigan 32,000 Lease expires 2004; two
5 year renewal options
Reno, Nevada
(888 Willow Street) 12,000 Owned
(704 Mill Street) 12,000 Lease expires 1998; one
2 year renewal option;
and
(704 Mill Street) 1,645 Lease expires 2003; one
2 year renewal option
Cranford, New Jersey 80,900 Lease expires 2009
Uniondale, New York 108,000 Lease expires 2007; two
5 year renewal options
Cincinnati, Ohio 30,000 Lease expires 2002; one
10 year renewal option
Winston-Salem,
North Carolina 73,500 Lease expires 2004; one
5 year renewal option
Chattanooga, Tennessee
(863 McCallie Avenue) 18,300 Owned
(1501 Riverside Drive) 30,000 Lease expires 2012
23 <PAGE>
<PAGE>
Approximate
Area Nature of
Location (in square feet) Occupancy
------------------- --------------- -----------------------
Nashville, Tennessee
NRL I 52,165 Lease expires 2000; two
5 year renewal options
NRL II 25,640 Lease expires 2000; two
5 year renewal options
Dallas, Texas 53,694 Lease expires 2004; one
5 year renewal option
Houston, Texas 32,368 Lease expires 1997
San Antonio, Texas 44,000 Lease expires 2004; two
5 year renewal options
Salt Lake City, Utah 20,000 Lease expires 2002; two
5 year renewal options
Herndon, Virginia 64,172 Lease expires 2004; one
5 year renewal option
Seattle, Washington 34,900 Lease expires 2000; two
5 year renewal options
Construction of a new laboratory to consolidate the
Company's Tampa and St. Petersburg, Florida facilities began in
the fourth quarter of 1994 and is expected to be completed in the
third quarter of 1995.
All of the major laboratory facilities have been built or
improved for the single purpose of providing clinical laboratory
testing services. The Company believes that these facilities are
suitable and adequate and have sufficient production capacity for
its currently foreseeable level of operations. The Company
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.
24 <PAGE>
<PAGE>
Item 3. LEGAL PROCEEDINGS
The Company is involved in certain claims and legal actions
arising in the ordinary course of business. In the opinion of
management, based upon the advice of counsel, the ultimate
disposition of these matters will not have a material adverse
effect on the financial position or results of operations of the
Company.
In 1994, the Company approved a settlement of previously
disclosed shareholder class and derivative litigation. As
previously disclosed, the litigation consisted of two consolidated
class action suits filed in December 1992 and November 1993 and
a consolidated shareholder derivative action brought in Federal
and state courts in San Diego, California. The settlement involved
no admission of wrongdoing. In connection with the settlement,
the Company took a pre-tax special charge of $15.0 million and a
$6.0 million charge for expenses related to the settled litigation.
Insurance payments and payments from other defendants aggregate
$55.0 million plus expenses.
During 1994, the Company learned of the existence of a
federal qui tam action regarding Allied's Medicare billing
practices at its Cincinnati, Ohio facility. As previously
disclosed, Allied also received a subpoena from the OIG in 1994
regarding these practices. The Company has been cooperating
fully with the governmental investigation of Allied's Cincinnati
facility. The Company has established reserves which it believes
are adequate to cover any liability associated with these
matters.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during
the fourth quarter of the fiscal year covered by this report.
25 <PAGE>
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
On April 24, 1991, the common stock commenced trading on the
New York Stock Exchange ("NYSE") under the symbol "NH". Prior to
such time, the common stock was quoted on the National Market
System of the National Association of Securities Dealers, Inc.
Automated Quotation System ("NASDAQ") under the symbol "NHLI".
The following table sets forth for the calendar periods
indicated the high and low sales prices for the common stock
reported on the NYSE Composite Tape, and the cash dividends
declared per share of common stock.
Dividends
Declared
High Low Per Share
--------------------------------------------------------------
1993
First Quarter $18 1/4 $12 7/8 $0.08
Second Quarter 19 1/2 16 1/8 0.08
Third Quarter 18 1/2 14 1/2 0.08
Fourth Quarter 16 3/8 12 0.08
1994
First Quarter 15 1/4 12 7/8 0.08
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
First Quarter (through
February 21, 1995) 14 1/2 12 5/8 --
On February 9, 1995, there were approximately 574 holders of
record of the common stock.
The Company, in connection with the Allied Acquisition, has
discontinued its dividend payments for the foreseeable future in
order to increase its flexibility with respect to both its
acquisition strategy and stock repurchase plan. In addition,
Intermediate Holdings II's revolving credit facility (the
"Revolving Credit Facility") and term loan facility (the "Term
Facility" and, together with the Revolving Credit Facility, the
"Bank Facility") entered into in June 1994 contains, among other
provisions, a covenant prohibiting the declaration or payment of
cash dividends to stockholders if, after giving effect to such
action, a default (as defined by the terms of the Bank Facility)
shall occur and be continuing.
26 <PAGE>
<PAGE>
Item 6. SELECTED FINANCIAL DATA
The selected financial data presented below under the
captions "Statement of Earnings Data" and "Balance Sheet Data" as
of and for each of the years in the five-year period ended
December 31, 1994 are derived from consolidated financial
statements of the Company, which financial statements have been
audited by KPMG Peat Marwick LLP, independent certified public
accountants. This data should be read in conjunction with the
accompanying notes, the Company's consolidated financial
statements and the related notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations", all included elsewhere herein.
<TABLE>
<CAPTION> Year Ended December 31,
---------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -----
(Dollars in millions, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Earnings Data:
Net sales . . . . . . . . . $ 872.5 $ 760.5 $ 721.4 $ 603.9 $ 501.9
Gross profit . . . . . . . . 275.5 316.0 326.3 271.4 222.6
Operating income (a) . . . . 109.9 185.5 64.1 165.8 133.1
Net earnings (a) (b) . . . . 30.1 112.7 40.6 103.9 82.6
Earnings per common
share (a) (b) (c) . . . . . $ 0.36 $ 1.26 $ 0.43 $ 1.05 $ 0.83
Dividends per common
share subsequent to
initial public
offering (d) . . . . . . . $ 0.08 $ 0.32 $ 0.31 $ 0.27 $ 1.58
Weighted average
common shares
outstanding (in
thousands) (c) . . . . . . 84,754 89,439 94,468 99,096 99,048
December 31,
---------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
Balance Sheet Data:
Cash and cash equivalents . $ 26.8 $ 12.3 $ 33.4 $ 51.3 $ 45.8
Intangible assets, net (e) . 551.9 281.5 188.3 193.1 192.7
Total assets (e) . . . . . . 1,012.7 585.5 477.4 411.3 374.2
Long-term obligations
(a)(c)(f)(g). . . . . . . 583.0 314.6 114.2 2.9 0.9
Due to affiliates (d) . . . -- 0.1 0.9 -- 66.4
Total stockholders'
equity (c) (d) . . . . . . 166.0 140.8 212.5 330.8 256.7
27<PAGE>
<PAGE>
<FN>
(a) In the fourth quarter of 1992, the Company took a one-time charge
against operating income of $136.0 million related to the Government
Settlement. At December 31, 1993, the long-term portion representing
payments for settlement and related expenses due in 1995 was $11.5
million.
(b) In 1994, the Company approved a settlement of previously disclosed
shareholder class and derivative litigation. In connection with the
settlement, the Company took a pre-tax special charge of $15.0 million
and a $6.0 million charge for expenses related to the settled
litigation. Insurance payments and payments from other defendants
amounted to $55.0 million plus expenses. As previously disclosed, the
litigation consisted of two consolidated class action suits filed in
December 1992 and November 1993 and a consolidated shareholder
derivative action brought in Federal and state courts in San Diego,
California. The settlement involved no admission of wrongdoing.
(c) On January 16, 1992, the Company purchased 4,808,000 shares of its
outstanding common stock from its stockholders pursuant to a tender
offer (the "Tender Offer"). The Company borrowed $100.0 million under a
revolving credit facility in existence at that time and used $25.8
million of cash on hand to finance the Tender Offer. During 1993 and
1992, the Company made open market purchases of 9,485,800 and 310,000 of
its outstanding shares of common stock, respectively, for an aggregate
amount of $154.2 million and $6.1 million, respectively. Such purchases
were financed with cash on hand and borrowings under revolving credit
facilities in existence at such time. At December 31, 1993 and 1992,
$278.0 million and $75.0 million, respectively, was outstanding on the
revolving credit facilities in existence on those dates. In connection
with the corporate reorganization on June 7, 1994, all of the 14,603,800
treasury shares held by NHLI were cancelled. As a result, the $286.1
million value assigned to such treasury shares was eliminated with
corresponding decreases in the par value, additional paid-in capital,
and retained earnings of $0.2 million, $72.3 million and $213.6 million,
respectively.
(d) In July 1990, the Company paid a special dividend of $150.6 million
($1.52 per share). Due to affiliates at December 31, 1990 principally
represents borrowings from Revlon in the original principal amount of
$77.0 million incurred in connection with the special dividend paid in
1990, net of an $11.0 million principal payment made in 1990. All
remaining amounts due to affiliates were paid at a discount in December
1991.
(e) On June 23, 1994, the Company acquired Allied as a wholly owned
28 <PAGE>
<PAGE>
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 purchase was
financed with borrowings under the Bank Facility. The excess of cost
over the fair value of net tangible assets acquired was $220.5 million
and is included under the caption "Intangible assets, net." During 1994,
the Company also acquired 11 small clinical laboratory companies for an
aggregate amount of $46.4 million in cash plus the recognition of $32.9
million of liabilities. The cash portion of these acquisitions was
financed with cash on hand and borrowings under the revolving credit
facilities in existence at the time of the acquisitions and the Bank
Facility. The excess of cost over the fair value of net tangible assets
acquired was $72.1 million and is included under the caption "Intangible
assets, net." During 1993, the Company acquired thirty-four clinical
laboratory companies for an aggregate amount of $78.2 million in cash
plus the recognition of $28.7 million of liabilities, comprised primarily
of future contractual and contingent payments. 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 million and is included under the caption "Intangible assets,
net".
(f) In the fourth quarter of 1992, the Company 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 $9.8 million, $9.7
million and $9.6 million at December 31, 1994, 1993 and 1992,
respectively.
(g) Long-term debt includes the expected value of long-term future
contractual and contingent amounts to be paid to the principals of
acquired clinical laboratory companies. 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 1994, 1993, 1992, 1991 and 1990, such amounts were $19.2
million, $15.4 million, $1.6 million, $2.9 million and $0.9 million,
respectively.
</FN>
</TABLE>
29 <PAGE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company derives approximately 35% of its net sales from
tests performed for beneficiaries of Medicare and Medicaid
programs. Several changes have been made which adversely affect
the reimbursement the Company receives from such programs. On
January 1, 1993, numerous changes in the CPT were published which
became effective on August 1, 1993. These changes adversely
affect the reimbursement the Company receives on some of its
services that are billed to the Medicare and Medicaid programs.
For example, certain codes for calculations, such as LDL
cholesterol, were deleted and are no longer a payable service
under Medicare and Medicaid. Had such changes been implemented
as of January 1, 1993, the Company estimates that 1993 net sales
would have been reduced by approximately $7 million.
During 1993, provisions were included in OBRA '93 which
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. The Company
estimates that the change effective January 1, 1995 would have
decreased 1994 net sales by approximately $11 million had it been
implemented as of January 1, 1994. 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.
In the latter part of 1993, the Company held discussions
with HCFA concerning the reimbursement policy for serum ferritin
and HDL cholesterol tests. HCFA expressed concerns that the
incidence of orders of these tests by physicians remained too
high despite changes in the Company's requisition forms, pricing
and compendia of tests instituted after the Government
Settlement. As a result of a HCFA directive to Medicare
carriers, the Company began to receive denials of claims
submitted in September 1993 for serum ferritin and HDL
cholesterol tests ordered by physicians and performed in
conjunction with automated chemistry panels. Such denials and
related suspended billings reduced the Company's 1993 net sales
by approximately $18.6 million.
The Company has undertaken actions with regard to HCFA's
concerns. The Company has removed the serum ferritin and HDL
cholesterol tests from all standard chemistry profiles offered on
its test requisition forms. These tests may be ordered
separately or as part of a custom designed profile where specific
authorization is provided by the requesting physician. The
30 <PAGE>
<PAGE>
Company estimates that the effect of these changes reduced net
sales in 1994 by approximately $60 million.
The health care industry is undergoing significant change as
third party payers, such as Medicare and Medicaid 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, the
Company believes 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. The Company cannot 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 Company's business and
operations.
Year Ended December 31, 1994 compared with Year Ended December
-----------------------------------------------------------------
31, 1993
--------
Net sales increased by $112.0 million to $872.5 million in
1994, an increase of 14.7% over 1993. The inclusion of Allied
since June 23, 1994 increased net sales by approximately $96.8
million or 12.7%. Revenues generated by new accounts and
numerous acquisitions of small clinical laboratory companies
increased net sales by approximately 9.6% and 11.4%,
respectively. In addition, a price increase, effective April 1,
1994, increased net sales for 1994 by approximately 1.8%. A
reduction in Medicare's fee schedules from 88% to 84% of the 1984
national median effective on January 1, 1994, plus changes in
reimbursement policies of various third party payors, reduced net
sales by approximately 3.1%. Other factors, in order of
decreasing magnitude, comprised the remaining reduction in net
sales as follows: declines in the level of HDL cholesterol and
serum ferritin testing, lower utilization of laboratory testing,
price erosion in the industry as whole and severe weather in the
first quarter of 1994. The Company believes that the decline in
utilization was due to fewer patient visits to physicians'
offices since the number of tests ordered per patient remained
relatively constant. Revenues derived from tests performed for
beneficiaries of Medicare and Medicaid programs were
approximately 35% and 41% of net sales in 1994 and 1993,
respectively.
31 <PAGE>
<PAGE>
Cost of sales, which primarily includes laboratory and
distribution costs, increased to $597.0 million in 1994 from
$444.5 million in 1993. Of the $152.5 million increase,
approximately $66.6 million was due to the inclusion of the cost
of sales of Allied since June 23, 1994, approximately $62.3
million was a result of higher testing volume, and approximately
$7.0 million was due to an increase in phlebotomy staffing to
improve client service and meet competitive demand. Rental of
premises increased approximately $2.7 million due to the
expansion and/or relocation of existing facilities to accommodate
increased volume and the full year impact of expanding the number
of patient service centers by 50% during 1993. The remaining
increase resulted primarily from higher compensation and
insurance expenses. As a percentage of net sales, cost of sales
increased to 68.4% in 1994 from 58.4% in 1993. The increase in
the cost of sales percentage primarily resulted from a reduction
in net sales due to a reduction in Medicare fee schedules,
pricing pressures and utilization declines, each of which provide
little corresponding reduction in costs.
Selling, general and administrative expenses increased to
$149.3 million in 1994 from $121.4 million in 1993, an increase
of $27.9 million. Approximately $21.7 million of the increase
was due to the inclusion of the selling, general and
administrative expenses of Allied since June 23, 1994.
Approximately $3.9 million of the increase was a result of a non-
recurring charge in the fourth quarter of 1994 for lease costs
and the write-off of leasehold improvements related to the
relocation of certain of the Company's regional laboratories.
The remaining increase was primarily due to expansion of data
processing and billing departments due to increased volume and to
improve client service. As a percentage of net sales, selling,
general and administrative expenses increased to 17.1% in 1994
compared with 16.0% in 1993. The increase in the selling,
general and administrative percentage primarily resulted from a
reduction in net sales, as discussed above, that provided little
corresponding reduction in costs.
Management expects net sales to continue to grow through
strategic acquisitions and the addition of new accounts, although
there can be no assurance that the Company will experience such
growth. Reductions in Medicare fee schedules, pursuant to OBRA
'93, to 80% of the 1984 national median, effective January 1,
1995, followed by an additional reduction to 76% of such median
on January 1, 1996, are expected to negatively impact net sales,
cost of sales as a percentage of net sales and selling, general
and administrative expenses as a percentage of net sales in the
future. Management does not expect future increases in cost of
sales as a percentage of net sales and selling, general and
32 <PAGE>
<PAGE>
administrative expenses as a percentage of net sales of the
magnitude experienced in the year ended December 31, 1994.
Management cannot predict if price erosion or utilization
declines will continue or their ultimate effect on net sales or
results of operations. It is the objective of management to
partially offset the increase in cost of sales as a percentage of
net sales and selling, general, and administrative expenses as a
percentage of net sales through comprehensive cost reduction
programs at each of the Company's regional laboratories, although
there can be no assurance of the success of such programs.
The increase in amortization of intangibles and other assets
to $16.3 million in 1994 from $9.1 million in 1993 primarily
resulted from the acquisition of Allied and several small
clinical laboratory companies during 1994 and 1993.
In the third quarter of 1994, the Company approved a
settlement of previously disclosed shareholder class and
derivative litigation. As previously disclosed, the litigation
consisted of two consolidated class action suits and a consolidated
shareholder derivative action brought in Federal and state courts
in San Diego, California. The settlement involved no admission
of wrongdoing. In connection with the settlement, the Company
took a pre-tax special charge of $15.0 million and a $6.0 million
charge for expenses related to the settled litigation. Insurance
payments and payments from other defendants aggregate $55.0 million
plus expenses.
Other gains and expenses in 1993 include expense
reimbursement and termination fees of $21.6 million received in
connection with the Company's attempt to purchase Damon
Corporation, less related expenses and the write-off of certain
bank financing costs aggregating $6.3 million, resulting in a
one-time pre-tax gain of $15.3 million.
Net interest expense was $33.5 million in 1994 compared to
$9.7 million in 1993. The increase resulted primarily from
increased borrowings used to finance the Allied Acquisition in
June 1994, the acquisition of numerous small laboratory companies
during both 1994 and 1993 and repurchases of the Company's common
stock in 1993. Higher average interest rates also contributed to
the increase in net interest expense.
The provision for income taxes as a percentage of earnings
before income taxes increased to 45.7% in 1994 from 41.0% in
1993, primarily due to a higher effective tax rate for both
Federal and state income taxes.
33<PAGE>
<PAGE>
Year Ended December 31, 1993 compared with Year Ended December
-----------------------------------------------------------------
31, 1992
--------
Net sales increased by $39.1 million to $760.5 million in
1993, an increase of 5.4% over 1992. Revenues generated by new
accounts increased net sales by approximately 12.0%. The
acquisition of thirty-four small clinical laboratory companies
increased the growth in net sales by approximately 3.5%. In
addition, net sales for 1993 increased approximately 2.7% because
of the Company's annual price increases (effective in January of
1993). Changes in Medicare's reimbursement policy for LDL tests,
coupled with changes in various state Medicaid fee schedules and
reimbursement methodologies partially offset the increase in net
sales by approximately 1.0%. Medicare's denial of claims for HDL
cholesterol and serum ferritin tests, which began in September
1993 and continued through December 20, 1993 when the Company
introduced new test forms and procedures, and related suspended
billings also offset the increase in net sales by approximately
2.6%. Additionally, a decline in the utilization of laboratory
services, and, to a lesser extent, severe weather in the first
three months of the year further offset the increase in net sales
by approximately 7.3%. Improved accuracy in estimating the
difference between amounts billed and amounts received for
services provided under third party payor programs, primarily due
to the wider use of specific fee schedules for individual third
party carriers, resulted in an increase in the growth in net
sales of 1.6%. The aggregate impact of various other factors,
including discounts granted to meet competitive pressure and
movement between payor mix categories, reduced the growth in net
sales by approximately 3.5%. Revenues derived from tests
performed for beneficiaries of Medicare and Medicaid programs
were approximately 41% and 42% of net sales in 1993 and 1992,
respectively.
The Company actively pursued acquisitions of small clinical
laboratory companies during 1993. The laboratory industry is
consolidating rapidly as smaller, less efficient organizations
are experiencing decreasing profitability in the current health
care environment. The purchase of thirty-four small
laboratories, primarily in the second half of 1993, increased net
sales for the year by approximately $25 million. Had all such
acquisitions occurred as of the beginning of 1993, the aggregate
contribution to net sales is estimated to have been approximately
$81 million.
Cost of sales primarily includes laboratory and distribution
costs, a substantial portion of which varies directly with sales.
Cost of sales increased to $444.5 million in 1993 from $395.1
million in 1992. As a percentage of net sales, cost of sales
increased to 58.4% in 1993 from 54.8% in 1992. Labor costs
34 <PAGE>
<PAGE>
increased approximately 2.7% of net sales, primarily as a result
of an increase in phlebotomy staffing to improve client service
and meet competitive demands. Rental of premises also grew
approximately 0.3% of net sales due to expanding the number of
patient service centers by 50% during 1993. Higher capital
spending led to increased depreciation expenses of approximately
0.3% of net sales. Also, several expense categories increased
slightly, aggregating approximately 0.3% of net sales. The
Company continued to focus on cost savings as part of an ongoing
program to improve its cost structure. Internal operating
reviews were completed in 15 of the Company's 16 laboratories
which were in operation during 1993.
Selling, general and administrative expenses increased to
$121.4 million in 1993 from $117.9 million in 1992, an increase
of $3.5 million. As a percentage of net sales, selling, general
and administrative expenses decreased slightly to 16.0% in 1993
compared with 16.3% in 1992. This was primarily due to a
reduction in the provision for doubtful accounts, reflecting
improvements in the collection of delinquent accounts, and also a
result of reduced spending for the relocation of Company
employees and for legal services. These changes more than offset
an increase in labor costs related to staffing added during 1993
to improve billing customer service and expand the Company's
information systems group.
The increase in amortization of intangibles and other assets
to $9.1 million in 1993 from $8.3 million in 1992 primarily
resulted from the acquisition of several small clinical
laboratory companies during 1993.
Other gains and expenses include expense reimbursement and
termination fees of $21.6 million received in connection with the
Company's attempt to purchase Damon Corporation, less related
expenses and the write-off of certain bank financing costs
aggregating $6.3 million, resulting in a one-time pre-tax gain of
$15.3 million.
Investment income decreased to $1.2 million in 1993 from
$2.2 million in 1992 and interest expense increased to $10.9
million in 1993 from $4.2 million in 1992. During 1993, cash in
excess of operating requirements and increased borrowings were
used to finance acquisitions of numerous small clinical
laboratory companies and to finance purchases by the Company of
its common stock.
The provision for income taxes as a percentage of earnings
before income taxes increased to 41.0% in 1993 from 34.6% in
1992, primarily due to the increase in the U.S. corporate tax
35 <PAGE>
<PAGE>
rates and as a result of a higher effective rate for state income
taxes.
Liquidity and Capital Resources
The Company has entered into the Merger Agreement with HLR,
RBL, and (for the purposes set forth in the Merger Agreement)
Roche providing for, among other things, the merger of RBL with
and into the Company with the Company as the surviving
corporation, and pursuant to which, subject to certain
exceptions, each outstanding share of common stock, par value
$0.01 per share, of the Company, will be converted into (i) 0.72
of a share of common stock of the Company 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 Company common stock as would, in the
aggregate and after giving effect to the Merger and the Company
common stock owned by HLR, RBL and their subsidiaries immediately
after the effective time of the Merger, equal 49.9% of the total
number of shares of Company common stock outstanding immediately
after the effective time of the Merger (after giving effect to the
issuance of Company common stock in respect of the Company employee
stock options in connection with the Merger).
In connection with the Merger, the Company currently intends
to declare a dividend, payable to holders of record of shares of
Company common stock as of the third business day prior to the
date of the special meeting of the stockholders to consider and
vote on the approval and adoption of the Merger, which dividend
will consist of 0.16308 of a warrant per outstanding share of
Company common stock, each such warrant representing the right to
purchase one newly issued share of Company common stock for
$22.00 (subject to adjustments) on the fifth anniversary of the
issuance of the Warrant. In addition, the Merger Agreement
provides for the issuance to and purchase by Roche, for a
purchase price of $51.0 million, of 8,325,000 Roche Warrants to
purchase shares of Company common stock, which warrants will have
the terms described in the preceding sentence.
The aggregate cash consideration of approximately $474.7
million to be paid to stockholders of the Company in the Merger
will be financed from three sources: a cash contribution by the
Company of approximately $288.0 million out of proceeds of
borrowings by the Company in an equal amount, a cash contribution
36 <PAGE>
<PAGE>
to be made by HLR in the amount of approximately $135.7 million
and the proceeds from the issuance of the Roche Warrants.
The Company has obtained a commitment for a credit facility,
which will include a term loan facility of not more than $800.0
million and a revolving credit facility of not more than $400.0
million, to refinance the Company's existing indebtedness and to
finance the Company's portion of the total cash consideration to
be paid to stockholders of the Company in the Merger. The
specific terms and conditions of the credit facility are
currently under negotiation.
Restructuring costs of approximately $84.0 million are
expected to be recorded by the Company at the close of the
Merger. These costs will reflect the write-off of deferred
financing costs related to the repayment of the Company's
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 the
Company associated with the Merger.
The Company has generated cash flow in excess of its
operating requirements in each of the three past fiscal years.
Cash from operations was $14.7 million, $57.2 million and $102.4
million for the years ended December 31, 1994, 1993 and 1992,
respectively. Cash used for capital expenditures was $48.9
million, $33.6 million and $34.9 million for the years ended
December 31, 1994, 1993, and 1992, respectively. The Company
expects capital expenditures to be approximately $45.0 to $55.0
million in 1995 to accommodate expected growth, further automate
laboratory processes, improve efficiency and further integrate
the Company and Allied.
On May 3, 1994, the Company entered into a definitive
agreement to acquire Allied. Pursuant to the agreement, on May
9, 1994, a subsidiary of the Company commenced a cash tender
offer for all shares of Allied common stock for $23 per share.
The agreement provided that any shares not tendered and purchased
in the offer were to be exchanged for $23 per share in cash in a
second-step merger. On June 7, 1994, the Company entered into an
agreement whereby the price payable in such cash tender offer and
such second-step merger was reduced to $21.50 per share, or an
aggregate of approximately $12.6 million. A subsidiary of the
Company acquired Allied as a wholly owned subsidiary on June 23,
1994, for approximately $191.5 million in cash plus the
assumption of $24.0 million in Allied indebtedness and the
recognition of approximately $5.0 million of Allied net
liabilities.
37 <PAGE>
<PAGE>
During 1994, the Company acquired 11 small clinical
laboratory companies in various locations of the United States
for an aggregate amount of $46.4 million in cash plus the
recognition of $32.9 million of liabilities. These laboratories,
on an annual basis, are expected to generate approximately
$49 million in net sales. During 1993, the Company acquired
thirty-four clinical laboratory companies for an aggregate amount
of $78.2 million in cash plus the recognition of $0.7 million of
liabilities.
On June 21, 1994, Intermediate Holdings II, a subsidiary of
the Company, entered into the Credit Agreement dated as of such
date (the "Credit Agreement") with the banks named therein (the
"Banks"), Citicorp USA, Inc., as administrative agent (the "Bank
Agent"), and certain co-agents named therein, which made
available to Intermediate Holdings II the Term Facility of $400.0
million and the Revolving Credit Facility of $350.0 million. The
Bank Facility provided funds for the Allied Acquisition, for the
refinancing of certain existing debt of Allied and NHLI, to pay
related fees and expenses and for general corporate purposes of
Intermediate Holdings II and its subsidiaries, in each case
subject to the terms and conditions set forth therein.
The Credit Agreement provides that the Banks and the Bank
Agent will receive from Intermediate Holdings II customary
facility and administrative agent fees, respectively.
Intermediate Holdings II will pay a commitment fee on the average
daily unused portion of the Bank Facility of 0.5% per annum,
subject to a reduction to 0.375% per annum if certain financial
tests are met. Availability of funds under the Bank Facility is
conditioned on certain customary conditions, and the Credit
Agreement contains customary representations, warranties and
events of default. The Credit Agreement also requires the
Company to maintain certain financial ratios and tests, including
minimum debt service coverage ratios and net worth tests.
The Revolving Credit Facility matures in June 1999, with
semi-annual reductions of availability of $50.0 million,
commencing in December 1997. The Term Facility matures in
December 2000, with repayments in each quarter prior to maturity
based on a specified amortization schedule. The Bank Facility
bears interest, at the option of Intermediate Holdings II, at (i)
Citibank, N.A.'s Base Rate (as defined in the Credit Agreement),
plus a margin of up to 0.75% per annum, based upon variations in
certain financial tests or (ii) the Eurodollar rate for one, two,
three or six month interest periods (as selected by Intermediate
Holdings II), plus a margin varying between 1.25% and 2.00% per
annum based upon the Company's financial performance. At
December 31, 1994 the effective rate was 8.157%.
38 <PAGE>
<PAGE>
Aggregate maturities on long-term debt are $39.0 million,
$48.7 million, $58.5 million, $68.2 million and $77.9 million for
the years 1995 through 1999, respectively.
The Bank Facility is guaranteed by Intermediate Holdings I
and certain subsidiaries of Intermediate Holdings II and is
secured by pledges of stock and other assets of Intermediate
Holdings II and its subsidiaries.
On June 21, 1994, $400.0 million available under the Term
Facility was borrowed by Intermediate Holdings II and loaned to
NHLI and was used by NHLI to repay in full its existing revolving
credit facilities and for working capital and general corporate
purposes. On June 23, 1994, Intermediate Holdings II borrowed
$185.0 million of the amount available under the Revolving Credit
Facility to consummate the Allied Acquisition.
In connection with the Allied Acquisition, the Company
announced that it terminated its 10 million share repurchase
program, under which 7,795,800 common shares had been
repurchased, and established a new $50.0 million stock repurchase
program through which the Company will acquire additional shares
of the Company's common stock from time to time in the open
market. As of December 31, 1994, there were no repurchases under
the new stock repurchase program.
During 1993, the Company purchased 9,485,800 of its
outstanding common stock for an aggregate amount of $154.2
million. The purchase was financed by borrowings under the
revolving credit facilities in existence at such time and cash on
hand. In connection with the corporate reorganization on June 7,
1994, all of the 14,603,800 treasury shares held by NHLI were
cancelled. As a result, the $286.1 million value assigned to
such treasury shares was eliminated with corresponding decreases
in the par value, additional paid-in capital and retained
earnings of $0.2 million, $72.3 million and $213.6 million,
respectively. The Company announced, also in connection with the
Allied Acquisition, that it is discontinuing its dividend
payments for the foreseeable future in order to increase its
flexibility with respect to both its acquisition strategy and
stock repurchase plan.
Pursuant to the settlement of previously disclosed
shareholder class and derivative litigation, a total of $6.0
million was paid for such settlement and other expenses during
1994. The remaining amount due as part of the settlement was
paid on February 15, 1995.
Pursuant to the Government Settlement, a total of $23.8
39 <PAGE>
<PAGE>
million was paid for the Government Settlement and other expenses
during 1994, including aggregate cash payments of $16.0 million
made to the Federal government. The remaining amount due the
Federal government, $11.0 million, will be paid in quarterly
installments through September 1995, which installments are
expected to be paid with cash generated from operations. During
1993, the Company paid $55.8 million for settlement and related
expenses, including $38.0 million to the Federal government.
During 1991, the Company guaranteed a $9.0 million, 5 year
loan to a third party for construction of a new laboratory to
replace one of the Company's existing facilities. Following its
completion in November 1992, the building was leased to the
Company by this third party. Under the terms of this guarantee,
as modified, the Company is required to maintain 105% of the
outstanding loan balance, including any overdue interest, as
collateral in a custody account established and maintained at the
lending institution. As of December 31, 1994 and 1993, the
Company had placed $9.5 million of investments in the custody
account.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Index on Page F-1 of the Financial
Report included herein.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
40 <PAGE>
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth as of February 15, 1995 the
executive officers and directors of the Company:
Name Position
------------------ ---------------------------
Ronald O. Perelman Chairman of the Board and
Director
James R. Maher President, Chief Executive
Officer and Director
David C. Flaugh Senior Executive Vice
President, Chief Operating
Officer and Acting Chief
Financial Officer and
Treasurer
Timothy J. Brodnik Executive Vice President
Larry L. Leonard Executive Vice President
John F. Markus Executive Vice President and
Corporate Compliance Officer
James G. Richmond Executive Vice President and
General Counsel
W. David Slaunwhite, Ph.D. Executive Vice President
Bernard E. Statland, M.D., Ph.D. Executive Vice President and
Chief Executive Officer of
National Reference
Laboratory
Robert E. Whalen Executive Vice President
Saul J. Farber, M.D. Director
Howard Gittis Director
Ann Dibble Jordan Director
David J. Mahoney Director
Paul A. Marks, M.D. Director
Linda Gosden Robinson Director
Samuel O. Thier, M.D. Director
Ronald O. Perelman (52) has been Chairman of the Board and
Director of the Company since 1988. Mr. Perelman has been
Chairman of the Board and Chief Executive Officer of MacAndrews &
Forbes Holdings Inc. ("M&F Holdings") and Mafco Holdings Inc.
("Mafco" and together with M&F Holdings, "MacAndrews & Forbes")
for more than the past five years. Mr. Perelman also is Chairman
of the Board of Andrews Group Incorporated ("Andrews Group"),
Consolidated Cigar Corporation ("Consolidated Cigar"), New World
Communications Group Incorporated ("New World Communications"),
41 <PAGE>
<PAGE>
Mafco Worldwide Corporation ("Mafco Worldwide"), Marvel
Entertainment Group, Inc. ("Marvel") and Revlon Consumer Products
Corporation ("Revlon Products"). Mr. Perelman is a Director of
the following corporations which file reports pursuant to the
Securities Exchange Act of 1934: Andrews Group, The Coleman
Company, Inc. ("Coleman"), Coleman Holdings Inc., Coleman
Worldwide Corporation, Consolidated Cigar, First Nationwide
Holdings Inc. ("FNH"), Mafco Worldwide, Marvel, Marvel Holdings
Inc. ("Marvel Holdings"), Marvel (Parent) Holdings Inc. ("Marvel
Parent"), Marvel III Holdings Inc. ("Marvel III"), New World
Communications, New World Television Incorporated ("NWTV"), NWCG
Holdings Corporation ("NWCG Holdings"), Revlon Products and
Revlon Worldwide Corporation. Mr. Perelman is also a Director of
First Nationwide Bank, a Federal Savings Bank.
James R. Maher (45) has been President, Chief Executive
Officer and a Director of the Company since December 1992. Mr.
Maher was Vice Chairman of The First Boston Corporation from 1990
to 1992 and Managing Director of The First Boston Corporation
from 1982 to 1992. Mr. Maher also is a Director of First Brands
Corporation.
David C. Flaugh (47) has been Chief Operating Officer and
Senior Executive Vice President of the Company since 1993. He
has been Acting Chief Financial Officer and Treasurer of the
Company since July 1994. Mr. Flaugh was Vice President-Managing
Director, Chief Financial Officer and Treasurer of the Company
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.
Timothy J. Brodnik (47) joined the Company in 1971. He was
appointed Executive Vice President of the Company in 1993 and was
Senior Vice President from 1991 to 1993 and Vice President-
Division Manager commencing 1979. Mr. Brodnik oversees the
Company's sales operations and major regional laboratories in
Florida and North Carolina.
Larry L. Leonard (53), who holds a Ph.D. degree in
microbiology, joined the Company in 1978. He was appointed
Executive Vice President of the Company in 1993 and was Senior
Vice President from 1991 to 1993 and Vice President-Division
Manager commencing 1979. Dr. Leonard oversees major regional
laboratories in Arizona, Texas and Colorado.
John F. Markus (43) joined the Company 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,
42 <PAGE>
<PAGE>
Gump, Strauss, Hauer and Feld in Washington D.C. for more than
five years and was a partner in such firm since 1989.
James G. Richmond (50) joined the Company in 1992 as
Executive Vice President and General Counsel. Previously, Mr.
Richmond was Managing Partner of the law firm of Coffield,
Ungaretti & Harris in Chicago from 1991 to 1992. Prior thereto,
he was Special Counsel to the Deputy Attorney General of the
United States from 1990 to 1991 and from 1985 to 1991 was United
States Attorney for the Northern District of Indiana.
W. David Slaunwhite, Ph.D. (49) joined the Company in 1981.
He was appointed Executive Vice President in 1993, was Vice
President-Managing Director from 1991 to 1993 and Vice
President-Division Manager from 1989 to 1991. Prior to that he
held positions of increasing importance with the Company.
Bernard E. Statland, M.D., Ph.D. (53) joined the Company in
1990. He was appointed Executive Vice President in 1993 and was
Vice President-Managing Director from 1990 to 1993. In addition,
Dr. Statland is Chief Executive Officer of the National Reference
Laboratory. Dr. Statland was named a Scientific Advisor on the
Company's Board of Consultants in 1989. Prior to joining the
Company, he was Director of Pathology and Laboratory Medicine at
Methodist Hospital of Indiana for four years and previously held
a similar position at Boston University Hospital.
Robert E. Whalen (52) joined the Company in 1976. He was
named Executive Vice President of the Company 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 the Company. Mr. Whalen
oversees human resources, information systems, client service and
major regional laboratories in California, Washington, Nevada and
Utah.
Saul J. Farber, M.D. (77) has been a Director of the Company
since 1988. He has been Chairman of the Department of Medicine
of the New York University School of Medicine since 1966,
Frederick H. King Professor of Medicine since 1978 and Dean of
the School of Medicine since 1987.
Howard Gittis (60) has been a Director of the Company since
1988. He has been Vice Chairman and a Director of MacAndrews &
Forbes and various affiliates since 1985. Mr. Gittis also is a
Director of Andrews Group, Consolidated Cigar, Mafco Worldwide,
Revlon Products, Revlon Worldwide, New World Communications,
NWTV, First Nationwide Holdings and NWCG Holdings, Jones Apparel
Group, Inc. and Loral Corporation. Mr. Gittis is also a Director
of First Nationwide Bank, a Federal Savings Bank.
43 <PAGE>
<PAGE>
Ann Dibble Jordan (60) has been a Director of the Company
since 1990. She is a consultant and was previously Field Work
Assistant Professor, School of Social Service Administration,
University of Chicago from 1970 to 1987. Ms. Jordan also is a
Director of Johnson & Johnson Corporation, Capital Cities--ABC,
Inc., The Traveler's Companies, Salant Corp., The Hechinger
Company and Automatic Data Processing, Inc.
David J. Mahoney (71) has been a Director of the Company
since 1988. He has been President of David Mahoney Ventures
since 1983 and was Chairman of Norton Simon, Inc. for more than
five years prior to 1983. Mr. Mahoney also is a Director of The
Dreyfus Corporation and Bionaire Inc.
Paul A. Marks, M.D. (68) has been a Director of the Company
since 1991. He has been President and Chief Executive Officer of
Memorial Sloan-Kettering Cancer Center since 1980. He has been a
Professor of Medicine at Cornell University Medical College since
1982 and a Professor at Cornell University Graduate School of
Medical Sciences since 1983. He is a member of the National
Academy of Sciences and American Academy of Arts and Sciences.
Dr. Marks also is a Director of Pfizer, Inc., several Dreyfus
Mutual Funds, Life Technologies, Inc. and Tularik, Inc.
Linda Gosden Robinson (42) has been a Director of the
Company since 1990. She has been President and Chief Executive
Officer of Robinson Lake Sawyer Miller since 1986 and was Senior
Vice President, Corporate Affairs, of Warner Cable
Communications, Inc. from 1983 to 1986. Ms. Robinson also is a
Director of Bozell, Jacobs, Kenyon & Eckhardt, Inc. She is a
Trustee of New York University Medical Center.
Samuel O. Thier, M.D. (57) has been a Director of the
Company since 1992. Dr. Thier became President and Chief
Executive Officer of Massachusetts General Hospital in 1994. He
was President of Brandeis University from 1991 to 1994 and was
President of the Institute of Medicine of the National Academy of
Sciences from 1985 to 1991. From 1966 to 1985 Dr. Thier served
on the faculties of the medical schools at Harvard University,
University of Pennsylvania and Yale University. At Yale
University, Dr. Thier was Chairman of the Department of Internal
Medicine from 1975 through 1985. Dr. Thier is a Director of
Merck & Co., Inc. and Shawmut National Corp.
44 <PAGE>
<PAGE>
Board of Directors and its Committees
The Board of Directors has an Executive Committee, an Audit
Committee, an Employee Benefits Committee, an Ethics and Quality
Assurance Committee and a Nominating Committee.
The Executive Committee consists of Messrs. Perelman, Gittis
and Maher. The Executive Committee may exercise all the powers
and authority of the Board, except as otherwise provided under
the corporation law of Delaware. The Audit Committee, consisting
of Dr. Farber, Ms. Jordan and Dr. Marks, makes recommendations to
the Board regarding the engagement of the Company's independent
auditors, reviews the plan, scope and results of the audit,
reviews with the auditors and management the Company's policies
and procedures with respect to internal accounting and financial
controls and reviews changes in accounting policy and the scope
of the non-audit services which may be performed by the Company's
independent auditors. The Ethics and Quality Assurance Committee
consists of Mr. Gittis, Dr. Farber and Ms. Jordan. The Ethics
and Quality Assurance Committee is responsible for ensuring that
the Company adopts and implements procedures that require the
Company's employees to act in accordance with high ethical
standards and deliver high quality services. The Ethics and
Quality Assurance Committee was formed in February 1994. The
Employee Benefits Committee, consisting of Dr. Farber, Messrs.
Gittis and Mahoney, Ms. Robinson and Dr. Thier, makes
recommendations to the Board regarding compensation, benefits and
incentive arrangements for officers and other key managerial
employees of the Company. The Employee Benefits Committee may
consider and recommend awards of options to purchase shares of
common stock pursuant to the Company's 1988 Stock Option Plan and
the 1994 Stock Option Plan. The Nominating Committee, consisting
of Mr. Perelman, Ms. Jordan, Ms. Robinson and Dr. Thier, makes
recommendations to the Board regarding the qualifications for
directors and procedures for identifying possible nominees. The
Nominating Committee also reviews the performance of current
directors and evaluates the appropriate size and composition of
the Board.
During 1994, the Board of Directors held eleven meetings and
the Executive Committee acted fourteen times by unanimous written
consent of all members thereof, each in accordance with the
Company's by-laws and the corporation law of Delaware. The
Employee Benefits Committee held two meetings, the Audit
Committee held three meetings and the Ethics and Quality
Assurance Committee held one meeting in 1994. The Nominating
Committee did not meet in 1994. During 1994, no director
attended fewer than 75% of the meetings of the board and the
committees of which he or she is a member other than Mr. Mahoney
45 <PAGE>
<PAGE>
and Dr. Thier.
Item 11. EXECUTIVE COMPENSATION
The compensation paid by the Company to its Chief Executive
Officer and each of the Company's four most highly compensated
executive officers for services during the year ended December
31, 1994 was as follows:
<TABLE>
<CAPTION>
Summary Compensation Table
|Long-Term|
|Compensa-|
| tion |
Annual Compensation | Awards |
| | All
| | Other
| | Compen-
Salary Bonus | Options | sation
Name and Principal Position Year ($)(a) ($)(b) | SARs (#)| ($)(c)
- -------------------------- ---- --------- --------- -------- -------
<S> <C> <C> <C> <C> <C>
James R. Maher, President 1994 $1,000,001 $ 450,000| 350,000|$20,066
and Chief Executive 1993 1,000,000 500,000| - | 29,136
Officer 1992 34,616 1,662,500| 300,000| -
| |
David C. Flaugh, Senior 1994 499,991 375,000| 200,000| 14,154
Executive Vice President 1993 507,683 400,000| 125,000| 13,865
Chief Operating Officer 1992 267,117 265,000| - | 9,287
and Acting Chief Financial | |
Officer and Treasurer | |
| |
Timothy J. Brodnik, 1994 325,000 246,250| 150,000| 8,853
Executive Vice President 1993 325,000 262,500| 50,000| 11,334
1992 238,046 243,800| - | 10,007
| |
W. David Slaunwhite, Ph.D., 1994 325,000 266,250| 75,000| 8,850
Executive Vice President 1993 324,615 282,500| 50,000| 11,397
1992 267,117 265,000| - | 94,644
| |
Bernard E. Statland, M.D., 1994 457,500 236,250| 25,000| 14,759
Ph.D., Executive Vice 1993 457,500 252,500| 50,000| 17,219
President 1992 386,243 365,000| - | 15,482
<FN>
(a) Includes salary paid or accrued for each indicated year.
(b) Includes bonus accrued or paid for each indicated year and other
payments made pursuant to employment agreements. The 1992 amount for
Mr. Maher represents the value, on the date of grant, of 100,000 shares
of the Company's common stock granted in 1992.
(c) Reflects the following: (i) relocation expenses in 1993 for Mr. Maher of
46<PAGE>
<PAGE>
$14,001 and in 1992 for Dr. Slaunwhite of $84,365; (ii) life insurance
premiums of $15,566 in 1994 and $8,060 in 1993 for Mr. Maher, $9,654 in
1994, $6,790 in 1993 and $3,414 in 1992 for Mr. Flaugh, $4,353 in 1994,
$4,259 in 1993 and $3,141 in 1992 for Mr. Brodnik, $4,350 in 1994,
$4,322 in 1993 and $3,413 in 1992 for Dr. Slaunwhite and $10,259 in
1994, $10,144 in 1993 and $8,616 in 1992 for Dr. Statland; (iii) 401(a)
and (k) contributions in 1994 of $4,500 and in 1993 of $7,075 for each
of such individuals named in the table and in 1992 of $5,873 for
Mr. Flaugh and $6,866 for each of Mr. Brodnik, Dr. Slaunwhite and
Dr. Statland.
</FN>
</TABLE>
Stock Option Transactions in 1994
During 1994, the following grants were made under the 1988 Stock Option
Plan and the 1994 Stock Option Plan for the executive officers named in the
Summary Compensation Table:
<TABLE>
<CAPTION>
Option/SAR Grants in 1994
Grant
Date
Individual Grants Value
Percen-
tage of
Total
Options/
Number of SARs
Securities Granted Exercise Grant
Underlying to Em- or Base Date
Options/SARs ployees Price Expiration Present
Name Granted(a) in 1994 ($/Sh) Date Value $(b)
- --------------- ----------- ------ ------- --------- -----------
<S> <C> <C> <C> <C> <C>
James R. Maher 350,000 17% $11.75- 2/10/04- $2,663,000
$13.875 7/12/04
David C. Flaugh 200,000 10 $11.75- 2/10/04- 1,535,000
$13.875 7/12/04
Timothy J. Brodnik 150,000 7 $11.75- 2/10/04- 1,151,000
$13.875 7/12/04
W. David Slaunwhite,
Ph.D. 75,000 4 $13.875 2/10/04 611,000
Bernard E. Statland,
M.D., Ph.D. 25,000 1 $13.875 2/10/04 204,000
47<PAGE>
<PAGE>
<FN>
(a) No tandem SARs were granted in 1994.
(b) Valuation based upon the Black-Scholes option pricing model assuming a
volatility of .351 (based on the weekly closing stock prices from
January 1, 1993 to January 7, 1994; a risk free interest rate of 6.0%
(the asking yield on the 10-year U.S. Treasury Strip maturing February
2004); and a dividend yield of 0.0%. The valuation assumptions have
made no adjustments for non-transferability.
For each grant of non-qualified options made in 1994, the
exercise price was equivalent to the fair market price per share
on the date of grant. One third of the option's shares of common
stock vested on the date of grant and one third vests on each of
the first and second anniversaries of such date, subject to their
earlier expiration or termination.
</FN>
</TABLE>
48<PAGE>
<PAGE>
The following chart shows, for 1994, the number of stock
options exercised and the 1994 year-end value of the options held
by the executive officers named in the Summary Compensation
Table:
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in 1994
and Year-End 1994 Option/SAR Values
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options/SARs
Options/SARs at Year-
at Year-End End ($)(a)
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
- -------------- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C>
James R. Maher 0 $0 416,667 $100,000
233,333 200,000
David C. Flaugh 0 0 166,500 50,000
175,000 100,000
Timothy J. Brodnik 0 0 94,833 37,500
116,667 75,000
W. David Slaunwhite, 0 0 74,833 0
Ph.D. 66,667 0
Bernard E. Statland, 0 0 58,167 0
M.D., Ph.D. 33,333 0
<FN>
(a) Calculated using actual December 31, 1994 closing price per common share
on the NYSE Composite Tape of $13.25
</FN>
</TABLE>
49<PAGE>
<PAGE>
Retirement Benefits and Savings Plan
The following table sets forth the estimated annual
retirement benefits payable at age 65 to persons retiring with
the indicated average direct compensation and years of credited
service, on a straight life annuity basis after Social Security
offset, under the Company's Employees' Retirement Plan, as
supplemented by the Company's Pension Equalization Plan.
Pension Plan Table
Five year
average
Compensation(1) 10 Years(2) 15 Years(2) 20 Years(2) 25 Years(2) 30 Years(2)
- --------------- ----------- ----------- ----------- ----------- -----------
$ 50,000 $ 6,898 $10,346 $ 13,795 $ 17,244 $ 20,693
100,000 16,242 24,364 32,485 40,606 48,727
150,000 25,602 38,404 51,204 64,006 76,807
200,000 34,962 52,444 69,924 87,406 104,887
250,000 44,322 66,484 88,644 110,806 132,967
300,000 53,682 80,524 107,364 134,206 161,047
(1) Highest consecutive five year average base compensation during final ten
years. Compensation considered for this five year average is reflected
in the Summary Compensation Table under the heading "salary." Under the
Equalization Plan, a maximum of $300,000 final average compensation is
considered for benefit calculation. No bonuses are considered.
(2) Under the plans, the normal form of benefit for an unmarried participant
is a life annuity with a guaranteed minimum payment of ten years.
Payments in other optional forms, including the 50% joint and survivor
normal form for married participants, are actuarially equivalent to the
normal form for an unmarried participant. The above table is determined
with regard to a life only form of payment; thus, payment using a ten
year guarantee would produce a lower annual benefit.
The Retirement Plan, which is intended to qualify under
Section 401 of the Internal Revenue Code of 1986, as amended (the
"Code"), is a defined benefit pension plan designed to provide an
employee having 30 years of credited service with an annuity
equal to 52% of final average compensation less 50% of estimated
individual Social Security benefits. Credited service is defined
generally as all periods of employment with National Health
Laboratories Incorporated, a participating subsidiary or with
Revlon prior to 1992, after attainment of age 21 and completion
of one year of service. Final average compensation is defined as
average annual base salary during the five consecutive calendar
years in which base salary was highest out of the last ten years
prior to normal retirement age or earlier termination. The
50<PAGE>
<PAGE>
Employment Retirement Income Security Act of 1974, as amended,
places certain maximum limitations upon the annual benefit
payable under all qualified plans of an employer to any one
individual. Such limitation for defined benefit pension plans
was $118,800 for 1994 (except to the extent a larger benefit had
accrued as of December 31, 1982) and $120,000 for 1995, and will
be subject to cost of living adjustments for future years. In
addition, the Tax Reform Act of 1986 limits the amount of
compensation that can be considered in determining the level of
benefits under qualified plans. The applicable limit is adjusted
annually; for 1994 the limit was $150,000. For 1995 the limit
will remain at $150,000. The Company believes that, with respect
to certain employees, annual retirement benefits computed in
accordance with the Retirement Plan's benefit formula may be
greater than such qualified plan limitation. The Company's non-
qualified, unfunded, Equalization Plan is designed to provide for
the payment of the difference, if any, between the amount of such
maximum limitation and the annual benefit that would be payable
under the Retirement Plan but for such limitation.
As of December 31,1994, credited years of service under the
retirement plans for the following individuals are for Mr. Maher-
1 year, Mr. Flaugh-22 years, Dr. Slaunwhite 12 years, Dr.
Statland 3 years and Mr. Brodnik 21 years.
Compensation of Directors
Directors who are not currently receiving compensation as
officers or employees of the Company or any of its affiliates are
paid an annual $25,000 retainer fee, payable in monthly
installments, and a fee of $1,000 for each meeting of the Board
of Directors or any committee thereof they attend.
Compensation Plans and Arrangements
The Company has an employment agreement with Mr. Maher which
provides for his employment as Chief Executive Officer of the
Company through December 31, 1995 at an annual salary of
$1,000,000 and 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 the Company
or resulting in an adverse alteration in the nature of his
responsibilities, (ii) a reduction by the Company in the annual
salary or annual bonus or a failure by the Company to pay any
such amount when due, (iii) the relocation of the Company's
principal executive offices to a location more than 50 miles from
51<PAGE>
<PAGE>
La Jolla, California or the Company's failure to permit Mr. Maher
to maintain his principal places of employment at both the
Company's principal executive offices in La Jolla, California and
in New York, New York or (iv) the occurrence of a change in
control of the Company which, for such purpose, is deemed to
occur if Mr. Perelman ceases beneficially to own 5% or more of
the combined voting power of the Company's outstanding
securities, then the Company 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.
In connection with the Merger, the Company will pay Mr. Maher a
special bonus of $1,000,000, subject to certain conditions, in
recognition for his efforts on behalf of the Company 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 the Company in connection with the Merger.
The Company has an amended employment agreement with Mr.
Flaugh which provides for his employment as Senior Executive Vice
President and Chief Operating Officer of the Company 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. Pursuant to his employment
agreement, Mr. Flaugh received a $150,000 lump sum payment in
December 1994. The employment agreement also provides that the
duties assigned to Mr. Flaugh will be performed primarily at the
offices of the Company 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 the Company in the
annual salary or annual bonus or a failure by the Company to pay
any such amount when due or (iii) a material breach of any of the
terms of the employment agreement by the Company, then the
Company 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.
The Company has an amended employment agreement with
Mr. Brodnik which provides for him 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
52<PAGE>
<PAGE>
awarded at the discretion of the Board of Directors. Pursuant to
his employment agreement, Mr. Brodnik received a $100,000 lump
sum payment in December 1994. The employment agreement also
provides that the duties assigned to Mr. Brodnik will be
performed primarily at the offices of the Company in Fairfax
County, Virginia. If the employment agreement is terminated by
Mr. Brodnik for certain specified reasons, including, (i) the
assignment of duties materially inconsistent with the status of
the office of Executive Vice President of the Company or
resulting in an adverse alteration in the nature of the
responsibilities associated therewith, (ii) a reduction by the
Company in the annual salary or annual bonus or a failure by the
Company to pay any such amount when due or (iii) a material
breach of any of the terms of the employment agreement by the
Company, then the Company will be required to pay, in monthly
installments, (i) the annual salary and annual bonus Mr. Brodnik
would have otherwise received during the remainder of his
employment period and (ii) for a period of one year following the
date of expiration of his 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 his employment term.
The Company has an amended employment agreement with Dr.
Slaunwhite which provides for him 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. Pursuant to
his employment agreement, Dr. Slaunwhite received a lump sum
payment of $120,000 in December 1994. If the employment
agreement is terminated by Dr. Slaunwhite for certain specified
reasons, including, (i) the assignment of duties materially
inconsistent with the status of the office of Executive Vice
President of the Company or resulting in an adverse alteration in
the nature of the responsibilities associated therewith, (ii) a
reduction by the Company in the annual salary or annual bonus or
a failure by the Company to pay any such amount when due or (iii)
a material breach of any of the terms of the employment agreement
by the Company, then the Company will be required to pay, in
monthly installments, (i) the annual salary and annual bonus Dr.
Slaunwhite would have otherwise received during the remainder of
his employment period and (ii) for a period of one year following
the date of expiration of his 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 his employment term.
The Company has an amended employment agreement with Dr.
53<PAGE>
<PAGE>
Statland which provides for his employment as Executive Vice
President of the Company and Chief Executive Officer of National
Reference Laboratory through December 31, 1995 at an annual
salary of $325,000 with an annual bonus of 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. Pursuant to his employment agreement, Dr. Statland
received a $90,000 lump sum payment in December 1994. If the
employment agreement is terminated by Dr. Statland following a
material breach of any of the terms of the employment agreement
by the Company, then the Company 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.
Employee Benefits Committee Interlocks and Insider Participation
The members of the Employee Benefits Committee are Saul J.
Farber, M.D., Howard Gittis, David J. Mahoney, Linda Gosden
Robinson and Samuel O. Thier, M.D. No member of the Employee
Benefits Committee is an officer or employee of the Company.
Certain Director Relationships. Robinson Lake Sawyer
Miller, the corporate communications firm of which Ms. Robinson
is President and Chief Executive Officer performs corporate
communications services for MacAndrews & Forbes and its
affiliates, including the Company. The amount of compensation
paid to Robinson, Lake for services to the Company in 1994 was
$233,670. On September 17, 1993, the Company purchased 66% of
the common stock of a newly-formed corporation, Health Partners,
Inc. ("Health Partners"). Robinson purchased 2% of the common
stock of Health Partners. In 1994, the Company sold its interest
in Health Partners for an amount equal to the original cost. Ms.
Robinson is the wife of the principal of J.D. Robinson Inc. which
performs consulting services for MacAndrews & Forbes and receives
$250,000 per annum from MacAndrews & Forbes for such services to
MacAndrews & Forbes. The principal of J.D. Robinson Inc. also
serves as a Director of a subsidiary of MacAndrews & Forbes.
Ms. Jordan is the wife of a director of a subsidiary of
MacAndrews & Forbes who is a partner in a law firm that has on a
regular basis in the past provided services and that continues to
provide services to MacAndrews & Forbes and its affiliates,
including the Company. No services were performed by such firm
in 1994 for the Company.
54<PAGE>
<PAGE>
Dr. Farber was on the Company's Scientific Advisory board
through June 30, 1994 and was paid $7,500 for such services.
Employee Benefits Committee Report on Executive Compensation
The Employee Benefits Committee of the Board of Directors
(the "Committee") is comprised of Saul J. Farber, M.D., Howard
Gittis, David J. Mahoney, Linda Gosden Robinson and Samuel O.
Thier, M.D. The Committee's duties include determination of the
Company's compensation and benefit policies and practices for
executive officers and key managerial employees. The Committee
also considers and awards options to purchase shares of the
Company's common stock pursuant to the Company's 1994 Stock
Option Plan. In accordance with rules established by the
Commission, the Company is required to provide certain data and
information in regard to the compensation provided to the
Company's Chief Executive Officer and the four other most highly
compensated executive officers. The Committee has prepared the
following report for inclusion in this Annual Report.
Compensation Policies. The Company's current compensation
arrangements for senior executives are significantly affected by
the Company's long history as a private company until the 1988
initial public offering, after which an Employee Benefits
Committee was established. The overall compensation program for
officers historically emphasized a strong base salary position in
relation to competitive practice and a competitive annual bonus
opportunity dependent upon the operating income performance of
the corporation. In contrast to the Company's highly competitive
cash compensation policy, the Company did not offer long-term
incentive opportunities as an executive compensation element
until 1989 when the first stock option awards were made. The
Committee understands that the combination of strongly
competitive cash compensation and modest use of long-term
incentives is typical of private companies with professional
management leadership; and this historical approach continued to
influence the Company's programs as a public company from 1989
into 1992. Late in 1992, with the appointment of James R. Maher
as President and Chief Executive Officer, the Company's
compensation philosophy changed to make a greater portion of
executive compensation dependent on the Company's long-term stock
performance.
Beginning in late 1992 and in 1993 and 1994, the Company's
compensation philosophy reflected a greater emphasis on grants of
stock options. In 1994, the Committee granted options in varying
amounts to 159 senior and mid-level managers. The option awards
55<PAGE>
<PAGE>
at all levels of management were part of the Committee's desire
to make a growing and more significant portion of senior
executive compensation directly dependent on the Company's long-
term share price appreciation. The number of options granted in
1994 to each of the four senior executives named in the cash
compensation table was determined considering the Company's
relatively low historical option grants, the Committee's desire
to make a greater proportion of the senior executives'
compensation equity-based, an analysis of the potential value of
the options over the term of the option and a review of option
grants at the peer companies listed in the stock performance
graph.
In 1992, after consultations with Mr. Maher, the Committee
decided to raise the senior executive base salary levels and to
restructure the annual bonus opportunity as the combination of a
cash year-end retention bonus equal to 50% of base salary and a
performance bonus opportunity. The general effect of these
salary and bonus actions was to set the overall cash compensation
opportunity for senior executives at or below 1992 levels, while
strengthening the retentive elements of the compensation package.
When these arrangements were established it was anticipated that
the performance bonus would be based on achieving operating
income growth and the contribution of each senior executive as
evaluated by the Chief Executive Officer and approved by the
Committee.
The Committee believes that each of the four most highly
compensated senior executives of the Company have demonstrated
superior performance in 1994 during a period of general
uncertainty in the medical services marketplace. Notwithstanding
such performance, however, given industry conditions and the
effects of the changes in the industry on the Company's results,
the Committee believed, as it did at the end of 1993, that it
would not be appropriate to award any discretionary bonus nor to
increase any compensation levels for senior executives at this
time. Each of such executives also agreed in 1994 to a reduction
in the year-end retention bonus in an amount equal to five
percent of their base salary.
Compensation of Chief Executive Officer. The compensation
arrangement with the Company's President and Chief Executive
Officer was entered into in December 1992. At that time, the
Committee considered the salary and incentive pay levels at
public companies whose financial characteristics and market
capitalization were similar to those of the Company and whose
workforce skills requirements and customer bases were similar.
The Committee also considered the Company's circumstances and
special leadership challenges in the aftermath of the settlement
56<PAGE>
<PAGE>
with the Federal government. In the Committee's judgment, these
circumstances required stable new direction at the chief
executive officer level to help ensure sustained quality of the
Company's services and continued employee commitment to the
Company's objectives.
Based on these considerations and the Company's strategic
direction for executive compensation, it was determined to
provide a cash compensation arrangement for the Chief Executive
consisting of an annual salary of $1 million, a year-end
retention bonus of $500,000 for each year of the contract term
and an annual discretionary performance bonus opportunity. The
Committee also determined that it was important to structure the
Chief Executive Officer's total compensation package to reflect
the policy of creating strong financial incentives for executive
officers to achieve a high level of long-term shareholder return.
Accordingly, the Chief Executive Officer was awarded 100,000
shares of the Company's common stock and granted options to
purchase 300,000 shares at the then fair market value of the
shares, which options vest during the term of the three-year
contract. The Committee views the common stock and stock option
awards as the primary means by which the Chief Executive Officer
would be rewarded for the Company's business success and believes
it is important for the Chief Executive Officer to maintain and
increase his equity interest in the Company. Accordingly in
1994, Mr. Maher was granted options to purchase an additional
350,000 shares. The annual discretionary bonus opportunity was
adopted as a special recognition vehicle appropriate for years in
which the Company achieves superior performance as measured
against industry results for growth in operating income and
revenues. The Committee decided that with respect to 1994, Mr.
Maher, like the other senior executives, would receive no
discretionary cash bonus in excess of his year-end retention
bonus. Mr. Maher, like the other senior executives, also agreed
in 1994 to a reduction in the year-end retention bonus in an
amount equal to five percent of his base salary.
Limit on Deductibility of Compensation. The Omnibus Budget
Reconciliation Act of 1993 ("OBRA") limits the tax deductibility
of compensation paid to the chief executive officer and each of
the four highest paid employees of public companies to $1 million
for fiscal years beginning on or after January 1, 1994. Certain
types of compensation, however, including qualifying performance-
based compensation and compensation arrangements entered into
prior to February 17, 1993 are excluded from the limitation. The
Company's general policy is to preserve the tax deductibility of
compensation paid to its executive officers. OBRA recognizes
stock option plans as performance-based if such plans meet
certain requirements. The Company's 1994 Option Plan is
57<PAGE>
<PAGE>
structured to meet the requirements of OBRA. In future years,
the Compensation Committee will consider taking such steps as it
deems necessary to qualify compensation so as not to be subject
to the limit on deductibility.
THE EMPLOYEE BENEFITS COMMITTEE
Saul J. Farber, M.D.
Howard Gittis
David J. Mahoney
Linda Gosden Robinson
Samuel O. Thier, M.D.
58<PAGE>
<PAGE>
Common Stock Performance
The Commission requires a five-year comparison of stock
performance for the Company with stock performance of appropriate
similar companies. The Company's common stock is traded on the
NYSE. Set forth below is a line graph comparing the yearly
percentage change in the cumulative total shareholder return on
the Company's common stock and the cumulative total return on the
S&P Composite-500 Stock Index and a peer group of companies. The
peer group of companies includes sixteen companies selected by
the Company. One of these is a medical service laboratory like
the Company - Unilab Corporation. (Other direct competitors of
the Company are subsidiaries of much larger diversified
corporations which were not believed appropriate to be peer
companies.) The remaining fifteen companies are all publicly
traded medical service and medical supply companies with sales
ranging from approximately $500 million to $2.5 billion -
Continental Medical Systems, Inc., Universal Health Services,
Inc., Charter Medical Corporation, Allergan, Inc., C. R. Bard,
Inc., Pall Corporation, Thermo Electron Corporation, United
States Surgical Corporation, Bausch & Lomb Incorporated,
Millipore Corporation, Amsco International, Inc., Beckman
Instruments, Inc., FHP International Corporation and Fisher
Scientific International, Inc. (Nichols Institute which had been
included in the Company's peer group in the 1994 Proxy Statement
is no longer a public company and is therefore not included in
the peer group. Also, Columbia Hospital Corporation, which had
been included in the Company's peer group in the 1994 Proxy
Statement, merged with Hospital Corporation of America in 1994
and is no longer within the sales range as defined above.)
<TABLE>
<CAPTION>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN(1)
12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
National Health
Laboratories
Holdings Inc. 100 99 266 166 135 126
Peer Group 100 115 209 191 155 158
S & P 500 100 97 126 135 149 150
<FN>
(1) Reflects the return on $100 invested on December 31, 1989, including the
reinvestment of dividends
</FN>
</TABLE>
59 <PAGE>
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS
The following table sets forth as of February 15, 1994, the
total number of shares of common stock beneficially owned, and
the percent so owned, by each director of the Company who is a
beneficial owner of any shares of common stock, by each person
known to the Company to be the beneficial owner of more than 5%
of the outstanding common stock, by the officers named in the
summary compensation table and by all directors and officers as a
group. The number of shares owned are those "beneficially
owned," as determined under the rules of the Commission, and such
information is not necessarily indicative of beneficial ownership
for any other purpose. Under such rules, beneficial ownership
includes any shares as to which a person has sole or shared
voting power or investment power and any shares of common stock
which the person has the right to acquire within 60 days through
the exercise of any option, warrant or right, through conversion
of any security, or pursuant to the automatic termination of
power of attorney or revocation of trust, discretionary account
or similar arrangement.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percent 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
Howard Gittis 46,000(3) *
35 East 62nd Street
New York, NY 10021
60 <PAGE>
<PAGE>
Amount and Nature
of Beneficial Percent of
Ownership Class
----------------- ----------
James R. Maher 606,667(4) *
4225 Executive Square
La Jolla, CA 92037
Paul A. Marks, M.D. 3,000 *
1275 York Avenue
New York, NY 10021
David C. Flaugh 245,070(4) *
Timothy J. Brodnik 136,500(4) *
William D. Slaunwhite, Ph.D. 116,500(4) *
Bernard E. Statland, M.D., Ph.D. 83,167(4) *
Saul J. Farber, M.D. 0 0
Ann Dibble Jordan 0 0
David J. Mahoney 0 0
Linda Gosden Robinson 0 0
Samuel O. Thier, M.D. 0 0
All directors and executive 21,881,466(4) 26%
officers as a group (17 persons)
<FN>
* Less than 1%
(1) All such shares of common stock are owned by Mr. Perelman through
MacAndrews & Forbes. All of such shares owned are pledged to secure
obligations.
(2) As reported in the Schedule 13G filed with the Commission 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.
(3) Includes 3,000 shares owned by Mr. Gittis' spouse as to which he
disclaims beneficial ownership.
(4) Beneficial ownership by officers of the Company includes shares of
common stock which such officers have right to acquire upon the exercise
of options which either are vested or which may vest within 60 days.
The number of shares of common stock included in the table as
61<PAGE>
<PAGE>
beneficially owned which are subject to such options is as follows: Mr.
Maher - 466,667; Mr. Flaugh - 241,500; Mr. Brodnik - 136,500; Dr.
Slaunwhite - 116,500; Dr. Statland - 83,167; all directors and executive
officers as a group - 1,512,167.
</FN>
</TABLE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company was included in the consolidated federal income
tax returns, and in certain state income tax returns, of Mafco,
M&F Holdings, Revlon Group Incorporated and Revlon Holdings Inc.,
formerly known as Revlon Inc. As a result of the reduction of
MacAndrews & Forbes' ownership interest in the Company on May 7,
1991, the Company is no longer a member of the Mafco consolidated
tax group. For periods subsequent to May 7, 1991, the Company
files its own separate Federal, state and local income tax
returns. Nevertheless, the Company will remain obligated to pay
to M&F Holdings (or other members of the consolidated group of
which M&F Holdings is a member) any income taxes the Company
would have had to pay (in excess of those which it has already
paid) if it had filed separate income tax returns for taxable
periods beginning on or after January 1, 1985 (but computed
without regard to (i) the effect of timing differences (i.e., the
liability or benefit that otherwise could be deferred will be,
instead, includible in the determination of current taxable
income) and (ii) any gain recognized on the sale of any asset not
in the ordinary course of business). In addition, despite the
reduction of MacAndrews & Forbes' indirect ownership of the
Company, the Company will continue to be subject under existing
federal regulations to several liability for the consolidated
federal income taxes for any consolidated return year in which it
was a member of any consolidated group of which Mafco, M&F
Holdings, Revlon Group or Revlon was the common parent. However,
Mafco, M&F Holdings, Revlon Group and Revlon have agreed to
indemnify the Company for any federal income tax liability (or
any similar state or local income tax liability) of Mafco, M&F
Holdings, Revlon Group, Revlon or any of their subsidiaries
(other than that which is attributable to the Company or any of
its subsidiaries) that the Company could be required to pay.
In connection with the settlement of the litigation
described under Item 3. Legal Proceedings, an affiliate of
MacAndrews & Forbes agreed to contribute to the settlement by
reimbursing the Company $15 million, with $5 million reimbursable
to the Company upon demand and the remainder reimbursable no
later than the earlier of the consummation of the Merger and six
months from the date of payment by the Company. Under such
agreement, the Company also will receive interest at the
Company's cost of funds from the date of payment until the
reimbursement.
The Company and National Health Care Group, Inc. ("NHCG")
62 <PAGE>
<PAGE>
are parties to a Registration Rights Agreement (the "Registration
Rights Agreement") pursuant to which the Company is obligated,
upon the request of NHCG, to file registration statements
("demand registration statements") from time to time with the
Commission covering the sale of any shares of common stock owned
by NHCG. Such demand registration statements may also cover the
resale from time to time of any shares of common stock that NHCG
may purchase in the open market at a time when it is deemed to be
an affiliate (as such term is defined under Rule 144 under the
Securities Act of 1933, as amended), and certain securities
issued in connection with a combination of shares,
recapitalization, reclassification, merger or consolidation, or
other pro rata distribution. NHCG also has the right to include
such common stock and other securities in any registration
statement filed by the Company for the underwritten public
offering of shares of common stock (whether or not for the
Company's account), subject to certain reductions in the amount
of such common stock and securities if the managing underwriters
of such offering determine that the inclusion thereof would
materially interfere with the offering. The Company has agreed
not to effect any public or private sale, distribution or
purchase of any of its securities which are the same as or
similar to the securities covered by any demand registration
statement during the 15-day period prior to, and during the 45-
day period beginning on, the closing date of each underwritten
offering under such registration statement and NHCG has agreed to
a similar restriction with respect to underwritten offerings by
the Company. NHCG's rights under the Registration Rights
Agreement are transferable.
The Company has agreed (for certain stated purposes),
pursuant to the Sharing and Call Option Agreement dated as of
December 13, 1994, among NHCG, Mafco, the Company, HLR and RBL to
use its best efforts to cause the registration statement filed in
connection with the Merger (the "Registration Statement") to
include a resale prospectus that would permit NHCG (or any pledge
of the Merger Shares (as defined below) under a bona fide pledge
arrangement with NHCG) to sell shares of common stock received by
NHCG in the Merger (the "Merger Shares") without restriction and,
after the filing of the Registration Statement, will use its best
efforts to prepare and file with the Commission 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. The
Company 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.
63<PAGE>
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) List of documents filed as part of this Report:
(1) Consolidated Financial Statements and Independent
Auditors' Report included herein:
See Index on page F-1
(2) Financial Statement Schedules:
See Index on page F-1
All other schedules are omitted as they are
inapplicable or the required information is furnished
in the Consolidated Financial Statements or notes
thereto.
(3) Index to and List of Exhibits
(a) Exhibits:*
Exhibits 10.2 through 10.4 and 10.6 through 10.46 are
management contracts or compensatory plans or
arrangements.
2.1 - Agreement and Plan of Merger among the Company,
NHL Sub Acquisition Corp. and NHLI
(incorporated herein by reference to the
Company's Registration Statement on Form S-4
filed with the Securities and Exchange
Commission (the "Commission") on March 14, 1994,
File No. 33-52655 (the "1994 S-4")).
2.2 - Agreement and Plan of Merger dated as of May 3,
1994 of NHLI and N Acquisition Corp.
(incorporated by reference to Exhibit (c)(1) of
Schedule 14D-1 and Schedule 13D ("Schedule 14D-
1 and Schedule 13D") filed with the Commission
on May 9, 1994).
2.3 - Agreement dated as of June 7, 1994, among N
Acquisition Corp., the Company and NHLI
(incorporated herein by reference to Exhibit
(c)(7) of amendment No. 2 to Schedule 14D-1 and
Schedule 13D of NHLI and N Acquisition Corp
filed with the Commission on June 8, 1994).
64<PAGE>
<PAGE>
2.4* - 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)
Hoffman-La Roche Inc. (schedules omitted - the
Company agrees to furnish a copy of any
schedule to the Commission upon request).
2.5* - Stock Purchase Agreement dated December 30,
1994 between Reference Pathology Holding
Company, Inc. and Allied Clinical Laboratories,
Inc. ("Allied").
3.1 - Certificate of Incorporation of the Company
(incorporated herein by reference to the
Company's 1994 S-4).
3.2 - By-laws of the Company (incorporated herein by
reference to the Company's 1994 S-4).
10.1 - Laboratory Agreement dated February 4, 1983
between the Company and Humana of Texas, Inc.
d/b/a/ Medical City Dallas Hospital
(incorporated herein by reference to the
Company's Registration Statement on Form S-1
filed with the Commission on May 5, 1988, File
No. 33-21708).
10.2 - National Health Laboratories Incorporated
Employees' Savings and Investment Plan
(incorporated herein by reference to the
Company's Annual Report on Form 10-K for the
year ended December 31, 1991 filed with the
Commission on February 13, 1992, File No. 1-
10740** (the "1991 10-K")).
10.3 - National Health Laboratories Incorporated
Employees' Retirement Plan (incorporated herein
by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992
filed with the Commission on March 26, 1993,
File No. 1-10740 (the "1992 10-K")).
10.4 - National Health Laboratories Incorporated
Pension Equalization Plan (incorporated herein
by reference to the 1992 10-K).
10.5 - Settlement Agreement dated December 18, 1992
between the Company and the United States of
America (incorporated herein by reference to
the 1992 10-K).
10.6 - Employment Agreement dated December 21, 1992
between the Company and James R. Maher
(incorporated herein by reference to the 1992
10-K).
65<PAGE>
<PAGE>
10.7 - Employment Agreement dated May 1, 1991 between
the Company and Robert Whalen (incorporated
herein by reference to the 1991 10-K).
10.8 - Amendment to Employment Agreement dated June 6,
1991 between the Company and Robert Whalen
(incorporated herein by reference to the 1991
10-K).
10.9 - Amendment to Employment Agreement dated January
1, 1993 between the Company and Robert Whalen
(incorporated herein by reference to the 1992
10-K).
10.10 - Amendment to Employment Agreement dated January
1, 1994 between the Company and Robert Whalen
(incorporated herein by reference to the
Company's Annual Report on Form 10-K for the
year ended December 31, 1993 filed with the
Commission on March 25, 1994, File No. 1-10790
(the "1993 10-K")).
10.11 - Amendment to Employment Agreement dated March
1, 1994 between the Company and Robert Whalen
(incorporated herein by reference to the 1993
10-K).
10.12 - Employment Agreement dated May 1, 1991 between
the Company and Larry L. Leonard (incorporated
herein by reference to the 1991 10-K).
10.13 - Amendment to Employment Agreement dated June 6,
1991 between the Company and Larry L. Leonard
(incorporated herein by reference to the 1991
10-K).
10.14 - Amendment to Employment Agreement dated January
1, 1993 between the Company and Larry L.
Leonard (incorporated herein by reference to
the 1992 10-K).
10.15 - Amendment to Employment Agreement dated January
1, 1994 between the Company and Larry L.
Leonard (incorporated herein by reference to
the 1993 10-K).
10.16 - Amendment to Employment Agreement dated March
1, 1994 between the Company and Larry L.
Leonard (incorporated herein by reference to
the 1993 10-K).
10.17 - Employment Agreement dated May 1, 1991 between
the Company and Timothy Brodnik (incorporated
herein by reference to the 1991 10-K).
10.18 - Amendment to Employment Agreement dated June 6,
1991 between the Company and Timothy Brodnik
(incorporated herein by reference to the 1991
10-K).
66<PAGE>
<PAGE>
10.19 - Amendment to Employment Agreement dated January
1, 1993 between the Company and Timothy Brodnik
(incorporated herein by reference to the 1992
10-K).
10.20 - Amendment to Employment Agreement dated January
1, 1994 between the Company and Timothy Brodnik
(incorporated herein by reference to the 1993
10-K).
10.21 - Amendment to Employment Agreement dated March
1, 1994 between the Company and Timothy Brodnik
(incorporated herein by reference to the 1993
10-K).
10.22 - Employment Agreement dated December 31, 1990
between the Company and Bernard E. Statland
(incorporated herein by reference to the
Company's Annual Report on Form 10-K for the
year ended December 31, 1990 filed with the
Commission on March 14, 1991, File No. 1-
10740** (the "1990 10-K")).
10.23 - Amendment to Employment Agreement dated April
1, 1991 between the Company and Bernard E.
Statland (incorporated herein by reference to
the 1991 10-K).
10.24 - Amendment to Employment Agreement dated June 6,
1991 between the Company and Bernard E.
Statland (incorporated herein by reference to
the 1991 10-K).
10.25 - Amendment to Employment Agreement dated January
1, 1993 between the Company and Bernard E.
Statland (incorporated herein by reference to
the 1992 10-K).
10.26 - Employment Agreement dated January 1, 1991
between the Company and David C. Flaugh
(incorporated herein by reference to the 1990
10-K).
10.27 - Amendment to Employment Agreement dated April
1, 1991 between the Company and David C. Flaugh
(incorporated herein by reference to the 1991
10-K).
10.28 - Amendment to Employment Agreement dated June 6,
1991 between the Company and David C. Flaugh
(incorporated herein by reference to the 1991
10-K).
10.29 - Amendment to Employment Agreement dated January
1, 1993 between the Company and David C. Flaugh
(incorporated herein by reference to the 1992
10-K).
10.30* - Amendment to Employment Agreement dated April
1, 1994 between the Company and David C.
67<PAGE>
<PAGE>
Flaugh.
10.31 - Employment Agreement dated January 1, 1991
between the Company and W. David Slaunwhite
(incorporated herein by reference to the 1990 -
10-K).
10.32 - Amendment to Employment Agreement dated April
1, 1991 between the Company and David
Slaunwhite (incorporated herein by reference to
the 1991 10-K).
10.33 - Amendment to Employment Agreement dated June 6,
1991 between the Company and David Slaunwhite
(incorporated herein by reference to the 1991
10-K).
10.34 - Amendment to Employment Agreement dated January
1, 1993 between the Company and W. David
Slaunwhite (incorporated herein by reference to
the 1992 10-K).
10.35 - Amendment to Employment Agreement dated January
1, 1994 between the Company and W. David
Slaunwhite (incorporated herein by reference to
the 1993 10-K).
10.36 - Amendment to Employment Agreement dated March
1, 1994 between the Company and W. David
Slaunwhite (incorporated herein by reference to
the 1993 10-K).
10.37 - Employment Agreement dated January 1, 1991
between the Company and John Markus
(incorporated herein by reference to the 1990
10-K).
10.38 - Amendment to Employment Agreement dated April
1, 1991 between the Company and John Markus
(incorporated herein by reference to the 1991
10-K).
10.39 - Amendment to Employment Agreement dated June 6,
1991 between the Company and John Markus
(incorporated herein by reference to the 1991
10-K).
10.40 - Amendment to Employment Agreement dated January
1, 1993 between the Company and John F. Markus
(incorporated herein by reference to the 1992
10-K).
10.41 - Amendment to Employment Agreement dated January
1, 1994 between the Company and John F. Markus
(incorporated herein by reference to the 1993
10-K).
10.42 - Amendment to Employment Agreement dated March
1, 1994 between the Company and John F. Markus
(incorporated herein by reference to the 1993
10-K).
68<PAGE>
<PAGE>
10.43 - Employment Agreement dated October 1, 1992
between the Company and James G. Richmond
(incorporated herein by reference to the 1992
10-K).
10.44* - Employment Agreement dated as of June 23, 1994
between the Company and Haywood D. Cochrane,
Jr.
10.45 - National Health Laboratories 1988 Stock Option
Plan, as amended (incorporated herein by
reference to the 1990 S-1).
10.46 - National Health Laboratories 1994 Stock Option
Plan (incorporated herein by reference to the
Company's Registration Statement on Form S-8
filed with the Commission on August 12, 1994,
File No. 33-55065).
10.47 - Tax Allocation Agreement dated as of June 26,
1990 between MacAndrews & Forbes Holdings Inc.,
Revlon Group Incorporated, New Revlon Holdings
Inc. and the subsidiaries of Revlon set forth
on Schedule A thereto (incorporated herein by
reference to the Company's Registration
Statement on Form S-1 (No. 33-35782) filed with
the Commission on July 9, 1990 (the "1990 S-
1")).
10.48 - Revolving Credit Agreement dated as of August
27, 1993 among National Health Laboratories
Incorporated, Citicorp USA, Inc., as agent and
arranger, and the group of lenders specified
therein (incorporated herein by reference to
the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1993 filed with
the Commission on November 15, 1993, File No.
1-10740).
10.49 - Credit Agreement dated as of June 21, 1994,
among NHL Intermediate Holdings Corp. II, the
banks named therein, Citicorp USA, Inc., as
administrative agent, and the co-agents named
therein (incorporated herein by reference to
the Company's Current Report on Form 8-K dated
June 23, 1994 filed with the Commission on July
7, 1994, File No. 1-11353).
10.50 - Loan Agreement dated August 1, 1991 among the
Company, Frequency Property Corp. and Swiss
Bank Corporation, New York Branch (incorporated
herein by reference to the 1991 10-K).
10.51* - Sharing and Call Option Agreement dated as of
December 13, 1994 among HLR Holdings Inc.,
Roche Biomedical Laboratories, Inc., Mafco
Holdings Inc., National Health Care Group, Inc.
69<PAGE>
<PAGE>
and(for thepurposes stated therein)the Company.
21.1* - List of Subsidiaries of the Company.
23.1* - Consent of KPMG Peat Marwick LLP.
24.1* - Power of Attorney of Ronald O. Perelman.
24.2* - Power of Attorney of James R. Maher.
24.3* - Power of Attorney of Saul J. Farber, M.D.
24.4* - Power of Attorney of Howard Gittis.
24.5* - Power of Attorney of Ann Dibble Jordan.
24.6* - Power of Attorney of David J. Mahoney.
24.7* - Power of Attorney of Paul A. Marks, M.D.
24.8* - Power of Attorney of Linda Gosden Robinson.
24.9* - Power of Attorney of Samuel O. Thier, M.D.
24.10* - Power of Attorney of David C. Flaugh.
27 - Financial Data Schedule (electronically
filed version only)
28.1 - Form of Collateral Agency Agreement (Bank
Obligations) (incorporated herein by reference
to Amendment No. 1 to the 1990 S-1 filed with
the Commission on July 27, 1990, File No.
33-35785).
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K with the
Commission on December 19, 1994 reporting the entering into
of the Agreement and Plan of Merger dated as of December
13, 1994 among the Company, HLR, RBL and (for the purposes
stated therein) Roche.
_________________
* Filed herewith.
** Previously filed under File No. 0-17031 which has been
corrected to File No. 1-10740.
70<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
NATIONAL HEALTH LABORATORIES HOLDINGS INC.
Registrant
By:/s/ JAMES R. MAHER
------------------------------------
James R. Maher
President and Chief Executive Officer
By:/s/ DAVID C. FLAUGH
------------------------------------
David C. Flaugh
Senior Executive Vice President,
Chief Operating Officer and Acting
Chief
Financial Officer
(Principal Accounting Officer)
Dated: March 3, 1995
71 <PAGE>
<PAGE>
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed by the
following persons on March 3, 1995 in the capacities indicated.
Signature Title
----------------------- --------
/s/ RONALD O. PERELMAN* Director
-----------------------
(Ronald O. Perelman)
/s/ JAMES R. MAHER* Director
-----------------------
(James R. Maher)
/s/ SAUL J. FARBER, M.D.* Director
-----------------------
(Saul J. Farber, M.D.)
/s/ HOWARD GITTIS* Director
-----------------------
(Howard Gittis)
/s/ ANN DIBBLE JORDAN* Director
-----------------------
(Ann Dibble Jordan)
/s/ DAVID J. MAHONEY* Director
-----------------------
(David J. Mahoney)
/s/ PAUL A. MARKS, M.D.* Director
-----------------------
(Paul A. Marks, M.D.)
/s/ LINDA GOSDEN ROBINSON* Director
-----------------------
(Linda Gosden Robinson)
/s/ SAMUEL O. THIER, M.D.* Director
-----------------------
(Samuel O. Thier, M.D.)
72<PAGE>
<PAGE>
______________________
* David C. Flaugh, by his signing his name hereto, does hereby
sign this report on behalf of the directors of the Registrant
after whose typed names asterisks appear, pursuant to powers of
attorney duly executed by such directors and filed with the
Securities and Exchange Commission.
By:/s/ DAVID C. FLAUGH
-------------------
David C. Flaugh
Attorney-in-fact
73<PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
AND SCHEDULE
---------------------------------------------------------------
Page
----
Independent Auditors' Report . . . . . . . . . . . . . . F-2
Financial Statements:
Consolidated Balance Sheets as of
December 31, 1994 and 1993 . . . . . . . . . . . . . F-3
Consolidated Statements of Earnings for
each of the years in the three-year
period ended December 31, 1994. . . . . . . . . . . F-4
Consolidated Statements of Stockholders'
Equity for each of the years in the
three-year period ended December 31, 1994 . . . . . . F-5
Consolidated Statements of Cash Flows for
each of the years in the three-year
period ended December 31, 1994. . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . F-8
Financial Statement Schedule:
VIII - Valuation and Qualifying Accounts and Reserves . F-28
F-1 <PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
National Health Laboratories Holdings Inc.:
We have audited the consolidated financial statements
of National Health Laboratories Holdings Inc. and subsidiaries as
listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we have also audited
the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of National Health Laboratories Holdings Inc.
and subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1994, in
conformity with generally accepted accounting principles. Also
in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick LLP
San Diego, California
February 13, 1995
F-2 <PAGE>
<PAGE>
<TABLE>
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions, except per share data)
<CAPTION>
December 31,
-------------------------
1994 1993
--------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 26.8 $ 12.3
Accounts receivable, net 205.4 119.0
Inventories 20.1 14.9
Prepaid expenses and other 8.3 6.8
Deferred income taxes 29.4 21.6
Income taxes receivable 3.0 8.7
-------- --------
Total current assets 293.0 183.3
Property, plant and equipment, net 140.1 100.1
Intangible assets, net 551.9 281.5
Other assets, net 27.7 20.6
-------- --------
$1,012.7 $ 585.5
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 44.3 $ 36.9
Dividends payable -- 6.8
Accrued expenses and other 92.8 55.6
Current portion of long-term debt 39.0 --
Current portion of accrued
settlement expenses 26.7 21.6
-------- -------
Total current liabilities 202.8 120.9
Revolving credit facility 213.0 278.0
Long-term debt, less current portion 341.0 --
Capital lease obligation 9.8 9.7
Accrued settlement expenses, less
current portion -- 11.5
Deferred income taxes 20.6 3.1
Other liabilities 59.5 21.5
Stockholders' equity:
Preferred stock, $0.10 par value;
10,000,000 shares authorized;
none issued -- --
Common stock, $0.01 par value;
220,000,000 shares authorized;
84,761,817 and 99,354,492 shares
issued at December 31, 1994
and 1993, respectively 0.8 1.0
Additional paid-in capital 153.5 226.3
Retained earnings 11.7 202.0
Minimum pension liability adjustment -- (2.4)
Treasury stock, at cost; 14,603,800
shares of common stock at
December 31, 1993 -- (286.1)
-------- --------
Total stockholders' equity 166.0 140.8
-------- --------
$1,012.7 $ 585.5
======== ========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F-3<PAGE>
<PAGE>
<TABLE>
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in Millions, except per share data)
<CAPTION>
Years Ended December 31,
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Net Sales $ 872.5 $ 760.5 $ 721.4
Cost of sales 597.0 444.5 395.1
------- ------- -------
Gross profit 275.5 316.0 326.3
Selling, general and
administrative expenses 149.3 121.4 117.9
Amortization of intangibles
and other assets 16.3 9.1 8.3
Settlement and related expenses -- -- 136.0
------- ------- -------
Operating income 109.9 185.5 64.1
Other income (expenses):
Litigation settlement and
related expenses (21.0) -- --
Other gains and expenses,
net -- 15.3 --
Investment income 1.0 1.2 2.2
Interest expense (34.5) (10.9) (4.2)
------- ------- -------
Earnings before income taxes 55.4 191.1 62.1
Provision for income taxes 25.3 78.4 21.5
------- ------- -------
Net earnings $ 30.1 $ 112.7 $ 40.6
======= ======= =======
Earnings per common share $ 0.36 $ 1.26 $ 0.43
Dividends per common share $ 0.08 $ 0.32 $ 0.31
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F-4 <PAGE>
<PAGE>
<TABLE>
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Millions, except per share data)
<CAPTION>
Common
Stock Minimum
$0.01 Additional Pension
Par Paid-in Retained Liability Treasury
Value Capital Earnings Adjustment Stock
------- ----------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1992 $1.0 $223.7 $106.1 $ -- $ --
Net earnings -- -- 40.6 -- --
Dividends to stockholders -- -- (29.2) -- --
Exercise of stock options -- 0.5 -- -- --
Acquisition of treasury
stock -- -- -- -- (131.9)
Other -- 1.7 -- -- --
------- ----------- --------- --------- -------
Balance, December 31, 1992 1.0 225.9 117.5 -- (131.9)
Net earnings -- -- 112.7 -- --
Dividends to stockholders -- -- (28.2) -- --
Exercise of stock option s -- 0.4 -- -- --
Acquisition of treasury
stock -- -- -- -- (154.2)
Adjustment for minimum
pension liability -- -- -- (2.4) --
Other -- -- -- -- --
------- ----------- --------- --------- --------
Balance, December 31, 1993 1.0 226.3 202.0 (2.4) (286.1)
Net earnings -- -- 30.1 -- --
Dividends to stockholders -- -- (6.8) -- --
Exercise of stock options -- 0.1 -- -- --
Retirement of treasury (0.2) (72.3) (213.6) -- 286.1
stock
Adjustment for minimum
pension liability -- -- -- 2.4 --
Other -- (0.6) -- -- --
------- ----------- --------- --------- --------
Balance, December 31, 1994 $0.8 $ 153.5 $ 11.7 $ -- $ --
======= =========== ========= ========= ========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F-5<PAGE>
<PAGE>
<TABLE>
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
<CAPTION>
Years Ended December 31,
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 30.1 $ 112.7 $ 40.6
Adjustments to reconcile net earnings
to net cash provided by (used for)
operating activities:
Depreciation and amortization 44.4 32.2 26.9
Provision for doubtful accounts,
net (1.4) 0.2 4.5
Litigation settlement and
related expenses 21.0 -- --
Other gains and expenses, net -- (15.3) --
Settlement and related expenses -- -- 136.0
Change in assets and liabilities,
net of effects of acquisitions:
Increase in accounts receivable (54.0) (35.8) (22.5)
Increase in inventories (0.9) (0.9) (1.8)
Decrease (increase) in prepaid
expenses and other 5.1 (2.5) (0.4)
Decrease (increase) in deferred
income taxes, net 11.0 19.1 (39.8)
Decrease (increase) in income
taxes receivable 5.5 6.5 (15.2)
Decrease (increase) in accounts
payable, accrued expenses
and other (13.1) 1.5 15.7
Payments for settlement and
related expenses (29.8) (55.8) (47.1)
Other, net (3.2) (4.7) 5.5
------- ------- -------
Net cash provided by operating
activities 14.7 57.2 102.4
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (48.9) (33.6) (34.9)
Proceeds from sale of subsidiary 10.1 -- --
Acquisitions of businesses (254.8) (78.2) (2.3)
Restricted investments -- 0.8 0.9
Other gains and expenses, net -- 15.3 --
------- ------- -------
Net cash used for investing
activities (293.6) (95.7) (36.3)
------- ------- -------
(continued)
F-6 <PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(Dollars in Millions)
<CAPTION>
Years Ended December 31,
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit
facilities $ 308.0 $ 342.0 $ 100.0
Payments on revolving credit
facilities (373.0) (139.0) (25.0)
Proceeds from long-term debt 400.0 -- --
Payments on long-term debt (20.0) -- --
Deferred payments on acquisitions (7.6) (1.9) (1.6)
Purchase of treasury stock -- (154.2) (131.9)
Dividends paid on common stock (13.6) (29.0) (28.6)
Proceeds from exercise of stock
options 0.1 0.4 0.5
Other (0.5) (0.9) 2.6
------- ------- -------
Net cash provided by (used for)
financing activities 293.4 17.4 (84.0)
------- ------- -------
Net increase (decrease) in cash
and cash equivalents 14.5 (21.1) (17.9)
Cash and cash equivalents at
beginning of year 12.3 33.4 51.3
------- ------- -------
Cash and cash equivalents at
end of year $ 26.8 $ 12.3 $ 33.4
======= ======= =======
Supplemental schedule of cash
flow information:
Cash paid during the period for:
Interest $ 34.2 $ 8.4 $ 3.6
Income taxes 14.8 59.6 82.0
Disclosure of non-cash financing
and investing activities:
Dividends declared and unpaid
on common stock $ -- $ 6.8 $ 7.6
Fixed assets acquired under
capital leases -- -- 9.6
In connection with business
acquisitions, liabilities were
assumed as follows:
Fair value of assets acquired $ 399.4 $ 106.9 $ 3.0
Cash paid (254.8) (78.2) (2.3)
------- ------- -------
Liabilities assumed $ 144.6 $ 28.7 $ 0.7
======= ======= =======
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F-7 <PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
The consolidated financial statements include the accounts
of National Health Laboratories Holdings Inc. and its
subsidiaries ("Company") after elimination of all material
intercompany accounts and transactions. On June 7, 1994, the
stockholders of National Health Laboratories Incorporated
("NHLI") approved a proposed corporate reorganization of NHLI, as
a result of which National Health Laboratories Holdings Inc.
("NHL Holdings"), a Delaware corporation, now owns, through NHL
Intermediate Holdings Corp. I, a Delaware corporation and a
wholly owned subsidiary of NHL Holdings ("Intermediate Holdings
I"), and NHL Intermediate Holdings Corp. II, a Delaware
corporation and a wholly owned subsidiary of Intermediate
Holdings I ("Intermediate Holdings II"), all of the outstanding
common stock of the NHLI.
Until May 7, 1991, the Company was a direct majority owned
subsidiary of National Health Care Group, Inc. ("NHCG") which is
a wholly owned subsidiary of Revlon Holdings Inc. ("Revlon"),
then known as Revlon, Inc., and MacAndrews & Forbes Holdings Inc.
("MacAndrews & Forbes"). MacAndrews & Forbes is wholly owned by
Mafco Holdings Inc. ("Mafco").
As a result of an initial public offering in July 1988 and
subsequent secondary public offerings in August 1990, May 1991
and February 1992, the Company's self tender offer in January
1992 and the purchase by the Company of outstanding shares of its
common stock, Mafco's indirect ownership has been reduced to
approximately 24%.
Cash Equivalents:
Cash equivalents (primarily investments in money market
funds, time deposits and commercial paper which have original
maturities of three months or less at the date of purchase) are
carried at cost which approximates market.
Inventories:
Inventories, consisting primarily of laboratory supplies,
are stated at the lower of cost (first-in, first-out) or market.
F-8 <PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions)
Property, Plant and Equipment:
Property, plant and equipment is recorded at cost. The cost
of properties held under capital leases is equal to the lower of
the net present value of the minimum lease payments or the fair
value of the leased property at the inception of the lease.
Depreciation and amortization expense is computed on all classes
of assets based on their estimated useful lives, as indicated
below, using principally the straight-line method.
Years
Buildings and building improvements 40
Machinery and equipment 3-10
Furniture and fixtures 8
Leasehold improvements and assets held under capital leases
are amortized over the shorter of their estimated lives or the
period of the related leases. Expenditures for repairs and
maintenance charged against earnings in 1994, 1993 and 1992 were
$16.5, $10.8 and $10.7, respectively.
Intangibles:
Intangibles, consisting of goodwill, net of amortization
of $417.0 and $231.2 at December 31, 1994 and 1993,
respectively, and other intangibles (i.e., customer lists
and non-compete agreements), net of amortization, of $134.9 and
$50.3 at December 31, 1994 and 1993, respectively, are being
amortized on a straight-line basis over a period of 40 years and
3-25 years, respectively. Total accumulated amortization for
goodwill, rights to names and other intangibles aggregated $60.8
and $46.4 at December 31, 1994 and 1993, respectively. The
Company assesses the recoverability of intangible assets by
determining whether the amortization of the intangibles' balance
over its remaining life can be recovered through undiscounted
future operating cash flows of the acquired operations. The
amount of intangible asset impairment, if any, is measured based
on projected undiscounted future operating cash flows.
Fair Value of Financial Instruments:
Statement of Financial Accounting Standards No. 107,
"Disclosures About Fair Value of Financial Instruments", requires
that fair values be disclosed for most of the Company's financial
F-9 <PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions)
instruments. The carrying amount of cash and cash equivalents,
accounts receivable, accounts payable, accrued expenses, the
revolving credit and long-term debt are considered to be
representative of their respective fair values.
Concentration of Credit Risk:
Concentrations of credit risk with respect to accounts
receivable are limited due to the diversity of the Company's
clients as well as their dispersion across many different
geographic regions.
Revenue Recognition:
Sales are recognized on the accrual basis at the time test
results are reported, which approximates when services are
provided. Services are provided to certain patients covered by
various third-party payor programs including the Medicare and
Medicaid programs. Billings for services under third-party payor
programs are included in sales net of allowances for differences
between the amounts billed and estimated program payment amounts.
Adjustments to the estimated payment amounts based on final
settlement with the programs are recorded upon settlement. In
1994, 1993 and 1992, approximately 35%, 41% and 42%, respectively,
of the Company's revenues were derived from tests performed for
beneficiaries of Medicare and Medicaid programs.
Income Taxes:
Effective January 1, 1992, the Company adopted Financial
Accounting Standards Board Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("Statement
109"). Statement 109 requires the use of the asset and liability
method of accounting for income taxes. Under the asset and
liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the
enactment date.
F-10 <PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions, except per share data)
Earnings per Common Share:
For the years ended December 31, 1994, 1993 and 1992,
earnings per common share is calculated based on the weighted
average number of shares outstanding during each year
(84,754,183, 89,438,764 and 94,468,022 shares, respectively).
Reclassifications:
Certain amounts in the prior years' financial statements
have been reclassified to conform with the 1994 presentation.
2. ACQUISITIONS
On May 3, 1994, the Company entered into a definitive
agreement to acquire Allied Clinical Laboratories, Inc.
("Allied"). Pursuant to the agreement, on May 9, 1994, a
subsidiary of the Company commenced a cash tender offer for all
shares of Allied common stock for $23 per share. The agreement
provided that any shares not tendered and purchased in the offer
were to be exchanged for $23 per share in cash in a second-step
merger. In connection with the Company's acquisition of Allied,
the Company and Allied became aware that the nature of the
possible problems associated with billing practices of Allied's
Cincinnati, Ohio clinical laboratory, concerning which Allied had
received a subpoena on April 5, 1994 from the Office of Inspector
General of the Department of Health and Human Services (the
"OIG") requiring Allied to produce certain documents and
information regarding the Medicare billing practices of such
laboratory with respect to certain cancer screening tests, may
have been both different and greater than previously perceived by
the Company and Allied. As a result, on June 7, 1994, the
Company entered into an agreement whereby the price payable in
such cash tender offer and such second-step merger was reduced
from $23 per share to $21.50 per share, or an aggregate of
approximately $12.6. The Company and Allied are continuing to
investigate these possible problems and have communicated with
the OIG and the United States Department of Justice regarding its
subpoena and a related qui tam action commenced in a Cincinnati,
Ohio Federal court, and they are cooperating fully with the
governmental investigation of Allied's Cincinnati laboratory.
The Company has established reserves which it believes are
adequate to cover any liability associated with these matters.
F-11 <PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions, except per share data)
A subsidiary of the Company acquired Allied as a wholly
owned subsidiary on June 23, 1994, for approximately $191.5 in
cash, $185.0 of which was borrowed under a revolving credit
facility, plus the assumption of $24.0 of Allied indebtedness and
the recognition of approximately $5.0 of Allied net liabilities
(the "Allied Acquisition"). The Allied 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 acquired net tangible assets by approximately $220.5, which
consists of goodwill of $167.7 and other intangible assets of
$52.8. These items are being amortized over periods between
3 and 40 years on a straight-line basis. Allied's results of
operations have been included in the Company's results of
operations beginning June 23, 1994.
The following table provides unaudited pro forma operating
results of the Company giving effect to the Allied Acquisition as
if it had been completed at the beginning of the periods
presented. The pro forma information has been prepared for
comparative purposes only and does not purport to be indicative
of future operating results.
Years Ended
December 31, December 31,
1994 1993
----------- -----------
Net sales $ 962.8 $ 923.5
Net earnings 26.1 104.0
Earnings per common share $ 0.31 $ 1.16
During 1994, the Company also acquired 11 small clinical
laboratory companies for an aggregate purchase price of $79.3.
During 1993 and 1992, the Company acquired thirty-four and five
laboratories, respectively, for an aggregate purchase price of
$106.9 and $3.0, respectively. The acquisitions were accounted
for as purchase transactions. The excess of cost over the fair
value of net tangible assets acquired during 1994, 1993 and 1992
was $72.1, $100.1, and $3.0, respectively, which is included
under the caption "Intangible assets, net" in the accompanying
consolidated balance sheets. The consolidated statements of
earnings reflect the results of operations of these purchased
businesses from their dates of acquisition.
F-12 <PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions, except per share data)
3. ACCOUNTS RECEIVABLE, NET
December 31, December 31,
1994 1993
----------- -----------
Gross accounts receivable $ 270.7 $ 170.0
Less contractual allowances and
allowance for doubtful accounts (65.3) (51.0)
------- -------
$ 205.4 $ 119.0
======= =======
4. PROPERTY, PLANT AND EQUIPMENT, NET
December 31, December 31,
1994 1993
----------- -----------
Land $ 1.3 $ 0.4
Buildings and building improvements 1.8 1.9
Machinery and equipment 154.2 117.9
Leasehold improvements 44.2 27.2
Furniture and fixtures 22.0 14.5
Buildings under capital leases 9.6 9.6
------- -------
233.1 171.5
Less accumulated depreciation
and amortization (93.0) (71.4)
------- -------
$ 140.1 $ 100.1
======= =======
5. ACCRUED EXPENSES AND OTHER
December 31, December 31,
1994 1993
----------- -----------
Employee compensation and benefits $ 38.8 $ 27.9
Taxes other than federal taxes
on income 7.3 7.5
Deferred acquisition related
payments 15.9 11.4
Acquisition related reserves 21.8 1.9
Other 9.0 6.9
------- -------
$ 92.8 $ 55.6
======= =======
F-13<PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions, except per share data)
6. OTHER LIABILITIES
December 31, December 31,
1994 1993
----------- -----------
Deferred acquisition related
payments $ 19.2 $ 15.4
Acquisition related reserves 31.9 --
Other 8.4 6.1
------- -------
$ 59.5 $ 21.5
======= =======
7. LITIGATION SETTLEMENT
In the third quarter of 1994, the Company approved a
settlement of previously disclosed shareholder class and
derivative litigation (the "Litigation Settlement"). The litigation
consisted of two consolidated class action suits and a
consolidated shareholder derivative action brought in federal and
state courts in San Diego, California. The settlement involved
no admission of wrongdoing. In connection with the settlement, the
Company took a pre-tax special charge of $15.0 and a $6.0 charge
for expenses related to the settled litigation. Insurance payments
and payments from other defendants aggregate $55.0 plus expenses.
8. GOVERNMENT SETTLEMENT
In November 1990, the Company 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 Office of
Inspector General of the Department of Health and Human Services.
On December 18, 1992, the Company announced that it had entered
into agreements that concluded the investigation (the "Government
Settlement"). As a result of this settlement, the Company took a
one-time pre-tax charge of $136.0 in the fourth quarter of 1992.
The charge covered all estimated costs related to the
investigation and the settlement agreements. At December 31,
1994 and 1993, the remaining liability for the Government
Settlement and related expenses totalled $11.7 and $33.1,
respectively, and is reflected in the accompanying consolidated
balance sheets under the captions "Accrued Settlement Expenses".
F-14 <PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions)
9. LONG-TERM DEBT
On June 21, 1994, Intermediate Holdings II entered into a
credit agreement dated as of such date (the "Credit Agreement"),
with the banks named therein (the "Banks"), Citicorp USA, Inc.,
as administrative agent (the "Bank Agent"), and certain co-agents
named therein, which made available to Intermediate Holdings II a
term loan facility of $400.0 (the "Term Facility") and a
revolving credit facility of $350.0 (the "Revolving Credit
Facility" and, together with the Term Facility, the "Bank
Facility"). The Bank Facility provided funds for the Allied
Acquisition, for the refinancing of certain existing debt of
Allied and NHLI, to pay related fees and expenses and for general
corporate purposes of Intermediate Holdings II and its
subsidiaries, in each case subject to the terms and conditions
set forth therein.
The Credit Agreement provides that the Banks and the Bank
Agent will receive from Intermediate Holdings II customary
facility and administrative agent fees, respectively.
Intermediate Holdings II will pay a commitment fee on the average
daily unused portion of the Bank Facility of 0.5% per annum,
subject to a reduction to 0.375% per annum if certain financial
tests are met. Availability of funds under the Bank Facility is
conditioned on certain customary conditions, and the Credit
Agreement contains customary representations, warranties and
events of default. The Credit Agreement also requires the
Company to maintain certain financial ratios and tests, including
minimum debt service coverage ratios and net worth tests.
The Revolving Credit Facility matures in June 1999, with
semi-annual reductions of availability of $50.0, commencing in
December 1997. The Term Facility matures in December 2000, with
repayments in each quarter prior to maturity based on a specified
amortization schedule. The Bank Facility bears interest, at the
option of Intermediate Holdings II, at (i) Citibank, N.A.'s Base
Rate (as defined in the Credit Agreement), plus a margin of up to
0.75% per annum, based upon the Company's financial performance
or (ii) the Eurodollar rate for one, two, three or six month
interest periods (as selected by Intermediate Holdings II), plus
a margin varying between 1.25% and 2.00% per annum based upon the
Company's financial performance. At December 31, 1994, the
effective interest rate was 8.157%.
F-15 <PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions)
The Bank Facility is guaranteed by Intermediate Holdings I
and certain subsidiaries of Intermediate Holdings II and is
secured by pledges of stock and other assets of Intermediate
Holdings II and its subsidiaries.
Aggregate maturities on long-term debt are $39.0, $48.7,
$58.5, $68.2 and $77.9 for the years 1995 through 1999,
respectively.
10. STOCKHOLDERS' EQUITY
In connection with the corporate reorganization on June 7,
1994 discussed above, all of the 14,603,800 treasury shares held
by NHLI were cancelled. As a result, the $286.1 cost of such
treasury shares was eliminated with corresponding decreases in
the par value, additional paid-in capital and retained earnings
accounts of $0.2, $72.3 and $213.6, respectively.
In connection with the Allied Acquisition, the Company
announced that it terminated its 10 million share repurchase
program under which 7,795,800 common shares had been repurchased
and established a new $50.0 stock repurchase plan through which
the Company will acquire additional shares of the Company's
common stock from time to time in the open market. As of
December 31, 1994, there were no stock repurchases under the new
stock repurchase program.
11. INCOME TAXES
As discussed in Note 1, the Company adopted Statement 109
effective January 1, 1992. The cumulative effect of the change
in the method of accounting for income taxes was not material and
is therefore not presented separately in the accompanying
consolidated statements of earnings.
F-16 <PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions)
The provisions for income taxes in the accompanying
consolidated statements of earnings consist of the following:
Years Ended December 31,
1994 1993 1992
----- ----- -----
Current:
Federal $16.2 $48.9 $52.3
State and local 3.0 10.4 9.0
----- ----- -----
19.2 59.3 61.3
----- ----- -----
Deferred:
Federal 4.9 14.9 (32.3)
State and local 1.2 4.2 (7.5)
----- ----- -----
6.1 19.1 (39.8)
----- ----- -----
$25.3 $78.4 $21.5
===== ===== =====
The effective tax rates on earnings before income taxes is
reconciled to statutory federal income tax rates as follows:
Years Ended December 31,
1994 1993 1992
------ ------ ------
Statutory federal rate 35.0% 35.0% 34.0%
State and local income taxes,
net of federal income tax benefit 4.9 4.9 1.5
Other 5.8 1.1 (0.9)
------ ------ ------
Effective rate 45.7% 41.0% 34.6%
====== ====== ======
The significant components of deferred income tax expense
are as follows:
Years Ended December 31,
1994 1993 1992
------ ------ ------
Settlement and related expenses $ 2.5 $ 22.2 $(34.8)
Reserve for doubtful accounts 0.9 0.4 (2.1)
Other 2.7 (3.5) (2.9)
------ ------ ------
$ 6.1 $ 19.1 $(39.8)
====== ====== ======
F-17 <PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions)
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1994 and 1993 are as follows:
December 31,
1994 1993
----- ------
Deferred tax assets:
Settlement and related expenses, principally
due to accrual for financial reporting
purposes $10.7 $13.2
Accounts receivable, principally due to
allowance for doubtful accounts 8.4 5.5
Self insurance reserves, principally due
to accrual for financial reporting purposes 2.4 0.9
Compensated absences, principally due to
accrual for financial reporting purposes 2.8 2.0
Acquisition related reserves, principally
due to accrual for financial reporting
purposes 8.0 --
Other 4.4 6.6
------ ------
Total gross deferred tax assets 36.7 28.2
------ ------
Deferred tax liabilities:
Intangible assets, principally due to
differences in amortization (22.1) (3.7)
Property, plant and equipment, principally
due to differences in depreciation (0.8) (4.3)
Other (5.0) (1.7)
------ ------
Total gross deferred tax liabilities (27.9) (9.7)
------ ------
Net deferred tax asset $ 8.8 $18.5
====== ======
A valuation allowance was deemed unnecessary at December 31,
1994 and 1993. Based on the Company's history of taxable income
and its projection of future earnings, it believes that it is
more likely than not that sufficient taxable income will be
generated in the foreseeable future to realize the deferred tax
asset.
12. STOCK OPTIONS
In 1988, the Company adopted the 1988 Stock Option Plan,
reserving 2,000,000 shares of common stock for issuance pursuant
to options and stock appreciation rights that may be granted
under the plan. The Stock Option Plan was amended in 1990 to
limit the number of options to be issued under the Stock Option
Plan to
F-18<PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions, except per share data)
550,000 in the aggregate (including all options previously
granted). In 1991, the number of shares authorized for issuance
under the Stock Option Plan was increased to an aggregate of
2,550,000.
In 1994, the Company adopted the 1994 Stock Option Plan,
reserving 3,000,000 shares of common stock for issuance pursuant
to options and stock appreciation rights that may be granted
under the plan.
The following table summarizes grants of non-qualified
options made by the Company to officers and key employees for
both plans. For each grant, the exercise price was equivalent to
the fair market price per share on the date of grant. Also, for
each grant, one-third of the shares of common stock subject to
such options vested on the date of grant and one-third vests on
each of the first and second anniversaries of such date, subject
to their earlier expiration or termination.
Exercise
Date Options Price Date of
of Grant Granted per Share Expiration
------------- --------- --------- ----------------
February 1989 240,000 $ 7.750 February 8, 1999
July 1990 100,000 13.500 July 9, 2000
October 1991 500,000 20.250 October 8, 2001
October 1992 25,000 20.000 October 2, 2002
December 1992 300,000 16.625 December 21, 2002
January 1993 775,000 16.625 January 18, 2003
July 1993 43,500 17.875 July 6, 2003
February 1994 1,097,500 13.875 February 10, 2004
June 1994 147,000 7.690 June 23, 2004
July 1994 797,500 11.750 July 12, 2004
F-19<PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions)
Changes during 1992, 1993 and 1994 in options outstanding
under the plans were as follows:
Number Exercise Price
of Options per Option
---------- -----------------
Outstanding at January 1, 1992 636,900 $ 7.750 - $20.250
Granted 325,000 $16.625 - $20.000
Exercised (30,662) $ 7.750 - $20.250
Canceled or expired (67,167) $13.500 - $20.250
----------
Outstanding at December 31, 1992 864,071 $ 7.750 - $20.250
Granted 818,500 $16.625 - $17.875
Exercised (33,400) $ 7.750
Canceled or expired (84,835) $16.625 - $20.250
----------
Outstanding at December 31, 1993 1,564,336 $ 7.750 - $20.250
Granted 2,042,000 $ 7.690 - $13.875
Exercised (11,125) $ 7.690 - $ 7.750
Canceled or expired (70,001) $13.875 - $20.250
----------
Outstanding at December 31, 1994 3,525,210 $ 7.690 - $20.250
==========
Exercisable at December 31, 1994 2,014,025 $ 7.690 - $20.250
==========
13. COMMITMENTS AND CONTINGENCIES
The Company is involved in certain claims and legal actions
arising in the ordinary course of business. In the opinion of
management, based upon the advice of counsel, the ultimate
disposition of these matters will not have a material adverse
effect on the financial position or results of operations of the
Company.
For all insurance coverages prior to May 7, 1991, the
Company paid Revlon a predetermined amount each year, based upon
the Company's historical loss experience and other relevant
factors, in respect of the Company's share of the self-insured
risks and risks insured by outside insurance carriers, in each
case applicable to Revlon and its subsidiaries. Regardless of
the Company's and Revlon's actual loss experience, the Company
will not be required to pay Revlon amounts in excess of the
Company's predetermined share of such liability for losses
incurred before May 7, 1991.
F-20<PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions)
Under the Company's present insurance programs, coverage is
obtained for catastrophic exposures as well as those risks
required to be insured by law or contract. The Company is
responsible for the uninsured portion of losses occurring on or
after May 7, 1991 related primarily to general, product and vehicle
liability and workers' compensation. The self-insured retentions are
on a per occurrence basis without any aggregate annual limit.
Provisions for losses expected under these programs are recorded
based upon the Company's estimates of the aggregated liability
of claims incurred. At December 31, 1994 and 1993, the Company had
provided letters of credit aggregating approximately $4.9 and
$3.7, respectively, in connection with certain insurance
programs.
During 1991, the Company guaranteed a $9.0, 5 year loan to a
third party for construction of a new laboratory to replace one
of the Company's existing facilities. Following its completion
in November of 1992, the building was leased to the Company by
this third party. Such transaction is treated as a capital lease
for financial reporting purposes. The associated lease term
continues for a period of 15 years, expiring in 2007. Under the
terms of this guarantee, as modified, the Company is required to
maintain 105% of the outstanding loan balance including any
overdue interest as collateral in a custody account established
and maintained at the lending institution. As of December 31,
1994 and 1993, the Company had placed $9.5 of investments in the
custody account. Such investments are included under the caption
"Other assets, net" in the accompanying consolidated balance
sheets.
The Company does not anticipate incurring any loss as a
result of this loan guarantee due to protection provided by the
terms of the lease. Accordingly, the Company, if required to
repay the loan upon default of the borrower (and ultimate
lessor), is entitled to a rent abatement equivalent to the amount
of repayment made by the Company on the borrower's behalf, plus
interest thereon at a rate equal to 2% over the prime rate.
The Company has a contract for the purchase of telephone
services through 1999. The total purchase commitment is $30.0
with minimum purchases of $6.0 per year.
F-21<PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions)
The Company leases various facilities and equipment under
non-cancelable lease arrangements. Future minimum rental
commitments for leases with noncancelable terms of one year or
more from December 31, 1994 are as follows:
Operating Capital
--------- -------
1995 $ 19.5 $ 1.2
1996 16.4 1.3
1997 14.1 1.4
1998 12.1 1.5
1999 11.0 1.6
Thereafter 40.4 16.9
--------- -------
Total minimum lease payments 113.5 23.9
Less amount representing
interest -- 14.1
--------- -------
Total minimum operating
lease payments and
present value of minimum
capital lease payments $113.5 $ 9.8
========= =======
Rental expense, which includes rent for real estate,
equipment and automobiles under operating leases, amounted to
$34.6, $29.9 and $27.0 for the years ended December 31, 1994,
1993 and 1992, respectively.
14. RETIREMENT PLANS
The Company maintains a defined contribution pension plan
for all eligible employees. Eligible employees are defined as
individuals who are age 21 or older and have been employed by the
Company for at least six consecutive months and completed 1,000
hours of service. Company contributions to the plan are based on
a percentage of employee contributions. The cost of this plan
was $3.6, $3.0, and $2.5 in 1994, 1993, and 1992, respectively.
In addition, substantially all employees of NHLI are covered
by a defined benefit retirement plan (the "Plan"). The benefits
to be paid under the Plan are based on years of credited service
and average final compensation. Employees of Allied become
eligible under the Plan effective January 1, 1995.
Effective December 31, 1994, the Company adopted certain
amendments to the Plan which resulted in a decrease of
approximately $9.5 million in the projected benefit obligation.
F-22<PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions)
Under the requirements of Statement of Financial Accounting
Standards No. 87, "Employers Accounting for Pensions", the
Company recorded an additional minimum pension liability
representing the excess accumulated benefit obligation over plan
assets at December 31, 1993. A corresponding amount was
recognized as an intangible asset to the extent of unrecognized
prior service cost, with the balance recorded as a separate
reduction of stockholders' equity. The Company recorded an
additional liability of $3.0, an intangible asset of $0.6, and a
reduction of stockholders' equity of $2.4. Such amounts were
eliminated as a result of the amendments to the Plan effective
December 31, 1994.
The components of net periodic pension cost are summarized
as follows:
Years ended
December 31,
--------------
1994 1993
----- -----
Service cost $ 5.5 $ 3.7
Interest cost 3.5 2.6
Actual return on plan assets 0.1 (1.3)
Net amortization and deferral (1.4) 0.4
------ -----
Net periodic pension cost $ 7.7 $ 5.4
====== =====
F-23<PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions, except per share data)
The status of the Plan is as follows:
December 31,
1994 1993
----- -----
Actuarial present value of
benefit obligations:
Vested benefits $26.6 $25.0
Non-vested benefits 3.5 4.0
----- -----
Accumulated benefit obligation 30.1 29.0
Effect of projected future salary
increases 1.9 13.9
----- -----
Projected benefit obligation 32.0 42.9
Fair value of plan assets 31.6 24.2
----- -----
Unfunded projected benefit obligation (0.4) (18.7)
Unrecognized prior service cost (9.7) 0.5
Unrecognized net loss 8.4 16.3
Additional minimum liability -- (3.0)
----- -----
Accrued pension cost $(1.7) $(4.9)
===== =====
Assumptions used in the accounting for the Plan were:
1994 1993
------ ------
Weighted average discount rate 8.5% 7.0%
Weighted average rate of increase
in future compensation levels 4.0% 5.5%
Weighted average expected long-term
rate of return 9.0% 9.0%
F-24<PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions, except per share data)
15. SALE OF SUBSIDIARY
On December 30, 1994, the Company completed the sale of
Reference Pathology Laboratory, Inc. and subsidiary ("RPL"), a
wholly owned subsidiary of Allied, for cash of approximately
$10.1 and a note receivable of $0.5. No gain or loss was
recognized on the sale. The net cash proceeds from the sale were
used to repay a portion of long-term debt. In connection with
the agreement of sale, the Company will refer certain tests to
RPL in an amount not less than $2.3 per year for five years based
on agreed upon fees.
16. DIVIDENDS
On December 15, 1993, the Company declared a quarterly
dividend in the aggregate amount of approximately $6.8 ($0.08 per
share), which was paid on January 25, 1994 to holders of record
of common stock at the close of business on January 4, 1994.
Such dividend was paid entirely with cash on hand.
17. QUARTERLY DATA (UNAUDITED)
The following is a summary of unaudited quarterly data:
Year Ended December 31, 1994
-------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
-------- -------- -------- -------- -------
Net sales $185.0 $203.9 $248.7 $234.9 $872.5
Gross profit 52.7 67.4 81.0 74.4 275.5
Net earnings 8.1 14.1 0.2 7.7 30.1
Earnings per
common share 0.10 0.16 -- 0.10 0.36
Year Ended December 31, 1993
------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
------- -------- -------- -------- -------
Net sales $199.8 $197.0 $194.8 $168.9 $760.5
Gross profit 90.7 89.2 85.2 50.9 316.0
Net earnings 33.6 33.2 38.2 7.7 112.7
Earnings per
common share 0.36 0.37 0.43 0.10 1.26
F-25<PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions, except per share data)
In the third quarter of 1994, the Company approved a
settlement of previously disclosed shareholder class and
derivative litigation. In connection with the settlement, the
Company took a pre-tax special charge of $15.0 and a $6.0 charge
for expenses related to the settled litigation.
In the fourth quarter of 1994, the Company took a non-
recurring charge of approximately $3.9 for lease costs and the
write-off of leasehold improvements related to the relocation of
certain of the Company's regional laboratories.
Expense reimbursement and termination fees received in
connection with the Company's attempt to purchase Damon
Corporation, less related expenses and the write-off of certain
bank financing costs, resulted in a one-time pre-tax gain of
$15.3 in the third quarter of 1993.
Medicare's denial of claims for ferritin and HDL tests,
which began in September 1993 and continued through December 20,
1993 when the Company introduced new test forms and procedures,
and related suspended billings reduced net sales and gross profit
by $18.6 in the fourth quarter of 1993.
18. MERGER AGREEMENT
The Company has entered into an Agreement and Plan of Merger
dated as of December 13, 1994 (the"Merger Agreement") with 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 the Company with the Company as the
surviving corporation (the "Merger"), and pursuant to which,
subject to certain exceptions, each outstanding share of common
stock, par value $0.01 per share, of the Company, will be
converted into (i) 0.72 of a share of common stock of the Company
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 Company common stock as would, in the aggregate and after
giving effect to the Merger and the Company common stock owned by
HLR, RBL and their subsidiaries immediately after the effective
time of the Merger, equal 49.9% of the total number of shares of
F-26<PAGE>
<PAGE>
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in Millions, except per share data)
Company common stock outstanding immediately after the effective
time of the Merger (after giving effect to the issuance of
Company common stock in respect of the Company employee stock
options in connections with the Merger).
In connection with the Merger, the Company currently intends
to declare a dividend, payable to holders of record of shares of
Company common stock as of the third business day prior to the
date of the special meeting of the stockholders to consider and
vote on the Merger, which dividend will consist of 0.16308 of a
warrant per outstanding share of Company common stock, each such
warrant (a "Warrant") representing the right to purchase one newly
issued share of Company common stock for $22.00 (subject to
adjustments) on the fifth anniversary of the issuance of the Warrant.
In addition, the Merger Agreement provides for the issuance to and
purchase by Roche, for a purchase price of approximately
$51,048,900, of 8,325,000 Warrants to purchase shares of Company
common stock (the "Roche Warrants"), which Warrants will have the
terms described in the preceding sentence.
The aggregate cash consideration of approximately $474.7 to
be paid to stockholders of the Company in the Merger will be
financed from three sources: a cash contribution by the Company
of approximately $288.0 out of proceeds of borrowings by the
Company in an equal amount, a cash contribution to be made by HLR
in the amount of approximately $135.7 and the proceeds from the
issuance of the Roche Warrants.
The Company has obtained a commitment for a credit facility,
which will include a term loan facility of not more than $800.0
and a revolving credit facility of not more than $400.0, to
refinance the Company's existing indebtedness and to finance the
Company's portion of the total cash consideration to the paid to
stockholders of the Company in the Merger. The specific terms
and conditions of the credit facility are currently under
negotiation.
Restructuring costs of approximately $84.0 million are
expected to be recorded by the Company at the close of the
Merger. These costs will reflect the write-off of deferred
financing costs related to the repayment of the Company's
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 the
Company associated with the Merger.
F-27<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Schedule VIII
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years Ended December 31, 1994, 1993 and 1992
(Dollars in Millions)
- ------------------------------------------------------------------------------
Balance Charged Other
at to costs (Deduct- Balance
beginning and ions) at end
of year Acquisitions expenses Additions of year
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994:
Applied against asset
accounts:
Contractual allowances
and allowance for
doubtful accounts $ 51.0 $ 18.5 $110.0 $(95.7) $ 65.3
====== ====== ====== ======= ======
Year ended December 31, 1993
Applied against asset
accounts:
Contractual allowances
and allowance for
doubtful accounts $ 72.9 - $ 55.1 $(77.0) $ 51.0
====== ====== ====== ======= ======
Year ended December 31, 1992:
Applied against asset
accounts:
Contractual allowances
and allowance for
doubtful accounts $ 63.0 - $ 75.2 $(65.3) $ 72.9
====== ====== ======= ======== ======
F-28<PAGE>
<PAGE>
APPENDIX A
NARRATIVE DESCRIPTION OF STOCK PERFORMANCE GRAPH
A narrative description of the graphic presentation of the stock
performance graph required by Item 402(1) of Regulation S-K is
included in Part III, Item 11 "EXECUTIVE COMPENSATION" of this
Form 10-K.
</TABLE>
EXHIBIT 2.4
CONFORMED COPY
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
ARTICLE 1
THE MERGER
SECTION 1.1. The Merger . . . . . . . . . . . . . . . . 2
SECTION 1.2. Conversion of Shares . . . . . . . . . . . 2
SECTION 1.3. Surrender and Payment . . . . . . . . . . 4
SECTION 1.4. Warrants . . . . . . . . . . . . . . . . . 5
SECTION 1.5. Stock Options . . . . . . . . . . . . . . 6
ARTICLE 2
THE SURVIVING CORPORATION
SECTION 2.1. Certificate of Incorporation . . . . . . . 7
SECTION 2.2. Bylaws . . . . . . . . . . . . . . . . . . 7
SECTION 2.3. Directors and Officers . . . . . . . . . . 7
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF NHL
SECTION 3.1. Corporate Existence and Power. . . . . . . 8
SECTION 3.2. Corporate Authorization. . . . . . . . . . 8
SECTION 3.3. Governmental Authorization. . . . . . . . 8
SECTION 3.4. Non-Contravention . . . . . . . . . . . . 9
SECTION 3.5. Capitalization . . . . . . . . . . . . . . 9
SECTION 3.6. Subsidiaries. . . . . . . . . . . . . . . 10
SECTION 3.7. SEC Filings . . . . . . . . . . . . . . . 11
SECTION 3.8. Financial Statements. . . . . . . . . . . 11
SECTION 3.9. Disclosure Documents. . . . . . . . . . . 11
SECTION 3.10. Absence of Certain Changes . . . . . . . . 12
SECTION 3.11. No Undisclosed Material Liabilities . . . 13
SECTION 3.12. Litigation . . . . . . . . . . . . . . . . 14
SECTION 3.13. Taxes . . . . . . . . . . . . . . . . . . 14
SECTION 3.14. ERISA . . . . . . . . . . . . . . . . . . 15
SECTION 3.15. Compliance with Laws; Permits . . . . . . 18
SECTION 3.16. Finders' Fees . . . . . . . . . . . . . . 18
SECTION 3.17. Other Information . . . . . . . . . . . . 18
SECTION 3.18. Environmental Matters . . . . . . . . . . 18
SECTION 3.19. Takeover Statutes. . . . . . . . . . . . . 20
SECTION 3.20. Opinion of Financial Advisor . . . . . . . 20
SECTION 3.21. Vote Required . . . . . . . . . . . . . . 20
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF HLR AND RBL
SECTION 4.1. Corporate Existence and Power . . . . . . 21
SECTION 4.2. Corporate Authorization . . . . . . . . . 21
SECTION 4.3. Governmental Authorization . . . . . . . . 21
SECTION 4.4. Non-Contravention . . . . . . . . . . . . 21
SECTION 4.5. Capitalization of RBL . . . . . . . . . . 22
SECTION 4.6. Subsidiaries . . . . . . . . . . . . . . . 22
SECTION 4.7. Financial Statements . . . . . . . . . . . 23
SECTION 4.8. Disclosure Documents . . . . . . . . . . . 23
SECTION 4.9. Absence of Certain Changes . . . . . . . . 23
SECTION 4.10. No Undisclosed Material Liabilities . . . 25
SECTION 4.11. Litigation . . . . . . . . . . . . . . . . 25
SECTION 4.12. Taxes . . . . . . . . . . . . . . . . . . 25
SECTION 4.13. ERISA . . . . . . . . . . . . . . . . . . 26
SECTION 4.14. Compliance with Laws; Permits . . . . . . 29
SECTION 4.15. Finders' Fees . . . . . . . . . . . . . . 29
SECTION 4.16. Environmental Matters . . . . . . . . . . 29
SECTION 4.17. HLR Cash Consideration . . . . . . . . . . 30
SECTION 4.18. Takeover Statutes . . . . . . . . . . . . 30
SECTION 4.19. Ownership of NHL Shares . . . . . . . . . 31
ARTICLE 5
COVENANTS OF NHL
SECTION 5.1. Conduct of NHL . . . . . . . . . . . . . . 31
SECTION 5.2. Stockholder Meeting; Proxy Material;
Registration Statement; Stock Exchange Listing. . . . . 32
SECTION 5.3. Access to Information; Confidentiality . . 33
SECTION 5.4. Other Offers . . . . . . . . . . . . . . . 34
SECTION 5.5. Notices of Certain Events . . . . . . . . 35
SECTION 5.6. Tax Matters . . . . . . . . . . . . . . . 35
SECTION 5.7. Board Composition . . . . . . . . . . . . 36
ARTICLE 6
COVENANTS OF HLR AND RBL
SECTION 6.1. Conduct of RBL . . . . . . . . . . . . . . 36
SECTION 6.2. Access to Information; Confidentiality . . 37
SECTION 6.3. Voting of Shares . . . . . . . . . . . . . 38
SECTION 6.4. Notices of Certain Events . . . . . . . . 38
SECTION 6.5. Tax Matters . . . . . . . . . . . . . . . 39
SECTION 6.6. NHL Employment Agreements. . . . . . . . . 39
SECTION 6.7. Certain Actions Regarding RBL . . . . . . 39
ARTICLE 7
COVENANTS OF HLR, RBL AND NHL
SECTION 7.1. Reasonable Efforts . . . . . . . . . . . . 40
SECTION 7.2. Cash Consideration . . . . . . . . . . . . 40
SECTION 7.3. Public Announcements . . . . . . . . . . . 41
SECTION 7.4. Further Assurances . . . . . . . . . . . . 41
SECTION 7.5. HLR Stockholder Agreement . . . . . . . . 41
SECTION 7.6. Indemnification and Insurance . . . . . . 41
ARTICLE 8
TAX MATTERS
SECTION 8.1. Definitions . . . . . . . . . . . . . . . 42
SECTION 8.2. Tax Covenants . . . . . . . . . . . . . . 42
SECTION 8.3. Termination of Existing Tax Sharing
Agreements . . . . . . . . . . . . . . . . . 44
SECTION 8.4. Tax Sharing . . . . . . . . . . . . . . . 44
SECTION 8.5. Cooperation on Tax Matters . . . . . . . . 47
ARTICLE 9
CONDITIONS TO THE MERGER
SECTION 9.1. Conditions to the Obligations of Each Party 47
SECTION 9.2. Conditions to the Obligations of HLR and RBL 48
SECTION 9.3. Conditions to the Obligations of NHL . . . 49
ARTICLE 10
TERMINATION
SECTION 10.1. Termination . . . . . . . . . . . . . . . 50
SECTION 10.2. Effect of Termination . . . . . . . . . . 51
ARTICLE 11
MISCELLANEOUS
SECTION 11.1. Notices . . . . . . . . . . . . . . . . . 52
SECTION 11.2. Survival of Agreements and Representations
and Warranties . . . . . . . . . . . . . . . 52
SECTION 11.3. Amendments; No Waivers . . . . . . . . . . 53
SECTION 11.4. Fees and Expenses . . . . . . . . . . . . 53
SECTION 11.5. Successors and Assigns . . . . . . . . . . 53
SECTION 11.6. Governing Law . . . . . . . . . . . . . . 54
SECTION 11.7. Counterparts; Effectiveness . . . . . . . 54
SECTION 11.8. Certain Definitions . . . . . . . . . . . 54
SECTION 11.9. Agreements of Roche . . . . . . . . . . . 54
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
This Table of Contents is not a part of this Agreement.<PAGE>
TABLE OF DEFINED TERMS
Term Section
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
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)
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)
This Table of Defined Terms is not part of the Agreement.<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 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 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 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 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.
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 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 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
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;
(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, 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");
(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 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 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 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. 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.
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.
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.
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 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 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 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
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 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 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 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;
(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;
(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 this Section 5.3 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.
(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 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, 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 11.4(b) 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 2.1 and the
treatment of any Employee Stock Options pursuant to Section
1.5 at the NHL Stockholder Meeting.
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.
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.
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.
"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).
(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 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 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;
(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;
(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) (A) 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, (i) 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 (ii) NHL shall have received a certificate or
certificates signed by such executive officers of Roche as
reasonably requested by NHL to the foregoing effect.
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.
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 11.2
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 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 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.<PAGE>
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.
By: /s/ James R. Maher
--------------------
Name: James R. Maher
Title: President and Chief
Executive Officer
HLR HOLDINGS INC.
By: /s/ Bradford T. Smith
-----------------------
Name: Bradford T. Smith
Title: Assistant Secretary
ROCHE BIOMEDICAL LABORATORIES,
INC.
By: /s/ James B. Powell
----------------------
Name: James B. Powell
Title: President
HOFFMANN-LA ROCHE INC.
By: /s/ Thomas P. MacMahon
------------------------
Name: Thomas P. MacMahon
Title: Senior Vice President
EXHIBIT 2.5
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
ALLIED CLINICAL LABORATORIES, INC.
AND
REFERENCE PATHOLOGY HOLDING COMPANY, INC.
DATED AS OF DECEMBER 30, 1994<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I:
PURCHASE AND SALE OF SHARES . . . . . . . . . . . . . . . . 1
Section 1.01. Transfer of Shares . . . . . . . . . . . 1
ARTICLE II:
CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.01. Purchase Price . . . . . . . . . . . . . 1
Section 2.02. Payment of Purchase Price . . . . . . . . 1
Section 2.03. Satisfaction of Existing Obligations . . 2
Section 2.04. Data Processing and Conversion Support
Services . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE III:
CLOSING; OBLIGATIONS OF THE PARTIES . . . . . . . . . . . . 2
Section 3.01. Closing Date . . . . . . . . . . . . . . 2
Section 3.02. Obligations of the Parties at the Closing 2
ARTICLE IV:
REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . 4
Section 4.01. Ownership of Shares; Validity and
Enforceability . . . . . . . . . . . . . . . . . . . . . . . 4
Section 4.02. Organization, Good Standing and
Qualification . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 4.03. Corporate Power and Authority; Due
Authorization . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 4.04. Subsidiaries . . . . . . . . . . . . . . 5
Section 4.05. No Violation . . . . . . . . . . . . . . 5
Section 4.06. Capitalization . . . . . . . . . . . . . 6
Section 4.07. Financial Statements . . . . . . . . . . 6
Section 4.08. Assets . . . . . . . . . . . . . . . . . 6
Section 4.09. No Undisclosed Liability . . . . . . . . 6
Section 4.10. Tax Matters . . . . . . . . . . . . . . . 6
Section 4.11. Litigation . . . . . . . . . . . . . . . 7
Section 4.12. Insurance . . . . . . . . . . . . . . . . 7
Section 4.13. Employees and Fringe Benefit Plans . . . 8
Section 4.14. Banking Relationships . . . . . . . . . . 9
Section 4.15. Professional Fees . . . . . . . . . . . . 10
Section 4.16. Consents and Approvals . . . . . . . . . 10
Section 4.17. Corporate Records . . . . . . . . . . . . 10
Section 4.18. Full Disclosure . . . . . . . . . . . . . 10
ARTICLE V:
REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . 10
Section 5.01. Organization and Good Standing . . . . . 10
Section 5.02. Authorization . . . . . . . . . . . . . . 11
Section 5.03. Valid and Binding Agreement . . . . . . . 11
Section 5.04. No Violation . . . . . . . . . . . . . . 11
Section 5.05. Professional Fees . . . . . . . . . . . . 11
(i) <PAGE>
Page
Section 5.06. Consents and Approvals . . . . . . . . . 12
Section 5.07. Full Disclosure . . . . . . . . . . . . . 12
Section 5.08. No View to Distribution . . . . . . . . . 12
ARTICLE VI:
COVENANTS AND AGREEMENTS OF SELLER . . . . . . . . . . . . 12
Section 6.01. Further Assurances . . . . . . . . . . . 12
Section 6.02. Confidentiality . . . . . . . . . . . . . 12
Section 6.03. Taxes . . . . . . . . . . . . . . . . . . 13
Section 6.04. Consents and Approvals . . . . . . . . . 13
Section 6.05. Employees . . . . . . . . . . . . . . . . 13
Section 6.06. Seller Savings Deferral Plan . . . . . . 13
ARTICLE VII:
COVENANTS AND AGREEMENTS OF BUYER . . . . . . . . . . . . . 13
Section 7.01. Debt Limitation . . . . . . . . . . . . . 14
Section 7.02. Employee Benefits . . . . . . . . . . . . 14
ARTICLE VIII:
CONDITIONS TO BUYER'S OBLIGATIONS . . . . . . . . . . . . . 14
Section 8.01. Representations and Warranties . . . . . 14
Section 8.02. Performance . . . . . . . . . . . . . . . 14
Section 8.03. Officer's Certificate . . . . . . . . . . 14
Section 8.04. Opinion of Counsel . . . . . . . . . . . 14
Section 8.05. Consents and Approvals . . . . . . . . . 15
Section 8.06. Litigation . . . . . . . . . . . . . . . 15
Section 8.07. Services Agreement . . . . . . . . . . 15
Section 8.08. Seller Non-Solicitation Agreement . . . 15
Section 8.09. Citicorp USA Release . . . . . . . . . . 15
ARTICLE IX:
CONDITIONS TO SELLER'S OBLIGATIONS . . . . . . . . . . . . 15
Section 9.01. Representations and Warranties . . . . . 15
Section 9.02. Performance . . . . . . . . . . . . . . . 15
Section 9.03. Officer's Certificate . . . . . . . . . . 15
Section 9.04. Opinion of Counsel . . . . . . . . . . . 16
Section 9.05. Services Agreement . . . . . . . . . . . 16
Section 9.06. Escrow Note . . . . . . . . . . . . . . . 16
ARTICLE X:
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . 16
Section 10.01. Indemnification by Seller . . . . . . . 16
Section 10.02. Indemnification by Buyer . . . . . . . . 16
Section 10.03. Procedure . . . . . . . . . . . . . . . 16
(ii) <PAGE>
Page
ARTICLE XI:
SURVIVAL OF REPRESENTATION . . . . . . . . . . . . . . . . 17
Section 11.01. Survival of Representations . . . . . . 17
Section 11.02. Statements as Representations . . . . . 17
Section 11.03. Remedies Exclusive . . . . . . . . . . . 17
ARTICLE XII:
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 18
Section 12.01. Expenses . . . . . . . . . . . . . . . . 18
Section 12.02. Assignability; Parties in Interest . . . 18
Section 12.03. Entire Agreement; Amendments . . . . . . 18
Section 12.04. Headings . . . . . . . . . . . . . . . . 18
Section 12.05. Severability . . . . . . . . . . . . . . 18
Section 12.06. Notices . . . . . . . . . . . . . . . . 19
Section 12.07. Governing Law . . . . . . . . . . . . . 19
Section 12.08. Counterparts . . . . . . . . . . . . . . 19
EXHIBIT A: ESCROW NOTE . . . . . . . . . . . . . . . . . . . A-1
EXHIBIT B: EMPLOYMENT TERMINATION AGREEMENT . . . . . . . . B-1
EXHIBIT C: SERVICES AGREEMENT . . . . . . . . . . . . . . . C-1
EXHIBIT D: SELLER NON-SOLICITATION AGREEMENT . . . . . . . . D-1
(iii) <PAGE>
STOCK PURCHASE AGREEMENT
This Agreement (the "Agreement") is made and entered into
this 30th day of December, 1994, by and between Reference
Pathology Holding Company, Inc., a Tennessee corporation having
its principal place of business in Nashville, Tennessee (the
"Buyer") and Allied Clinical Laboratories, Inc. (the "Seller").
WHEREAS, Seller owns all of the issued and outstanding
shares of the capital stock of Reference Pathology Laboratory,
Inc., a Delaware corporation (the "Company");
WHEREAS, Buyer desires to acquire from Seller, and Seller
desires to sell to Buyer, all of the issued and outstanding
shares of the capital stock of the Company upon and subject to
the terms and conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises,
covenants and agreements herein contained, the parties agree as
follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
1.01. Transfer of Shares. Subject to all of the terms
and conditions of this Agreement, at the Closing (as defined in
Section 3.01), Seller hereby agrees to sell, transfer and convey
to Buyer, and Buyer agrees to purchase and acquire from Seller,
free and clear of all liens, claims, charges, restrictions,
security interests, equities, proxies, pledges and encumbrances
of any kind, 1,000 shares of the common stock, $.01 par value per
share, of the Company, which constitute all of the issued and
outstanding shares of the capital stock of the Company (the
foregoing shares of the Company are hereinafter collectively
referred to as the "Shares").
ARTICLE II
CONSIDERATION
2.01. Purchase Price. The Purchase Price for the Shares
shall be (a) $10,148,180 cash and (b) a $500,000 promissory note
of Buyer issued and delivered in accordance with Section 2.02(b)
hereof (the "Purchase Price"). The parties hereto agree and
acknowledge that $10,000 of the Purchase Price shall be deemed to
be allocated to the Seller Non-Solicitation Agreement attached
hereto and made a part hereof as Exhibit D-1.
2.02. Payment of Purchase Price. (a) At the Closing,
the Buyer shall make a wire transfer to an account designated by<PAGE>
the Seller in an amount equal to the cash portion of the Purchase
Price.
(b) At the Closing, the Buyer shall pay the non-cash
portion of the Purchase Price to the Seller by delivering to the
Seller, Buyer's promissory note, which note shall be
substantially in the form attached hereto as Exhibit A (the
"Escrow Note").
2.03. Satisfaction of Existing Obligations. At the
Closing, Buyer shall cause Dr. Robert R. West ("West") to execute
and deliver to Seller and National Health Laboratories
Incorporated ("NHL"), and Seller shall execute and deliver, and
shall cause NHL to execute and deliver, to Buyer and West, that
certain Employment Termination Agreement (the "Employment
Termination Agreement") substantially in the form of Exhibit B
attached hereto.
2.04. Data Processing and Conversion Support Services.
After the Closing, Seller will provide Buyer and the Company with
the data processing services and conversion support identified on
Schedule 2.04(a) attached hereto) from Seller's data processing
department for three months after the Closing at no charge to
Buyer or the Company and for a period of nine months thereafter
at the option of Buyer and the Company at the rates set forth on
Schedule 2.04(b) hereto. Except as provided otherwise on
Schedule 2.04(a), on the Closing Date, Seller will be ready to
provide data processing services for the Company (as a stand
alone entity) at the same level of service as is currently
provided by Seller to the Company.
ARTICLE III
CLOSING; OBLIGATIONS OF THE PARTIES
3.01. Closing Date. The documents to be delivered and
the payments to be made at the closing (the "Closing") shall be
delivered and made at 10:00 a.m., local time, on December 30,
1994 at the offices of Stokes & Bartholomew, P.A., Nashville,
Tennessee, or at such other time and place as the parties hereto
mutually agree (the "Closing Date").
3.02. Obligations of the Parties at the Closing.
(a) At the Closing, Buyer shall deliver to the Seller
and NHL:
(i) the consideration as specified in Section
2.01, including the Escrow Note;
2<PAGE>
(ii) a copy of resolutions of the Board of
Directors of Buyer, certified by Buyer's Secretary, authorizing
the execution, delivery and performance of this Agreement and the
other documents referred to herein to be executed by Buyer, and
the consummation of the transactions contemplated hereby;
(iii) a certificate of Buyer certifying as to the
accuracy of Buyer's representations and warranties at and as of
the Closing and that Buyer has performed or complied with all of
the covenants, agreements, terms, provisions and conditions to be
performed or complied with by Buyer at or before the Closing;
(iv) the opinion of Stokes & Bartholomew, P.A.,
legal counsel for Buyer;
(v) the Services Agreement by and among Seller,
NHL and Buyer substantially in the form of Exhibit C hereto (the
"Services Agreement") and the Employment Termination Agreement;
and
(vi) such other certificates and documents as
Seller or its counsel may reasonably request.
(b) At the Closing, Seller and NHL will deliver to
Buyer:
(i) stock certificates for the Shares, free and
clear of all liens, claims, charges, restrictions, security
interests, proxies, pledges, equities or encumbrances of any
kind, which certificates shall be duly endorsed to Buyer or
accompanied by duly executed stock powers in form satisfactory to
Buyer;
(ii) a copy of Resolutions of the Board of
Directors certified by Seller's Secretary, authorizing the
execution, delivery and performance of this Agreement and the
other documents referred to herein to be executed by Seller, and
the consummation of the transactions contemplated hereby;
(iii) a certificate of the Seller certifying as to
the accuracy of Seller's representations and warranties at and as
of the Closing and that it has performed or complied with all of
the covenants, agreements, terms, provisions and conditions to be
performed or complied with by it at or before the Closing;
(iv) resignations of those officers and directors
of the Company identified by Buyer, effective as of the Closing
Date;
(v) the opinion of Coffield, Ungaretti & Harris;
3<PAGE>
(vi) the Services Agreement and the Employment
Termination Agreement;
(vii) the Non-Solicitation Agreement executed by
each of NHL and Seller substantially in the form of Exhibit D
attached hereto ("Seller Non-Solicitation Agreement");
(viii) physical control of the Company's First Union
Bank lock box account; and
(ix) such other certificates and documents as
Buyer or its counsel may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
In order to induce Buyer to enter into this Agreement and
consummate the transactions contemplated hereby, Seller hereby
represents and warrants as follows:
4.01. Ownership of Shares; Validity and Enforceability.
Seller represents and warrants that (i) Seller is the record and
beneficial owner of the Shares, free and clear of all liens,
claims, charges, restrictions, security interests, equities,
proxies, pledges or encumbrances of any kind, except for the lien
and security interest of Citicorp USA, Inc.; (ii) Seller has the
full right, power, authority and capacity to sell and transfer
the respective Shares owned by such Seller; (iii) by virtue of
the transfer of the Shares to Buyer at the Closing, Buyer will
obtain full title to such shares, free and clear of all liens,
claims, charges, restrictions, security interests, equities,
proxies, pledges, or encumbrances of any kind. This Agreement
constitutes a legal, valid and binding agreement of the Seller,
enforceable against Seller in accordance with its terms. As of
the Closing Date, all intercompany receivables and payables
between Seller and Buyer shall be cancelled.
4.02. Organization, Good Standing and Qualification.
The Company is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Delaware.
The Company has full corporate power and authority to carry on
its business as now conducted and possesses all governmental and
other permits, licenses, and other authorizations to own, lease,
or operate its assets and properties as now owned, leased, and
operated and to carry on its business as presently conducted.
The Company is duly licensed or qualified to do business as a
foreign corporation and is in good standing in each state listed
in Schedule 4.02 (attached hereto are certificates of
qualification for each state in which the Company is qualified as
a foreign corporation).
4<PAGE>
4.03. Corporate Power and Authority: Due Authorization.
Seller has full corporate power and authority to execute and
deliver this Agreement, the Employment Termination Agreement, the
Services Agreement, the Seller Non-Solicitation Agreement and to
consummate the transactions contemplated hereby. The Board of
Directors of Seller has duly approved and authorized the
execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby, and no other corporate
proceedings on the part of Seller are necessary to approve and
authorize the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. Assuming
that this Agreement and each of the documents to which Buyer is a
party constitutes a valid and binding agreement of Buyer, this
Agreement and each of the documents to which Seller is a party
constitutes, or will constitute when executed and delivered, a
valid and binding agreement of Seller, in each case enforceable
in accordance with its terms.
4.04. Subsidiaries. Suburban Pathology Associates,
Inc., a Delaware corporation (the "Subsidiary"), is the only
subsidiary in which the Company owns, directly or indirectly, any
capital stock or other equity interest, or with respect to which
the Company, alone or in combination with others, is in a control
position. The Subsidiary is a corporation duly organized,
validly existing, and in good standing under the laws of Delaware
and is duly qualified to transact business as a foreign
corporation and is in good standing in the State of Georgia. The
Subsidiary has the power and authority and possesses all
governmental and other permits, licenses, and other
authorizations to own or lease its properties and carry on its
business as now conducted. The outstanding capital stock of the
Subsidiary is validly issued, fully paid, and nonassessable. The
Company has good and valid title to the equity interests in the
Subsidiary, free and clear of all liens, claims, charges,
restrictions, security interests, equities, proxies, pledges, or
encumbrances of any kind, except the lien and security interest
of Citicorp USA, Inc. Except where otherwise indicated herein or
unless the context otherwise requires, any reference to the
Company herein shall include the Company and the Subsidiary.
4.05. No Violation. The execution and delivery of this
Agreement, the Employment Termination Agreement, the Services
Agreement and the Seller Non-Solicitation Agreement and the
consummation of the transactions contemplated hereby and thereby
will not as of the Closing: (i) require Seller to file or
register with, or obtain any permit, authorization, consent or
approval of, any governmental entity, except filings and
registrations duly made and permits, authorizations, consents and
approvals duly obtained prior to the Closing Date, (ii) to the
actual knowledge of Seller, require Seller to obtain any
authorization, consent or approval of any other person other than
those which, if not duly obtained prior to the Closing Date,
5<PAGE>
individually or in the aggregate, are not reasonably likely to
have a material adverse effect on the Company's business, (iii)
result in the breach of any of the terms or conditions of, or
constitute a default under, the Certificate of Incorporation or
Bylaws of Seller or, to the actual knowledge of Seller, any
mortgage, bond, indenture, agreement, franchise or other
instrument or obligation to which Seller is a party or by which
any of Seller's properties or assets may be bound or materially
affected, other than the lien and security interest of Citicorp
USA, Inc., (iv) either itself or with notice or lapse of time or
both, violate or be in conflict with, or constitute a default
under, or result in the termination of, or cause the acceleration
of the maturity of any debt or obligation pursuant to, or result
in the creation or imposition of any lien upon any of the Shares
under, any agreement to which Seller is a party or by which the
Shares are bound or subject, other than the lien and security
interest of Citicorp USA, Inc., (v) violate any statute, law,
regulation or rule of any governmental entity, or (vi) violate
any judgment, decree, writ, injunction or order of any court,
administrative agency of governmental entity or any arbitration
award applicable to the Seller or the Shares.
4.06. Capitalization. The authorized capital stock of
the Company consists solely of 1,000 shares of common stock, $.01
par value per share, all of which common shares (collectively the
"Shares") are issued and outstanding and owned by Seller. All of
the Shares are duly authorized, validly issued and outstanding
and fully paid and nonassessable and free of preemptive rights.
Except for the Shares, there are no shares of capital stock or
other securities of the Company issued or outstanding. There are
no outstanding options, warrants or rights to purchase or acquire
from, to the Seller's actual knowledge, the Company or the Seller
any securities of the Company, and there are no contracts,
commitments, agreements, understandings, arrangements, or
restrictions as to which, to the Seller's actual knowledge, the
Company or the Seller is a party or by which either of them is
bound relating to any shares of capital stock or other securities
of the Company (including the Shares), whether or not outstanding
other than the lien and security interest of Citicorp USA, Inc.
on the stock of the Company.
4.07. Financial Statements. Seller has delivered to
Buyer an unaudited consolidated balance sheet of the Company as
of November 30, 1994, and the related unaudited consolidated
statement of income for the period from June 23, 1994 through
November 30, 1994 (the "Financial Statements"). To Seller's
actual knowledge, the Financial Statements are true, complete and
correct and fairly present the consolidated assets, liabilities,
financial condition, and results of operations of the Company as
of the respective dates thereof and for the period therein
referred to, all in accordance with generally accepted United
States accounting principles, subject to normal recurring
6<PAGE>
year-end adjustments (the effect of which will not, individually
or in the aggregate, be materially adverse) and the absence of
notes.
4.08. Assets. Seller acknowledges that neither it nor
NHL claims ownership in any of the assets listed on Schedule
4.08.
4. 09. No Undisclosed Liability. To Seller's actual
knowledge, except as and to the extent of the amounts
specifically reflected or reserved against in the Financial
Statements, to the actual knowledge of Seller, the Company does
not have any liabilities or obligations of any nature, whether
absolute, accrued, contingent or otherwise and whether due or to
become due, except for liabilities for federal and state income
taxes for the period from January 1, 1994 through November 30,
1994. To Seller's actual knowledge, the reserves reflected in
the Financial Statements are adequate, appropriate and reasonable
in accordance with generally accepted accounting principles
applied on a consistent basis. Furthermore, Seller does not have
actual knowledge of or actual knowledge of any basis for the
assertion against the Company of any such liability or obligation
of any nature not fully reflected or reserved against in the
Financial Statements, except for liabilities for federal and
state income taxes for the period from January 1, 1994 through
November 30, 1994.
4.10. Tax Matters. Except as set forth on Schedule
4.10, Seller and the Company have duly and timely filed all tax
reports and returns required to be filed by the Company and have
duly paid all taxes and other charges due or claimed to be due
from the Company by federal, state or local taxing authorities
(including without limitation, those due in respect of its
properties, income, franchises, licenses, sales and payrolls);
and true and correct copies of all tax reports and returns
relating to such taxes and other charges for the period since
April 1, 1991 have been heretofore delivered to Buyer. Except as
set forth on Schedule 4.10, the Company is not delinquent in the
payment of any tax, assessment or governmental charge and has not
violated any federal, state, local or foreign tax law. The
reserves for taxes contained in the Financial Statements and
carried on the books of the Company, Allied or NHL are adequate
to cover all tax liabilities of the Company as of the date of
this Agreement. To Seller's actual knowledge, since December 31,
1993, the Company has not incurred any tax liabilities other than
in the ordinary course of business; except as set forth on
Schedule 4.10, there are no tax liens (other than liens for
current taxes not yet due) upon any properties or assets of the
Company (whether real, personal or mixed, tangible or
intangible), and, except as reflected in the Financial
Statements, there are no pending or threatened questions or
examinations relating to, or claims asserted for, taxes or
7<PAGE>
assessments against the Company, and there is no basis for any
such question or claim. The Company has not granted or been
requested to grant any extension of the limitation period
applicable to any claim for taxes or assessments with respect to
taxes. Neither the Company nor the selling consolidated group
has executed or entered into a closing agreement or a compromise
pursuant to Section 7121 of the Code or any predecessor provision
thereof or any similar provision of state, local or foreign tax
law which is binding on the Company or the selling consolidated
group for any taxable period ending after the Closing Date. The
Company is not a party to or bound by, or has any obligation
under, any tax sharing or similar agreement.
4.11. Litigation. To Seller's actual knowledge and
except as set forth in Schedule 4.11, there are no claims,
actions, suits, proceedings, inquiry or investigations pending or
threatened by or against, or otherwise affecting the Company at
law or in equity or before or by any federal, state, municipal or
other governmental department, commission, board, agency,
instrumentality or authority. Seller does not have actual
knowledge of any basis for any such claim, action, suit,
proceeding or investigation. To Seller's actual knowledge, no
claim, action, suit, proceeding or investigation set forth in
Schedule 4.11, could, if adversely decided, have a material
adverse effect on the condition (financial or otherwise), assets,
liabilities, earnings, prospects or business of the Company.
4.12. Insurance. Schedule 4.12 hereto sets forth a
complete and accurate list (including carriers) of all
professional liability policies of insurance presently in effect
with respect to the Company. All such policies are valid,
outstanding and enforceable policies; and are and will remain in
full force and effect at least through the respective dates set
forth in Schedule 4.12 without the payment of additional
premiums; and will not in any way be affected by, or terminate or
lapse by reason of, the transactions contemplated by this
Agreement. Such policies are sufficient for compliance with all
requirements of law and, to Seller's actual knowledge, of all
agreements to which the Company is a party. The Company has not
been refused any insurance, nor has its coverage been limited, by
any insurance carrier to which it has applied for insurance or
with whichit has carried insurance during the last three years.
4.13. Employees and Fringe Benefit Plans.
(a) To the actual knowledge of Seller, Schedule 4.13
sets forth a complete list of all of the Company's employees
(both full- and part-time) (the "Company Employees") and the
annual rate of compensation being paid to each Company Employee
as of the most recent practicable date.
8<PAGE>
(b) To the Seller's actual knowledge, Schedule 4.13
hereto contains a complete list of each employment, bonus,
deferred compensation, pension, stock option, stock appreciation
right, profit-sharing or retirement plan, arrangement or
practice, and each other agreement or fringe benefit plan,
arrangement or practice, of the Seller which applies to Company
Employees (the "Plans"), whether formal or informal, whether
legally binding or not, and whether affecting one or more of its
employees. Copies of each such agreement or plan have heretofore
been delivered to Buyer. Seller does not have any commitment,
whether formal or informal and whether legally binding or not,
(i) to create any additional such agreement, plan, arrangement or
practice; (ii) to modify or change any such agreement, plan,
arrangement or practice, except as necessary to comply with
applicable law; or (iii) to maintain for any period of time any
such agreement, plan, arrangement or practice, except as
accurately and completely described in Schedule 4.13. Schedule
4.13 contains an accurate and complete description of the funding
policies (and commitments, if any) of Seller with respect to each
such existing plan, arrangement or practice.
(c) Except as disclosed in Schedule 4.13, (i) each
employer who is participating in each Plan (the "Sponsors") is in
compliance with the requirements provided by any and all
statutes, orders or governmental rules or regulations currently
in effect, including without limitation the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and the
Internal Revenue Code of 1986, as amended (the "Code"); (ii) each
Plan and its related trust, if any, are qualified under Code
Section 401(a) and Code Section 501(a) and has been determined by
the IRS to qualify, and nothing has since occurred to cause the
loss of the plan's qualification; (iii) all contributions for all
periods ending prior to Closing (including periods from the first
day of the current plan year to Closing) will be made prior to
the Closing by Seller in accordance with past practice, the terms
of each such Plan and the recommended contribution in the
applicable actuarial report; (iv) all insurance premiums have
been paid in full, subject only to normal retrospective
adjustments in the ordinary course, with regard to each plan for
policy years or other applicable policy periods ending on or
before Closing; (v) that no accumulated funding deficiency within
the meaning of ERISA Section 302 or Code Section 412 has been
incurred with respect to any plan, whether or not waived; (vi)
neither the Sponsors nor any of their directors, officers,
employees or any other fiduciary has any liability for failure to
comply with ERISA or the Code for any action or failure to act in
connection with the administration or investment of the plan;
(vii) no plan subject to Title IV of ERISA has been completely or
partially terminated; (viii) the Pension Benefit Guaranty
Corporation has not instituted or threatened a proceeding to
terminate any plan pursuant to Subtitle 1 of Title IV of ERISA;
(ix) Seller does not have any liability for the termination of
9<PAGE>
any single employer plan under ERISA Section 4062 or any multiple
employer plan under ERISA Section 4063; (x) Seller has not
incurred, nor expects to incur any withdrawal liability (either
as a contributing employer or as part of a controlled group which
includes a contributing employer), which has not been satisfied,
to any multiemployer plan (as defined in ERISA) in connection
with any complete or partial withdrawal from such plan occurring
on or before the Closing; (xi) Seller has no unfunded past
service liability in respect of any of its employee benefit
plans; (xii) the actuarially computed value of vested benefits
under any employee benefit plan of Seller does not exceed the
fair market value of the fund assets relating to such plan;
(xiii) neither Seller nor any plan nor any trustee,
administrator, fiduciary or sponsor of any plan has engaged in
any prohibited transactions as defined in the ERISA, or the Code;
(xiv) all filings and reports as to such Plans required to have
been made on or prior to the Closing Date to the Internal Revenue
Service, the United States Department of Labor or other
governmental agencies have been or will be made on or prior to
the Closing Date; (xv) there is no material litigation, disputed
claim, governmental proceeding or investigation pending or
threatened with respect to any of such Plans, the related trusts,
or any fiduciary, trustee, administrator or sponsor of such
Plans; (xvi) such Plans have been established, maintained and
administered in all material respects in accordance with their
governing documents and applicable provisions of ERISA and the
Code and Treasury Regulations promulgated thereunder; and (xvii)
there has been no "Reportable Event" as defined in Section 4043
of ERISA with respect to any Plan subject to Subtitle B of Title
IV of ERISA that has not been waived by the Pension Benefit
Guaranty Corporation.
(d) Except as set forth on Schedule 4.13 and to the
actual knowledge of Seller, the Company has complied in all
material respects with all applicable federal, state and local
laws, rules and regulations relating to employees' employment
and/or employment relationships, including, without limitation,
wage related laws, anti-discrimination laws and employee safety
laws.
(e) Except to the extent required by applicable law
and to Seller's actual knowledge, the Company is not a party to
any contract or agreement which would require Buyer to hire, or
subject Buyer to liability if it terminated or did not hire, any
employee of the Company or which would require Buyer to pay or
provide, or subject Buyer to liability if it did not pay or
provide, any employee benefits to any employee of the Company for
periods prior to or after the Closing Date (including any and all
employee benefits and any compensatory, over-time, vacation, sick
or holiday pay).
10<PAGE>
4.14. Banking Relationships. To the actual knowledge of
Seller, Schedule 4.14 sets forth the names and locations of all
banks, trust companies, savings and loan associations and other
financial institutions at which the Company maintains safe
deposit boxes or accounts of any nature and the names of all
persons authorized to have access thereto, draw thereon or make
withdrawals therefrom. At the Closing, Seller will deliver to
Buyer copies of all records of which Seller has actual knowledge,
including all signatures or authorization cards, pertaining to
such safe deposit boxes and bank accounts.
4.15. Professional Fees. Seller has not done anything
to cause or incur any liability or obligation for investment
banking, brokerage, finders, agents or other similar fees,
commissions, expenses or charges in connection with the
negotiation, preparation, execution or performance of this
Agreement or the consummation of the transactions contemplated
hereby, and Seller does not know of any claim by anyone for such
a fee, commission, expense or charge.
4.16. Consents and Approvals. Seller has obtained all
consents, approvals, authorizations or orders of third parties,
including governmental authorities, necessary for the
authorization, execution and performance of this Agreement by
Seller.
4.17. Corporate Records. Seller has delivered or
provided to Buyer for its review true, complete and correct
copies of the following items, as amended and presently in
effect, for the Company and each Subsidiary: (a) Certificate of
Incorporation, (b) Bylaws (only for the Company), (c) minute
books, and (d) stock registration books (all hereinafter referred
to as the "Corporate Records"). To the actual knowledge of
Seller, the Minute Books contain a record of all shareholder,
director and executive committee meetings and actions taken
without a meeting from the date of the Company's incorporation to
the date hereof. To the actual knowledge of Seller, the stock
registration books are complete and accurate and contain a
complete record of all transactions in the Company's capital
stock from the date of its incorporation to the date hereof.
4.18. Full Disclosure. To the actual knowledge of
Seller, neither this Agreement, nor any Schedule, exhibit, list,
certificate or other instrument and document furnished or to be
furnished by Seller to Buyer pursuant to this Agreement, contains
any untrue statement of a material fact or omits to state any
material fact required to be stated herein or therein or
necessary to make the statements and information contained herein
or therein not misleading; provided, however, in each instance in
which the qualification "to the Seller's actual knowledge" is
made, such representation is made and given by Seller solely on
the basis of the actual knowledge of Haywood D. Cochrane, Jr.,
11<PAGE>
Gerard M. Hayden, Jr., David C. Flaugh, and James G. Richmond.
Seller has not withheld from Buyer disclosure of any event,
condition or fact which Seller actually knows may materially
adversely affect the Company's assets, prospects or condition
(financial or otherwise).
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
In order to induce Seller to enter into this transaction and
consummate the transactions contemplated hereby, Buyer hereby
represents and warrants to Seller as follows:
5.01. Organization and Good Standing. Buyer is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Tennessee and has full corporate
power and authority to enter into this Agreement, the Escrow
Note, the Services Agreement and the Buyer Non-Competition
Agreement and to carry out the transactions contemplated hereby
and thereby. Buyer has full corporate power and authority to
carry on its business as now conducted and possesses all
governmental and other permits, licenses, and other
authorizations to own, lease, or operate its assets and
properties as now owned, leased, and operated and to carry on its
business as presently conducted.
5.02. Authorization. The Board of Directors of Buyer
has taken all action required by law, its Charter, its Bylaws and
otherwise to authorize the execution and delivery by Buyer of
this Agreement, the Escrow Note, the Services Agreement and the
Buyer Non-Competition Agreement and the consummation by Buyer of
the transactions contemplated hereby and thereby.
5.03. Valid and Binding Agreement. This Agreement, the
Escrow Note, the Services Agreement and the Buyer Non-Competition
Agreement constitute the legal, valid and binding agreements of
Buyer, enforceable against Buyer in accordance with their
respective terms.
5.04. No Violation. The execution and delivery of this
Agreement, the Escrow Note, the Services Agreement and the Buyer
Non-Competition Agreement and the consummation of the
transactions contemplated hereby and thereby will not as of the
Closing: (i) require Buyer to file or register with, obtain any
permit, authorization, consent or approval of, any governmental
entity, except filings and registrations duly made and permits,
authorizations, consents and approvals duly obtained prior to the
Closing Date, (ii) require Buyer to obtain any authorization,
consent or approval of any other person other than those which,
if not duly obtained prior to the Closing Date, individually or
12<PAGE>
in the aggregate, are not reasonably likely to have a material
adverse effect on Buyer's business, (iii) result in the breach of
any of the terms or conditions of, or constitute a default under,
the Certificate of Incorporation or Bylaws of Buyer or any
mortgage, bond, indenture, agreement, franchise or other
instrument or obligation to which Buyer is a party or by which
any of Buyer's properties or assets may be bound or materially
affected, (iv) either itself or with notice or lapse of time or
both, violate or be in conflict with, or constitute a default
under, or result in the termination of, or cause the acceleration
of the maturity of any debt or obligation pursuant to, or result
in the creation or imposition of any lien upon any of the assets
of Buyer under, any agreement to which Buyer is a party or by
which any of Buyer's assets are bound or subject, (v) violate any
statute, law, regulation or rule of any governmental entity, or
(vi) violate any judgement, decree, writ, injunction or order of
any court, administrative agency of governmental entity or any
arbitration award applicable to the Buyer or any of the assets of
Buyer.
5.05. Professional Fees. Buyer has not done anything to
cause or incur any liability for investment banking, brokerage,
finders, agents or other fees, commissions, expenses or charges
in connection with the negotiation, preparation, execution or
performance this Agreement or the consummation of the
transactions contemplated hereby, and Buyer does not know of any
claim by anyone for such expense, charge, commission or fee.
5.06. Consents and Approvals. Buyer has obtained all
consents, approvals, authorizations or orders of third parties,
including governmental authorities, necessary for the
authorization, execution and performance of this Agreement, the
Escrow Note, the Services Agreement and the Buyer Non-Competition
Agreement by Buyer.
5.07. Full Disclosure. Neither this Agreement, nor any
certificate or other instrument or document furnished or to be
furnished by Buyer to Seller pursuant to this Agreement, contains
any untrue statement of a material fact or omits to state a
material fact required to be stated herein or therein or
necessary to make the statements and information contained herein
or therein not misleading. Buyer has not withheld from Seller
disclosure of any event, condition or fact which Buyer knows may
materially adversely affect the Buyer's ability to perform this
Agreement, the Escrow Note, the Services Agreement or the Buyer
Non-Competition Agreement.
5.08. No View to Distribution. The purchase of the Shares
by the Buyer is being made for investment only and not with a
view to sale or distribution thereof.
13<PAGE>
ARTICLE VI
COVENANTS AND AGREEMENTS OF SELLER
Seller agrees that from the date hereof until the Closing,
and thereafter if so specified, it will, and will cause the
Company to, fulfill the following covenants and agreements unless
otherwise consented to by Buyer in writing:
6.01 Further Assurances. At any time and from time to time
after the Closing, at Buyer's request and without further
consideration, Seller will execute and deliver such other
instruments of sale, transfer, conveyance, assignment, and
delivery and confirmation and take such action as the Buyer may
reasonably deem necessary or desirable in order more effectively
to transfer, convey and assign to Buyer and to place Buyer in
possession and control of, and to confirm Buyer's title to, the
Shares, and to assist Buyer in exercising all rights and enjoying
all benefits with respect thereto. After the Closing, at Buyer's
request, Seller will deliver physical possession to the Buyer of
any of the Company's assets which may be in the possession of
Seller. In addition, the Seller will take all such other action
as may be reasonably requested by Buyer in order to facilitate
Buyer's favorable tax treatment with respect to the transactions
contemplated by this Agreement.
6.02. Confidentiality. In the event the transactions
contemplated by this Agreement are consummated, Seller agrees
that for a period of three (3) years thereafter, neither Seller
nor NHL, nor any of their affiliates, or any of their agents,
directors, officers or employees, shall, directly, indirectly or
otherwise, disclose or disseminate to any third parties any
Confidential Information (as defined below), except for any
information that must be disclosed under applicable law. Seller
acknowledges that Seller and its affiliates may have access from
time to time to such Confidential Information as a result of the
data processing services contemplated by Section 2.04 of this
Agreement. For purposes of this Section 6.04(b), "Confidential
Information" shall mean any information, documents and records
disclosed or furnished by Buyer or the Company to Seller or its
affiliates, whether orally or in writing, in connection with the
contemplated data processing services or otherwise other than
information which is generally known, or readily ascertainable by
a proper means, by other persons concerning the Company, that
through no fault of Seller or its affiliates, becomes available
generally (i.e., from sources other than Buyer or the Company) to
either Seller or its affiliates.
6.03. Taxes. Seller will be responsible for, and hereby
agrees to assume and pay, all sales and similar taxes which may
be due to any jurisdiction or governmental body as a result of
the sale and transfer of the Shares. Seller shall file, or cause
14<PAGE>
to be filed, with the appropriate taxing authorities, all returns
and reports with respect to any federal, state, local or other
taxes that are required to be filed by the Company for the period
ended the Closing Date, and the Seller shall pay, or cause to be
paid, all taxes of any nature due for such period.
6.04. Consents and Approvals. Seller shall take all
necessary corporate and other action and use all reasonable
efforts to obtain all consents, approvals, permits, licenses and
amendments of agreements necessary to carry out the transactions
contemplated in this Agreement.
6.05. Employees. Seller agrees to pay bonuses to those
employees of the Company set forth on Schedule 6.05 hereto for
calendar year 1994 in the amounts set forth opposite each such
employee's name on Schedule 6.05.
6.06. Seller Savings Deferral Plan. Seller will cause
the account balances under the Allied Clinical Laboratories
Savings Deferral Plan of all individuals actively employed by the
Company on December 31, 1994 to become fully (100%) vested in
connection with the merger of such plan into the National Health
Laboratories Incorporated Employees' Savings and Investment Plan,
to be effected as of such date.
ARTICLE VII
COVENANTS AND AGREEMENTS OF BUYER
Buyer agrees that from the date hereof until the Closing,
and thereafter, if so specified, it will, and will cause the
Company to, fulfill the following covenants and agreements,
unless otherwise consented to by Seller in writing:
7.01. Debt Limitation. As long as the Escrow Note
remains outstanding, Buyer covenants and agrees that Buyer will
not, and will not permit any subsidiary of Buyer, to create,
assume or incur or in any manner be or become liable for any
indebtedness at any time in excess, individually or in the
aggregate, of $4,000,000.
7.02. Employee Benefits. (a) Buyer shall cause Company to
provide group medical, group dental, group-term life and other
welfare benefit plan benefits to employees of the Company after
the Closing Date. Buyer further agrees that (i) it shall cause
the Company to take all necessary actions to satisfy the notice
and benefit requirements under Code Section 4980B and Part 6 of
Title I of ERISA (collectively, "COBRA") with respect to the
Company's employees and independent contractors as of the Closing
Date (and their spouses and dependent children), (ii) neither
Seller, NHL, nor any group health plan (as defined in COBRA)
15<PAGE>
maintained by Seller or NHL, shall have any obligation or
liability whatsoever with respect to any action, demand, tax or
claim which relates to any such individual, regardless of whether
such action, demand, tax or claim arises before, on or after the
Closing Date, and (iii) any such obligation or liability shall be
borne by the Company and the Buyer.
(b) Within 30 days after the Closing, Buyer shall
cause the Company to adopt a defined contribution profit sharing
plan with a cash or deferred feature, which plan shall be tax-
qualified under Section 401(a) of the Code.
ARTICLE VIII
CONDITIONS TO BUYER'S OBLIGATIONS
All obligations of Buyer hereunder are subject to the
fulfillment, prior to or at the Closing, of each of the following
conditions:
8.01. Representations and Warranties. The
representations and warranties made by the Seller in this
Agreement shall be true when made and at and as of the time of
the Closing as though such representations and warranties were
made at and as of such date.
8.02. Performance. Seller shall have performed and
complied with all agreements, obligations, and conditions
required by this Agreement to be so complied with or performed.
8.03. Officer's Certificate. Seller shall have
delivered to Buyer a Certificate of the President of Seller dated
the Closing Date, certifying as to the fulfillment of the
conditions specified in Sections 8.01 and 8.02 hereof.
8.04. Opinion of Counsel. Buyer shall have received an
opinion of Seller's counsel, Coffield, Ungaretti & Harris, dated
the Closing Date, in form and substance satisfactory to Buyer.
8.05. Consents and Approvals. Buyer shall have received
all consents required for the consummation of the transactions
contemplated hereby, all of which consents shall be in form and
substance satisfactory to Buyer.
8.06. Litigation. Except as set forth in Schedule 4.11,
on the date of the Closing, neither the Company nor any
Subsidiary shall be a party to, nor will there otherwise be
pending or threatened, any judicial, administrative, or other
action, proceeding or investigation which, if adversely
determined might, in the reasonable opinion of Buyer, have a
material adverse effect upon the Company, Buyer or the
16<PAGE>
transactions contemplated hereby; and there shall be no lawsuits
pending against the Company, the Seller or Buyer seeking to
enjoin, prohibit, restrain or otherwise prevent the transactions
contemplated hereby.
8.07. Services Agreement. Seller and NHL shall have
executed and delivered to Buyer the Services Agreement.
8.08. Seller Non-Solicitation Agreement. Seller and NHL
shall have executed and delivered to Buyer the Seller Non-
Solicitation Agreement.
8.09. Citicorp USA Release. Citicorp USA, Inc., as
administrative agent for NHL's lending group, shall cause such
lending group to release its lien on the Company's and
Subsidiary's assets, and Buyer and its counsel shall have
received evidence of such release in form reasonably satisfactory
to them at or prior to the Closing.
ARTICLE IX
CONDITIONS TO SELLER'S OBLIGATIONS
All obligations of Seller under this Agreement are subject
to the fulfillment, prior to or at the Closing, of each of the
following conditions:
9.01. Representations and Warranties. The
representations and warranties made by the Buyer in this
Agreement shall be true when made and at and as of the time of
the Closing as though such representations and warranties were
made at and as of such date.
9.02. Performance. Buyer shall have performed and
complied with all agreements, obligations, and conditions
required by this Agreement to be so complied with or performed.
9.03. Officer's Certificate. Buyer shall have delivered
to Seller a Certificate of the President of Buyer, dated the
Closing Date, certifying as to the fulfillment of the conditions
specified in Sections 9.01 and 9.02 hereof.
9.04. Opinion of Counsel for Buyer. Seller shall have
received an opinion of Buyer's counsel, Stokes & Bartholomew,
P.A., dated the Closing Date, in form and substance satisfactory
to Seller.
9.05. Services Agreement. Buyer shall have executed and
delivered to Seller the Services Agreement.
17<PAGE>
9.06. Escrow Note. Buyer shall have executed and delivered
to Seller the Escrow Note.
ARTICLE X
INDEMNIFICATION
10.01. Indemnification by Seller. Subject to Section
11.01, Seller hereby agrees to defend, indemnify and hold
harmless Buyer, the Company, the Subsidiary, and each of Buyer's
shareholders, affiliates, officers, directors, employees, agents,
successors and assigns ("Buyer's Indemnified Persons") and shall
reimburse Buyer's Indemnified Persons for, from and against each
claim, loss, liability, cost and expense (including, without
limitation, interest, penalties, costs of preparation and
investigation, and the reasonable fees, disbursements and
expenses of attorneys, accountants and other professional
advisors) (collectively, "Losses"), directly or indirectly
relating to, resulting from or arising out of any untrue
representation, misrepresentation, breach of warranty or
nonfulfillment of any covenant, agreement or other obligation by
or of Seller contained herein, any Schedule hereto or in any
certificate, document or instrument delivered to Buyer pursuant
hereto.
10.02. Indemnification by Buyer. Buyer hereby agrees to
defend, indemnify and hold harmless Seller, and each of Seller's
affiliates, officers, directors, employees, agents, successors
and assigns ("Seller's Indemnified Persons"), and shall reimburse
Seller's Indemnified Persons for, from and against Losses
directly or indirectly relating to, resulting from or arising out
of any untrue representation, misrepresentation, breach of
warranty or nonfulfillment of any covenant, agreement or other
obligation by Buyer contained herein or in any certificate,
document or instrument delivered to Seller pursuant hereto.
10.03. Procedure. (a) The indemnified party shall
promptly notify the indemnifying party of any claim, demand,
action or proceeding for which indemnification will be sought
under Sections 10.01 or 10.02 of this Agreement, and, if such
claim, demand, action or proceeding is a third party claim,
demand, action or proceeding, the indemnifying party will have
the right at its expense to assume the defense thereof using
counsel reasonably acceptable to the indemnified party. The
indemnified party shall have the right to participate, at its own
expense, with respect to any such third party claim, demand,
action or proceeding. In connection with any such third party
claim, demand, action or proceeding, Buyer and the Seller shall
cooperate with each other and provide each other with access to
relevant books and records in their possession. No such third
party claim, demand, action or proceeding shall be settled
18<PAGE>
without the prior written consent of the indemnified party. If a
firm written offer is made to settle any such third party claim,
demand, action or proceeding and the indemnifying party proposes
to accept such settlement and the indemnified party refuses to
consent to such settlement, then: (i) the indemnifying party
shall be excused from, and the indemnified party shall be solely
responsible for, all further defense of such third party claim,
demand, action or proceeding; and (ii) the maximum liability of
the indemnifying party relating to such third party claim,
demand, action or proceeding shall be the amount of the proposed
settlement if the amount thereafter recovered from the
indemnified party on such third party claim, demand, action or
proceeding is greater than the amount of the proposed settlement.
In addition to its other remedies, Buyer shall have the right to
recover its Losses by offset against the Escrow Note, subject to
Sections 11.01 and 10.03(b). In addition to its other remedies,
Seller shall have the right to recover its Losses by offset
against amounts payable to Buyer under the Services Agreement,
subject to Sections 11.01 and 10.03(b).
(b) Notwithstanding any provision contained herein to
the contrary, neither Seller nor Buyer shall have any obligation
to indemnify or to reimburse the other pursuant to Sections 10.01
or 10.02 except to the extent that the obligations to the other
hereunder exceed in the aggregate $100,000.00, in which event the
indemnifying party shall reimburse the indemnified party for all
Losses.
ARTICLE XI
SURVIVAL OF REPRESENTATIONS
11.01. Survival of Representations. All representations,
warranties, covenants and agreements by the parties contained in
this Agreement shall survive the Closing, and except for the
representations and warranties contained in Section 4.10 of this
Agreement, shall expire on the second anniversary of the Closing
Date. The representation contained in Section 4.10 of this
Agreement shall expire concurrently with the expiration of the
applicable statute of limitations for the various tax matters
covered by such representation.
11.02. Statements as Representations. All statements
contained in any certificate or Schedule delivered pursuant
hereto or in connection with the transactions contemplated hereby
shall be deemed representations and warranties for all purposes
of this Agreement.
11.03. Remedies Exclusive. Except as otherwise provided
under applicable law, the remedies provided herein shall be
exclusive and shall preclude the assertion by any party hereto of
19<PAGE>
any other rights or the seeking of any other remedies against the
other party hereto.
ARTICLE XII
MISCELLANEOUS
12.01. Expenses. All fees and expenses incurred by
Seller, including without limitation, legal fees and expenses, in
connection with this Agreement will be borne by Seller and all
fees and expenses incurred by Buyer, including, without
limitation, legal fees and expenses, in connection with this
Agreement will be borne by Buyer.
12.02. Assignability; Parties in Interest.
(a) With Seller's prior written consent, Buyer may
assign any and all of its rights hereunder to any affiliate of or
any direct or indirect subsidiary of Buyer, and Buyer shall
advise Seller of any such assignment and shall designate such
party as the assignee and transferee of the securities purchased.
Any such assignee shall assume all of Buyer's duties, obligations
and undertakings hereunder, but the assignor shall remain liable
thereunder.
(b) Seller may not assign, transfer or otherwise
dispose of any of its rights hereunder without the prior written
consent of Buyer.
(c) All the terms and provisions of this Agreement
shall be binding upon, shall inure to the benefit of and shall be
enforceable by the respective heirs, successors, permitted
assigns and legal or personal representatives of the parties
hereto.
12.03. Entire Agreement; Amendments. This Agreement,
including the exhibits, Schedules, lists and other documents and
writings referred to herein or delivered pursuant hereto, which
form a part hereof, contains the entire understanding of the
parties with respect to its subject matter. There are no
restrictions, agreements, promises, warranties, covenants or
undertakings other than those expressly set forth herein or
therein. This Agreement supersedes all prior agreements and
undertakings between the parties with respect to its subject
matter. This Agreement may be amended only by a written
instrument duly executed by all parties or their respective
heirs, successors, permitted assigns or legal personal
representatives. Any condition to a party's obligations
hereunder may be waived, but only by a written instrument signed
by the party entitled to the benefits thereof. The failure or
delay of any party at any time or times to require performance of
20<PAGE>
any provision or to exercise its rights with respect to any
provision hereof, shall in no manner operate as a waiver of or
affect such party's right at a later time to enforce the same.
12.04. Headings. The section and paragraph headings
contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretations of
this Agreement.
12.05. Severability. The invalidity of any term or terms
of this Agreement shall not affect any other term of this
Agreement, which shall remain in full force and effect.
12.06. Notices. All notices, request, claims, demands
and other communications hereunder shall be in writing and shall
be deemed to have been duly given if delivered or mailed
(registered or certified mail, postage prepaid, return receipt
requested) as follows:
If the Seller or NHL:
Allied Clinical Laboratories, Inc.
c/o National Health Laboratories Incorporated
4225 Executive Square, Suite 800
La Jolla, California 92037
Attn: Mr. Haywood D. Cochrane, Jr.
With a copy to:
John W. Christy, Esq.
Coffield, Ungaretti & Harris
3500 Three First National Plaza
Chicago, Illinois 60602
If the Buyer:
Reference Pathology Holding Company, Inc.
1800 Church Street, Suite 300
Nashville, Tennessee 37203
Attn: Robert R. West, M.D.
With a copy to:
Carter R. Todd, Esq.
Stokes & Bartholomew, P.A.
424 Church Street, Suite 2800
Nashville, Tennessee 37219
or to such other address as any party may have furnished to the
others in writing in accordance herewith, except that notices of
change of address shall only be effective upon receipt.
21<PAGE>
12.07. Governing Law. This Agreement shall be governed
by and construed and enforced in accordance with the laws of the
State of Tennessee, without regard to its conflict of law rules.
12.08. Counterparts. This Agreement may be executed
simultaneously in one or more counterparts, with the same effect
as if the signatories executing the several counterparts had
executed one counterpart, provided, however, that the several
executed counterparts shall together have been signed by Buyer,
and the Seller. All such executed counterparts shall together
constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been duly executed
and delivered by the duly authorized officers of Buyer and by the
Seller on the date first above written.
BUYER:
REFERENCE PATHOLOGY HOLDING COMPANY,
INC.
By:/s/ Robert R. West
------------------
Title: President
---------------
SELLER:
ALLIED CLINICAL LABORATORIES, INC.
By:/s/ James G. Richmond
---------------------
Title: Executive Vice President
-------------------------
22 <PAGE>
SCHEDULE 2.04
(a) Included Data Processing Services for the One-Year Term on
the Terms Set Forth in Section 2.04 of the Agreement.
1. Immediate release from "Expect Pricing"
2. Conversion within 60 days of Closing of printing of
all mailers locally at the Company
3. Access to make changes in billable party
configurations
4. Resolution of any outstanding electronic filing and
claims printing issues
5. Satisfactory implementation and maintenance of
electronic signatures modifications
6. Two weeks of on-site training for new RPL Data
Processing Manager
7. Reasonable cooperation, including up to 120 hours of
free service, in effecting conversion of all pertinent
data to new RPL system
8. Ongoing support for all DP issues until permanent
conversion to an independent Company system at the
existing levels of support for the 12-month term.
(b) Rates for Elective Continuation of Data Processing Services
$12,500/month Fixed Rate Support
$75/hour For development and new project support
work outside existing support services
23
EXHIBIT 10.30
AMENDMENT TO EMPLOYMENT AGREEMENT
Amendment dated as of April 1, 1994, to Employment
Agreement as heretofore amended (the "Agreement"), dated May
1, 1991 between La Jolla Management Corp., a Delaware
corporation (the "Company"), and David C. Flaugh (the
"Executive").
The Agreement is hereby amended as follows:
1. Section 1 is amended to provide that the term
of the Agreement shall extend through December 31, 1996 or
such later date to which the Executive's employment may be
extended as provided in Section 5 of the Agreement.
2. Section 2 is amended by adding the following
sentence to the end thereof:
The duties to be performed by the
Executive shall be performed primarily
at the offices of the Company in the San
Diego County California metropolitan
area, subject to reasonable travel
requirements on behalf of the Company.
3. Section 6(b) is amended in its entirety to
read as follows:
(b) The Executive may terminate his
employment hereunder for "Good Reason"
within thirty (30) days after the
occurrence, without written consent of
the Executive, of one of the following
events that has not been cured within
ten (10) days after written notice
thereof has been given by Executive to
the Company:
(i) the assignment to Executive of
duties materially inconsistent with his
status as Senior Executive Vice
President and Chief Operating Officer of
the Company or an adverse alteration in
the nature of Executive's
responsibilities as Executive Vice
President;
(ii) a reduction by the Company in
the Executive's Base Salary or Annual
Bonus or a failure by the Company to pay
any such amounts when due;
(iii) the Company's material
breach of the terms of this Agreement.
IN WITNESS WHEREOF, the parties have executed this
Amendment to the Agreement as of the date first above
written.
LA JOLLA MANAGEMENT CORP.
By:/s/David C. Flaugh By:/s/James R. Maher
--------------- -----------------
David Flaugh James R. Maher
Executive Chief Executive Officer
EXHIBIT 10.44
EMPLOYMENT AGREEMENT
AGREEMENT dated June 23, 1994 between NATIONAL HEALTH
LABORATORIES INCORPORATED, a Delaware corporation (the
"Company"), and Haywood D. Cochrane, Jr. (the "Executive").
The Company desires to employ Executive and Executive
desires to be in the employ of the Company upon the terms set
forth herein.
Accordingly, the parties agree as follows:
1. Employment Term. The Company agrees to employ the
Executive and the Executive agrees to be in the employ of the
Company, for the period commencing on June 22, 1994 and ending on
June 21, 1995, or such later date to which the Executive's
employment may be extended as provided in Section 5 hereof (the
"Term").
2. Duties and Responsibilities. The Executive's duties
and responsibilities shall be as may be assigned to the
Executive. The Executive shall devote full working time and
attention to the Executive's duties and responsibilities
hereunder, and his principal employment location shall be La
Jolla, California. The Executive shall report directly to the
President and C.E.O.
3. Salary. During the Term, for all services provided
hereunder, the Executive shall receive a salary, payable monthly,
subject to discretionary increases in accordance with the
Company's normal review policies and procedures. The Executive
shall be eligible to participate in the executive bonus plan or
plans applicable to similar executives of the Company from time
to time. The Executive shall be eligible to receive an annual
bonus of up to and including an amount equal to Five-hundred
Thousand Dollars ($500,000.00) pursuant to such bonus plan or
plans. Initial base salary shall be Five Hundred Thousand
Dollars ($500,000.00) per year.
4. Benefits.
(a) During the Term, the Executive shall be eligible
to participate in all pension, insurance, medical, disability and
other like benefit plans made available generally to executives
of the Company of the Executive's level, whether presently in
effect or adopted hereafter during the Term.
(b) During the term, the Company shall reimburse the
Executive for reasonable and necessary expenses related to the
Executive's performance under this Agreement, including expenses
associated with Executive's initial relocation to his principal
employment location, upon submission of detailed vouchers
therefor in accordance with the Company's standard practices in
effect from time to time.
(c) During the Term, the Company shall provide the
Executive with a car allowance in accordance with the Company's
standard practice in effect from time to time.
(d) The Executive shall be entitled to four weeks'
vacation per year.
(e) The Executive shall receive Two Hundred Thousand
(200,000) stock options in NHL common stock, effective July 12,
1994 as to one-third (1/3) of such shares, July 12, 1995 as to
one-third (1/3) of such shares and July 12, 1996 as to the
balance of such shares issued as part of the 1994 Stock Option
Plan. Notwithstanding any termination of Executive's employment
on or prior to December 22, 1994, such option shall remain
exercisable as to one-third of such shares until at least January
22, 1995, and shall otherwise be exercisable on terms consistent
with the foregoing and not less favorable than those generally
applicable to options issued by the Company under its 1994 Stock
Option Plan.
5. Extension of Time. If neither party gives to the other
party notice of termination on or before the 90th day prior to
the date of expiration of the Term hereof, the Term shall
continue from year to year unless either party gives notice of
termination on or before the 90th day prior to the expiration of
the Term hereof. If the Company gives notice of termination on
or before the 90th day prior to the expiration of the Term
hereof, then, following the end of the Term, the Executive shall
be entitled to normal severance in accordance with the policies
of the Company in effect from time to time.
6. Termination.
(a) The Company shall have the right to terminate the
Term at any time immediately by written notice for cause or in
the event of the Executive's death or disability. As used
herein, (i) "cause" shall mean the Executive's material breach of
the terms of this Agreement, the Executive's commission of a
felony or an act which is materially detrimental to the Company's
reputation, or his habitual neglect of his duties under this
Agreement, and (ii) "disability" shall mean the Executive's
inability to perform in accordance herewith by reason of mental
or physical disorder or injury constituting "long-term
disability" for purposes of the Company's medical and long-term
disability plans in effect from time to time.
(b) In the event of the Company's material breach of
the terms of this Agreement, the Executive shall have the right
to terminate the Term at any time immediately by written notice.
7. Payment Upon Termination.
(a) In the event that the Company shall terminate the
Term pursuant to Section 6(a) hereof, the Company shall have the
right to terminate all further payments pursuant hereto, except
as provided in Section 11(a) hereof (unless the Executive has
died), and shall have no further obligations hereunder.
(b) In the event that the Company shall terminate the
Term otherwise than pursuant to Sections 5 or 6(a) hereof or the
Executive shall terminate the Term pursuant to Section 6(b)
hereof, then, except as provided in Section 8 hereof, the
Company's sole obligations under this Agreement and the severance
policies and procedures of the Company in effect from time to
time shall be (i) to continue to pay to the Executive, in monthly
installments, the Executive's salary at the rate in effect
pursuant to Section 3 on the date of termination, through the
date on which the Term should expire pursuant to Sections 1 or 5
hereof, as if the Company had given notice of termination
pursuant to Section 5 hereof, and (ii) to pay the compensation
set forth in Section 11(a) hereof (unless the Executive has
died).
8. Benefits Continuation. Upon any termination of the
Executive's employment as provided in Section 7(b) hereof, the
Executive's employment shall nevertheless be deemed to continue
for a period of 90 days after such termination of employment for
purposes of determining the Executive's coverage under the
medical plan and group life insurance programs of the Company or
its assignee as then in effect.
9. Mitigation. The Executive shall not be required to
mitigate the amount of any payments provided for in Section 7(b)
hereof by seeking other employment or a consultancy with any
other entity or otherwise, but the Executive shall notify the
Company of any employment or consultancy engaged in by the
Executive during the period covered by any payments provided for
in Section 7(b) hereof, and the amounts payable pursuant to
Section 7(b) shall not be reduced by the amount of any salary,
discretionary bonus or fees so paid or payable in connection with
such employment or consultancy during such period.
10. Non-Alienation. The Executive shall not have any right
to pledge, hypothecate, anticipate or in any way create a lien
upon any payment or benefits provided under this Agreement, and
no such payment or benefits shall be assignable in anticipation
of payment either by voluntary or involuntary acts, or by
operation of law.
11. Confidentiality; Agreement Not to Compete. The
Executive recognizes that the services to be performed by him
hereunder are special, unique and extraordinary, and that by
reason of such employment the Executive has acquired and will
acquire confidential information and trade secrets concerning the
Company's operations and the operations of its affiliates.
Accordingly, it is agreed that:
(a) During the Term and for a period of twenty-four
(24) months following the expiration of the Term, including any
period during which payments provided for in Section 7(b) hereof
are made, the Executive will not, directly or indirectly, as an
officer, director, stockholder, partner, associate, owner,
employee, consultant or otherwise, become or be interested in or
associated with (although the Executive may conduct activities
during said period to seek employment or a consultancy) any other
corporation, firm or business that competes with a business of
the Company or with any of its affiliates to which the Executive
has been assigned and for which the Executive had rendered
substantial services in any geographical areas in which the
Company or any of such affiliates are then so engaged, provided
that the Executive's ownership, directly or indirectly, of not
more than one percent of the issued and outstanding stock of a
corporation, the shares of which are regularly traded on a
national securities exchange or in the over-the-counter market,
shall not, in any event, be deemed to be a violation of the
provision of this Section 11(a). As consideration for the
Executive's agreement contained hereinabove, the Company, at its
sole and absolute discretion, during the twenty-four (24) month
period following the expiration of the Term, may pay the
Executive, in equal monthly installments, an amount equal to one-
half (1/2) of the Executive's salary at the rate in effect on the
date of expiration of the Term hereof. (Failure to make such
payments relieves the Executive of any future obligations under
Section 11 of this Agreement.) Provided, however, during said
twenty-four (24) month period, the Executive shall not be
considered an employee of the Company and, except as provided in
Section 8 hereof, shall not be entitled to any of the benefits
plans made available generally to executives of the Company of
the Executive's level; and, provided further, the Company shall
not be obligated to make the payments to Executive, as provided
hereinabove, in the event of any violation by the Executive of
the restrictions set forth hereinabove.
(b) The Executive shall not divulge to any entity or
person (other than the Company's assignees and its affiliates)
during the Term or for a period of two (2) years thereafter any
information acquired by the Executive concerning the Company's or
its affiliates' customer lists, research or development programs
or plans, processes, methods or any other of its or their trade
secrets, except information which is available to the public in
published literature or becomes public knowledge through no fault
of the Executive. The Executive acknowledges that all
information the disclosure of which is prohibited hereby is of a
confidential and proprietary character and of great value to the
Company and, upon the expiration or sooner termination of this
Agreement, the Executive shall forthwith deliver up to the
Company all records, memoranda, data and documents of any
description which refer or relate in any way to such information
and return to the Company any of its equipment and property which
may then be in the Executive's possession or under the
Executive's personal control. The Executive agrees also during
the Term and for a two (2) year period thereafter not to disclose
the existence or the terms of this Agreement to any person, other
than the Executive's immediate family, the Executive's attorneys,
accountants and other professional advisors, lenders, or a
prospective employer permitted hereby, except as otherwise
required by law.
(c) The Executive agrees that because he is rendering
services of a special, unique and extraordinary character,
damages would not be an adequate or reasonable remedy for breach
of his obligations under this Agreement. Accordingly, in the
event of a breach or threatened breach by the Executive of the
provisions of Section 11 of this Agreement, the Company shall be
entitled to an injunction restraining the Executive from
violating the terms hereof, or from rendering services to any
person, firm, corporation, association or other entity to whom
any confidential information, trade secrets, or proprietary
materials of the Company have been disclosed or are threatened to
be disclosed, or for whom the Executive is working or rendering
service, or threatens to work or render services. Nothing herein
shall be construed as prohibiting the Company from pursuing any
other remedies available to it for such breach or threatened
breach of this Agreement, including the right to terminate any
payments to the Executive pursuant to this Agreement or the
recovery of damages from the Executive. The Executive agrees
that the issuance of the injunction described in this paragraph
may be without the posting of any bond or other security by the
Company.
12. Notices. Any notice to be given hereunder will be
deemed sufficient if given in writing and delivered either
personally or sent by certified mail to the Executive at the
Executive's address set forth in the records of the Company, and
to the Company at its principal offices, Attention: President,
or in either case to such other persons or addresses as either
party may request by written notice.
13. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the local laws of the
State of New York applicable to agreements made and to be
performed entirely within such State.
14. Assignment. This Agreement may be assigned by the
Company to any affiliate of the Company or to any non-affiliate
of the Company that shall succeed to the business and assets of
the Company. In the event of any such assignment, the Company
shall cause such affiliate or non-affiliate, as the case may be,
to assume the obligations of the Company hereunder, by a written
agreement addressed to the Executive, concurrently with any
assignment with the same effect as if such assignee were the
"Company" hereunder. This Agreement is personal to the Executive
and the Executive may not assign any rights or delegate any
responsibilities hereunder without the prior approval of the
Company.
15. Covenant Not to Sue. In the event of any breach of
this Agreement by the Company, whether or not by or through any
of its officers, directors, employees or shareholders, the
Executive hereby covenants, warrants and agrees that he shall not
directly or indirectly sue or bring any legal action against, or
attempt to obtain any injunction or other legal or equitable
remedy against any shareholder, director, officer or employee of
the Company or of any firm or corporation affiliated with the
Company, it being understood that his sole right of action shall
be against the Company as a corporation.
16. Binding Effect. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective
successors, heirs and permitted assigns. This Agreement may not
be altered, modified, changed or discharged except in writing,
signed by both of the parties.
17. Entire Agreement. This Agreement supersedes the
Executive's employment agreement with Allied Clinical
Laboratories, the Company's subsidiary, which will be of no
further force and effect.<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
NATIONAL HEALTH LABORATORIES INCORPORATED
By:/s/James R. Maher
--------------------
James R. Maher
President and Chief Executive Officer
/s/Haywood D. Cochrane, Jr.
-----------------------
Haywood D. Cochrane, Jr.
Executive
EXHIBIT 10.51
CONFORMED COPY
SHARING AND CALL OPTION AGREEMENT
dated as of
December 13, 1994
among
HLR Holdings Inc.,
Mafco Holdings Inc.
and
National Health Care Group, Inc. <PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS
1.1. Certain Definitions . . . . . . . . . . . . . . 1
1.2. Expenses . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2
SHARING PAYMENTS
2.1. Sharing Payments to HLR . . . . . . . . . . . . 2
ARTICLE 3
VOTING OF STOCKHOLDER SHARES FOR THE MERGER
3.1. No Sale of Stockholder Shares Prior to
Effective Time . . . . . . . . . . . . . . . . . 3
3.2. Voting of Stockholder Shares . . . . . . . . . . 3
ARTICLE 4
CALL RIGHTS
4.1. Call Right with Respect to Stockholder Shares . 3
4.2. Closing with Respect to Exercise of Call Right . 4
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER
5.1. Valid Title . . . . . . . . . . . . . . . . . . 4
5.2. Authority; Binding Effect . . . . . . . . . . . 4
5.3. Governmental Authorization . . . . . . . . . . . 5
5.4. Non-Contravention . . . . . . . . . . . . . . . 5
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF HLR
6.1. Corporate Power and Authority . . . . . . . . . 5
6.2. Acquisition for HLR's Account . . . . . . . . . 5<PAGE>
ARTICLE 7
COVENANTS OF STOCKHOLDER
Page
7.1. No Solicitation; No Shopping . . . . . . . . . . 6
7.2. Further Action . . . . . . . . . . . . . . . . . 6
ARTICLE 8
MISCELLANEOUS
8.1. Registration Provisions . . . . . . . . . . . . 6
8.2. Additional Agreements . . . . . . . . . . . . . 6
8.3. Specific Performance . . . . . . . . . . . . . . 7
8.4. Notices . . . . . . . . . . . . . . . . . . . . 7
8.5. Amendments; Termination . . . . . . . . . . . . 7
8.6. Successors and Assigns . . . . . . . . . . . . . 7
8.7. Governing Law . . . . . . . . . . . . . . . . . 8
8.8. Counterparts; Effectiveness . . . . . . . . . . 8<PAGE>
SHARING AND CALL OPTION AGREEMENT
SHARING AND CALL OPTION AGREEMENT, dated as of December
13, 1994 among HLR Holdings Inc., a Delaware corporation
("HLR") and parent of Roche Biomedical Laboratories, Inc., a
New Jersey corporation ("RBL"), Mafco Holdings Inc., a
Delaware corporation ("Mafco"), and National Health Care
Group, Inc., a Delaware corporation (the "Stockholder") and
an indirect wholly-owned subsidiary of Mafco and, solely
with respect to Section 8.1 hereof, National Health
Laboratories Holdings Inc., a Delaware corporation (the
"Company").
WHEREAS, HLR, RBL, the Company and Hoffmann-La Roche
Inc., a New Jersey Corporation propose to enter into an
Agreement and Plan of Merger of even date herewith (the
"Merger Agreement") providing for the merger of RBL into and
with the Company as the surviving corporation (the
"Merger"); and
WHEREAS, Stockholder owns approximately 23.8%of the
issued and outstanding shares of the Company's common stock,
$.01 par value, per share (the "Common Stock"); and
WHEREAS, in connection with entering into the Merger
Agreement, HLR, Mafco and Stockholder desire to enter into
this Agreement setting forth certain rights and obligations
of the parties with respect to Stockholder's investment in
the Company;
NOW, THEREFORE, in consideration of the premises and
the representations, warranties and agreements herein
contained, the parties agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1. Certain Definitions. Capitalized terms
used and not defined herein have the meanings assigned to
them in the Merger Agreement. The following terms, as used
herein, 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 stockholder of the Company 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.
"Board" means the board of directors of the Company.
"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.
"HSR Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"NASD" means the National Association of Securities
Dealers, Inc.
"NASDAQ" means the NASD Automated Quotation System.
"NASDAQ/NMS" means the NASDAQ-National Market System.
"Person" means an individual, corporation, partnership,
association, trust or other entity or organization,
including a government or political subdivision or an agency
or instrumentality thereof.
"Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations thereunder.
SECTION 1.2. Expenses. All costs and expenses
incurred in connection with this Agreement shall be paid by
the party incurring such cost or expense.
ARTICLE 2
SHARING PAYMENTS
SECTION 2.1. Sharing Payments to HLR. (a) In the
event that a termination fee shall have become payable by
the Company to HLR pursuant to Section 11.4(b) of the Merger
Agreement and Stockholder 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 in Section 2.1(d), Stockholder and Mafco, 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 Stockholder or any of the
controlled Affiliates of Mafco 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 Stockholder 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 the Company).
(b) For purposes of this Section 2.1, the fair
market value of any non-cash consideration:
(i) consisting of securities listed on a national
securities exchange or traded on the NASDAQ/NMS shall 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
Stockholder; and
(ii) consisting of consideration which is other than
cash or securities of the type specified in clause (i) of
this Section 2.1, shall be determined by a nationally
recognized independent investment banking firm (which
firm shall be mutually agreed upon by the parties) within
10 Business Days of the selection of such investment
banking firm; provided, however, that 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 & Co. Incorporated and CS First Boston
Corporation shall jointly name a third investment banking
firm; provided further, that the fees and expenses of
such investment banking firm shall be borne equally by
HLR, on the one hand, and Stockholder, on the other hand.
The determination of the investment banking firm shall be
binding upon the parties.
(c) Any Sharing Payment required to be made pursuant
to this Section 2.1 shall be made two Business Days
after the later of (i) the fifth trading day
after settlement of any disposition of any
securities referred to in subsection (b)(i) above 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 referred to in
subsection (b)(ii) above received pursuant to any
disposition, as applicable.
(d) The term "Stockholder Shares" as used herein means
(i) 20,176,729 shares of Common Stock which are
all of the voting securities of the Company presently
beneficially owned or owned of record by Stockholder,
Mafco and their respective controlled Affiliates and
(ii) any additional shares of Common Stock or
rights to acquire voting securities of the Company acquired
by Stockholder, Mafco or any of their respective controlled
Affiliates (whether by purchase or otherwise) from and after
the date of this Agreement.
ARTICLE 3
VOTING OF STOCKHOLDER SHARES FOR THE MERGER
SECTION 3.1. No Sale of Stockholder Shares Prior to
Effective Time. Stockholder shall not transfer any
Stockholder Shares prior to the Effective Time except if a
termination fee shall have become payable by the Company to
HLR pursuant to Section 11.4(b) of the Merger Agreement.
SECTION 3.2. Voting of Stockholder Shares.
Stockholder shall be, and Stockholder and Mafco shall cause
their controlled Affiliates which hold Common Stock to be,
present in person or by proxy at the NHL Stockholder Meeting
for the purpose of voting on the adoption of the Merger
Agreement, and Stockholder and Mafco shall cause all of the
Stockholder Shares to be voted in favor of the Merger and
adoption of the Merger Agreement.
ARTICLE 4
CALL RIGHTS
SECTION 4.1. Call Right with Respect to Stockholder
Shares. (a) At any time after the third anniversary of the
date on which the Effective Time occurs, HLR or an Affiliate
of HLR (or if such purchase is not permitted pursuant to
applicable law or by any material agreement to which HLR or
such Affiliate is bound, a third party nominated by HLR)
(any such party being 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 Common
Stock then owned by Stockholder, Mafco 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 shall so notify Stockholder
of such intention to exercise the Call Right, specifying in
such notice (the "Call Notice") the date of such exercise
(the "Exercise Date").
(b) On the Call Closing Date (as defined in Section 4.2),
Purchaser shall pay a price per share for the shares
to be purchased as specified in the Call Notice,
equal to 102% of the average closing price per share of such
security as reported on the principal national securities
exchange on which such sharesare listed, or if not so listed,
as reported on NASDAQ/NMS, for the 30 trading days
before the Exercise Date.
SECTION 4.2. Closing with Respect to Exercise of Call
Right. The closing (the "Call Closing") of the call
transaction shall take place at such place as may be agreed
upon by the parties and on such date as may be set forth in
a written notice from Purchaser to Stockholder (the "Call
Closing Date"), but in no event more than 5 Business Days
after the later of (i) the Exercise Date, and (ii)
expiration of any applicable HSR Act waiting period or the
satisfaction of any required regulatory approval. At the
Call Closing, Stockholder, Mafco, or any of their controlled
Affiliates, as the case may be, will convey good, marketable
and valid title to the shares being purchased free and clear
of any and all claims, liens, charges, encumbrances and
security interests. The parties agree to take all actions
as may be reasonably required to effect the Call Closing as
promptly as practicable.
SECTION 4.3. No Sale After Call Notice. From and
after the receipt of a Call Notice, neither Stockholder,
Mafco nor any of their controlled Affiliates shall transfer
any shares of Common Stock that are owned by Stockholder,
Mafco or any such controlled Affiliate except during any
period expiring 15 Business Days prior to the Exercise Date.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER
Stockholder and Mafco, jointly and severally, represent
and warrant to HLR that:
SECTION 5.1. Valid Title. Stockholder is the sole,
true, lawful and beneficial and record owner of the
Stockholder Shares with no restrictions on Stockholder's
voting rights or rights of disposition pertaining thereto
other than those arising pursuant to bona fide pledge
arrangements. None of the Stockholder Shares is subject to
any voting trust or other agreement (other than this
Agreement) or arrangement with respect to the voting of such
Stockholder Shares other than those arising from bona fide
pledge arrangements.
SECTION 5.2. Authority; Binding Effect. Stockholder
and Mafco have all requisite power and authority to enter
into this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and
performance by Stockholder and Mafco of this Agreement and
the consummation by Stockholder and Mafco of the
transactions contemplated hereby have been duly authorized
by all necessary corporate action by Stockholder and Mafco.
This Agreement has been duly executed and delivered by
Stockholder and Mafco and constitutes a valid and binding
agreement of Stockholder and Mafco.
SECTION 5.3. Governmental Authorization. The
execution, delivery and performance by Stockholder and Mafco
of this Agreement and the consummation by Stockholder and
Mafco of the transactions contemplated hereby 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.
SECTION 5.4. Non-Contravention. The execution,
delivery and performance of this Agreement by Stockholder
and Mafco do not, and the consummation by Stockholder and
Mafco of the transactions contemplated hereby do not and
will not, (i) contravene or conflict with the certificate of
incorporation or the bylaws of Stockholder and Mafco, (ii)
assuming compliance with the HSR Act, 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 Stockholder and Mafco, (iii)
constitute a default under or give rise to a right of
termination, cancellation or acceleration of any right or
obligation of Stockholder and Mafco or to a loss of any
benefit to which Stockholder and Mafco are entitled under
any provision of any agreement, contract or other instrument
binding upon Stockholder or Mafco or any license, franchise,
permit or other similar authorization held by Stockholder or
Mafco or (iv) result in the creation or imposition of any
lien on any asset of Stockholder or Mafco. Notwithstanding
anything to the contrary in this Section 5.4, it is
understood that the Stockholder Shares are subject to bona
fide pledge arrangements, but that Stockholder and Mafco
will take all actions necessary to enable Stockholder to
comply with Section 3.2 and Article 4 hereof.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF HLR
HLR represents and warrants to Stockholder:
SECTION 6.1. Corporate Power and Authority. HLR has
all requisite corporate power and authority to enter into
this Agreement and to perform its obligations hereunder.
The execution, delivery and performance by HLR of this
Agreement and the consummation by HLR of the transactions
contemplated hereby have been duly authorized by all
necessary action, if any, of HLR. This Agreement has been
duly executed and delivered by HLR and constitutes a valid
and binding agreement of HLR.
SECTION 6.2. Acquisition for HLR's Account. Any
shares of Common Stock to be acquired pursuant to the Call
Rights set forth in Article 4 will be acquired by HLR for
its own account and not with a view to the public
distribution thereof and will not be transferred except in
compliance with the Securities Act. If required by
applicable law, in the written opinion of outside legal
counsel to the Company (which opinion shall be) satisfactory
to HLR, any shares of Common Stock transferred hereunder may
bear a legend providing that such shares of Common Stock may
only be sold or otherwise disposed of in accordance with
such Act.
ARTICLE 7
COVENANTS OF STOCKHOLDER
SECTION 7.1. No Solicitation; No Shopping.
Stockholder and Mafco shall comply with, and be bound by,
the restrictions set forth in Section 5.4(a) of the Merger
Agreement as if such restrictions were fully set forth in
this Agreement.
SECTION 7.2. Further Action. Stockholder and Mafco
will take all actions necessary to enable each of them and
their Affiliates to comply with Section 3.2 and Article 4
hereof.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1. Registration Provisions. The Company
shall use its best efforts to cause the Registration
Statement (as defined in the Merger Agreement) to include a
resale prospectus that would permit Stockholder (or any
pledgee of the Merger Shares under a bona fide pledge
arrangement with Stockholder) to sell shares of Common Stock
received by Stockholder in the Merger (the "Merger Shares")
without restriction and, after the filing of the
Registration Statement, shall 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 hereof and during such period shall use its best
efforts to cause the resale prospectus to be supplemented by
any required prospectus supplement. In addition, the
registration procedures set forth in Sections 6.6 through
6.11 as set forth in the form of the Stockholder Agreement
between HLR Holdings Inc. and the Company attached as an
Exhibit to the Merger Agreement (the "Stockholder
Agreement") (including, without limitation, the provisions
with respect to filings, blue sky qualification, amendments,
due diligence, indemnification and contribution) for the
benefit of Investor (as defined therein) shall be deemed
incorporated herein, as applicable, for the benefit of
Stockholder as if fully set forth in this place (with all
references to the "Investor" therein being deemed to be
references to Stockholder or the pledgee of any Merger
Shares referred to above, as the case may be) and in
connection with the registration referred to above, the
Company shall pay the applicable Registration Expenses (as
defined in the Stockholder Agreement).
SECTION 8.2. Additional Agreements. Subject to the
terms and conditions of this Agreement, each of the parties
hereto agrees to use all reasonable efforts to take, or
cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable under
applicable laws and regulations and which may be required
under any agreements, contracts, commitments, instruments,
understandings, arrangements or restrictions of any kind to
which such party is a party or by which such party is
governed or bound, to enable HLR to exercise and enjoy all
the benefits and rights associated with the Call Option and
the Sharing Payment and otherwise to consummate and make
effective the transactions contemplated by this Agreement,
to obtain all necessary waivers, consents and approvals and
effect all necessary registrations and filings, including,
but not limited to, filings under the HSR Act, responses to
requests for additional information related to such filings,
and submission of information requested by governmental
authorities, and to rectify any event or circumstances which
could impede consummation of the transactions contemplated
hereby.
SECTION 8.3. Specific Performance. (a) The parties
hereto agree that HLR would be irreparably damaged if for
any reason Stockholder, Mafco or their Affiliates, as the
case may be, failed to sell the shares of Common Stock upon
exercise of the Call Option, or to perform any of its other
obligations under this Agreement, and that HLR would not
have an adequate remedy at law for money damages in such
event. Accordingly, HLR shall be entitled to specific
performance and injunctive and other equitable relief to
enforce the performance of this Agreement by Stockholder and
Mafco. This provision is without prejudice to any other
rights that HLR may have against Stockholder or Mafco for
any failure to perform their respective obligations under
this Agreement.
(b) The parties hereto also agree that Stockholder
would be irreparably damaged if for any reason the Company
failed to perform in full its obligations as set forth in
Section 8.1 hereof, and that Stockholder would not have any
adequate remedy at law or for money damages in such event.
Accordingly, Stockholder shall be entitled to specific
performance and injunctive and other equitable relief to
enforce the performance of this Agreement by the Company.
This provision is without prejudice to any other rights that
Stockholder may have against the Company for any failure to
perform its obligations under this Agreement.
SECTION 8.4. Notices. All notices, requests, claims,
demands and other communications hereunder shall be deemed
to have been duly given when delivered in Person, by cable,
telegram or telex, or by registered or certified mail
(postage prepaid, return receipt requested) to such party at
its address set forth on the signature page hereto.
SECTION 8.5. Amendments; Termination. This Agreement
may not be modified, amended, altered or supplemented,
except upon the execution and delivery of a written
agreement executed by the parties hereto. This Agreement
shall terminate upon the earliest to occur of (i) the date
on which Stockholder, Mafco and their Affiliates own no
shares of 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 Common Stock (provided that
such shares have not been transferred in violation of this
Agreement) or (ii) the effective date of any termination of
the Merger Agreement pursuant to Section 10.1(a), (b), (c),
(e), or (g) thereof. Article 8 of this Agreement shall
terminate when Stockholder, Mafco and their respective
controlled Affiliates shall own no shares of Common Stock
that are subject to the registration requirements of the
Securities Act. Article 2 of this Agreement shall terminate
180 days after the effective date of any termination of the
Merger Agreement pursuant to Section 10.1(d) or (f) thereof
except with respect to the obligation to make any Sharing
Payment which has become due as a result of any transfer of
shares of Common Stock.
SECTION 8.6. 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, except that HLR may assign its rights
and obligations hereunder to any Affiliate of HLR or
pursuant to Article 4 to a third party. Any Affiliate of
Stockholder or Mafco who acquires shares of Common Stock
shall become a party to and be bound by this Agreement.
SECTION 8.7. Governing Law. This Agreement shall be
construed in accordance with and governed by the law of
Delaware without giving effect to the principles of
conflicts of laws thereof.
SECTION 8.8. 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.<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first
above written.
HLR HOLDINGS INC.
/s/ Bradford T. Smith
----------------------
1403 Foulk Road, Suite 102 Name: Bradford T. Smith
P.O. Box 8985 Title: Assistant Secretary
Wilmington, DE 19899
MAFCO HOLDINGS INC.
/s/ Joram Salig
----------------
35 East 62nd Street Name: Joram Salig
New York, NY 10021 Title: Vice President
NATIONAL HEALTH CARE GROUP, INC.
/s/ Howard F. Gordon
----------------------
Cypress Financial Center Name: Howard F. Gordon
5900 North Andrews Avenue Title: Vice President
Suite 700A
Ft. Lauderdale, FL 33309
NATIONAL HEALTH LABORATORIES
HOLDINGS INC.
/s/ James R. Maher
-------------------
4225 Executive Square Name:James R. Maher
Suite 800 Title: President and Chief
La Jolla, CA 92037 Executive Officer
Exhibit 21.1
National Health Laboratories Holdings Inc.
Listing of Subsidiaries
December 31, 1994
-----------------------------------------------------------------
Subsidiary State of Incorporation
-------------------------------------- --------------------------
Intermediate Holdings Corp. I Delaware
Intermediate Holdings Corp. II Delaware
National Health Laboratories Delaware
La Jolla Management Corp. Delaware
Quality Assurance Group, Inc. Delaware
Executive Tower Travel Inc. Delaware
Allied Clinical Laboratories, Inc.
A Delaware Corporation Delaware
Allied Clinical Laboratories, Inc.
An Oregon Corporation Oregon<PAGE>
National Health Laboratories Holdings Inc.
Names under which the Registrant conducts business
-----------------------------------------------------------------
NHL Intermediate Holdings Corporation I
NHL Intermediate Holdings Corporation II
National Health Laboratories Incorporated
La Jolla Management Corporation
Quality Assurance Group, Inc.
Executive Tower Travel Inc.
Allied Clinical Laboratories, Inc. A Delaware Corporation
Allied Clinical Laboratories, Inc. An Oregon Corporation
Sierra Nevada Laboratories, Inc.
Physicians Clinical Laboratories, Inc.
Plaza Diagnostic Services, Inc.
Fulton Medical Laboratory
Hollywood Diagnostics Laboratory
Coast Clinical Laboratories, Inc.
Coast Medical Laboratories, Inc.
Professional Corporations Laboratory, Ltd.
Southern Medical Lab, Inc.
Hoyle-Passon Laboratories, Inc.
Cranston Medical Laboratory, Inc.
Austin Pathology Clinical Laboratories, Inc.
Garden City Medical Laboratory, Inc.
Barrington Medical Laboratory, Inc.
Spectrum Medical Service, Inc.
Zeoli Medical Laboratory, Inc.
Brown & Associates Medical Laboratories
Physicians' Medical Lab Limited Partnership
Associated Medical Services, Inc.
Whatcom Pathology Laboratory and Blood Bank P.S.
Lititiz/Community Laboratory Services
Acculab Medical Laboratories, Inc., dba NDA Laboratories
Park Medical Laboratory, Inc.
Prineville Medical Clinic
Hackensack Clinical Laboratory, Inc.
Pathlabs, Inc.
CenPath Laboratory, Inc.
Clinpath, Inc. (South Tulsa Pathology Laboratory, Inc.)
Pathex Laboratories, Inc.
Pacific Clinical Laboratories, Inc.
Lab Plus, Inc. (Lab Plus X-Ray)<PAGE>
National Health Laboratories Holdings Inc.
Names under which the Registrant conducts business
------------------------------------------------------------
Omni Lab Inc.
Delano Medical Arts Pharmacy, Inc. dba California Medical
Laboratory, Inc.
Medical Arts Laboratory, Inc.
Quantum Laboratories, Inc.
Accutech Medical Laboratories, Inc.
Saddleback Medical Laboratory, a California Limited
Partnership
Allied Clinical Laboratories, Inc.
MML Health Services, Inc.
Laboratory Sciences International, Ltd.
Physicians Clinical Laboratories
Colorado Clinical Laboratories, Inc.
Eastside Medical Laboratory, Inc.
AO Northwest, Inc.
Professional Diagnostic Laboratory, Inc.
Biomedical Laboratories of Waterbury, Inc.
Madison Clinical Laboratory, Ltd.
Stroink Pathology Laboratories, Inc.<PAGE>
EXHIBIT 23.1
Independent Auditors' Consent
-----------------------------
The Board of Directors
National Health Laboratories Holdings Inc.:
We consent to incorporation by reference in the registration
statements (No. 33-29182 and No. 33-43006) as amended, and
registration statement (No. 33-55065) on Form S-8 of National
Health Laboratories Holdings Inc. of our report dated February 13,
1995, relating to the consolidated balance sheets of National Health
Laboratories Holdings Inc. and subsidiaries as of December 31, 1994
and 1993, and the related consolidated statements of earnings,
stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1994, and the related schedule,
which report appears in the December 31, 1994 annual report on Form
10-K of National Health Laboratories Holdings Inc.
KPMG Peat Marwick LLP
San Diego, California
March 1, 1995
EXHIBIT 24.1
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of David C.
Flaugh, James G. Richmond and Joram C. Salig or any of
them, each acting alone, his true and lawful attorney-in-
fact and agent, with full power of substitution, for him
and in his name, place and stead, in any and all capaci-
ties, in connection with the National Health Laboratories
Holdings Inc. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1994 under the Securities Exchange
Act of 1934, as amended, including, without limiting the gener-
ality of the foregoing, to sign the Form 10-K in the name
and on behalf of the Corporation or on behalf of the under-
signed as a director or officer of the Corporation, and any
amendments to the Form 10-K and any instrument, contract,
document or other writing, of or in connection with the
Form 10-K or amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection
therewith, including this power of attorney, with the
Securities and Exchange Commission and any applicable secu-
rities exchange or securities self-regulatory body, grant-
ing unto said attorneys-in-fact and agents, each acting
alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purpos-
es as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawful-
ly do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 23rd day of February, 1995.
By:/s/ RONALD O. PERELMAN
----------------------
Ronald O. Perelman
<PAGE>
<PAGE>
EXHIBIT 24.2
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of David C.
Flaugh, James G. Richmond and Joram C. Salig or any of
them, each acting alone, his true and lawful attorney-in-
fact and agent, with full power of substitution, for him
and in his name, place and stead, in any and all capaci-
ties, in connection with the National Health Laboratories
Holdings Inc. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1994 under the Securities Exchange
Act of 1934, as amended, including, without limiting the gener-
ality of the foregoing, to sign the Form 10-K in the name
and on behalf of the Corporation or on behalf of the under-
signed as a director or officer of the Corporation, and any
amendments to the Form 10-K and any instrument, contract,
document or other writing, of or in connection with the
Form 10-K or amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection
therewith, including this power of attorney, with the
Securities and Exchange Commission and any applicable secu-
rities exchange or securities self-regulatory body, grant-
ing unto said attorneys-in-fact and agents, each acting
alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purpos-
es as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawful-
ly do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 23rd day of February, 1995.
By:/s/ JAMES R. MAHER
------------------
James R. Maher
<PAGE>
<PAGE>
EXHIBIT 24.3
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of David C.
Flaugh, James G. Richmond and Joram C. Salig or any of
them, each acting alone, his true and lawful attorney-in-
fact and agent, with full power of substitution, for him
and in his name, place and stead, in any and all capaci-
ties, in connection with the National Health Laboratories
Holdings Inc. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1994 under the Securities Exchange
Act of 1934, as amended, including, without limiting the gener-
ality of the foregoing, to sign the Form 10-K in the name
and on behalf of the Corporation or on behalf of the under-
signed as a director or officer of the Corporation, and any
amendments to the Form 10-K and any instrument, contract,
document or other writing, of or in connection with the
Form 10-K or amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection
therewith, including this power of attorney, with the
Securities and Exchange Commission and any applicable secu-
rities exchange or securities self-regulatory body, grant-
ing unto said attorneys-in-fact and agents, each acting
alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purpos-
es as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawful-
ly do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 23rd day of February, 1995.
By:/s/ SAUL J. FARBER, M.D.
------------------------
Saul J. Farber, M.D.
<PAGE>
<PAGE>
EXHIBIT 24.4
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of David C.
Flaugh, James G. Richmond and Joram C. Salig or any of
them, each acting alone, his true and lawful attorney-in-
fact and agent, with full power of substitution, for him
and in his name, place and stead, in any and all capaci-
ties, in connection with the National Health Laboratories
Holdings Inc. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1994 under the Securities Exchange
Act of 1934, as amended, including, without limiting the gener-
ality of the foregoing, to sign the Form 10-K in the name
and on behalf of the Corporation or on behalf of the under-
signed as a director or officer of the Corporation, and any
amendments to the Form 10-K and any instrument, contract,
document or other writing, of or in connection with the
Form 10-K or amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection
therewith, including this power of attorney, with the
Securities and Exchange Commission and any applicable secu-
rities exchange or securities self-regulatory body, grant-
ing unto said attorneys-in-fact and agents, each acting
alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purpos-
es as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawful-
ly do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 23rd day of February, 1995.
By:/s/ HOWARD GITTIS
-----------------
Howard Gittis
<PAGE>
<PAGE>
EXHIBIT 24.5
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of David C.
Flaugh, James G. Richmond and Joram C. Salig or any of
them, each acting alone, his true and lawful attorney-in-
fact and agent, with full power of substitution, for him
and in his name, place and stead, in any and all capaci-
ties, in connection with the National Health Laboratories
Holdings Inc. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1994 under the Securities Exchange
Act of 1934, as amended, including, without limiting the gener-
ality of the foregoing, to sign the Form 10-K in the name
and on behalf of the Corporation or on behalf of the under-
signed as a director or officer of the Corporation, and any
amendments to the Form 10-K and any instrument, contract,
document or other writing, of or in connection with the
Form 10-K or amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection
therewith, including this power of attorney, with the
Securities and Exchange Commission and any applicable secu-
rities exchange or securities self-regulatory body, grant-
ing unto said attorneys-in-fact and agents, each acting
alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purpos-
es as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawful-
ly do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 20th day of February, 1995.
By:/s/ ANN DIBBLE JORDAN
---------------------
Ann Dibble Jordan
<PAGE>
<PAGE>
EXHIBIT 24.6
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of David C.
Flaugh, James G. Richmond and Joram C. Salig or any of
them, each acting alone, his true and lawful attorney-in-
fact and agent, with full power of substitution, for him
and in his name, place and stead, in any and all capaci-
ties, in connection with the National Health Laboratories
Holdings Inc. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1994 under the Securities Exchange
Act of 1934, as amended, including, without limiting the gener-
ality of the foregoing, to sign the Form 10-K in the name
and on behalf of the Corporation or on behalf of the under-
signed as a director or officer of the Corporation, and any
amendments to the Form 10-K and any instrument, contract,
document or other writing, of or in connection with the
Form 10-K or amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection
therewith, including this power of attorney, with the
Securities and Exchange Commission and any applicable secu-
rities exchange or securities self-regulatory body, grant-
ing unto said attorneys-in-fact and agents, each acting
alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purpos-
es as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawful-
ly do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 21st day of February, 1995.
By:/s/ DAVID J. MAHONEY
--------------------
David J. Mahoney
<PAGE>
<PAGE>
EXHIBIT 24.7
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of David C.
Flaugh, James G. Richmond and Joram C. Salig or any of
them, each acting alone, his true and lawful attorney-in-
fact and agent, with full power of substitution, for him
and in his name, place and stead, in any and all capaci-
ties, in connection with the National Health Laboratories
Holdings Inc. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1994 under the Securities Exchange
Act of 1934, as amended, including, without limiting the gener-
ality of the foregoing, to sign the Form 10-K in the name
and on behalf of the Corporation or on behalf of the under-
signed as a director or officer of the Corporation, and any
amendments to the Form 10-K and any instrument, contract,
document or other writing, of or in connection with the
Form 10-K or amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection
therewith, including this power of attorney, with the
Securities and Exchange Commission and any applicable secu-
rities exchange or securities self-regulatory body, grant-
ing unto said attorneys-in-fact and agents, each acting
alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purpos-
es as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawful-
ly do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 23rd day of February, 1995.
By:/s/ PAUL A. MARKS, M.D.
-----------------------
Paul A. Marks, M.D.
<PAGE>
<PAGE>
EXHIBIT 24.8
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of David C.
Flaugh, James G. Richmond and Joram C. Salig or any of
them, each acting alone, his true and lawful attorney-in-
fact and agent, with full power of substitution, for him
and in his name, place and stead, in any and all capaci-
ties, in connection with the National Health Laboratories
Holdings Inc. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1994 under the Securities Exchange
Act of 1934, as amended, including, without limiting the gener-
ality of the foregoing, to sign the Form 10-K in the name
and on behalf of the Corporation or on behalf of the under-
signed as a director or officer of the Corporation, and any
amendments to the Form 10-K and any instrument, contract,
document or other writing, of or in connection with the
Form 10-K or amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection
therewith, including this power of attorney, with the
Securities and Exchange Commission and any applicable secu-
rities exchange or securities self-regulatory body, grant-
ing unto said attorneys-in-fact and agents, each acting
alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purpos-
es as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawful-
ly do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 23rd day of February, 1995.
By:/s/ LINDA GOSDEN ROBINSON
-------------------------
Linda Gosden Robinson
<PAGE>
<PAGE>
EXHIBIT 24.9
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of David C.
Flaugh, James G. Richmond and Joram C. Salig or any of
them, each acting alone, his true and lawful attorney-in-
fact and agent, with full power of substitution, for him
and in his name, place and stead, in any and all capaci-
ties, in connection with the National Health Laboratories
Holdings Inc. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1994 under the Securities Exchange
Act of 1934, as amended, including, without limiting the gener-
ality of the foregoing, to sign the Form 10-K in the name
and on behalf of the Corporation or on behalf of the under-
signed as a director or officer of the Corporation, and any
amendments to the Form 10-K and any instrument, contract,
document or other writing, of or in connection with the
Form 10-K or amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection
therewith, including this power of attorney, with the
Securities and Exchange Commission and any applicable secu-
rities exchange or securities self-regulatory body, grant-
ing unto said attorneys-in-fact and agents, each acting
alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purpos-
es as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawful-
ly do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 9th day of February, 1995.
By:/s/ SAMUEL O. THIER, M.D.
-------------------------
Samuel O. Thier, M.D.
<PAGE>
<PAGE>
EXHIBIT 24.10
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of David C.
Flaugh, James G. Richmond and Joram C. Salig or any of
them, each acting alone, his true and lawful attorney-in-
fact and agent, with full power of substitution, for him
and in his name, place and stead, in any and all capaci-
ties, in connection with the National Health Laboratories
Holdings Inc. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1994 under the Securities Exchange
Act of 1934, as amended, including, without limiting the gener-
ality of the foregoing, to sign the Form 10-K in the name
and on behalf of the Corporation or on behalf of the under-
signed as a director or officer of the Corporation, and any
amendments to the Form 10-K and any instrument, contract,
document or other writing, of or in connection with the
Form 10-K or amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection
therewith, including this power of attorney, with the
Securities and Exchange Commission and any applicable secu-
rities exchange or securities self-regulatory body, grant-
ing unto said attorneys-in-fact and agents, each acting
alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purpos-
es as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawful-
ly do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 3rd day of March, 1995.
By:/s/ DAVID C. FLAUGH
-------------------
David C. Flaugh
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES CONSOLIDATED
CONDENSED BALANCE SHEETS AND STATEMENT OF EARNINGS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000920148
<NAME> NATIONAL HEALTH LABORATORIES HOLDINGS INC. AND SUBSIDIARIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 26,800
<SECURITIES> 0
<RECEIVABLES> 221,400
<ALLOWANCES> 16,000
<INVENTORY> 20,100
<CURRENT-ASSETS> 293,000
<PP&E> 233,100
<DEPRECIATION> 93,000
<TOTAL-ASSETS> 1,012,700
<CURRENT-LIABILITIES> 202,800
<BONDS> 563,800
<COMMON> 800
0
0
<OTHER-SE> 165,200
<TOTAL-LIABILITY-AND-EQUITY> 1,012,700
<SALES> 872,500
<TOTAL-REVENUES> 872,500
<CGS> 597,000
<TOTAL-COSTS> 597,000
<OTHER-EXPENSES> 186,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,500
<INCOME-PRETAX> 55,400
<INCOME-TAX> 25,300
<INCOME-CONTINUING> 30,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,100
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
