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
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EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1996
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-11353
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LABORATORY CORPORATION OF AMERICA HOLDINGS
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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.)
358 SOUTH MAIN STREET, BURLINGTON, NORTH CAROLINA
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910-229-1127
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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
Common Stock Purchase Warrants 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
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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
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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:
$215,620,388 at March 14, 1997.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 122,935,080
shares at March 14, 1997, of which 61,329,256 shares are held by indirect
wholly owned subsidiaries of Roche Holding Ltd. The number of warrants
outstanding to purchase shares of the issuer's common stock is 22,151,308 as
of March 15, 1997, of which 8,325,000 are held by an indirect wholly owned
subsidiary of Roche Holding Ltd.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Laboratory Corporation of America Holdings is one of the three largest
independent clinical laboratory companies in the United States based on 1996
net revenues. 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. Since its founding in 1971, the Company has grown into a network of
28 major laboratories and approximately 1,500 service sites consisting of
branches, patient service centers and STAT laboratories, serving clients in
48 states.
The Company has achieved a substantial portion of its growth through
acquisitions. On April 28, 1995, the Company completed a merger with Roche
Biomedical Laboratories, Inc. ("RBL"), an indirect subsidiary of Roche
Holdings Inc. ("Roche"), pursuant to an Agreement and Plan of Merger dated
as of December 13, 1994 (the "Merger"). In connection with the Merger, the
Company changed its name from National Health Laboratories Holdings Inc.
("NHL") to Laboratory Corporation of America Holdings. In June 1994, the
Company acquired Allied Clinical Laboratories, Inc.("Allied"), then the
sixth largest independent clinical laboratory testing company in the United
States (based on 1993 net revenues)(the "Allied Aquisition"). In addition to
the Merger and the Allied Acquisition, since 1993, the Company has acquired
a total of 57 small clinical laboratories with aggregate sales of
approximately $182.4 million.
RECENT DEVELOPMENTS
During 1996 and the early part of 1997, the Company has undergone
significant changes in management with Thomas P. Mac Mahon assuming the role
of President and Chief Executive Officer in January 1997 in addition to his
position as Chairman. Prior to such time Mr. Mac Mahon served as Senior
Vice President of Roche and President of Roche Diagnostics Group where he
was responsible for the management of all United States operations of the
diagnostic businesses of Roche. In addition to Mr. Mac Mahon, the Company
is led by a new Chief Financial Officer, Wesley R. Elingburg, formerly
Senior Vice President_Finance, and a new management committee.
As part of an examination of the rapid growth of Federal expenditures
for clinical laboratory services, several Federal agencies, including the
Federal Bureau of Investigation, the Office of Inspector General ("OIG") of
the Department of Health and Human Services ("HHS") and the Department of
Justice ("DOJ"), have investigated allegations of fraudulent and abusive
conduct by health care providers. On November 21, 1996, the Company reached
a settlement with the OIG and the DOJ regarding the prior billing practices
of various of its predecessor companies (the "1996 Government Settlement").
Consistent with this overall settlement the Company paid $187 million to the
Federal Government in December 1996, with proceeds from a loan from Roche
(the "Roche Loan"). As a result of negotiations related to the 1996
Government Settlement, the Company recorded a charge of $185 million in the
third quarter of 1996 to increase reserves for the 1996 Government
Settlement, and other related expenses of government and private claims
resulting therefrom.
During 1996, management began implementing a new business strategy in
response to the Company's declining performance. These new strategic
objectives are as follows: remaining a low cost provider of clinical
testing services; providing high quality service to its clients; and
improving account profitability. See "Management's Discussion and Analysis
of Results of Operations and Financial Condition", "Business-Management
Information Systems" and "-- Sales and Marketing and Client Service". In
addition, the Company is focused on certain growth initiatives beyond the
routine clinical laboratory testing. In particular the Company is focused
on increasing market share in certain sections of the market by providing
innovative services in three primary areas: (i) hospital alliances; (ii)
specialty and niche businesses; and (iii) direct marketing to payors. See
"Business--Affiliations and Alliances," "--Testing Services" and "--PCS
Health Systems, Inc."
In February 1997, the Company filed a registration statement with the
Securities and Exchange Commission (the "Commission") relating to the
proposed offering of an aggregate of $500.0 million of convertible preferred
stock issuable in two series pursuant to transferable subscription rights to
be granted on a pro rata basis to each stockholder of the Company (the
"Rights Offering"). Rights holders who exercise their rights in full will
also be entitled to subscribe for additional shares of preferred stock
issuable pursuant to any unexercised rights.
The proceeds of the Rights Offering will be used to reduce amounts
outstanding under the Company's revolving and term loan credit facilities,
repay the Roche Loan, and pay fees and expenses related to the Rights
Offering and the Amended Credit Agreement discussed below.
In March 1997, the Company entered into the Sixth Amendment and Waiver
(the "Sixth Amendment") to its credit agreement (the "Existing Credit
Agreement"). The Sixth Amendment eliminates amortization payments on its
term loan facility (the "Term Loan Facility") under the Existing Credit
Agreement for 1997 and modifies the interest coverage and leverage ratios
for the quarterly periods through December 31, 1997. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Pursuant to this amendment, the Company paid an amendment fee of 37.5 basis
points on commitments and will pay an additional fee of 62.5 basis points if
the Rights Offering is not completed by June 30, 1997.
In addition, the Roche Loan was originally due on March 31, 1997. In
March 1997, the Company negotiated an amendment to the Roche Loan which
provided for an extension of the due date to March 31, 1998.
The Company also entered into an amended and restated credit agreement
(the "Amended Credit Agreement") with its lenders under the Existing Credit
Agreement which will become effective upon completion of the Rights Offering
following satisfaction of certain conditions precedent. The Amended Credit
Agreement makes available to the Company a term loan facility of $693.8
million (the "Amended Term Loan Facility") and a $450.0 million revolving
credit facility (the "Amended Revolving Credit Facility"). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 9 of the Notes to Consolidated Financial Statements for
a complete description of the Existing Credit Agreement and the Amended
Credit Agreement.
THE CLINICAL LABORATORY TESTING INDUSTRY
Laboratory tests and procedures are used generally by hospitals,
physicians and other health care providers and commercial clients to assist
in the diagnosis, evaluation, detection, monitoring and treatment of
diseases and other medical conditions through the examination of substances
in the blood, tissues and other specimens. Clinical laboratory testing is
generally categorized as either clinical testing, which is performed on body
fluids including blood and urine, or anatomical pathology testing, which is
performed on tissue and other samples, including human cells. Clinical and
anatomical pathology procedures are frequently ordered as part of regular
physician office visits and hospital admissions in connection with the
diagnosis and treatment of illnesses. Certain of these tests and procedures
are used principally as tools in the diagnosis and treatment of a wide
variety of medical conditions such as cancer, AIDS, endocrine disorders,
cardiac disorders and genetic disease. The most frequently requested tests
include blood chemistry analyses, urinalyses, blood cell counts, PAP smears,
AIDS tests, microbiology cultures and procedures and alcohol and other
substance-abuse tests.
The clinical laboratory industry consists primarily of three types of
providers: hospital based laboratories, physician-office laboratories and
independent clinical laboratories, such as those owned by the Company.
The Company believes that in 1996 approximately 50% of the clinical
testing revenues in the United States were derived by hospital-based
laboratories, approximately 15% were derived by physicians in their offices
and laboratories and approximately 35% were derived by independent clinical
laboratories. The Health Care Financing Administration ("HCFA") of HHS has
estimated that in 1996 there were over 5,000 independent clinical
laboratories in the United States.
EFFECT OF MARKET CHANGES ON THE CLINICAL LABORATORY BUSINESS
Many market-based changes in the clinical laboratory business have
occurred, most involving the shift away from traditional, fee-for-service
medicine to managed-cost health care. The growth of the managed care sector
presents various challenges to the Company and other independent clinical
laboratories. Managed care providers typically contract with a limited
number of clinical laboratories and negotiate discounts to the fees charged
by such laboratories in an effort to control costs. Such discounts have
resulted in price erosion and have negatively impacted the Company's
operating margins. In addition, managed care providers have used capitated
payment contracts in an attempt to promote more efficient use of laboratory
testing services. Under a capitated payment contract, the clinical
laboratory and the managed care provider agree to a per member, per month
payment to cover all laboratory tests during the month, regardless of the
number or cost of the tests actually performed. Such contracts also shift
the risks of additional testing beyond that covered by the capitated payment
to the clinical laboratory. For the year ended December 31, 1996 such
contracts accounted for approximately $64.5 million in net sales. The
increase in managed-cost health care has also resulted in declines in the
utilization of laboratory testing services.
In addition, Medicare (which principally services patients 65 and
older), Medicaid (which principally serves indigent patients) and insurers
have increased their effort to control the cost, utilization and delivery of
health care services. Measures to regulate health care delivery in general
and clinical laboratories in particular have resulted in reduced prices and
added costs and decreasing test utilization for the clinical laboratory
industry by increasing complexity and adding new regulatory and
administrative requirements. From time to time, Congress has also
considered changes to the Medicare fee schedules in conjunction with certain
budgetary bills. Any future changes to the Medicare fee schedules cannot be
predicted at this time and management, therefore, cannot predict the impact,
if any, such proposals, if enacted, would have on the results of operations
of the Company.
The Company believes that the volume of clinical laboratory testing
will be positively influenced by several factors, including primarily: an
expanded base of scientific knowledge which has led to the development of
more sophisticated specialized tests and increased the awareness of
physicians of the value of clinical laboratory testing as a cost-effective
means of prevention, early detection of disease and monitoring of treatment.
Additional factors which have contributed to recent volume growth include:
an increase in the number and types of tests which are, due to advances in
technology and increased cost efficiencies, readily available on a more
affordable basis to physicians; expanded substance-abuse testing by
corporations and governmental agencies; increased testing for sexually
transmitted diseases such as AIDS; and the general aging of the population
in the United States. The impact of these factors is expected to be
partially offset by declines in volume as a result of increased controls
over the utilization of laboratory services by Medicare and other third
party payors, particularly managed care organizations.
LABORATORY TESTING OPERATIONS AND SERVICES
The Company has 28 major laboratories, and approximately 1,500 service
sites consisting of branches, patient service centers and STAT laboratories.
A "branch" 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 branch and conveniently delivered to the client. A branch
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 or other strategic location. 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 processed an average of
approximately 250,000 patient specimens per day in 1996. 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 specimen 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
computerized testing equipment is directly linked with the Company's
information systems. Most routine testing is completed by early the next
morning, and test results are printed and prepared for distribution by
service representatives that day. Some clients have local printer capability
and have reports printed out directly in their offices. Clients who request
that they be called with a result are so notified in the morning. It is
Company policy to notify the client immediately if a life-threatening result
is found at any point during the course of the testing process.
TESTING SERVICES
Routine Testing
The Company currently offers over 1,700 different clinical laboratory
tests or procedures. Several hundred of these are frequently used in
general patient care by physicians to establish or support a diagnosis, to
monitor treatment or medication or to search for an otherwise undiagnosed
condition. The most frequently requested routine tests include blood
chemistry analyses, urinalyses, blood cell counts, pap smears and AIDS
tests. These routine procedures are most often used by practicing
physicians in their outpatient office practices. Physicians may elect to
send such procedures to an independent laboratory or they may choose to
establish an in-house laboratory to perform some of the tests.
The Company performs this core group of routine tests in each of its 28
major regional laboratories, which constitutes a majority of the testing
performed by the Company. The Company generally performs and reports most
routine procedures within 24 hours, utilizing a variety of sophisticated and
computerized laboratory testing instruments.
Specialty and Niche Testing
While the information provided by many routine tests may be used by
nearly all physicians, regardless of specialty, many other procedures are
more specialized in nature. Certain types of unique testing capabilities
and/or client requirements have been developed into specialty or niche
businesses by the Company which have become a primary growth strategy for
the Company. In general the specialty and niche businesses are designed to
serve two market segments: (i) markets which are not served by the routine
clinical testing laboratory and therefore are subject to less stringent
regulatory and reimbursement constraints; and (ii) markets which are served
by the routine testing laboratory and offer the possibility of adding
related services from the same supplier. The Company's research and
development group continually seeks new and improved technologies for early
diagnosis. For example, the Company's Center for Molecular and Biology and
Pathology is a leader in molecular diagnostics and polymerase chain reaction
technologies which are often able to provide earlier and more reliable
information regarding HIV, genetic diseases, cancer and many other viral and
bacterial diseases. Management believes these technologies may represent a
significant savings to managed care organizations by increasing the
detection of early stage (treatable) diseases. Also, the Company recently
acquired Genetic Design, Inc. and management believes it is now the largest
provider of identity testing services in the United States. The following
are specialty and niche businesses in which the Company offers testing and
related services:
Allergy Testing. The Company offers an extensive range of allergen
testing services as well as computerized analysis and a treatment program
that enables primary care physicians to diagnose and treat many kinds of
allergic disorders.
Ambulatory Monitoring. The Company performs a computer assisted analysis
of electrocardiograms and blood pressure measurements. Many of these
analyses are submitted by physicians who require extended (up to 24 hours)
monitoring of these parameters for patients.
Clinical Research Testing. The Company regularly performs clinical
laboratory testing for pharmaceutical companies conducting clinical
research trials on new drugs. This testing often involves periodic testing
of patients participating in the trial over several years.
Diagnostic Genetics. The Company offers cytogenetic, biochemical and
molecular genetic tests.
Identity Testing. The Company provides forensic identity testing used in
connection with criminal proceedings and parentage evaluation services which
are used to assist in the resolution of disputed parentage in child support
litigation. Parentage testing involves the evaluation of immunological and
genetic markers in specimens obtained from the child, the mother and the
alleged father.
Industrial Hygiene Testing. The Company maintains a separate testing
facility in Richmond, Virginia, dedicated to the analysis of potentially
toxic substances in the workplace environment.
Kidney Stone Analysis. The Company offers specialized patient analysis
assessing the risk of kidney stones based on laboratory measurements and
patient history.
Oncology Testing. The Company offers an extensive series of testing
technologies that aid in diagnosing and monitoring certain cancers and
predicting the outcome of certain treatments.
Substance Abuse Testing. The Company provides urinalysis testing for the
detection of drugs of abuse for private and government customers, and also
provides blood testing services for the detection of drugs of abuse and
alcohol. These testing services are designed to produce "forensic" quality
test results that satisfy the rigorous requirements for admissibility as
evidence in legal proceedings.
Veterinary Testing. The Company offers clinical laboratory testing of
animal specimens for veterinarians which require specialized testing
procedures and handling due to their differing characteristics.
The specialized or niche testing services noted above, as well as other
complex procedures, are sent to designated facilities where the Company has
concentrated the people, instruments and related resources for performing
such procedures so that quality and efficiency can be most effectively
monitored. The Company's Center for Molecular Biology and Pathology in
Research Triangle Park, North Carolina, also specializes in new test
development and education and training related thereto.
CLIENTS
The Company provides testing services to a broad range of health care
providers. During the year ended December 31, 1996, no client or group of
clients under the same contract accounted for more than two percent of the
Company's net sales. The primary client groups serviced by the Company
include:
Independent Physicians and Physician Groups
Physicians requiring testing for their patients who are unaffiliated
with a managed care plan are one of the Company's primary sources of testing
services. Fees for clinical laboratory testing services rendered for these
physicians are billed either to the physician, to the patient or the
patient's third party payor such as insurance companies, Medicare and
Medicaid. Billings are typically on a fee-for service basis. If the
billings are to the physician, they are based on the wholesale or customer
fee schedule and subject to negotiation. Otherwise, the patient is billed
at the laboratory's retail or patient fee schedule and subject to third
party payor limitations and negotiation by physicians on behalf of their
patients. Medicare and Medicaid billings are based on government set fee
schedules.
Hospitals
The Company serves hospitals with services ranging from routine and
specialty testing to contract management services. Hospitals generally
maintain an on-site laboratory to perform immediately needed testing on
patients receiving care. However, they also refer less time sensitive
procedures, less frequently needed procedures and highly specialized
procedures to outside facilities, including independent clinical
laboratories and larger medical centers. The Company typically charges
hospitals for any such tests on a fee-for-service basis which is derived
from the Company's customer fee schedule.
HMOs and Other Managed Care Groups
The Company serves HMOs and other managed care organizations. These
medical service providers typically contract with a limited number of
clinical laboratories and then designate the laboratory or laboratories to
be used for tests ordered by participating physicians. Testing is mostly
performed on a capitated basis for managed care organizations. Under a
capitated payment contract, the Company agrees to cover all laboratory tests
during a given month for which the managed care organization agrees to pay a
flat monthly fee. The tests covered under agreements of this type are
negotiated for each contract, but usually include mostly routine tests and
exclude highly specialized tests. Many of the national and large regional
managed care organizations prefer to use large independent clinical labs
such as the Company because they can service them on a national basis.
Other Institutions
The Company serves other institutions, including governmental agencies,
large employers and other independent clinical laboratories that do not have
the breadth of the Company's testing capabilities. The institutions
typically pay on a negotiated or bid fee-for-service basis.
PAYORS
Most testing services are billed to a party other than the "client"
that ordered the test. In addition, tests performed by a single physician
may be billed to different payors depending on the medical benefits of a
particular patient. Payors other than the direct patient, include, among
others, insurance companies, managed care organizations, Medicare and
Medicaid. Based on the year ended December 31, 1996 billings to the
Company's respective payors based on the total volume of accessions are as
follows:
Accession Volume as a % Revenue
of Total per
1996 Accession
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Private Patients 3 - 5% $65 - 75
Medicare, Medicaid and
Insurance 25 - 30% $25 - 35
Commercial Clients 45 - 50% $15 - 25
Managed Care 15 - 20% $10 - 30
AFFILIATIONS AND ALLIANCES
The Company provides management services in a variety of health care
settings. The Company generally supplies the laboratory manager and other
laboratory personnel, as well as equipment and testing supplies, to manage a
laboratory that is owned by a hospital, managed care organization 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 hospital or clinic ("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 contract management
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 management service contracts typically have terms between
three and five years. However, most contracts contain 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 contracted Provider, which accreditation is not reinstated
within 30 days of the loss, or up to 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.
One of the Company's primary growth strategies is to develop an
increasing number of hospital alliances. These alliances can take several
different forms including laboratory management contracts, discussed above,
reference agreements and joint ventures. As hospitals continue to be
impacted by decreasing fee schedules from third party payors and managed
care organizations, the Company believes that they will seek the most cost-
effective laboratory services for their patients. Management believes the
Company's economies of scale as well as its delivery system will enable it
to assist the hospital in achieving its goals. These alliances are
generally more profitable than the Company's core business due to the
specialized nature of many of the testing services offered in the alliance
program. In 1996, the Company added 6 alliance agreements with hospitals,
physician groups and other care provider organizations representing
approximately $20 million of annual sales. This increased the total number
of alliances to 20 at December 31, 1996 from 14 at December 31, 1995.
PCS HEALTH SYSTEMS, INC.
In 1996 the Company began to focus efforts on selling its services
directly to payors of laboratory services. As a result of that focus, the
Company entered into an agreement with PCS Health Systems, Inc. ("PCS") to
provide laboratory services as an extension of its prescription card
services. PCS, a wholly-owned subsidiary of Eli Lilly and Company, is one
of the leading pharmacy benefit management companies in the United States
with 58 million members covered by its programs and services. The
arrangement with PCS is modeled after the current PCS prescription benefit
plan. Patients will be provided with identification cards indicating
beneficiary eligibility for both PCS prescription benefits and Company
testing services. The Company will provide testing services as requested
and bill PCS based on a predetermined fee schedule. The Company will pay
PCS certain percentage and fixed fees for adjudication of claims.
The process begins when a test sample is collected at the physician's
office or local Company service center. Patient eligibility will be
determined at the time of testing through interface with the PCS information
system which will expedite processing of the claim for reimbursement. The
laboratory sample will be sent via the courier to the Company testing
facility. After tests are completed, the results are forwarded to the
physician and the billing information regarding the tests performed are sent
to PCS for plan processing and claim remittance.
The benefits to the client under the PCS arrangement include the
ability to tailor the program to meet the specific needs of client companies
and their employees and the ability to provide (i) combined utilization
reporting for potential outcomes measurement and disease management and (ii)
consistent, cost effective, quality laboratory services to employees in
several geographic locations through the Company's national presence. The
benefits to the Company are the ability to ensure eligibility at the time of
specimen collection, pricing above the Company's current composite price per
accession despite a significant discount to the client and improved cash
flow through contracted reimbursement. The Company expects to begin to
realize revenues from this agreement beginning in the second half of 1997.
SALES AND MARKETING AND CLIENT SERVICE
The Company offers its services through a combination of direct sales
generalists and specialists. Sales generalists market the mainstream or
traditional routine laboratory services primarily to physicians, while
specialists concentrate on individual market segments, such as hospitals or
managed care organizations, or on testing niches, such as identity testing
or genetic testing. Specialist positions are established when an in-depth
level of expertise is necessary to effectively offer the specialized
services. When the need arises, specialists and generalists work
cooperatively to address specific opportunities. At December 31, 1996, the
Company employed approximately 267 generalists and 81 specialists. The
Company's sales generalists and specialists are compensated through a
combination of salaries, commissions and bonuses, at levels commensurate
with each individual's qualifications and responsibilities. Commissions are
primarily based upon the individual's productivity in generating new
business for the Company.
The Company also employs customer service associates ("CSAs") to
interact with clients on an ongoing basis. CSAs monitor the status of the
services being provided to clients, act as problem-solvers, provide
information on new testing developments and serve as the client's regular
point of contact with the Company. At December 31, 1996, the Company
employed approximately 370 CSAs. CSAs are compensated with a combination of
salaries and bonuses commensurate with each individual's qualifications and
responsibilities.
The Company believes that the clinical laboratory service business is
shifting away from the traditional direct sales structure and into one in
which the purchasing decisions for laboratory services are increasingly made
by managed care organizations, insurance plans, employers and increasingly
by patients themselves. In view of these changes, the Company has adapted
its sales and marketing structure to more appropriately address the new
opportunities. For example, the Company has expanded its specialists sales
positions in both its primary business and its niche businesses in order to
maximize the Company's competitive strengths of advanced technology and
marketing focus.
The Company competes primarily on the basis of the quality of its
testing, reporting and information systems, its reputation in the medical
community, the pricing of its services and its ability to employ qualified
personnel. As a result of the required focus on the consolidation process
related to the Merger, however, the Company believes that its level of
client service has been negatively impacted. Therefore, in 1997, with the
consolidation process substantially completed, one of the Company's goals is
to improve client service. An important factor in improving client service
includes the Company's initiatives to improve its billing process. See
"_Billing."
INFORMATION SYSTEMS
The Company has developed and implemented sophisticated management
information systems to monitor operations and control costs. All financial
functions are centralized in Burlington, North Carolina including purchasing
and accounting. Management believes this provides greater control over
spending as well as increased supervision and monitoring of results of
operations.
The Company believes that the health care provider's need for data will
continue to place high demands on its information systems staff. The Company
operates several systems to handle laboratory, billing and financial data
and transactions. The Company believes that the efficient handling of
information involving clients, patients, payors and other parties will be a
critical factor in the Company's future success. The Company's Corporate
Information Systems Division manages its information resources and programs
on a consolidated basis in order to achieve greater efficiency and economies
of scale. In addition, as a key part of its response to these challenges,
the Company employs a Chief Information Officer, whose responsibility is to
integrate, manage and develop the Company's information systems.
In 1996, information systems activities have been focused on selection
and consolidation of the Company's multiple laboratory and billing systems
to standardized laboratory testing and billing systems. The Company has
also been focused on the establishment of regional data centers to handle
all of the information processing needs of the Company. The Company
believes that it can benefit from the conversion of its multiple billing
systems into a centralized system which it plans to implement once problems
with the collection of accounts receivable balances resulting from increased
medical necessity and diagnosis code requirements are corrected. These
conversions are expected to be completed within two years. The Company does
not anticipate that the conversion costs will result in a significant
increase in capital expenditures over the levels spent during the last
several years.
BILLING
Billing for laboratory services is a complicated process. Laboratories
must bill many different payors such as doctors, patients, hundreds of
different insurance companies, Medicare, Medicaid and employer groups, all
of whom have different billing requirements. The Company believes that a
majority of its bad debt expense is the result of non-credit related issues
which slow the billing process, create backlogs of unbilled requisitions and
generally increase the aging of accounts receivable. A primary cause of bad
debt expense is missing or incorrect billing information on requisitions.
The Company believes that this experience is similar to that of its primary
competitors. The Company performs the requested tests and returns back the
test results regardless of whether billing information has been provided at
all or has been provided incorrectly. The Company subsequently attempts to
obtain any missing information or rectify any incorrect billing information
received from the health care provider. Among the many other factors
complicating the billing process are more complicated billing arrangements
due to contracts with third-party administrators, disputes between payors as
to the party responsible for payment of the bill and auditing for specific
compliance issues. Ultimately, if all issues are not resolved in a timely
manner, the related receivables are written off.
The Company's bad debt expense has increased since the Merger
principally due to three developments that have further complicated the
billing process: (1) increased complexities in the billing process due to
requirements of managed care payors; (2) increased medical necessity and
diagnosis code requirements; and (3) existence of multiple billing
information systems. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
During the fourth quarter of 1995 and the second quarter of 1996, the
Company recorded pre-tax special charges of $15 million and $10 million,
respectively, based on the Company's determination that additional reserves
were needed to cover potentially lower collection rates from several third-
party payors. The 1995 charge was necessitated by the deterioration in the
Company's accounts receivable collection rates in the fourth quarter of 1995
primarily due to the effect of increased medical necessity and diagnosis
code requirements of third party payors placed on the Company in the second
half of 1995. Additional such requirements were placed on the Company at
the beginning of 1996, which resulted in a further deterioration in accounts
receivable collection rates in the second quarter of 1996. As a result of
this further deterioration, the Company recorded the special charge of $10.0
million in the second quarter of 1996. In addition, the Company increased
its monthly provision for doubtful accounts beginning in the third quarter
of 1996 as a result of continued lower collection rates. To date, accounts
receivable balances have continued to grow even though revenues have not
increased. Although there can be no assurance of success, the Company has
recently developed a number of initiatives to address the complexity of the
billing process and to improve collection rates. These initiatives include:
reorganization of departments to allow for more focus on specific issues;
retention of management consultants to assess the situation and assist in re-
engineering the billing process; establishment of a project group to address
inaccurate and missing billing information captured when the specimen is
received; addition of staff in each operating division to train field
personnel in billing matters and to review and approve contracts with third-
party payors to ensure that contracts can be properly billed; and training
of clients related to limited coverage tests and the importance of providing
diagnosis codes pertaining to such tests. Additionally, the Company
believes that it can benefit from the conversion of its multiple billing
systems into a centralized system which it plans to implement once the
growth in accounts receivable is stabilized.
QUALITY ASSURANCE
The Company considers the quality of its tests to be of critical
importance, and it has established a comprehensive quality assurance program
for all of its laboratories and other facilities, designed to help assure
accurate and timely test results. In addition to the compulsory external
inspections and proficiency programs demanded by HCFA and other regulatory
agencies, Company-wide systems and procedures are in place to emphasize and
monitor quality assurance. All of the Company's regional laboratories are
subject to on-site evaluations, the College of American Pathologists ("CAP")
proficiency testing program, state surveys and the Company's own internal
quality control programs.
External Proficiency/ Accreditations. The Company participates in
numerous externally-administered, blind quality surveillance programs,
including the CAP program. The blind programs supplement all other quality
assurance procedures and give Company management the opportunity to review
its technical and service performance from the client's perspective.
Internal Quality Control. The Company regularly performs internal
quality control testing by running quality control samples with known values
with patient samples submitted for testing. All quality control sample test
results are entered into the Company's national laboratory computer, which
connects the Company's facilities nationwide to a common on-line quality
control database. This system helps technologists and technicians check
quality control values and requires further prompt verification if any
quality control value is out of range. The Company has an extensive,
internally administered program of blind sample proficiency testing (i.e.
the testing laboratory does not know the sample being tested is a quality
control sample), as part of which the Company's locations receive specimens
from the Company's Quality Assurance and Corporate Technical Services
departments for analysis.
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. The CAP is
an independent non-governmental organization of board certified pathologists
which offers an accreditation program to which laboratories can voluntarily
subscribe. The CAP has been accredited by HCFA to inspect clinical
laboratories to determine Clinical Laboratory Improvement Act of 1967, and
the Clinical Laboratory Improvement Amendments of 1988 (collectively, as
amended "CLIA") standards. A laboratory's receipt of accreditation by the
CAP satisfies the Medicare requirement for participation in proficiency
testing programs administered by an external source. All of the Company's
major laboratories are accredited by the CAP.
COMPETITION
The clinical laboratory business is intensely competitive. The Company
believes that in 1996 the entire United States clinical laboratory testing
industry had revenues exceeding $36 billion; approximately 50% of such
revenues were attributable to hospital-affiliated laboratories,
approximately 35% were attributable to independent clinical laboratories and
approximately 15% were attributable to physicians in their offices and
laboratories. As recently as 1993, there were seven laboratories that
provided clinical laboratory testing services on a national basis: NHL, RBL,
Quest Diagnostics Incorporated, formerly known as Corning Clinical
Laboratories ("Quest"), SmithKline Beecham Clinical Laboratories, Inc.
("SmithKline"), Damon Corporation, Allied and Nichols Institute. Apart from
the Merger and the Allied Acquisition, Quest acquired Nichols Institute in
August 1994 and Damon Corporation in August 1993. In addition, in the last
several years a number of large regional laboratories have been acquired by
national clinical laboratories. There are presently three national
independent clinical laboratories: the Company, Quest, which had
approximately $1.6 billion in revenues from clinical laboratory testing in
1996; and SmithKline, which had approximately $1.3 billion in revenues from
clinical laboratory testing in 1996.
In addition to the two other national clinical laboratories, the
Company competes on a regional basis with many smaller regional independent
clinical laboratories as well as laboratories owned by hospitals and
physicians. The Company believes that the following factors, among others,
are often used by health care providers in selecting a laboratory: (i)
pricing of the laboratory's test services; (ii) accuracy, timeliness and
consistency in reporting test results; (iii) number and type of tests
performed; (iv) service capability and convenience offered by the
laboratory; and (v) its reputation in the medical community. The Company
believes that it competes favorably with its principal competitors in each
of these areas and is currently implementing strategies to improve its
competitive position. See "_Clients" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The Company believes that consolidation will continue in the clinical
laboratory testing business. In addition, the Company believes that it and
the other large independent clinical laboratory testing companies will be
able to increase their share of the overall clinical laboratories testing
market due to a number of external factors including cost efficiencies
afforded by large-scale automated testing, Medicare reimbursement reductions
and the growth of managed health care entities which require low-cost
testing services and large service networks. In addition, legal
restrictions on physician referrals and the ownership of laboratories as
well as increased regulation of laboratories are expected to contribute to
the continuing consolidation of the industry.
EMPLOYEES
At December 31, 1996, the Company employed approximately 22,000 people.
These include approximately 18,000 full-time employees and approximately
4,000 part-time employees, which represents the equivalent of approximately
19,300 persons full-time. Of the approximately 19,300 full-time equivalent
employees, approximately 400 are sales personnel, approximately 17,000 are
laboratory and distribution personnel and approximately 1,900 are
administrative and data processing personnel. A subsidiary of the Company
has one collective bargaining agreement which covers approximately 20
employees and believes that its overall relations with its employees are
good.
REGULATION AND REIMBURSEMENT
General
The clinical laboratory industry is subject to significant governmental
regulation at the Federal, state and local levels. Under CLIA, virtually
all clinical laboratories, including those owned by the Company, must be
certified by the Federal government. Many clinical laboratories must also
meet governmental standards, undergo proficiency testing and are subject to
inspection. Certifications or licenses are also required by various state
and local laws.
The health care industry is undergoing significant change as
third-party payors, such as Medicare (which principally serves patients 65
and older) and Medicaid (which principally serves indigent patients) and
insurers, increase their efforts to control the cost, utilization and
delivery of health care services. In an effort to address the 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, initially advanced
in 1994, was not enacted, 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
payors are likely to 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.
Regulation of Clinical Laboratories
CLIA extends Federal oversight to virtually all clinical laboratories
by requiring that laboratories be certified by the government. Many
clinical laboratories must also meet governmental quality and personnel
standards, undergo proficiency testing and be subject to biennial
inspection. Rather than focusing on location, size or type of laboratory,
this extended oversight is based on the complexity of the tests performed by
the laboratory.
In 1992, HHS published regulations implementing CLIA. The quality
standards and enforcement procedure regulations became effective in 1992,
although certain personnel, quality control and proficiency testing
requirements are currently being phased in by HHS. The quality standards
regulations divide all tests into three categories (waivered, moderate
complexity and high complexity) and establish varying requirements depending
upon the complexity of the test 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 approximately twelve routine "waivered" tests may apply for a
waiver from most requirements of CLIA. All major and many smaller company
facilities 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's laboratories have continuing programs to ensure that
their operations meet all applicable regulatory requirements.
Regulation Affecting Reimbursement of Clinical Laboratory Services
Containment of health care costs, including reimbursement for clinical
laboratory services, has been a focus of ongoing governmental activity. In
1984, Congress established a Medicare fee schedule for clinical laboratory
services performed for patients covered under Part B of the Medicare
program. Subsequently, Congress imposed a national ceiling on the amount
that can be paid under the fee schedule. Laboratories bill the program
directly and must accept the scheduled amount as payment in full for covered
tests performed on behalf of Medicare beneficiaries. In addition, state
Medicaid programs are prohibited from paying more than the Medicare fee
schedule amount for clinical laboratory services furnished to Medicaid
recipients. In 1996 and 1995, the Company derived approximately 23% and
28%, respectively, of its net sales from tests performed for beneficiaries
of Medicare and Medicaid programs. In addition, the Company's other
business depends significantly on continued participation in these programs
because clients often want a single laboratory to perform all of their
testing services. Since 1984, 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 were
implemented on a phased-in basis from 1994 through 1996 (to 84% in 1994, 80%
in 1995 and 76% in 1996). The 1996 reduction to 76% was implemented as
scheduled on January 1, 1996. OBRA `93 also eliminated the provision for
annual fee schedule increases based upon the consumer price index for 1994
and 1995. These reductions were partially offset, however, by annual
consumer price index fee schedule increases of 3.2% and 2.7% in 1996 and
1997, respectively. 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. The Company
cannot predict if additional Medicare reductions will be implemented.
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 on August 1,
1993. The CPT changes have altered the way the Company bills third-party
payors 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.
Moreover, Medicare denied reimbursement to NHL for claims submitted for
HDL cholesterol and serum ferritin (a measure of iron in the blood) tests
from September 1993 to December 1993, at which time NHL removed such tests
from its basic test profiles.
In 1996, the HCFA implemented 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 changes established a consistent standard nationwide for the
content of the automated chemistry profiles. Another change incorporated in
the HCFA policy requires laboratories performing certain automated blood
chemistry profiles to obtain and provide documentation of the medical
necessity of tests included in the profiles for each Medicare beneficiary.
The Company expects to incur additional costs associated with the
implementation of these requirements. The amount of additional costs and
potential reductions in reimbursement for certain components of chemistry
profiles and the impact on the Company's financial condition and results of
operations have not yet been determined.
Future changes in Federal, state and local regulations (or in the
interpretation of current regulations) affecting governmental reimbursement
for clinical laboratory testing could have a material adverse effect on the
Company. The Company is unable to predict, however, whether and what type
of legislation will be enacted into law.
Fraud and Abuse Regulations
The Medicare and Medicaid anti-kickback laws prohibit intentionally
paying anything of value to influence the referral of Medicare and Medicaid
business. HHS has published safe harbor regulations which specify certain
business activities that, although literally covered by the laws, will 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 if all
conditions of the safe harbor are met; rather, the arrangement would remain
subject to scrutiny by HHS.
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 physicians benefit from such
lower utilization; providing free pickup and disposal of bio-hazardous waste
for physicians for items unrelated to a laboratory's testing services;
providing facsimile machines or computers to physicians that 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 Special
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
negotiation 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 combating fraud and abuse. In addition, the OIG has stated in
its 1995 work plan that it will determine the extent to which laboratories
supply physicians' offices with phlebotomists (blood-drawing technicians),
offer management services or medical waste pick-up to physicians, provide
training to physicians or engage in other financial arrangements with
purchasers of laboratories' services. The OIG will assess the potential
benefits of such arrangements as well as the extent to which such
arrangements might be unlawful.
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.
Environmental and Occupational Safety
The Company is subject to licensing and regulation under Federal, state
and local laws and regulations relating to the protection of the environment
and human health and safety, including laws and regulations relating to the
handling, transportation and disposal of medical specimens, infectious and
hazardous waste and radioactive materials as well as to the safety and
health of laboratory employees. All Company laboratories are subject to
applicable Federal and state laws and regulations relating to biohazard
disposal of all laboratory specimens and the Company utilizes outside
vendors for disposal of such specimens. In addition, the Federal
Occupational Safety and Health Administration 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. Although the Company is not aware of any current material non-
compliances with such Federal, state and local laws and regulations, failure
to comply could subject the Company to denial of the right to conduct
business, fines, criminal penalties and/or other enforcement actions.
Drug Testing
Drug testing for public sector employees is regulated by the Substance
Abuse and Mental Health Services Administration ("SAMSHA") (formerly the
National Institute on Drug Abuse), which has established detailed
performance and quality standards that laboratories must meet in order to be
approved to perform drug testing on employees of Federal government
contractors and certain other entities. To the extent that the Company's
laboratories perform such testing, each must be certified as meeting SAMSHA
standards. The Company's Research Triangle Park, North Carolina; Memphis,
Tennessee; Raritan, New Jersey; Seattle, Washington; Herndon, Virginia and
Reno, Nevada laboratories are SAMSHA certified.
Controlled Substances
The use of controlled substances in testing for drugs of abuse is
regulated by the Federal Drug Enforcement Administration.
OIG INVESTIGATIONS
Several Federal agencies are responsible for investigating allegations
of fraudulent and abusive conduct by health care providers, including the
Federal Bureau of Investigation, the OIG and the DOJ. 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 through the country."
1996 Government Settlement
In August 1993, RBL and Allied each received a subpoena from the OIG
requesting documents and information concerning pricing and billing
practices. In September 1993, NHL received a subpoena from the OIG which
required NHL to provide documents to the OIG concerning its regulatory
compliance procedures. Among other things, the OIG subpoena received by RBL
and Allied called for the production of documents regarding 14 blood
chemistry tests which were being or had been performed by certain
independent clinical laboratories in conjunction with automated chemistry
profiles and which were being or had been billed separately to Medicare or
Medicaid. An automated chemistry profile is a grouping of tests that can be
performed together on a single specimen and that Medicare and Medicaid pay
under the Medicare fee schedule. The government's investigations covered
billings for tests performed by NHL, RBL and Allied from 1988 to 1994.
These tests were deemed by regulators to be medically unnecessary. The
investigations were part of a broad-based federal inquiry into Medicare and
related billings that have resulted in financial settlements with a number
of other clinical laboratories. The inquiries have also prompted the
imposition of more stringent regulatory compliance requirements industry-
wide. In November 1996, the Company agreed to enter into a comprehensive
Corporate Integrity Agreement and to pay $182 million to settle civil claims
involving Medicare and related government billings for tests performed by
NHL, RBL and Allied (the "1996 Government Settlement"). These claims arose
out of the government's contention that laboratories offering profiles
containing certain test combinations had the obligation to notify ordering
physicians how much would be billed to the government for each test
performed for a patient whose tests are paid for by Medicare, Medicaid or
other government agency. The government contended claims submitted for
tests ordered by physicians and performed by the laboratories were improper.
The Company settled these allegations without an admission of fault. The
Corporate Integrity Agreement, among other things, requires that detailed
notifications be made to physicians. In addition, as part of the overall
settlement, a San Diego laboratory that was formerly part of Allied agreed
to plead guilty to a charge of filing a false claim with Medicare and
Medicaid in 1991 and to pay $5 million to the Federal government. The
assets of the San Diego laboratory were sold by Allied in 1992, two years
before the Allied Acquisition. As is customary with asset sales, Allied
retained the liability for conduct preceding the sale - a liability the
Company later succeeded to, following the Allied Acquisition and Merger. As
a result of negotiations related to the 1996 Government Settlement, the
Company recorded a charge of $185 million in the third quarter of 1996 (the
"Settlement Charge") to increase reserves for the 1996 Government Settlement
described above and other related expenses of government and private claims
resulting therefrom. The Company has recently been contacted by
representatives of certain insurance companies, and individuals in a
purported class action, who have asserted claims for private reimbursement
which are similar to the Government claims recently settled. The Company
is carefully evaluating these claims, however, due to the early stage of
the claims, the ultimate outcome cannot presently be predicted.
Pursuant to the 1996 Government Settlement, the Company paid $187
million in December 1996 (the "Settlement Payment"). The Settlement Payment
was paid from the proceeds of a $187 million loan made by Roche to the
Company in December 1996. See "Management Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources".
1992 NHL Government Settlement
In November 1990, NHL became aware of a grand jury inquiry relating to
its pricing practices being conducted by the United States Attorney for the
San Diego area (the Southern District of California) with the assistance of
the OIG. On December 18, 1992, NHL entered into a settlement with the
United States Attorney (the "1992 NHL Government Settlement"), which related
to the government's contention that NHL improperly included tests for HDL
cholesterol and serum ferritin in its basic test profile, without clearly
offering an alternative profile that did not include these medical tests.
The government also contended that, in certain instances, physicians were
told that these additional tests would be included in the basic test profile
at no extra charge. As a result, the government contended, NHL's marketing
activities denied physicians the ability to exercise their judgment as to
the medical necessity of these tests.
Pursuant to the 1992 NHL Government Settlement, NHL pleaded guilty to
the charge of presenting two false claims to the Civilian Health and Medical
Program of the Uniformed Services ("CHAMPUS") and paid a $1 million fine.
In connection with pending and threatened civil claims, NHL also agreed to
pay $100 million to the Federal Government in installments. As of December
31, 1995, all such payments due to the government under the 1992 NHL
Government Settlement had been made. Concurrent with the 1992 NHL Government
Settlement, NHL settled related Medicaid claims with states that account for
over 99.5% of its Medicaid business and paid $10.4 million to the settling
states.
1994 Allied Government Settlement
In April 1994, Allied received a subpoena from the OIG requesting
documents and certain information regarding the Medicare billing practices
of its Cincinnati, Ohio clinical laboratory with respect to certain cancer
screening tests. In March 1995, Allied resolved the issues raised by the
April 1994 subpoena and a related qui tam action commenced in Cincinnati,
Ohio Federal court by entering into agreements with, among others, HHS, the
United States Department of Justice and the relators in the qui tam action
pursuant to which it agreed to pay $4.9 million to settle all pending claims
and inquiries regarding these billing practices and certain others. NHL had
previously established reserves that were adequate to cover such settlement
payments. In connection with the settlement, Allied agreed with HHS, among
other things, to implement a corporate integrity program to ensure that
Allied and its representatives remain in compliance with applicable laws and
regulations and to provide certain reports and information to HHS regarding
such compliance efforts.
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 has implemented a
comprehensive company-wide compliance program. The objective of the program
is to develop, implement and update as necessary 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 a 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 statutes and regulations include significant fines and
the loss of various licenses, certificates and authorizations.
ITEM 2. PROPERTIES
The following table summarizes certain information as to the
Company's principal operating and administrative facilities as of December
31, 1996.
APPROXIMATE
AREA NATURE OF
LOCATION (IN SQUARE FEET) OCCUPANCY
- ----------------------- ---------------- --------------------
Operating Facilities:
Birmingham, Alabama 100,000 Lease expires 2005
Phoenix, Arizona 43,000 Lease expires 2001;
one 5 year renewal
option
San Diego, California 54,000 Lease expires 2007
Denver, Colorado 20,000 Lease expires 2001;
two 5 year renewal
options
Tampa, Florida 95,000 Lease expires 2009;
one 5 year renewal
option
Chicago, Illinois 40,000 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
Kansas City, Missouri 78,000 Owned
Reno, Nevada 16,000 Owned
14,000 Lease expires 1999;
2 year renewal option
Raritan, New Jersey 186,000 Owned
Uniondale, New York 108,000 Lease expires 2007;
two 5 year renewal
options
Burlington, North Carolina 205,000 Owned
Charlotte, North Carolina 25,000 Lease expires 1997;renewal
option every 3 years
Research Triangle Park, 74,000 Lease expires 2008,three
North Carolina 5 year renewal options
111,000 Lease expires 2011;
three 5 year renewal
options
Winston-Salem, 73,000 Lease expires 2009; one
North Carolina 5 year renewal option
Dublin, Ohio 82,000 Owned
Memphis, Tennessee 30,000 Lease expires 1999; one
5 year renewal option
Dallas, Texas 54,000 Lease expires 2004; one
5 year renewal option
Houston, Texas 32,000 Lease expires 1997
San Antonio, Texas 44,000 Lease expires 2004; one
5 year renewal option
Salt Lake City, Utah 20,000 Lease expires 2002; two
5 year renewal options
Chesapeake, Virginia 21,000 Lease expires 2002; two
5 year renewal options
Herndon, Virginia 64,000 Leases expire 1999,2004;
one 5 year
renewal option
Richmond, Virginia 57,000 Lease Expires 2001; one
5 year renewal option
Seattle, Washington 42,000 Lease expires 1998; two
5 year renewal options
Fairmont, West Virginia 25,000 Lease expires 2005;three
5 year renewal options
Administrative facilities:
Burlington, North Carolina 160,000 Owned
188,000 Leases expire 1997
2008;various options
to purchase or renew
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.
ITEM 3. LEGAL PROCEEDINGS
The Company has recently been contacted by representatives of certain
insurance companies, and individuals in a purported class action, who
have asserted claims for private reimbursement which are similar to the
Government claims recently settled. The Company is carefully evaluating
these claims, however, due to the early stage of the claims, the
ultimate outcome cannot presently be predicted.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of the Stockholders of the Company
was held on November 20, 1996.
(b) The following individuals were elected to the board
of directors:
Thomas P. Mac Mahon
James B. Powell, M.D.
Jean-Luc Belingard
Wendy E. Lane
Robert E. Mittelstaedt, Jr.
David B. Skinner, M.D.
Andrew G. Wallace, M.D.
(c) The matters voted upon were the election of
directors, approval and adoption of the 1997 Employee
Stock Purchase Plan and the ratification of the
appointment of KPMG Peat Marwick LLP as the Company's
independent auditors for the fiscal year ending
December 31, 1996. Each of such matters was
described in the proxy statement dated October 25,
1996 which was distributed to stockholders in
connection with the annual meeting of the
stockholders of the Company. The results of the vote
were as follows:
For Withheld
--- --------
Election of the members
of the board of directors:
Thomas P. Mac Mahon 94,970,162 16,653,733
James B. Powell, MD 94,969,162 16,654,733
Jean-Luc Belingard 94,970,162 16,653,733
Wendy E. Lane 109,673,536 1,950,359
Robert E. Mittelstaedt, Jr. 109,673,636 1,950,259
David B. Skinner, MD 109,673,636 1,950,259
Andrew G. Wallace, MD 109,673,636 1,950,259
Votes Votes Votes
For Against Abstained
----- ------- ---------
Approval and adoption of the
Laboratory Corporation of
America Holdings 1997
Employee Stock Purchase
Plan: 104,336,606 6,597,917 54,784
Ratification of the
appointment of KPMG Peat
Marwick LLP as the Company's
independent auditors for
the fiscal year ending
December 31, 1996: 111,139,247 453,431 31,217
In addition, certain shares of NHL which have not been
converted to Company shares were eligible to vote at the annual meeting and
were voted as follows:
For Withheld
--- --------
Election of the members
of the board of directors:
Thomas P. Mac Mahon 215 100
James B. Powell, MD 215 100
Jean-Luc Belingard 215 100
Wendy E. Lane 215 100
Robert E. Mittelstaedt, Jr. 215 100
David B. Skinner, MD 215 100
Andrew G. Wallace, MD 215 100
Votes Votes Votes
For Against Abstained
----- ------- ---------
Approval and adoption of the
Laboratory Corporation of
America Holdings 1997 Employee
Stock Purchase Plan: 215 100 0
Ratification of the appointment
of KPMG Peat Marwick LLP as the
Company's independent auditors
for the fiscal year ending
December 31, 1996: 215 100 0
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
On May 1, 1995, the Common Stock commenced trading on the New York
Stock Exchange ("NYSE") under the symbol "LH". Prior to such date and since
April 24, 1991, the Common Stock traded on the NYSE under the symbol "NH."
Prior to April 24, 1991, the Common Stock was quoted on the Nasdaq National
Market 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.
High Low
------ ------
1995
First Quarter 15 1/2 12 5/8
Second Quarter 15 1/4 11 3/4
Third Quarter 14 9 1/8
Fourth Quarter 10 8 1/8
1996
First Quarter 9 3/8 7 1/4
Second Quarter 9 7 3/8
Third Quarter 7 5/8 3 1/4
Fourth Quarter 3 7/8 2 3/8
1997
First Quarter 4 2 1/2
Second Quarter (through April 7, 1997) 3 3/8 2 3/4
On April 7, 1997 there were approximately 900 holders of record of
the Common Stock.
The Company, in connection with the Allied Acquisition in 1994,
discontinued its dividend payments for the foreseeable future in order to
increase its flexibility with respect to its acquisition strategy. In
addition, the Company's credit agreement, as amended, places certain
restrictions, as defined in the credit agreement, on the payment of
dividends.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below under the captions
"Statement of Operations Data" and "Balance Sheet Data" as of and for each
of the years in the five-year period ended December 31, 1996 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,
--------------------------------------------------
1996 1995 (a) 1994 (b) 1993 1992
------ ------- ------ ----- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Net sales $1,607.7 $1,432.0 $872.5 $760.5 $ 721.4
Gross profit 423.8 407.7 275.5 316.0 326.3
Operating income (loss) (118.8)(c) 67.2(d) 109.9 185.5 64.1(e)
Earnings (loss) before
extraordinary loss (153.5) (4.0) 30.1 112.7 40.6
Extraordinary loss -- (8.3)(f) -- -- --
------- ------- ----- ----- ------
Net earnings (loss) $ (153.5) $ (12.3) $ 30.1 $112.7 $ 40.6
======= ======= ===== ===== ======
Earnings (loss) per common
share before extraordinary
loss $ (1.25) $ (0.03) $ 0.36 $ 1.26 $ 0.43
Extraordinary loss per
common share -- (0.08) -- -- --
------- ------- ----- ----- ------
Net earnings (loss) per
common share $ (1.25) $ (0.11) $ 0.3 $ 1.26 $ 0.43
======= ======= ===== ===== ======
Dividends per common
share $ -- $ -- $ 0.08 $ 0.32 $ 0.31
Weighted average
common shares outstanding
(in thousands) 122,920 110,579 84,754 89,439 94,468
DECEMBER 31,
--------------------------------------------------
1996 1995 (a) 1994 (b) 1993 1992
------- ------- ------ ------ -------
BALANCE SHEET DATA:
Cash and cash equivalents $ 29.3 $ 16.4 $ 26.8 $ 12.3 $ 33.4
Intangible assets, net 891.1 916.7 551.9 281.5 188.3
Total assets 1,917.0 1,837.2 1,012.7 585.5 477.4
Long-term obligations (g) 1,089.4 948.6 583.0 314.6 114.2
Due to affiliates (h) 190.5 0.9 -- 0.1 0.9
Total stockholders'
equity 258.1 411.6 166.0 140.8 212.5
<FN>
- --------------------------------
(a) In April 1995, the Company completed the Merger. RBL's results of
operations have been included in the Company's results of operations since
April 28, 1995. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations_General" and Note 2 of the Notes to the
Consolidated Financial Statements.
(b) In June 1994, the Company completed the Allied Acquisition. Allied's
results of operations have been included in the Company's results of
operations since June 23, 1994. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations_General" and Note 2 of the
Notes to Consolidated Financial Statements.
(c) In the second quarter of 1996, the Company recorded certain charges of
a non-recurring nature including additional charges related to the
restructuring of operations following the Merger. The Company recorded a
restructuring charge totaling $13.0 million for the shutdown of its La
Jolla, California administrative facility and other workforce reductions.
In addition, the Company recorded $10.0 million in non-recurring charges in
the second quarter of 1996 related to the integration of its operations
following the Merger. See Note 3 of the Notes to Consolidated Financial
Statements. As a result of negotiations with the OIG and DOJ related to the
1996 Government Settlement, the Company recorded the Settlement Charge of
$185.0 million in the third quarter of 1996 to increase accruals for
settlements and related expenses of government and private claims resulting
from these investigations. See "Regulation and Reimbursement-OIG
Investigations_1996 Government Settlement."
(d) In 1995, following the Merger, the Company determined that it would be
beneficial to close certain laboratory facilities and eliminate duplicate
functions in certain geographic regions where duplicate NHL and RBL
facilities or functions existed at the time of the Merger. The Company
recorded restructuring charges of $65.0 million in connection with these
plans. See Note 3 of the Notes to Consolidated Financial Statements which
sets forth the Company's restructuring activities for the years ended
December 31, 1996 and 1995. Also in 1995, the Company recorded a pre-tax
special charge of $10.0 million in connection with the estimated costs of
settling various claims pending against the Company, substantially all of
which were billing disputes with various third party payors relating to the
contention that NHL improperly included tests for HDL cholesterol and serum
ferritin in its basic test profile without clearly offering an alternative
profile that did not include these medical tests. As of December 31, 1996,
the majority of these disputes have been settled.
(e) In the fourth quarter of 1992, the Company recorded a charge against
operating income of $136.0 million related to the 1992 NHL Government
Settlement (as defined herein). See "Regulation and Reimbursement_OIG
Investigations_1992 NHL Government Settlement."
(f) In connection with the repayment in 1995 of existing revolving credit
and term loan facilities in connection with the Merger, the Company recorded
an extraordinary loss of approximately $13.5 million ($8.3 million, net of
tax), consisting of the write-off of deferred financing costs, related to
the early extinguishment of debt.
(g) Long term obligations include a capital lease obligation of $9.8
million, $9.6 million, $9.8 million, $9.7 million and $9.6 million at
December 31, 1996, 1995, 1994, 1993 and 1992, respectively. Long term
obligations also includes the long-term portion of the expected value of
future contractual and contingent amounts to be paid to the principals of
acquired laboratories. Such payments are principally based on a percentage
of future revenues derived from the acquired customer lists or specified
amounts to be paid over a period of time. At December 31, 1996, 1995, 1994,
1993 and 1992, such amounts were $14.8 million, $14.7 million, $8.5 million,
$15.9 million, and $2.6 million, respectively. Long term obligations
exclude amounts due to affiliates.
(h) In December 1996, Roche loaned $187.0 million to the Company to fund
the Settlement Payment in the form of a promissory note. Such note bears
interest at a rate of 6.625% per annum and matures on March 31, 1998. The
Settlement Payment was subsequently made in December 1996. In addition the
Company owes affiliated companies approximately $3.5 million in trade
payables.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company has grown significantly over the last several years, a
substantial portion of which has been achieved through acquisitions. In
April 1995, the Company completed the Merger with RBL. In connection with
the Merger, the Company issued 61,329,256 shares of Common Stock to HLR and
Roche Holdings in exchange for all outstanding shares of RBL and $135.7
million in cash. The exchange consideration of approximately $558.0 million
for the purchase of RBL consisted of the value of the stock issued to HLR
and Roche Holdings, as well as other cash costs of the Merger, net of cash
received from HLR. In June 1994, the Company acquired Allied for
approximately $191.5 million in cash plus the assumption of $24.0 million of
Allied indebtedness. The Allied Acquisition and the Merger have been
accounted for under the purchase method of accounting; as such, the acquired
assets and liabilities were recorded at their estimated fair values on the
date of acquisition. Allied's and RBL's results of operations have been
included in the Company's results of operations since June 23, 1994 and
April 28, 1995, respectively. See Note 2 of the Notes to Consolidated
Financial Statements. In addition to the Merger and the Allied Acquisition,
since 1993 the Company has acquired a total of 57 small clinical
laboratories with aggregate sales of approximately $182.4 million.
Following the Merger in 1995, the Company determined that it would be
beneficial to close certain laboratory facilities and eliminate duplicate
functions in certain geographic regions where both NHL and RBL facilities or
functions existed at the time of the Merger. The Company recorded
restructuring charges of $65.0 million in connection with these plans in
1995. In addition, in the second quarter of 1995, the Company had an
extraordinary loss of $8.3 million, net of taxes, related to early
extinguishment of debt related to the Merger. In the second quarter of
1996, the Company recorded certain additional charges related to the
restructuring of operations following the Merger. The Company recorded a
restructuring charge totaling $13.0 million for the shutdown of its La
Jolla, California administrative facility and other workforce reductions and
$10.0 million in non-recurring charges related to the integration of its
operations following the Merger. See Note 3 of the Notes to Consolidated
Financial Statements. Future cash payments under the restructuring plan are
expected to be $16.1 million in the year ended December 31, 1997 and $9.1
million thereafter.
In the last several years, the Company's business has been affected by
significant government regulation, price competition and increased influence
of managed care organizations resulting from payors' efforts to control the
cost, utilization and delivery of health care services. As a result of
these factors, the Company's profitability has been impacted by changes in
the volume of testing, the prices and costs of its services, the mix of
payors and the level of bad debt expense.
Many market-based changes in the clinical laboratory business have
occurred, most involving the shift away from traditional, fee-for-service
medicine to managed-cost health care. The growth of the managed care sector
presents various challenges to the Company and other independent clinical
laboratories. Managed care providers typically contract with a limited
number of clinical laboratories and negotiate discounts to the fees charged
by such laboratories in an effort to control costs. Such discounts have
resulted in price erosion and have negatively impacted the Company's
operating margins. In addition, managed care providers have used capitated
payment contracts in an attempt to promote more efficient use of laboratory
testing services. Under a capitated payment contract, the clinical
laboratory and the managed care provider agree to a per month payment to
cover all laboratory tests during the month, regardless of the number or
cost of the tests actually performed. Such contracts also shift the risks
of additional testing beyond that covered by the capitated payment to the
clinical laboratory. The increase in managed-cost health care has also
resulted in declines in the utilization of laboratory testing services. For
the year ended December 31, 1996, such contracts accounted for approximately
$64.5 million in net sales.
In addition, Medicare (which principally serves patients 65 and older)
and Medicaid (which principally serves indigent patients) and insurers, have
increased their efforts to control the cost, utilization and delivery of
health care services. Measures to regulate health care delivery in general
and clinical laboratories in particular have resulted in reduced prices and
added costs and decreasing test utilization for the clinical laboratory
industry by increasing complexity and adding new regulatory and
administrative requirements. From time to time, Congress has also
considered changes to the Medicare fee schedules in conjunction with certain
budgetary bills. Any future changes to the Medicare fee schedules cannot be
predicted at this time and management, therefore, cannot predict the impact,
if any, such proposals, if enacted, would have on the results of operations
or financial condition of the Company.
These market based factors have had a significant adverse impact on the
clinical laboratory industry, and on the Company's profitability.
Management expects that price erosion and utilization declines will continue
to negatively impact net sales and results of operations for the foreseeable
future. It is the objective of management to partially offset the increases
in cost of sales as a percentage of net sales and selling, general and
administrative expenses as a percentage of net sales through the cost
savings the Company expects to realize following the Merger, and through
other comprehensive cost reduction programs, as discussed below. In
addition, since the third quarter of 1996 the Company has expanded its
efforts to improve the profitability of new and existing business. To date
this effort has focused primarily on reviewing existing contracts, including
those with managed care organizations, and selectively repricing or
discontinuing business with existing accounts which perform below Company
expectations. The Company believes that as a result of this effort, the
fourth quarter of 1996 was the second consecutive quarter since the Merger
that the Company's price per accession did not decline versus the immediately
preceding quarter. The Company is also targeting price increases across
most of its business lines, including specialty and niche testing, which
have not seen price increases since the Merger. While such increases may
adversely affect volumes, the Company believes that such measures along with
other cost reduction programs, will improve its overall profitability. There
can be no assurance, however, of the timing or success of such measures or
that the Company will not lose market share as a result of these measures.
Finally, the Company is reviewing its sales organization and expects to
modify its commission structure so that compensation is tied more directly
to the profitability of retained and new business instead of the current
practice of basing commissions primarily on revenue generated. The Company
is also reviewing alternatives relating to regions of the country and certain
businesses where profitability is not reaching internal goals and may enter
into joint ventures, alliances, or asset swaps with interested parties in
order to maximize regional operating efficiencies.
As a result of the Merger, the Company has realized and is expected to
continue to achieve substantial savings in operating costs through the
consolidation of certain operations and the elimination of redundant
expenses. Such savings are being realized over time as the consolidation
process is completed. Since the Merger, the Company has been able to effect
substantial operating cost reductions in the combined businesses and expects
that the full effect of these savings (in excess of $120 million per year
when compared to the businesses' costs immediately prior to the Merger) will
be realized during 1997. Such savings include an annualized reduction of
$4.7 million in corporate, general and administrative expenses including the
consolidation of administrative staff. Combining the NHL sales force with
the RBL sales force where duplicate territories existed has added
approximately $17.8 million of annualized synergies. Operational savings
have resulted in approximately $94.8 million of annualized synergies. These
include closing of overlapping laboratories and other facilities and savings
realized from additional buying power by the larger Company. The Company
has also realized annualized savings of approximately $14.2 million relating
to employee benefits as a result of changes to certain benefit arrangements.
The realization of the savings have been partially offset by increased
temporary help and overtime expenses during the consolidation process.
These costs are expected to reduce to normal levels at the conclusion of the
consolidation process in early 1997. In addition, these savings have been
largely offset by price erosion and utilization declines resulting from the
increase in managed care and to a lesser extent from increases in other
expenses such as bad debt expenses as discussed below. The effects of price
erosion and utilization declines on the Company's results of operations,
however, would have been greater but for savings achieved through the
synergy program. In addition, the Company is focused on additional
initiatives which are expected to achieve incremental cost savings in 1997.
These plans include further regional laboratory consolidation, a new
agreement with a supplier of telecommunications services and additional
supply savings primarily due to increased efficiency. There can be no
assurance that the estimated additional cost savings expected to be achieved
will be realized or achieved in a timely manner or that improvements, if
any, in profitability will be achieved or that such savings will not be
offset by increases in other expenses.
RECENT DEVELOPMENTS
As part of an examination of the rapid growth of Federal expenditures
for clinical laboratory services, several Federal agencies, including the
Federal Bureau of Investigation, the OIG and the DOJ, have investigated
allegations of fraudulent and abusive conduct by health care providers. On
November 21, 1996, the Company reached a settlement with the OIG and the DOJ
regarding the prior billing practices of various of its predecessor
companies. Consistent with this overall settlement the Company paid $187.0
million to the Federal government in December 1996, with proceeds from the
Roche Loan. As a result of negotiations related to the 1996 Government
Settlement, the Company recorded a charge of $185.0 million in the third
quarter of 1996 to increase accruals for the 1996 Government Settlement, and
other related expenses of government and private claims resulting therefrom.
In February 1997, the Company filed a registration statement with the
Commission relating to the proposed offering of an aggregate of $500 million
of convertible preferred stock issuable in two series pursuant to
transferable subscription rights to be granted on a pro rata basis to each
stockholder of the Company. Rights holders who exercise their rights in
full will also be entitled to subscribe for additional shares of preferred
stock issuable pursuant to any unexercised rights.
The subscription rights will give the holder thereof the option to
purchase one of two series of preferred stock, each of which will be
convertible at the option of the holder into common stock. One series will
pay cash dividends and will be exchangeable at the Company's option for
convertible subordinated notes due 2012. The other series will pay
dividends in kind and will not be exchangeable for notes. Each series of
preferred stock will be mandatorily redeemable in 2012 and will be
redeemable at the option of the Company after three years.
The proceeds of the Rights Offering will be used to reduce amounts
outstanding under the Company's revolving and term loan credit facilities,
repay the Roche Loan, and pay fees and expenses related to the Rights
Offering and the Amended Credit Agreement.
In March 1997, the Company entered into the Sixth Amendment which
eliminates amortization payments on the Term Loan Facility for 1997 and
modifies the interest coverage and leverage ratios for the quarterly periods
through December 31, 1997. Pursuant to this amendment, the Company paid an
amendment fee of 37.5 basis points on commitments and will pay an additional
fee of 62.5 basis points if the Rights Offering, is not completed by June
30, 1997. In addition, the Roche Loan which originally matured on March 31,
1997, was amended to extend the maturity thereof to March 31, 1998.
The Company also entered into the Amended Credit Agreement which will
become effective upon completion of the Rights Offering following
satisfaction of certain conditions precedent. The Amended Credit Agreement
makes available to the Company a term loan facility of $693.8 million and a
$450.0 million revolving credit facility. See "Liquidity and Capital
Resources" below and Note 9 of the Notes to Consolidated Financial
Statements for a complete description of the Existing and Amended Credit
Agreements.
SEASONALITY
Volume of testing generally declines during the summer months, year-end
holiday periods and other major holidays, resulting in net revenues and cash
flows in the third and fourth quarter below the annual average. In
addition, volume declines due to inclement weather may reduce net revenues
and cash flows. Therefore, comparison of the results of successive quarters
may not accurately reflect trends or results for the full year.
RESULTS OF OPERATIONS
Year Ended December 31, 1996 compared with Year Ended December 31, 1995.
Net sales increased by $175.7 million to $1,607.7 million in 1996, an
increase of 12.3% from $1,432.0 million reported in 1995. The inclusion of
RBL as a result of the Merger increased net sales by approximately $243.5
million or 17.0%. Acquisitions of small clinical laboratory companies
increased net sales by approximately 1.8%. Also contributing to the
increases in net sales was growth in new accounts and price increases in
selective markets. Such increases were partially offset by price erosion in
the industry as a whole, lower utilization of laboratory testing and lost
accounts. Price erosion and lower utilization of laboratory testing
primarily resulted from continued changes in payor mix brought on by the
increase in managed care. A reduction in Medicare fee schedules from 80% to
76% of the national limitation amounts on January 1, 1996, reduced net sales
by approximately 1.3%. Severe weather in January and February of 1996 also
negatively impacted net sales.
Cost of sales, which includes primarily laboratory and distribution
costs, increased to $1,183.9 million in 1996 from $1,024.3 million in 1995.
Of the $159.6 million increase, approximately $181.9 million or 17.8% was
due to the inclusion of the cost of sales of RBL. Cost of sales increased
(i) approximately $23.8 million as a result of wage increases prior to the
implementation of a six-month deferral on wage rate increases implemented on
July 1, 1996, (ii) approximately $5.0 million as a result of higher overtime
and temporary employee expenses related to the acceleration of the Company's
synergy program and other operational factors, (iii) approximately $7.5
million due to higher depreciation and maintenance of lab equipment as a
result of the Company's purchase in 1996 of more sophisticated equipment to
improve efficiency, and (iv) approximately $8.0 million in outside
collection and reference testing fees. These increases were partially offset
by decreases due to lower volume of approximately $14.7 million. Additional
decreases in salaries and benefits of $49.5 million, and several other
expense categories aggregating approximately $2.4 million were primarily a
result of the Company's synergy and cost reduction programs. Cost of sales
as a percentage of net sales was 73.6% in 1996 and 71.5% in 1995. The
increase in the cost of sales percentage of net sales primarily resulted
from a reduction in net sales due to price erosion and utilization declines,
each of which provided little corresponding reduction in costs, and, to a
lesser extent, due to severe weather in January and February of 1996 and a
reduction in Medicare fee schedules.
Selling, general and administrative expenses increased to $305.0
million in 1996 from $238.5 million in the same period in 1995 representing
an increase of $66.5 million or 27.9%. The inclusion of the selling,
general and administrative expenses of RBL since April 28, 1995 increased
expenses by approximately $36.5 or 15.3%. Increases in salaries, overtime
and temporary employee expenses, primarily related to billing issues, and
related telephone and data processing costs, aggregated approximately $24.8.
Also, increased medical necessity and related diagnosis code requirements of
third-party payors placed on the Company in late 1995 and additional
requirements placed on the Company at the beginning of 1996 have resulted in
lower collection rates. As a result the provision for doubtful accounts for
1996 increased approximately $16.6 million, including a charge of $10.0
million in the second quarter of 1996 compared to 1995 which included a
$15.0 million charge in the fourth quarter of 1995. The 1995 charge was
necessitated by the deterioration in the Company's accounts receivable
collection rates in the fourth quarter of 1995 primarily due to the effect
of increased medical necessity and diagnosis code requirements of third
party payors placed on the Company in the second half of 1995. Additional
such requirements were placed on the Company at the beginning of 1996, which
resulted in a further deterioration in accounts receivable collection rates
in the second quarter of 1996. As a result of this further deterioration,
the Company recorded the special charge of $10.0 million in the second
quarter of 1996. In addition, the Company increased its monthly provision
for doubtful accounts beginning in the third quarter of 1996 as a result of
continued lower collection rates. These increases were partially offset by
decreases in legal expenses, excluding settlement expenses, insurance and
several other expense categories aggregating approximately $1.9 million.
Selling, general and administrative expenses were 19.0% and 16.7% as a
percentage of net sales in 1996 and 1995, respectively. The increase in the
selling, general and administrative percentage primarily resulted from
increased employee expenses related to billing and collection activities and
the increases in the provision for doubtful accounts discussed above and to
a lesser extent, from a reduction in net sales due to price erosion and
utilization declines, each of which provided little corresponding reduction
in costs.
In the second quarter of 1996, the Company recorded certain charges of
a non-recurring nature including additional charges related to the
restructuring of operations. The Company recorded a restructuring charge
totaling $13.0 million for the shutdown of its La Jolla, California
administrative facility and other workforce reductions. In addition, the
Company recorded $10.0 million of non-recurring charges in the second
quarter of 1996 related to the abandonment of certain data processing
systems, relocation of its principal drug testing facility and various other
items including the write-off of certain laboratory testing supplies related
to changes in testing methodologies to increase efficiency.
As a result of negotiations related to the 1996 Government Settlement,
the Company recorded the Settlement Charge of $185.0 million in the third
quarter of 1996 to increase reserves for the 1996 Government Settlement
described above, and other related expenses of government and private claims
resulting therefrom.
The increase in amortization of intangibles and other assets to $29.6
million in 1996 from $27.0 million in 1995 primarily resulted from the
Merger in April 1995.
Net interest expense was $69.5 million in 1996 compared to $64.1
million in 1995. The increase resulted primarily from increased borrowings
due to higher accounts receivable balances and a higher effective borrowing
rate as a result of an amendment to the Company's credit agreement. See
"Liquidity and Capital Resources."
As a result of the restructuring and non-recurring charges in 1996 and
1995, the provision for income taxes is not comparable between periods.
However, before charges, the Company's effective income tax rate in 1996 has
increased from 1995 as a result of increased non-deductible amortization and
lower earnings before income taxes.
Year Ended December 31, 1995 compared with Year Ended December 31, 1994.
Net sales increased by $559.5 million to $1,432.0 million in 1995, an
increase of 64.1% from $872.5 million reported in 1994. Net sales from the
inclusion of RBL, increased net sales by approximately $514.7 million or
59.0%. Also, net sales from the inclusion of Allied, which was acquired on
June 23, 1994, increased net sales by approximately $56.6 million or 6.5%.
Growth in new accounts and acquisitions of small clinical laboratory
companies increased net sales by approximately 8.6% and 2.8%, respectively.
Lower utilization of laboratory testing and price erosion in the industry as
a whole decreased net sales by approximately 5.0%. A reduction in Medicare
fee schedules from 84% to 80% of the national limitation amounts on January
1, 1995, plus changes in reimbursement policies of various third-party
payors, reduced net sales by approximately 1.5%. Other factors, including
accounts terminated by management, comprised the remaining reduction in net
sales.
Cost of sales increased to $1,024.3 million in 1995 from $597.0 million
in 1994. Of the $427.3 million increase, approximately $368.8 million was
due to the inclusion of the cost of sales of RBL and approximately $44.8
million was due to the inclusion of the cost of sales of Allied. Cost of
sales increased by approximately $26.1 million due to higher testing volume
unrelated to the Merger or acquisition of Allied and approximately $4.5
million due to increases in other expenses. Reductions in compensation and
benefit expense of $9.2 million, insurance of $4.8 million, and other
expense categories of $2.9 million decreased cost of sales an aggregate of
approximately $16.9 million. These decreases resulted from the
consolidation of operations as a result of the Merger and the Company's on-
going cost-reduction program. As a percentage of net sales, cost of sales
increased to 71.5% in 1995 from 68.4% in 1994. 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 provided little corresponding reduction in costs.
Selling, general and administrative expenses increased to $238.5
million in 1995 from $149.3 million in 1994, an increase of $89.2 million.
Approximately $74.3 million of the increase was due to the inclusion of the
selling, general and administrative expenses of RBL and approximately $7.7
million due to the inclusion of the selling, general and administrative
expenses of Allied. In the fourth quarter of 1995, the Company recorded an
additional $15.0 million of provision for doubtful accounts which reflects
the Company's determination, based on trends that became evident in the
fourth quarter, that additional reserves were needed primarily to cover
potentially lower collection rates from several third-party payors. The
increase in selling, general and administrative expenses was partially
offset by decreases in other expense categories, including reductions in
selling expenses, as a result the elimination of duplicative functions in
connection with the Merger and the Company's on-going cost-reduction
program. Before the increase to the provision for doubtful accounts,
selling, general and administrative expenses as a percentage of net sales
was 15.6% in 1995 and 17.1% in 1994. The decrease in the selling, general
and administrative percentage primarily resulted from reductions in expenses
as discussed above.
The increase in amortization of intangibles and other assets to $27.0
million in 1995 from $16.3 million in 1994 primarily resulted from the
Merger in April 1995 and the acquisition of Allied in June 1994.
See Note 3 of the Notes to Consolidated Financial Statements which sets
forth the Company's restructuring activities for the year ended December 31,
1995.
In the second quarter of 1995, the Company took a pre-tax special
charge of $10.0 million in connection with the estimated costs of settling
various claims pending against the Company, substantially all of which were
billing disputes with various third party payors relating to the contention
that NHL improperly included tests for HDL cholesterol and serum ferritin in
its basic test profile without clearly offering an alternative profile that
did not include these medical tests. As of December 31, 1996, the majority
of these disputes have been settled.
Net interest expense was $64.1 million in 1995 compared to $33.5
million in 1994. The change resulted primarily from increased borrowings
used to finance the Merger with RBL and the acquisition of Allied and, to a
lesser extent, due to a higher effective borrowing rate in the first four
months of 1995.
In connection with the repayment of the Company's existing revolving
credit and term loan facilities at the time of the Merger, the Company
recorded an extraordinary loss from the early extinguishment of debt of
approximately $13.5 million ($8.3 million net of tax) consisting of the
write-off of deferred financing costs.
As a result of the restructuring charges and extraordinary loss, the
provision for income taxes as a percentage of earnings before income taxes
for 1995 is not comparable to prior periods.
LIQUIDITY AND CAPITAL RESOURCES
Net cash (used for) provided by operating activities (after payment of
settlement and related expenses of $188.9 million, $32.1 million and $29.8
million, respectively) was $(186.8) million, $47.0 million and $14.7
million, in 1996, 1995 and 1994, respectively. The decrease in cash flow
from operations in 1996 primarily resulted from the Settlement Payment, an
increase in accounts receivable related to increased medical necessity and
related diagnosis code requirements of third-party payors placed on the
Company at the beginning of 1996 and reflects the lower collection rates
experienced beginning in the second quarter as a result of the more
stringent requirements as discussed above.
Capital expenditures were $54.1 million, $75.4 million and $48.9
million for 1996, 1995 and 1994, respectively. The Company expects capital
expenditures to be approximately $65.0 million in 1997 and $70.0 million in
1998 to further automate laboratory processes and to improve efficiency.
Such expenditures are expected to be funded by cash flow from operations as
well as borrowings under the Company's credit facilities.
Increased medical necessity and related diagnosis code requirements of
the Medicare program were placed on the Company by certain third party
carriers in late 1995 and additional requirements were placed on the Company
at the beginning of 1996. The Company has experienced lower collection
rates as a result of these more stringent requirements. In addition,
increased difficulty in collecting amounts due from private insurance
carriers, including certain managed care plans, has negatively impacted cash
flow from operations. Finally, Merger related integration issues have also
resulted in increased accounts receivable balances as a result of the
Company maintaining multiple billing information systems. The Company
currently has plans in place to stabilize collection rates and improve the
collection of accounts receivable. See "Business--Billing". To date,
however, collection rates have continued to decline and additional changes
in requirements of third-party payors could increase the difficulty in
collections. There can be no assurance of the success of the Company's
plans to improve collections and, due to changes in medical necessity
requirements, the Company expects accounts receivable balances to continue
to exceed 1995 levels.
In connection with the Merger, the Company entered into the Existing
Credit Agreement, with the banks named therein (the "Banks") and an
administrative agent (the "Bank Agent"), which made available to the Company
a term loan facility (the "Term Loan Facility") of $800.0 million and a
revolving credit facility (the "Revolving Credit Facility") of $450.0
million. On April 28, 1995, the Company borrowed $800.0 million under the
Term Loan Facility and $184.0 million under the Revolving Credit Facility
(i) to pay the cash payment to shareholders in connection with the Merger;
(ii) to repay in full the existing revolving credit and term loan facilities
of a wholly owned subsidiary of the Company of approximately $640.0 million
including interest and fees; (iii) to repay approximately $50.0 million of
existing indebtedness of RBL; and (iv) for other transaction costs in
connection with the Merger and for use as working capital and general
corporate purposes of the Company and its subsidiaries. Availability of
funds under the Existing Credit Agreement is conditioned on certain
customary conditions, and the Existing Credit Agreement, as amended,
contains customary representations, warranties, covenants and events of
default.
As a result of potential defaults under the Existing Credit Agreement
resulting from among other things, the Company's performance and higher than
projected debt levels, the Settlement Charge, and the Roche Loan, the
Company has obtained several amendments and waivers to the Existing Credit
Agreement. In September 1996, the Company negotiated an amendment (the
"Fourth Amendment") to the Existing Credit Agreement. The Fourth Amendment
modified the interest coverage and leverage ratios applicable to the
quarters ending September 30 and December 31, 1996. The Fourth Amendment
also increased the interest rate margin on its revolving credit facility
from 0.25% to 0.875% and increased the interest rate margin on its term loan
facility from 0.375% to 1.00%. As a result of the Settlement Charge in the
third quarter of 1996, as described above, the Company obtained a waiver
(the "Third Waiver") which excluded the special charge from covenant
calculations for the periods covered by the most recent amendment until 30
days after the 1996 Government Settlement. As a result of the Roche Loan
and the 1996 Government Settlement, the Company negotiated a Fifth Amendment
and Fourth Waiver (the "Fifth Amendment") to the Existing Credit Agreement.
The Fifth Amendment extended the Third Waiver until January 31, 1997 and
excluded the Roche Loan from covenant calculations for the quarters ending
December 31, 1996 and March 31, 1997. On January 27, 1997, the Company
negotiated a waiver (the "Fifth Waiver") which further extended the Third
Waiver until March 31, 1997.
As mentioned above, in March 1997, the Company entered into the Sixth
Amendment which eliminates amortization payments on the Term Loan Facility
for 1997 and modifies the interest coverage and leverage ratios for the
quarterly periods through December 31, 1997. As a result of the Sixth
Amendment certain amounts outstanding under the Revolving Credit Facility
and Term Loan Facility that were classified as current liabilities in the
September 30, 1996 financial statements have been reclassified to long-term
debt in the December 31, 1996 financial statements. Under the Sixth
Amendment, maturities under the term loan facility aggregate $243.8 million,
$162.5 million, $187.5 million and $100.0 million in 1998 through 2001,
respectively.
In March 1997 the Company also entered into the Amended Credit
Agreement which will become effective upon completion of the Rights Offering
following satisfaction of certain conditions precedent. The Amended Credit
Agreement makes available to the Company the Amended Term Loan Facility of
$693.8 million and the Amended Revolving Credit Facility of $450.0 million.
As in the Existing Credit Agreement, the senior unsecured credit
facilities under the Amended Credit Agreement are composed of the Amended
Term Loan Facility and the Amended Revolving Credit Facility. The Amended
Revolving Credit Facility includes a $50.0 million letter of credit
sublimit. The Amended Credit Agreement maturity dates are extended
approximately three years for the Amended Term Loan Facility to March 31,
2004 and approximately two years for the Amended Revolving Credit Facility
to March 31, 2002.
As in the Existing Credit Agreement, both the Amended Term Loan
Facility and the Amended Revolving Credit Facility bear interest, at the
option of the Company, at (i) the base rate plus the applicable base rate
margin or (ii) the eurodollar rate plus the applicable eurodollar rate
margin. The Amended Credit Agreement provides that in the event of a
reduction of the percentage of Common Stock held by HLR, Roche Holdings and
their affiliates (other than the Company and its subsidiaries) below 25%,
the applicable interest margins and facility fees on borrowings outstanding
under the Amended Credit Agreement will increase. The amount of the
increase will depend, in part, on the leverage ratio of the Company at the
time of such reduction. In addition, pursuant to the Amended Credit
Agreement, the applicable interest margins on borrowings outstanding
thereunder will be based upon the leverage ratio.
Any lender that is party to the Amended Credit Agreement may serve as a
letter of credit issuer under the Amended Credit Agreement, as agreed
between the Company and such lender. The fronting fee payable to each
letter of credit issuer will be as negotiated between the Company and such
issuer, but will not exceed 0.125% per annum of the outstanding amount of
such issuer's letter of credit. Each lender will be deemed to have
purchased a participating interest in each letter of credit, and in addition
to the fronting fee the Company will pay a letters of credit fee for the
account of all the lenders equal to the applicable Amended Revolving Credit
Facility Eurodollar Rate Margin minus 0.125% per annum.
Total amortization of the Amended Term Loan Facility for each twelve-
month period following the consummation of the Rights Offering will be
reduced significantly for the first three years, and will be made (in
quarterly installments) in accordance with the following table:
Year Amount
---- ------
(in millions)
1997 $ --
1998 --
1999 50.0
2000 100.0
2001 150.0
2002 150.0
2003 150.0
3/31/2004 93.8
As in the Existing Credit Agreement, the amounts available under the
Amended Revolving Credit Facility are subject to certain mandatory permanent
reduction and prepayment requirements and the Amended Term Loan Facility is
subject to specified mandatory prepayment requirements. In the Amended
Credit Agreement, required amounts will first be applied to repay scheduled
Amended Term Loan Facility payments until the Amended Term Loan Facility is
repaid in full and then to reduce the commitments and advances under the
Amended Revolving Credit Facility. Required payments and reductions will
include (i) the proceeds of debt issuances, subject to certain exceptions;
(ii) the proceeds of certain asset sales, unless reinvested within one year
of the applicable asset sale in productive assets of a kind then used or
usable in the business of the Company and its subsidiaries; (iii) the
proceeds of sales of equity securities in excess of certain amounts; and
(iv) under certain circumstances, a percentage of excess cash flow, as
calculated annually.
The Amended Credit Agreement contains representations and warranties
substantially similar to those set forth in the Existing Credit Agreement.
Conditions precedent to effectiveness of the Amended Credit Agreement
include, without limitation, gross cash proceeds from the Rights Offering in
an aggregate amount equal to at least $250.0 million, receipt of appropriate
certificates and legal opinions, accuracy in all material respects of
representations and warranties, including absence of material adverse change
in the Company and its subsidiaries (taken as a whole) since December 31,
1996, absence of defaults, evidence of authority, and payment of transaction
fees.
The Amended Credit Agreement contains customary covenants similar to,
and in the case of limitations on acquisitions and incurrence of additional
debt more restrictive than, the covenants set forth in the Existing Credit
Agreement.
Like the Existing Credit Agreement, the Amended Credit Agreement
contains financial covenants with respect to a leverage ratio, an interest
coverage ratio and minimum stockholders' equity. The covenant levels are
less restrictive than under the Existing Credit Agreement, and will be
tested quarterly.
The Amended Credit Agreement contains events of default substantially
similar to those set forth in the Existing Credit Agreement.
Borrowings under the Revolving Credit Facility were $384.0 million as
of March 31, 1997. In addition, in December 1996, the Company received a
loan of $187.0 million from Roche Holdings to fund the Settlement Payment in
the form of a promissory note which bears interest at 6.625% per annum and
originally matured on March 31, 1997. As discussed above, in late March
1997, the Company obtained an extension of the Roche Loan to March 31, 1998.
The Company subsequently made the Settlement Payment in December 1996. The
Roche Loan is expected to be repaid with a portion of the proceeds from the
Rights Offering. Cash and cash equivalents on hand, cash flow from
operations and additional borrowing capabilities of $66.0 million under the
Revolving Credit Facility as of March 31, 1997 are expected to be sufficient
to meet anticipated operating requirements, debt repayments and provide
funds for capital expenditures and working capital through 1997. The
Company's ability to meet anticipated operating requirements, debt
repayments, including the Roche Loan, and other anticipated cash outlays
beyond 1997 is substantially dependant upon the completion of the Rights
Offering. Failure to complete the Rights Offering by the end of February
1998 will require additional waivers or amendments to the Existing Credit
Agreement and an extension of the Roche Loan. There can be no assurance
that such waivers, amendments or an extension can be obtained. Therefore,
the failure to complete the Rights Offering by the end of February 1998
could have a material adverse effect on the Company's financial condition
and liquidity.
At December 31, 1996, the Company was a party to interest rate swap
agreements with certain major financial institutions, rated A or better by
Moody's Investor Service, solely to manage its interest rate exposure with
respect to $600.0 million of its floating rate debt under the Term Loan
Facility. The agreements effectively changed the interest rate exposure on
$600.0 million of floating rate debt to a weighted average fixed interest
rate of 6.01%, through requiring that the Company pay a fixed rate amount in
exchange for the financial institutions paying a floating rate amount.
Amounts paid by the Company in 1996 were $2.0 million. The notional amounts
of the agreements are used to measure the interest to be paid or received
and do not represent the amount of exposure to credit loss. These agreements
mature in September 1998. The estimated cost at which the Company could
terminate such agreements was $0.9 million at December 31, 1996.
IMPACT OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128--
"EARNINGS PER SHARE"
On March 3, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share," replacing Accounting Principles Board ("APB") Opinion No. 15,
"Earnings per Share." SFAS No. 128 replaces "primary" and "fully diluted"
earnings per share ("EPS") under APB Opinion No. 15 with "basic" and
"diluted" EPS. Unlike primary EPS, basic EPS excludes the dilutive effects
of options, warrants and other convertible securities. Dilutive EPS
reflects the potential dilution of securities that could share in the
earnings of an entity, similar to fully diluted EPS. However, under SFAS
No. 128, the Company would use the average market price for its stock during
the reporting period to determine the cost of options as opposed to the
greater of the closing price at the end of the period or the average market
price during the period, as currently required by APB Opinion No. 15. SFAS
No. 128 is effective for years ending after December 15, 1997. The Company
is currently evaluating the impact of the implementation of SFAS No. 128.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in the statement. Included herein are
certain forward-looking statements concerning the Company's operations,
economic performance and financial condition, including, in particular,
forward-looking statements regarding the Company's expectation of future
performance following implementation of its new business strategy. Such
statements are subject to various risks and uncertainties. Accordingly, the
Company hereby identifies the following important factors that could cause
the Company's actual financial results to differ materially from those
projected, forecast, estimated, or budgeted by the Company in such forward-
looking statements.
(a) Heightened competition, including the intensification of price
competition.
(b) Impact of changes in payor mix, including the shift from traditional,
fee-for-service medicine to managed-cost health care.
(c) Adverse actions by governmental or other third-party payors,
including unilateral reduction of fee schedules payable to the
Company.
(d) The impact upon the Company's collection rates or general or
administrative expenses resulting from compliance with Medicare
administrative policies including specifically the HCFA's recent
requirement that laboratories performing certain automated blood
chemistry profiles to obtain and provide documentation of the medical
necessity of tests included in the profiles for each Medicare
beneficiary.
(e) Adverse results from investigations of clinical laboratories by the
Federal Bureau of Investigation and the OIG including specifically
significant monetary damages and/or exclusion from the Medicare and
Medicaid programs.
(f) Failure to obtain new customers, retain existing customers or
reduction in tests ordered or specimens submitted by existing
customers.
(g) Adverse results in significant litigation matters.
(h) Denial of certification or licensure of any of the Company's clinical
laboratories under CLIA, by Medicare and Medicaid programs or other
Federal, state or local agencies.
(i) Adverse publicity and news coverage about the Company or the clinical
laboratory industry.
(j) Inability to carry out marketing and sales plans.
(k) Inability to successfully integrate the operations of or fully realize
the costs savings expected from the consolidation of certain
operations and the elimination of duplicative expenses resulting
from the April 28, 1995 merger of the Company and RBL or risk that
declining revenues or increases in other expenses will offset such
savings.
(l) Ability of the Company to attract and retain experienced and qualified
personnel.
(m) Changes in interest rates causing an increase in the Company's
effective borrowing rate.
(n) The effect of the Company's effort to improve account profitability by
selectively repricing or discontinuing business with existing
accounts which perform below Company expectations.
(o) The failure to consummate the Rights Offering by the end of the second
quarter of 1997.
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.
PART III
The information required by Part III, Items 10 through 13, of Form 10-K is
incorporated by reference from the registrant's definitive proxy statement
for its 1997 annual meeting of stockholders, which is to be filed pursuant
to Regulation 14A not later than April 30, 1997.
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 10.1 through 10.3 and 10.6 through 10.13 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 herein 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).
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)
Hoffmann-La Roche Inc. (incorporated herein by reference to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1994 filed with the Commission on March 3, 1995,
File No. 1-11353 (the "1994 10-K")).
2.5 - Stock Purchase Agreement dated December 30, 1994 between
Reference Pathology Holding Company, Inc. and Allied Clinical
Laboratories, Inc. ("Allied") (incorporated herein by
reference to the 1994 10-K).
3.1 - Certificate of Incorporation of the Company (amended
pursuant to a Certificate of Merger filed on April 28, 1995)
(incorporated by reference herein to the report on Form 8-K
dated April 28, 1995, filed with the Commission on May 12,
1995, File No. 1-11353 (the "April 28, 1995 Form 8-K")).
3.2 - Amended and Restated By-Laws of the Company (incorporated
herein by reference to the April 28, 1995 Form 8-K).
4.1 - Warrant Agreement dated as of April 10, 1995 between the
Company and American Stock Transfer & Trust Company
(incorporated herein by reference to the April 28, 1995
Form 8-K).
4.2 - Specimen of the Company's Warrant Certificate (included in
the Exhibit to the Warrant Agreement included therein as
Exhibit 4.1 hereto) (incorporated herein by reference to
the April 28, 1995 Form 8-K).
4.3 - Specimen of the Company's Common Stock Certificate
(incorporated herein by reference to the April 28, 1995
Form 8-K).
10.1 - 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")).
10.2 - 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")).
10.3 - National Health Laboratories Incorporated Pension
Equalization Plan (incorporated herein by reference to the
1992 10-K).
10.4 - Settlement Agreement dated December 18, 1992 between the
Company and the United States of America (incorporated
herein by reference to the 1992 10-K).
10.5* - Settlement Agreement dated November 21, 1996 between the
Company and the United States of America.
10.6 - National Health Laboratories 1988 Stock Option Plan, as
amended (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")).
10.7 - 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).
10.8 - Laboratory Corporation of America Holdings Performance Unit
Plan (incorporated by reference to Annex II of the Company's
1995 Annual Proxy Statement filed with the Commission on
August 17, 1995 (the "1995 Proxy")).
10.9 - Laboratory Corporation of America Holdings Annual Bonus
Incentive Plan (incorporated by reference to Annex III of
the 1995 Proxy).
10.10 - Laboratory Corporation of America Holdings Master Senior
Executive Severence Plan (incorporated herein by reference
to the report on Form 8-K dated October 24, 1996 (the
"October 24, 1996 8-K") filed with the Commission on
October 24, 1996, File No. 1-11353).
10.11 - Special Severance Agreement dated June 28, 1996 between the
Company and Timothy J. Brodnik (incorporated herein by
reference to the October 24, 1996 8-K).
10.12 - Special Severance Agreement dated July 12, 1996 between the
Company and John F. Markus (incorporated herein by
reference to the October 24, 1996 8-K).
10.13 - Special Severance Agreement dated June 28, 1996 between the
Company and Robert E. Whalen (incorporated herein by
reference to the October 24, 1996 8-K).
10.14 - Tax Allocation Agreement dated as of June 26, 1990 between
MacAndrews & Forbes Holding 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 1990 S-1).
10.15 - 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).
10.16 - 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. and (for the purposes stated therein) the
Company (incorporated by reference herein to the 1994 10-K).
10.17 - Stockholder Agreement dated as of April 28, 1995 among the
Company, HLR Holdings Inc., Hoffmann-La Roche Inc. and Roche
Holdings, Inc. (incorporated herein by reference to the
April 28, 1995 Form 8-K).
10.18 - Exchange Agent Agreement dated as of April 28, 1995 between
the Company and American Stock Transfer & Trust Company
(incorporated herein by reference to the April 28, 1995
Form 8-K).
10.19 - Credit Agreement dated as of April 28, 1995, among the
Company, the banks named therein, and Credit Suisse (New
York Branch), as Administrative Agent (incorporated herein
by reference to the April 28, 1995 Form 8-K).
10.20 - First Amendment to Credit Agreement dated as of September
8, 1995 among the Company, the banks named therein, and Credit
Suisse (New York Branch), as Administrative Agent.
(incorporated by reference herein to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995 filed with the Commission on November 14,
1995, File No. 1-11353).
10.21 - Second Amendment to Credit Agreement dated as of February
16, 1996 among the Company, the banks named therein, and
Credit Suisse (New York Branch), as Administrative Agent
(incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
filed with the Commission on March 29, 1996, File No.
1-11353).
10.22 - Third Amendment and Second Waiver to Credit Agreement dated
as of July 10, 1996 among the Company, the banks named
therein and Credit Suisse (New York Branch) as
Administrative Agent (incorporated herein by reference to
the Company's quarterly report on Form 10-Q for the quarter
ended June 30, 1996 filed with the Commission on August 14,
1996, File No. 1-11353).
10.23 - Fourth Amendment to the Credit Agreement dated as of
September 23, 1996 among the Company, the banks named
therein and Credit Suisse (New York Branch), as
Administrative Agent (incorporated herein by reference to
the report in Form 8-K dated September 23, 1996, filed
with the Commission on September 30, 1996, File No. 1-11353).
10.24 - Third Waiver to the Credit Agreement dated as of November
4, 1996 among the Company, the banks named therein and Credit
Suisse (New York Branch), as Administrative Agent
(incorporated herein by reference to the Company's
quarterly report on Form 10-Q for the quarter ended
September 30, 1996 filed with the Commission on November
14, 1996, File No. 1-11353).
10.25 - Fifth Amendment and Fourth Waiver to the Credit Agreement
dated as of December 23, 1996 among the Company, the banks
named therein and Credit Suisse (New York Branch), as
Administrative Agent (incorporated herein by reference to
the report on Form 8-K filed with the Commission on January
6, 1997, File No. 1-11353 (the "January 6, 1997 8-K")).
10.26* - Fifth Waiver to the Credit Agreement dated as of January
27, 1997 among the Company, the banks named therein and Credit
Suisse (New York Branch) as Administrative Agent.
10.27* - Sixth Amendment and Waiver to the Credit Agreement dated as
of March 31, 1997 among the Company, the banks named
therein and Credit Suisse First Boston as Administrative
Agent.
10.28* - Amended and Restated Credit Agreement dated as of March 31,
1997 among the Company, the banks named therein and Credit
Suisse First Boston as Administrative Agent.
10.29 - Laboratory Corporation of America Holdings 1995 Stock Plan
for Non-Employee Directors (incorporated by reference
herein to the report of Form S-8 dated September 26, 1995,
filed with the Commission on September 26, 1995).
10.30 - Laboratory Corporation of America Holdings 1997 Employee
Stock Purchase Plan (incorporated by reference herein to
Annex I of the Company's 1996 Annual Proxy Statement filed
with the Commission on October 25, 1996.
10.31 - Promissory note dated December 30, 1996 between the Company
and Roche Holdings Inc. (incorporated herein by reference
to the January 6, 1997 8-K).
10.32* - First Amendment to promissory note given by the Company to
Roche Holdings Inc.
21.1* - List of Subsidiaries of the Company
23.1* - Consent of KPMG Peat Marwick LLP.
24.1* - Power of Attorney of Jean-Luc Belingard
24.2* - Power of Attorney of Wendy E. Lane
24.3* - Power of Attorney of Robert E. Mittelstaedt, Jr.
24.4* - Power of Attorney of James B. Powell, M.D.
24.5* - Power of Attorney of David B. Skinner
24.6* - Power of Attorney of Andrew G. Wallace, M.D.
27 - Financial Data Schedule (electronically filed version
only).
(b) Reports on Form 8-K
1) A current report on Form 8-K dated November 21, 1996 was filed on
November 20, 1996 in connection with the Company's press release dated
November 21, 1996 announcing a settlement agreement with the U.S.
Government as well as certain other information.
2) A current report on Form 8-K dated December 4, 1996 was filed on
December 4, 1996 in connection with the resignation of the Company's
Chief Operating Officer.
3) A current report on Form 8-K dated December 30, 1996 was filed on
January 6, 1997 in connection with promissory note between the Company
and Roche Holdings Inc and an amendment to the Company's Credit agreement.
- ------------------------
* Filed herewith.
** Previously filed under File No. 0-17031 which has been corrected to
File No. 1-10740.
<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.
LABORATORY CORPORATION OF AMERICA HOLDINGS
------------------------------------------
Registrant
By:/s/ THOMAS P. MAC MAHON
----------------------------------
Thomas P. Mac Mahon
Chairman of the Board, President
and Chief Executive Officer
Dated: April 9, 1997
<PAGE>
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on April 9, 1997 in the
capacities indicated.
Signature Title
--------- -----
/s/ THOMAS P. MAC MAHON Chairman of the Board,
- ------------------------------------- President and Chief
Thomas P. Mac Mahon Executive Officer
(Principal Executive Officer)
/s/ WESLEY R. ELINGBURG Executive Vice President,
- ------------------------------------- Chief Financial Officer
Wesley R. Elingburg and Treasurer
(Principal Financial
Officer and Principal
Accounting Officer)
/s/ JEAN-LUC BELINGARD* Director
- -------------------------------------
Jean-Luc Belingard
/s/ WENDY E. LANE* Director
- -------------------------------------
Wendy E. Lane
/s/ ROBERT E. MITTELSTAEDT, JR.* Director
- -------------------------------------
Robert E. Mittelstaedt, Jr.
/s/ JAMES B. POWELL, M.D.* Director
- -------------------------------------
James B. Powell, M.D.
/s/ DAVID B. SKINNER, M.D.* Director
- -------------------------------------
David B. Skinner, M.D.
/s/ ANDREW G. WALLACE, M.D.* Director
- -------------------------------------
Andrew G. Wallace, M.D.
- --------------------------------
* Bradford T. Smith, 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/ BRADFORD T. SMITH
--------------------------------------
Bradford T. Smith
Attorney-in-fact
<PAGE>
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS
INDEX TO FINANCIAL STATEMENTS
AND SCHEDULE
Page
----
Independent Auditors' Report F-2
Financial Statements:
Consolidated Balance Sheets as of
December 31, 1996 and 1995 F-3
Consolidated Statements of Operations for
each of the years in the three-year
period ended December 31, 1996. F-4
Consolidated Statements of Stockholders'
Equity for each of the years in the
three-year period ended December 31, 1996 F-5
Consolidated Statements of Cash Flows for
each of the years in the three-year
period ended December 31, 1996. F-6
Notes to Consolidated Financial Statements F-8
Financial Statement Schedule:
II - Valuation and Qualifying Accounts and Reserves F-31
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Laboratory Corporation of America Holdings:
We have audited the consolidated financial statements of Laboratory
Corporation of America Holdings and subsidiaries as listed in the
accompanying index. In connection with our audits of the consolidated
financial statements, we also have 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
Laboratory Corporation of America Holdings and subsidiaries as of December
31, 1996 and 1995, and the results of their operations and their cash flows
for each of the years in the three-year period ended December 31, 1996, 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
Raleigh, North Carolina
February 14, 1997 except for Notes 9
and 10 as to which the date is March 31, 1997.
<PAGE>
<PAGE>
<TABLE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except per share data)
<CAPTION>
December 31,
----------------------------
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 29.3 $ 16.4
Accounts receivable, net 505.6 426.8
Inventories 44.3 50.1
Prepaid expenses and other 21.8 21.4
Deferred income taxes 66.2 63.3
Income taxes receivable 54.3 21.9
------- -------
Total current assets 721.5 599.9
Property, plant and equipment, net 282.9 304.8
Intangible assets, net 891.1 916.7
Other assets, net 21.5 15.8
------- -------
$1,917.0 $1,837.2
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 65.7 $ 106.2
Accrued expenses and other 168.4 173.5
Current portion of long-term debt 18.7 70.8
------- -------
Total current liabilities 252.8 350.5
Loan from affiliate 187.0 --
Revolving credit facility 371.0 218.0
Long-term debt, less current portion 693.8 712.5
Capital lease obligation 9.8 9.6
Other liabilities 144.5 135.0
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;
122,935,080 and 122,908,722 shares
issued and outstanding at
December 31, 1996 and 1995, respectively 1.2 1.2
Additional paid-in capital 411.0 411.0
Accumulated deficit (154.1) (0.6)
------- -------
Total stockholders' equity 258.1 411.6
------- -------
$ 1,917.0 $1,837.2
======== =======
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<PAGE>
<TABLE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per share data)
<CAPTION>
Years Ended December 31,
-------------------------------
1996 1995 1994
-------- ------- --------
<S> <C> <C> <C>
Net Sales $1,607.7 $1,432.0 $ 872.5
Cost of sales 1,183.9 1,024.3 597.0
------- ------- ------
Gross profit 423.8 407.7 275.5
Selling, general and
administrative expenses 305.0 238.5 149.3
Amortization of intangibles
and other assets 29.6 27.0 16.3
Restructuring and non-recurring charges 23.0 65.0 --
Provision for settlements
and related expenses 185.0 10.0 --
------ ------- ------
Operating income (loss) (118.8) 67.2 109.9
Other income (expenses):
Litigation settlement and
related expenses -- -- (21.0)
Investment income 2.2 1.4 1.0
Interest expense (71.7) (65.5) (34.5)
------ ------- ------
Earnings (loss) before income taxes
and extraordinary loss (188.3) 3.1 55.4
Provision for income taxes (34.8) 7.1 25.3
------- ------- ------
Earnings (loss) before extraordinary
loss (153.5) (4.0) 30.1
Extraordinary loss from early
extinguishment of debt, net of
income tax benefit of $5.2 -- (8.3) --
Net earnings (loss) $ (153.5) $ (12.3) $ 30.1
======= ======= ======
Earnings (loss) per common share:
Earnings (loss) per common share
before extraordinary item $ (1.25) $ (0.03) $ 0.36
Extraordinary loss per common share -- (0.08) --
------- ------- ------
Net earnings (loss) per common share $ (1.25) $ (0.11) $ 0.36
======= ======= ======
Dividends per common share $ -- $ -- $ 0.08
======= ======= ======
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<PAGE>
<TABLE>
LABORATORY CORPORATION OF AMERICA HOLDINGS 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 Total
----- ---------- -------- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $ 1.0 $ 226.3 $ 202.0 $ (2.4) $(286.1) $140.8
Net earnings -- -- 30.1 -- -- 30.1
Exercise of stock options -- 0.1 -- -- -- 0.1
Dividends to stockholders -- -- (6.8) -- -- (6.8)
Retirement of treasury
stock (0.2) (72.3) (213.6) -- 286.1 --
Adjustment for minimum
pension liability -- -- -- 2.4 -- 2.4
Other -- (0.6) -- -- -- (0.6)
----- ------- ------ ----- ------ ------
Balance, December 31, 1994 0.8 153.5 11.7 -- -- 166.0
Net loss -- -- (12.3) -- -- (12.3)
Exercise of stock options -- 0.2 -- -- -- 0.2
Cancellation of stock
options -- 6.9 -- -- -- 6.9
Distribution to
stockholders (0.2) (474.5) -- -- -- (474.7)
Issuance of common stock 0.6 674.6 -- -- -- 675.2
Issuance of warrants -- 51.0 -- -- -- 51.0
Other -- (0.7) -- -- -- (0.7)
----- ------- ------ ----- ------ ------
Balance, December 31, 1995 1.2 411.0 (0.6) -- -- 411.6
Net loss -- -- (153.5) -- -- (153.5)
----- ------- ------ ----- ------ ------
Balance, December 31, 1996 $ 1.2 $ 411.0 $(154.1) $ -- $ -- $ 258.1
===== ======= ====== ===== ====== ======
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<PAGE>
<TABLE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions, except per share data)
Years Ended December 31,
------------------------------
1996 1995 1994
-------- ------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (153.5) $(12.3) $ 30.1
Adjustments to reconcile net earnings
(loss) to net cash provided by
operating activities:
Restructuring and non-recurring
charges 23.0 65.0 --
Provision for settlements and
related expenses 185.0 10.0 21.0
Extraordinary loss, net of
income tax benefit -- 8.3 --
Depreciation and amortization,
net 84.5 72.4 44.4
Deferred income taxes, net 30.3 (21.6) 11.0
Provision for doubtul accounts,
net 22.2 12.4 (1.4)
Change in assets and liabilities,
net of effects of acquisitions:
Increase in accounts receivable (102.2) (58.6) (54.0)
Decrease(increase)in inventories 8.0 5.1 (0.9)
Decrease(increase)in prepaid
expenses and other (3.1) 1.0 5.1
Change in income taxes
receivable/payable, net (32.4) (11.7) 5.5
Increase(decrease)in accounts
payable, accrued expenses
and other (33.4) 27.9 (13.1)
Payments for restructuring and
non-recurring charges (18.8) (13.4) --
Payments for settlement and
related expenses (188.9) (32.1) (29.8)
Other, net (7.5) (5.4) (3.2)
------- ------- -------
Net cash provided by (used for)
operating activities (186.8) 47.0 14.7
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (54.1) (75.4) (48.9)
Proceeds from sale of subsidiary -- -- 10.1
Acquisitions of businesses (5.0) (39.6) (254.8)
------- ------- -------
Net cash used for investing
activities (59.1) (115.0) (293.6)
------- ------- -------
(continued)
<PAGE>
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(Dollars in millions, except per share data)
<CAPTION>
Years Ended December 31,
-------------------------------
1996 1995 1994
-------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit
facilities $ 293.0 $ 308.0 $ 308.0
Payments on revolving credit
facilities (140.0) (303.0) (373.0)
Proceeds from long-term debt -- 800.0 400.0
Loan from affiliate 187.0 -- --
Payments on long-term debt (70.8) (446.7) (20.0)
Deferred payments on acquisitions (10.4) (12.9) (7.6)
Dividends paid on common stock -- -- (13.6)
Distribution to stockholders -- (474.7) --
Cash received for issuance of common
stock -- 135.7 --
Cash received for issuance of warrants -- 51.0 --
Other -- 0.2 (0.4)
------- ------- -------
Net cash provided by
financing activities 258.8 57.6 293.4
------- ------- -------
Net increase (decrease) in cash
and cash equivalents 12.9 (10.4) 14.5
Cash and cash equivalents at
beginning of year 16.4 26.8 12.3
------- ------- -------
Cash and cash equivalents at
end of year $ 29.3 $ 16.4 $ 26.8
======= ======= =======
Supplemental schedule of cash
flow information:
Cash paid during the period for:
Interest $ 65.1 $ 58.6 $ 34.2
Income taxes (15.2) 27.2 14.8
Disclosure of non-cash financing
and investing activities:
Common stock issued in connection
with acquisition -- 539.5 --
Common stock issued in connection
with the cancellation of employee
stock options -- 6.9 --
In connection with business
acquisitions, liabilities were
assumed as follows:
Fair value of assets acquired $ 23.4 $ 777.7 $ 399.4
Cash paid (5.0) (39.6) (254.8)
Stock issued -- (539.5) --
------- ------- ------
Liabilities assumed $ 18.4 $ 198.6 $ 144.6
======= ======= =======
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
Laboratory Corporation of America Holdings is one of the three largest
independent clinical laboratory companies in the United States based on 1996
net revenues. 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. Since its founding in 1971, the Company has grown into a network of
28 major laboratories and approximately 1,500 service sites consisting of
branches, patient service centers and STAT laboratories, serving clients in
48 states.
The consolidated financial statements include the accounts of
Laboratory Corporation of America Holdings and its subsidiaries ("Company")
after elimination of all material intercompany accounts and transactions.
Prior to April 28, 1995, the Company's name was National Health Laboratories
Holdings Inc. ("NHL"). On April 28, 1995, following approval at a special
meeting of the stockholders of the Company, the name of the Company was
changed to Laboratory Corporation of America Holdings.
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.
Financial Instruments:
Interest rate swap agreements, which are used by the Company in the
management of interest rate exposure, are accounted for on an accrual basis.
Amounts to be paid or received under such agreements are recognized as
interest income or expense in the periods in which they accrue.
Property, Plant and Equipment:
Property, plant and equipment are 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
<PAGE>
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in millions, except per share data)
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 35-40
Machinery and equipment 3-10
Furniture and fixtures 5-10
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 1996, 1995 and 1994 were $34.2, $28.3 and $16.5, respectively.
Fair Value of Financial Instruments:
Statement of Financial Accounting Standards ("SFAS") No. 107,
"Disclosures About Fair Value of Financial Instruments", requires that fair
values be disclosed for most of the Company's financial instruments. The
carrying amount of cash and cash equivalents, accounts receivable, accounts
payable and accrued expenses are considered to be representative of their
respective fair values. The carrying amount of the revolving credit
facility and long-term debt are considered to be representative of their
respective fair values as their interest rates are based on market rates.
The carrying value of the loan from affiliate is considered to be
representative of its fair value due to the related party nature of the
obligation.
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 1996, 1995
and 1994, approximately 23%,
<PAGE>
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in millions, except per share data)
28% and 35%, respectively, of the Company's revenues were derived from tests
performed for beneficiaries of Medicare and Medicaid programs.
Income Taxes:
The Company accounts for income taxes under SFAS No. 109, "Accounting
for Income Taxes" ("Statement 109"). 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.
Stock Option Plans:
Prior to January 1, 1996, the Company accounted for its stock option
plan in accordance with the provisions of Accounting Principles Board
(OAPBO) Opinion No. 25, "Accounting for Stock Issued to Employees", and
related interpretations. As such, compensation expense would be recorded on
the date of grant only if the current market price of the underlying stock
exceeded the exercise price. On January 1, 1996, the Company adopted SFAS
No. 123, "Accounting for Stock-Based Compensation", which permits entities
to recognize as expense over the vesting period the fair value of all stock-
based awards on the date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net income and pro forma earnings per share disclosures
for employee stock option grants made in 1995 and future years as if the
fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of APB Opinion No.
25 and provide the pro forma disclosure provisions of SFAS No. 123.
Earnings per Common Share:
For the years ended December 31, 1996, 1995 and 1994, earnings per
common share is calculated based on the weighted average number of shares
outstanding during each year (122,919,767, 110,579,096, and 84,754,183
shares, respectively).
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
<PAGE>
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in millions, except per share data)
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reported periods. Actual results could differ from
those estimates.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed of:
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
on January 1, 1996. This Statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net
cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value
of the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell. Adoption of this
Statement did not have a material impact on the Company's financial
position, results of operations, or liquidity.
Intangible assets, consisting of goodwill, net of amortization, of
$696.1 and $700.1 at December 31, 1996 and 1995, respectively, and other
intangibles (i.e., customer lists and non-compete agreements), net of
amortization, of $195.0 and $216.6 at December 31, 1996 and 1995,
respectively, are being amortized on a straight-line basis over a period of
40 years and 3-25 years, respectively. Total accumulated amortization for
intangible assets aggregated $116.9 and $87.4 at December 31, 1996 and 1995,
respectively.
Reclassifications:
Certain amounts in the prior years' financial statements have been
reclassified to conform with the 1996 presentation.
2. MERGER AND ACQUISITIONS
In April 1995, the Company completed a merger (the "Merger") with Roche
Biomedical Laboratories, Inc. ("RBL"). In connection with the Merger, the
Company issued 61,329,256 shares of Common Stock to HLR Holdings Inc.
("HLR") and Roche Holdings Inc. ("Roche") in exchange for all outstanding
shares of RBL and $135.7 in cash. The exchange consideration of
approximately $558.0 for the purchase of RBL consisted of the value of the
stock issued to HLR and Roche, as
<PAGE>
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in millions, except per share data)
well as other cash costs of the Merger, net of cash received from HLR. In
June 1994, the Company acquired Allied Clinical Laboratories, Inc.
("Allied") for approximately $191.5 in cash plus the assumption of $24.0 of
Allied indebtedness (the "Allied Acquisition"). The Allied Acquisition and
the Merger have been accounted for under the purchase method of accounting;
as such, the acquired assets and liabilities were recorded at their
estimated fair values on the date of acquisition. RBL's and Allied's results
of operations have been included in the Company's results of operations
since April 28, 1995 and June 23, 1994, respectively.
During 1996, the Company acquired four small clinical laboratory
companies for an aggregate purchase price, including assumption of
liabilities, of $23.4. During 1995 and 1994, the Company acquired nine and
eleven laboratories, respectively, for an aggregate purchase price,
including assumption of liabilities, of $41.7 and $79.3, respectively. The
acquisitions were accounted for as purchase transactions. The excess of
cost over the fair value of net tangible assets acquired during 1996, 1995
and 1994 was $22.5, $28.2, and $72.1, respectively, which is included under
the caption "Intangible assets, net" in the accompanying consolidated
balance sheets. The consolidated statements of operations reflect the
results of operations of these purchased businesses from dates of
acquisition.
3. RESTRUCTURING AND NON-RECURRING CHARGES
In the second quarter of 1996, the Company recorded certain charges of
a non-recurring nature including additional charges related to the
restructuring of operations. The Company recorded a restructuring charge
totaling $13.0 for the shutdown of its La Jolla, California administrative
facility and other workforce reductions. This amount includes approximately
$8.1 for severance, $3.5 for the future lease obligation of the La Jolla
facility and $1.4 for the write down of leasehold improvements and fixed
assets that will be abandoned or disposed of. The La Jolla facility was
substantially closed by the end of 1996. The remaining workforce reductions
took place in other areas of the Company and were substantially completed by
the end of 1996. The net work force reduction as a result of these
activities was approximately 250 employees. Payments for severance are
expected to continue through 1997.
In addition, the Company recorded certain non-recurring charges in the
second quarter of 1996 related to further integration after the Merger. The
Company decided to abandon certain data processing systems and therefore
wrote off approximately $6.7 in capitalized software costs. In addition,
the Company relocated its principal drug testing facility to accommodate
consolidation of the RBL and Company operations and will incur approximately
$1.3 in costs primarily related to the write-off of leasehold improvements
and building clean up. Finally, the Company recorded a charge of $2.0
<PAGE>
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in millions, except per share data)
for various other items including the write-off of certain supplies related
to changes in testing methodologies to increase efficiency. As a result of
these changes, some supplies were not compatible with the new testing
methods and were disposed of.
Following the Merger in 1995, the Company determined that it would be
beneficial to close Company laboratory facilities in certain geographic
regions where duplicate Company and RBL facilities existed at the time of
the Merger. As a result, the Company recorded a restructuring charge of
$65.0 in the second quarter of 1995. As part of the Company's evaluation of
its future obligations under these restructuring activities, certain changes
in the estimates were made during the quarter ended June 30, 1996. These
resulted in the reclassification of certain accruals in the categories
listed below although the total liability did not change. These
restructuring activities have been substantially completed as of December
31, 1996 and have resulted in a net reduction of approximately 1,600
employees.
<PAGE>
<PAGE>
<TABLE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in millions, except per share data)
The following represents the Company's restructuring activities for the
period indicated:
<CAPTION>
Asset Lease and
Severance revaluations other facility
Costs and write-offs obligations Total
--------- -------------- -------------- -----
<S> <C> <C> <C> <C>
Balance at
December 31, 1994 $ -- $ -- $ -- $ --
Restructuring charges 24.2 21.3 19.5 65.0
Non cash items (0.3) (2.7) -- (3.0)
Cash payments (11.1) -- (0.6) (11.7)
------ ------ ----- ------
Balance at
December 31, 1995 $ 12.8 $ 18.6 $ 18.9 $ 50.3
Restructuring charges 8.1 1.4 3.5 13.0
Reclassifications 1.6 0.7 (2.3) --
Non cash items -- (11.3) -- (11.3)
Cash payments (14.2) -- (3.2) (17.4)
------ ----- ------ -----
Balance at
December 31, 1996 $ 8.3 $ 9.4 $ 16.9 $ 34.6
===== ====== ===== =====
Current $ 25.5
Non-current 9.1
-----
$ 34.6
=====
</TABLE>
4. ACCOUNTS RECEIVABLE, NET
December 31, December 31,
1996 1995
----------- -----------
Gross accounts receivable $ 617.2 $ 517.2
Less contractual allowances and
allowance for doubtful accounts (111.6) (90.4)
------ ------
$ 505.6 $ 426.8
====== ======
5. PROPERTY, PLANT AND EQUIPMENT, NET
December 31, December 31,
1996 1995
----------- -----------
Land $ 9.2 $ 7.0
Buildings and building improvements 64.2 54.7
Machinery and equipment 289.3 268.1
Leasehold improvements 58.3 70.3
Furniture and fixtures 27.0 27.3
Buildings under capital leases 9.6 9.6
------ ------
457.6 437.0
Less accumulated depreciation
and amortization (174.7) (132.2)
------ ------
$ 282.9 $ 304.8
====== ======
<PAGE>
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in millions, except per share data)
6. ACCRUED EXPENSES AND OTHER
December 31, December 31,
1996 1995
----------- -----------
Employee compensation and benefits $ 49.5 $ 50.5
Deferred acquisition related payments 12.9 14.8
Acquisition related reserves 17.2 39.4
Restructuring reserves 25.5 32.3
Accrued taxes 15.4 14.0
Interest payable 12.8 7.4
Other 35.1 15.1
------ ------
$ 168.4 $ 173.5
====== ======
7. OTHER LIABILITIES
December 31, December 31,
1996 1995
----------- -----------
Deferred acquisition related payments $ 14.8 $ 8.5
Acquisition related reserves 12.3 68.2
Restructuring reserves 9.1 18.0
Deferred income taxes 38.7 5.1
Post-retirement benefit obligation 27.0 25.1
Other 42.6 10.1
------ ------
$ 144.5 $ 135.0
====== ======
8. SETTLEMENTS
As previously discussed in the Company's December 31, 1995 10-K, the
Office of Inspector General ("OIG") of Health and Human Services and the
Department of Justice ("DOJ") had been investigating certain past laboratory
practices of the predecessor companies of the Company - NHL, RBL and Allied.
On November 21, 1996, the Company reached a settlement with the OIG and the
DOJ regarding the prior billing practices of these predecessor companies
(the "1996 Government Settlement"). Consistent with this overall settlement,
the Company paid $187.0 to the Federal Government in December 1996 (the
"Settlement Payment") with proceeds from a loan from Roche (the "Roche
Loan"). As a result of negotiations related to the 1996 Government
Settlement, the Company recorded a charge of $185.0 in the third quarter of
1996 (the "Settlement Charge") to increase reserves for the 1996 Government
Settlement described above, and other related expenses of government and
private claims resulting therefrom.
In the second quarter of 1995, the Company took a pre-tax special
charge of $10.0 in connection with the estimated costs of settling various
claims pending against the Company, substantially all of which were billing
disputes with various third party payors
<PAGE>
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in millions, except per share data)
relating to the contention that NHL improperly included tests for HDL
cholesterol and serum ferritin in its basic test profile without clearly
offering an alternative profile that did not include these medical tests.
As of December 31, 1996, the majority of these disputes have been settled.
In the third quarter of 1994, the Company approved a settlement of
previously disclosed shareholder class and derivative litigation. 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
aggregated $55.0 plus expenses.
9. LONG-TERM DEBT
The Company entered into a credit agreement dated as of April 28, 1995
(the "Existing Credit Agreement"), with the banks named therein (the
"Banks") and Credit Suisse First Boston, as administrative agent (the "Bank
Agent"), under which the Banks made available to the Company a senior term
loan facility of $800.0 (the "Term Loan Facility") and a revolving credit
facility of $450.0 (the "Revolving Credit Facility" and, together with the
Term Loan Facility, the "Bank Facility"). The Bank Facility is
unconditionally and irrevocably guaranteed by certain of the Company's
subsidiaries.
As a result of potential defaults under the Existing Credit Agreement,
resulting from, among other things, the Company's performance and higher
than projected debt levels, the Settlement Charge and the Roche Loan, the
Company has obtained several amendments and waivers to the Existing Credit
Agreement. In September 1996, the Company negotiated an amendment (the
"Fourth Amendment") to the Existing Credit Agreement. The Fourth Amendment
modified the interest coverage and leverage ratios applicable to the
quarters ending September 30 and December 31, 1996. The Fourth Amendment
also increased the interest rate margin on its revolving credit facility
from 0.25% to 0.875% and increased the interest rate margin on its term loan
facility from 0.375% to 1.00%. As a result of the Settlement Charge in the
third quarter of 1996, as described above, the Company obtained a waiver
(the "Third Waiver") which excluded the special charge from covenant
calculations for the periods covered by the most recent amendment until 30
days after the 1996 Government Settlement. As a result of the Roche Loan
and the 1996 Government Settlement, the Company negotiated a Fifth Amendment
and Fourth Waiver (the "Fifth Amendment") to the Existing Credit Agreement.
The Fifth Amendment extended the Third Waiver until January 31, 1997 and
excluded the Roche Loan from covenant calculations for the quarters ending
December 31, 1996 and March 31,
<PAGE>
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in millions, except per share data)
1997. On January 27, 1997, the Company negotiated a waiver (the "Fifth
Waiver") which further extended the Third Waiver until March 31, 1997.
In March 1997, the Company entered into the Sixth Amendment and Waiver
(the "Sixth Amendment") which eliminates amortization payments on the Term
Loan Facility for 1997 and modifies the interest coverage and leverage
ratios for the quarterly periods through December 31, 1997. As a result of
the Sixth Amendment certain amounts outstanding under the Revolving Credit
Facility and Term Loan Facility that were classified as current liabilities
in the September 30, 1996 financial statements have been reclassified to
long-term debt in the December 31, 1996 financial statements. Pursuant to
this amendment, the Company paid an amendment fee of 37.5 basis points on
commitments and will pay an additional fee of 62.5 basis points if the
Rights Offering, as described in Note 17, is not completed by June 30, 1997.
Under the Sixth Amendment, maturities under the Term Loan Facility aggregate
$243.8, $162.5, $187.5 and $100.0 in 1998 through 2001, respectively.
In March 1997, the Company also entered into an amended and restated
credit agreement (the "Amended Credit Agreement") which will become
effective upon completion of the Rights Offering following satisfaction of
certain conditions precedent. The Amended Credit Agreement makes available
to the Company a term loan facility of $693.8 (the "Amended Term Loan
Facility") and a $450.0 revolving credit facility (the "Amended Revolving
Credit Facility"). The Amended Revolving Credit Facility will include a
$50.0 letter of credit sublimit. The maturities under the Amended Credit
Agreement are extended approximately three years for the Amended Term Loan
Facility to March 31, 2004 and approximately two years for the Amended
Revolving Credit Facility to March 31, 2002.
As in the Existing Credit Agreement, both the Amended Term Loan
Facility and the Amended Revolving Credit Facility bear interest, at the
option of the Company, at (i) the base rate plus the applicable base rate
margin or (ii) the eurodollar rate plus the applicable eurodollar rate
margin. The Amended Credit Agreement provides that in the event of a
reduction of the percentage of Common Stock held by HLR, Roche Holdings and
their affiliates (other than the Company and its subsidiaries) below 25%,
the applicable interest margins and facility fees on borrowings outstanding
under the Amended Credit Agreement will increase. The amount of the
increase will depend, in part, on the leverage ratio of the Company at the
time of such reduction. In addition, pursuant to the Amended Credit
Agreement, the applicable interest margins on borrowings outstanding
thereunder are based upon the leverage ratio.
Total amortization of the Amended Term Loan Facility for each twelve-
month period following the closing date of the Rights Offering will be
reduced significantly for the first three years, and will be
<PAGE>
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in millions, except per share data)
made (in quarterly installments) in accordance with the following table:
Year Amount
---- -------
1997 $ --
1998 --
1999 50.0
2000 100.0
2001 150.0
2002 150.0
2003 150.0
3/31/2004 93.8
Conditions precedent to effectiveness of the Amended Credit Agreement
include, without limitation, gross cash proceeds from the Rights Offering in
an aggregate amount equal to at least $250.0, receipt of appropriate
certificates and legal opinions, accuracy in all material respects of
representations and warranties, including absence of material adverse change
in the Company and its subsidiaries (taken as a whole) since December 31,
1996, absence of defaults and material litigation, evidence of authority,
and payment of transaction fees.
The Amended Credit Agreement contains customary covenants similar to,
and in the case of limitations on acquisitions and incurrence of additional
debt more restrictive than, the covenants set forth in the Existing Credit
Agreement.
Like the Existing Credit Agreement, the Amended Credit Agreement
contains financial covenants with respect to a leverage ratio, an interest
coverage ratio and minimum stockholders' equity. The covenant levels are
less restrictive than under the Existing Credit Agreement, and will be
tested quarterly.
At December 31, 1996, the Company was a party to interest rate swap
agreements with certain major financial institutions, rated A or better by
Moody's Investor Service, solely to manage its interest rate exposure with
respect to $600.0 of its floating rate debt under the Term Loan Facility.
The agreements effectively changed the interest rate exposure on $600.0 of
floating rate debt to a weighted average fixed interest rate of 6.01%,
through requiring that the Company pay a fixed rate amount in exchange for
the financial institutions paying a floating rate amount. Amounts paid by
the Company in 1996 were $2.0. The notional amounts of the agreements are
used to measure the interest to be paid or received and do not represent the
amount of exposure to credit loss. These agreements mature in September
1998. The estimated cost at which the Company could terminate these
agreements as of December 31, 1996 was approximately $0.9. The fair value
was estimated by discounting the
<PAGE>
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in millions, except per share data)
expected cash flows using rates currently available for interest rate swaps
with similar terms and maturities.
In connection with the repayment of existing revolving credit and term
loan facilities in 1995, the Company recorded an extraordinary loss of
approximately $13.5 ($8.3 net of tax), consisting of the write-off of
deferred financing costs, related to the early extinguishment of debt.
Prior to April 28, 1995, the Company had a credit agreement with a
group of banks which provided the Company with a $400.0 term loan facility
and a revolving credit facility of $350.0. This credit agreement provided
funds for the Allied Acquisition, to refinance certain existing debt of
Allied and the Company, and for general corporate purposes. The credit
agreement was repaid in full on April 28, 1995. At December 31, 1994, the
Company's effective borrowing rate on this credit agreement was 8.16%.
10. LOAN FROM AFFILIATE
In December 1996, the Company financed the Settlement Payment with the
proceeds of a $187.0 loan from Roche. The promissory note bears interest at
6.625% per annum and was originally due March 31, 1997. In March 1997, the
Company renegotiated the term of the note and it is now due March 31, 1998.
The note is unsecured and ranks pari passu with the Company's bank
obligations. The Company subsequently made the Settlement Payment in
December 1996.
11. STOCKHOLDERS' EQUITY
In connection with a corporate reorganization on June 7, 1994, all of
the 14,603,800 treasury shares held by National Health Laboratories
Incorporated were canceled. 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.
<PAGE>
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in millions, except per share data)
12. INCOME TAXES
<TABLE>
The provisions for income taxes in the accompanying consolidated
statements of operations consist of the following:
<CAPTION>
Years Ended December 31,
------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal $ (54.4) $ 10.4 $ 16.2
State 2.3 1.5 3.0
------ ------ ------
(52.1) 11.9 19.2
------ ------ ------
Deferred:
Federal 15.2 (4.6) 4.9
State 2.1 (0.2) 1.2
------ ------ ------
17.3 (4.8) 6.1
------ ------ ------
$ (34.8) $ 7.1 $ 25.3
====== ====== ======
</TABLE>
The effective tax rates on earnings before income taxes is reconciled
to statutory federal income tax rates as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1996 1995 1994
-------- ------- ------
<S> <C> <C> <C>
Statutory federal rate (35.0)% 35.0% 35.0%
State and local income taxes,
net of federal income tax benefit (3.0) 28.0 4.9
Non deductible amortization of
intangible assets 3.0 166.0 4.9
Change in valuation allowance 17.0 -- --
Other (0.5) 7.0 0.9
----- ----- -----
Effective rate (18.5)% 236.0% 45.7%
===== ===== =====
</TABLE>
The significant components of deferred income tax expense are as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1996 1995 1994
-------- -------- ---------
<S> <C> <C> <C>
Acquisition related reserves $ 2.7 $ (17.7) $ (1.2)
Settlement and related expenses -- 8.8 2.5
Reserve for doubtful accounts (9.5) (4.3) 0.9
Insurance accrual (1.9) -- --
Change in valuation allowance 32.0 -- --
Other (6.0) 8.4 3.9
----- ------ -----
$ 17.3 $ (4.8) $ 6.1
===== ====== =====
</TABLE>
<PAGE>
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in millions, except per share data)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
----------- ----------
<S> <C> <C>
Deferred tax assets:
Settlement and related expenses,
principally due to accrual for
financial reporting purposes $ 19.2 $ 1.8
Accounts receivable, principally due
to allowance for doubtful accounts 31.1 21.9
Self insurance reserves, principally
due to accrual for financial
reporting purposes 7.9 4.8
Postretirement benefit obligation,
principally due to accrual for
financial reporting purposes 10.7 9.9
Compensated absences, principally due
to accrual for financial reporting
purposes -- --
Acquisition related reserves,
principally due to accrual for
financial reporting purposes 43.1 81.0
State net operating loss carryforwards 11.8 7.4
Other 18.1 13.7
------ ------
141.9 140.5
Less valuation allowance (32.0) --
------ ------
Net deferred tax asset 109.9 140.5
Deferred tax liabilities:
Intangible assets, principally due to
differences in amortization (60.2) (59.5)
Property, plant and equipment,
principally due to differences in
depreciation (20.9) (16.4)
Other (1.3) (6.4)
------ ------
Total gross deferred tax liabilities (82.4) (82.3)
------ ------
Net deferred tax asset $ 27.5 $ 58.2
====== ======
</TABLE>
There was no valuation allowance for deferred tax assets as of December
31, 1995 and 1994. At December 31, 1996 the valuation allowance for
deferred tax assets was $32.0. Realization of the deferred tax assets
related to the state net operating loss carry forwards, the post retirement
benefit obligation as well as certain other temporary differences is
considered uncertain, and therefore a valuation allowance has been
established for these items. The
<PAGE>
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in millions, except per share data)
Company believes that it is more likely than not that the results of future
operations and carry back availability will generate sufficient taxable
income to realize the remaining deferred tax assets.
13. 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 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.
In connection with the Merger, all options outstanding as of December
13, 1994 became vested and employees were given the choice to (i) cancel
options outstanding as of December 13, 1994 and receive cash and shares of
common stock according to a formula included in the merger agreement or (ii)
convert such options into new options based on a formula included in the
merger agreement. The amount of cash and shares of common stock issued was
equal to the product of (i) the number of shares of common stock subject to
such options submitted for cancellation and (ii) the excess of (1) $18.50
over (2) the per share exercise price of such options (such product, the
"Option Value Amount"). The Option Value Amount was paid as follows: 40% of
such amount was paid in cash, and 60% of such amount (the "Option Stock
Amount") was paid in the number of shares of common stock obtained by
dividing the Option Stock Amount by $15.42. In connection with the
cancellation of stock options, the Company paid a total of $5.5 in cash and
issued 538,307 shares of common stock to option holders. The value of such
amounts were considered transaction costs of the merger and therefore were
not treated as compensation expense. Also, a total of 562,532 options were
reissued as a result of option conversions at exercise prices between
$11.293 and $16.481.
At December 31, 1996, there were 3,427,316 additional shares available
for grant under the Company's Stock Option Plans. There were no options
granted in 1996. The per share weighted-average fair value of stock options
granted during 1995 was $8.54 per share on the date of grant using the Black
Scholes option-pricing model with the following weighted-average
assumptions: - expected dividend yield
<PAGE>
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in millions, except per share data)
0.0%, risk-free interest rate of 6.86%, and an expected life of ten years.
The Company applies the provisions of APB Opinion No. 25 in accounting
for its Plan and, accordingly, no compensation cost has been recognized for
its stock options in the financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the CompanyOs net income would have been reduced
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Years ended
December 31,
1996 1995
---------- ---------
<S> <C> <C>
Net loss As reported $ (153.5) $ (12.3)
Pro forma (154.7) (14.5)
Earnings per share As reported $ (1.25) $ (0.11)
Pro forma (1.26) (0.13)
Pro forma net income reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net income
amounts presented above because compensation cost is reflected over the
optionsO vesting period of two years and compensation cost for options
granted prior to January 1, 1995 is not considered.
The following table summarizes grants of non-qualified options made by
the Company to officers and key employees under both plans. Stock options
are generally granted at an exercise price equal to or greater than the fair
market price per share on the date of grant. Also, for each grant,
one-third of the options vested on the date of grant and one-third vest on
each of the first and second anniversaries of such date, subject to their
earlier expiration or termination.
Changes in options outstanding under the plans for the periods indicated
were as follows:
<PAGE>
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in millions, except per share data)
Weighted Average
Number Exercise price
of Options per Option
----------- ---------------
Outstanding at January 1, 1994 1,564,336 $17.366
Granted 2,042,000 $12.600
Exercised (11,125) $ 7.717
Canceled or expired (92,498) $16.649
----------
Outstanding at December 31, 1994 3,502,713 $14.637
Granted 1,378,000 $13.000
Merger-related grants 562,532 $15.870
Exercised (20,542) $10.297
Merger-related cancellations (3,459,167) $14.653
Canceled or expired (222,291) $14.816
----------
Outstanding at December 31, 1995 1,741,245 $14.637
Canceled or expired (443,027) $14.104
----------
Outstanding at December 31, 1996 1,298,218 $14.637
==========
Exercisable at December 31, 1996 993,429 $13.748
==========
The weighted average remaining life of options outstanding at December
31, 1996 is approximately 8.4 years.
14. 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.
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 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, 1996 and 1995, the
Company had provided letters of credit aggregating approximately $17.6 and
$8.6, respectively, primarily in connection with certain insurance programs.
During 1991, the Company guaranteed a $9.0, five-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
<PAGE>
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in millions, except per share data)
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,
1996 and 1995, 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 leases various facilities and equipment under non-
cancelable lease arrangements. Future minimum rental commitments for leases
with noncancellable terms of one year or more at December 31, 1996 are as
follows:
Operating Capital
--------- --------
1997 44.9 1.6
1998 36.3 1.7
1999 29.4 1.8
2000 24.2 1.9
2001 16.5 2.0
Thereafter 65.9 13.1
------ -----
Total minimum lease payments 217.2 22.1
Less amount representing
interest -- 12.3
------ -----
Total minimum operating
lease payments and
present value of minimum
capital lease payments $ 217.2 $ 9.8
====== =====
Rental expense, which includes rent for real estate, equipment and
automobiles under operating leases, amounted to $70.6, $60.4 and
$34.6 for the years ended December 31, 1996, 1995 and 1994, respectively.
<PAGE>
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in millions, except per share data)
15. PENSION AND POSTRETIREMENT 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 $7.5, $5.8, and $3.6 in 1996,
1995, and 1994, respectively.
In addition, substantially all employees of the Company are covered by
a defined benefit retirement plan (the "Company Plan"). The benefits to be
paid under the Company Plan are based on years of credited service and
average final compensation.
Effective December 31, 1994, the Company adopted certain amendments to
the Company Plan which resulted in a decrease of approximately $9.5 in the
projected benefit obligation.
Under the requirements of SFAS 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 Company Plan
effective December 31, 1994.
In connection with the Merger, the Company assumed obligations under
the RBL defined benefit pension plan ("RBL Plan"). Effective July 1, 1995,
the plan was amended to provide benefits similar to the Company Plan, as
amended. Certain employees of RBL were grandfathered so that their benefits
were not affected by the amendment. On January 1, 1996, the two plans were
merged.
The Company's policy is to fund the Company Plan with at least the
minimum amount required by applicable regulations. The components of net
periodic pension cost for each of the RBL plans are summarized as follows:
<PAGE>
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in millions, except per share data)
Company Plan RBL Plan
------------------ -------------------
Years ended Eight months ended
December 31, December 31,
1996 1995 1994 1995
------------------- -------------------
Service cost $10.3 $3.2 $5.5 $ 2.6
Interest cost 7.0 2.7 3.5 2.3
Actual return on
plan assets (11.9) (7.6) 0.1 (4.3)
Net amortization and
deferral 3.3 4.2 (1.4) 1.2
----- ---- ---- -----
Net periodic pension cost $ 8.7 $2.5 $7.7 $ 1.8
===== ===== ===== ======
The status of the plans are as follows:
Company Plan RBL Plan
-------------- ------------
December 31, December 31,
1996 1995 1995
-------------- ------------
Actuarial present value
of benefit obligations:
Vested benefits $ 86.2 $ 36.2 $ 38.8
Non-vested benefits 11.2 4.4 6.4
----- ----- -----
Accumulated benefit obligation 97.4 40.6 45.2
Effect of projected future
salary increases 6.3 2.2 1.6
----- ----- -----
Projected benefit obligation 103.7 42.8 46.8
Fair value of plan assets,
principally corporate equity
securities and fixed income
investments 96.2 40.8 46.6
----- ----- -----
Unfunded projected benefit
obligation 7.5 2.0 0.2
Unrecognized prior service cost 17.4 6.6 12.7
Unrecognized net loss (14.9) (7.1) (9.4)
----- ----- -----
Accrued pension cost $ 10.0 $ 1.5 $ 3.5
===== ===== =====
Assumptions used in the accounting for the plans were as follows:
Company Plan RBL Plan
------------- -----------
1996 1995 1995
------------- -----------
Weighted average discount rate 7.75% 7.5% 7.5%
Weighted average rate of increase
in future compensation levels 4.0% 4.0% 5.4%
Weighted average expected long-
term rate of return 9.0% 9.0% 9.5%
<PAGE>
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in millions, except per share data)
In addition, the Company assumed obligations under RBL's postretirement
medical plan effective with the Merger. Effective July 1, 1995, coverage
under the plan was restricted to certain existing RBL employees. This plan
is unfunded and the Company's policy is to fund benefits as claims are
incurred. The components of postretirement benefit expense are as follows:
Year ended Eight months ended
December 31, December 31,
1996 1995
------------ ------------------
Service cost $ 0.9 $ 1.1
Interest cost 1.4 1.4
----- -----
Postretirement benefit costs $ 2.3 $ 2.5
====== ======
The status of the plan is as follows:
December 31,
1996 1995
----------------
Accumulated postretirement benefit
obligation $ 28.6 $ 27.2
Unrecognized net loss (1.6) (2.1)
------ -----
Accrued post retirement benefit obligation $ 27.0 $ 25.1
====== =====
The weighted average discount rate used in the calculation of the
accumulated postretirement benefit obligation and the net postretirement
benefit cost was 7.85% and 7.6%, respectively. The health care cost trend
rate was assumed to be 8.5%, declining gradually to 5.0% in the year 2006,
remaining level thereafter. The health care cost trend rate has a
significant effect on the amounts reported. To illustrate, a one percentage
point increase in the assumed health care cost trend rate would increase the
accumulated postretirement benefit obligation as of December 31, 1996 by
approximately $5.2, and the aggregate of the service and interest components
of 1996 net periodic postretirement benefit cost by approximately $0.5.
<PAGE>
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in millions, except per share data)
16. QUARTERLY DATA (UNAUDITED)
</TABLE>
<TABLE>
The following is a summary of unaudited quarterly data:
<CAPTION>
Year ended December 31, 1996
-------------------------------------------------
1st 2nd 3rd 4th Full
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Net sales $ 403.9 $ 410.0 $ 402.6 $ 391.2 $1,607.7
Gross profit 100.6 109.5 102.5 111.2 423.8
Net earnings 5.9 (14.2) (146.4) 1.2 (153.5)
Earnings per
common share 0.05 (0.12) (1.19) 0.01 (1.25)
Year ended December 31, 1995
------------------------------------------------
1st 2nd 3rd 4th Full
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----------
Net sales $ 243.8 $ 367.3 $ 417.5 $ 403.4 $1,432.0
Gross profit 79.5 108.9 117.8 101.5 407.7
Earnings (loss) before
extraordinary item 12.8 (31.6) 14.4 0.4 (4.0)
Extraordinary item -- (8.3) -- -- (8.3)
Net earnings (loss) 12.8 (39.9) 14.4 0.4 (12.3)
Earnings (loss) per
common share before
extraordinary loss 0.15 (0.28) 0.12 -- (0.03)
Extraordinary loss
per common share -- (0.08) -- -- (0.08)
Earnings (loss) per
common share 0.15 (0.36) 0.12 -- (0.11)
</TABLE>
In the third quarter of 1996, the Company recorded a charge of
$185.0 to increase reserves related to the 1996 Government Settlement and
other related expenses of government and private claims resulting therefrom.
In the second quarter of 1996, the Company recorded a charge of $23.0
relating to the shutdown of its La Jolla administrative facility and other
non-recurring charges. In addition, the company recorded an additional
$10.0 provision for doubtful accounts which was based on the Company's
determination that additional reserves were needed, based on trends that
became evident in the second quarter, for lower collection rates primarily
from Medicare.
<PAGE>
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in millions, except per share data)
In the fourth quarter of 1995, the Company recorded an additional $15.0
of provision for doubtful accounts which reflects the Company's
determination, based on trends that became evident in the fourth quarter,
that additional reserves were needed primarily to cover potentially lower
collection rates from several third-party payors.
In the second quarter of 1995, the Company took a pre-tax special
charge of $65.0 to cover the costs of the restructuring plan related to the
Merger. The charge includes approximately $24.2 to reduce the workforce,
$21.3 to reduce certain assets to their net realizable values, and $19.5 for
lease and other facility obligations. Also in the second quarter of 1995,
the Company took a pre-tax special charge of $10.0 in connection with the
estimated costs of settling various claims pending against the Company,
substantially all of which are billing disputes, in which the Company
believes it is probable that settlements will be made by the Company.
In connection with the repayment of existing revolving credit and term
loan facilities, the Company recorded an extraordinary loss of approximately
$13.5 ($8.3 net of tax) in the second quarter of 1995, consisting of the
write-off of deferred financing costs, related to the early extinguishment
of debt.
17. SUBSEQUENT EVENT (UNAUDITED)
In February 1997, the Company filed a registration statement with the
Securities and Exchange Commission (the "Commission") relating to the
proposed offering of an aggregate of $500.0 of convertible preferred stock
issuable in two series pursuant to transferable subscription rights to be
granted on a pro rata basis to each stockholder of the Company (the "Rights
Offering"). Rights holders who exercise their rights in full will also be
entitled to subscribe for additional shares of preferred stock issuable
pursuant to any unexercised rights.
The subscription rights will give the holder thereof the option of
purchase one of two series of preferred stock, each of which will be
convertible at the option of the holder into common stock. One series will
pay cash dividends and will be exchangeable at the Company's option for
convertible subordinated notes due 2012. The other series will pay
dividends in kind and will not be exchangeable for notes. Each series of
preferred stock will be mandatorily redeemable in 2012 and will be
redeemable at the option of the Company after three years.
The Company has recently been contacted by representatives of certain
insurance companies, and individuals in a purported class action, who
have asserted claims for private reimbursement which are similar to the
Government claims recently settled. The Company is carefully evaluating
these claims, however, due to the early stage of the claims, the
ultimate outcome cannot presently be predicted.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Schedule II
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years Ended December 31, 1996, 1995 and 1994
(Dollars in Millions)
- --------------------------------------------------------------------------------
Balance Charged Other
at to costs (Deduct- Balance
beginning Acquis- and ions) at end
of year itions expenses Additions of year
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Applied against asset
accounts:
Contractual allowances
and allowance for
doubtful accounts $ 90.4 $ -- $ 148.8 $ (127.6) $ 111.6
===== ==== ====== ======= ======
Year ended December 31, 1995:
Applied against asset
accounts:
Contractual allowances
and allowance for
doubtful accounts $ 65.3 $ 33.2 $ 147.6 $ (155.7) $ 90.4
===== ===== ====== ======= ======
Year ended December 31, 1994
Applied against asset
accounts:
Contractual allowances
and allowance for
doubtful accounts $ 51.0 $ 18.5 $ 91.5 $ (95.7) $ 65.3
===== ===== ====== ====== ======
</TABLE>
<PAGE>
<PAGE>
SETTLEMENT AGREEMENT AND RELEASE
--------------------------------
This Settlement Agreement ("Agreement") is entered by and between
the United States of America, acting through its Department of Justice
and the United States Attorneys' Offices for the Middle District of
North Carolina, Southern District of New York, Southern District of
California, Middle District of Pennsylvania, District of New Mexico,
and Eastern District of Virginia, and on behalf of the Office of
Inspector General of the United States Department of Health and Human
Services ("HHS-OIG"); the Office of Inspector General of the United
States Railroad Retirement Board ("RRB-OIG"); the Office of the
Civilian Health and Medical Program of the Uniformed Services
("OCHAMPUS") through the General Counsel, a field activity of the
Office of the Secretary of Defense, the United States Department of
Defense; the Federal Employees Health Benefits Program, administered
by the United States Office of Personnel Management ("OPM-OIG"),
through the United States Attorney's Office for the District of
Columbia (collectively all of the above will be referred to as the
"United States"); Laboratory Corporation of America Holdings, and
Laboratory Corporation of America, corporations organized under the
laws of the State of Delaware, Roche Biomedical Laboratories, Inc.,
National Health Laboratories, Inc., and Allied Clinical Laboratories,
Inc.; and Andrew A. Hendricks, M.D., William St. John LaCorte, M.D.,
Mary J. Downy, and Geoffrey Zuccolo (the "Relators"). Collectively,
all of the above will be referred to as "the Parties."
PREAMBLE
--------
A. WHEREAS, this Agreement addresses the United States' civil
claims against Roche Biomedical Laboratories, Inc. ("RBL"), National
Health Laboratories, Inc. ("NHL"), Allied Clinical Laboratories, Inc.
("Allied"), and Laboratory Corporation of America Holdings ("LCAH")
and Laboratory Corporation of America ("LCA") (LCAH and LCA will be
collectively referred to as "LabCorp") as successor by merger to RBL
and NHL, based on the conduct described in Preamble Paragraphs E
through Z below and the conduct alleged in United States ex rel.
Andrew A. Hendricks, M.D. v. Roche Biomedical Laboratories, Inc., 93
Civ. 5644 (JSM) (Southern District of New York) (filed August 13,
1993); United States ex rel. William St. John LaCorte, M.D. v. Roche
Biomedical Laboratories, Inc., No. 2:96CV00417 (Middle District of
North Carolina) (originally filed December 27, 1993, in the Eastern
District of Louisiana, and transferred to the Middle District of North
Carlina on May 15, 1996); United States ex rel. Mary J. Downy v.
National Health Laboratories, Inc. and Roche Biomedical, Inc. (its
successor) d/b/a Laboratory Corporation of America et al., Civ. No. 96-
0378 (District of New Mexico) (filed March 20, 1996); and United
States ex rel. Geoffrey Zuccolo v. NHL/LabCorp of America et al., Civ.
No. 96-67-M (Eastern District of Virginia) (filed January 4, 1996)
(collectively these four suits will be referred to as the "Civil
Actions" and Andrew A. Hendricks, M.D., William St. John LaCorte,
M.D., Mary J. Downy, and Geoffrey Zuccolo will be referred to as the
"Relators");
B. WHEREAS, Allied is entering a plea of guilty to an
Information alleging the submission of a false claim to the United
States captioned United States v. Allied Clinical Laboratories, San
Diego Regional Laboratory, Criminal Case No. [TO BE ASSIGNED] (filed
in the Middle District of North Carolina, November 21, 1996);
C. WHEREAS, Laboratory Corporation of America Holdings
(formerly National Health Laboratories Holdings, Inc.) is a Delaware
corporation publicly traded on the New York Stock Exchange, which is
the successor by merger to Roche Biomedical Laboratories, Inc., and
which wholly owns Laboratory Corporation of America (formerly known as
National Health Laboratories, Inc.) (this merger was effective April
28, 1995);
D. WHEREAS, Allied Clinical Laboratories, Inc., is a Delaware
corporation formerly headquartered in Tennessee, which was acquired by
NHL in June 1994;
E. WHEREAS, at relevant times, RBL, NHL, and Allied each owned
and operated a system of independent clinical testing laboratories in
the United States;
F. WHEREAS, RBL, NHL, and Allied submitted or caused to be
submitted claims for payment to the Medicare program, Title XVIII of
the Social Security Act, 42 U.S.C. ' 1395 et seq., which is
administered by the United States Department of Health and Human
Services;
G. WHEREAS, RBL, NHL, and Allied submitted or caused to be
submitted claims for payment to the CHAMPUS program,
10 U.S.C. '' 1071-1106, which is administered by the United States
Department of Defense through its component agency, OCHAMPUS;
H. WHEREAS, RBL, NHL, and Allied submitted or caused to be
submitted claims for payment to the Railroad Retirement Medicare
program, Railroad Retirement Act of 1974, 45 U.S.C. ' 231 et seq.,
which is administered by the United States Railroad Retirement Board
("RRB");
I. WHEREAS, RBL, NHL, and Allied submitted or caused to be
submitted claims for payment to the Federal Employees Health Benefits
Program ("FEHBP"), which is administered by the Office of Personnel
Management ("OPM") pursuant to 5 U.S.C. '' 8901 et seq.;
J. WHEREAS, RBL submitted or caused to be submitted claims for
payment to the Medicaid programs, Title XIX of the Social Security
Act, 42 U.S.C. ' 1396 et seq., of the states of Alabama, Alaska,
Arkansas, California, Colorado, Delaware, Florida, Georgia, Illinois,
Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan,
Minnesota, Mississippi, Missouri, Montana, Nebraska, New Hampshire,
New Jersey, New York, New Mexico, North Carolina, North Dakota, Ohio,
Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee,
Texas, Virginia, Washington, West Virginia, and Wisconsin;
K. WHEREAS, NHL submitted or caused to be submitted claims for
payment to the Medicaid programs, Title XIX of the Social Security
Act, 42 U.S.C. ' 1396 et seq., of the states of Alabama, Alaska,
Arizona, Arkansas, California, Colorado, Connecticut, Delaware,
Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana,
Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New
Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon,
Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas,
Virginia, Washington, West Virginia, Wisconsin, Wyoming, and the
District of Columbia;
L. WHEREAS, Allied submitted or caused to be submitted claims
for payment to the Medicaid programs, Title XIX of the Social Security
Act, 42 U.S.C. ' 1396 et seq., of the states of Alabama, California,
Florida, Georgia, Idaho, Illinois, Louisiana, Mississippi, Nevada,
North Carolina, Ohio, Tennessee, Texas, Utah, and Wyoming (the states
referred to in Paragraphs J through L will be referred to collectively
as the "Participating States");
M. WHEREAS, the United States alleges that commencing in 1990
and continuing thereafter RBL violated federal statutes and/or common
law doctrines, in connection with the marketing, sale, pricing and
billing of its Diagnostic Multi-Chem Profiles (RBL Nos. 027623 and
037267) and other profiles incorporating these Diagnostic Multi-Chem
Profiles, by routinely and automatically adding high-density
lipoprotein ("HDL") tests (Current Procedural Terminology code ("CPT")
83718) and low-density lipoprotein ("LDL") calculations (CPT 83720) to
all of its Diagnostic Multi-Chem Profiles, and RBL submitted and/or
caused to be submitted false claims to the United States for these
tests that RBL knew were not specifically ordered by physician-clients
and were not reasonable and necessary for the diagnosis or treatment
of illness or injury; these tests were billed by and paid to RBL;
N. WHEREAS, the United States alleges that commencing on April
1, 1991, and continuing thereafter RBL violated federal statutes
and/or common law doctrines, in connection with the marketing, sale,
pricing and billing of its testing for Thyroid Stimulating Hormone
("TSH") (CPT 84443) by routinely adding such test to its Executive
Profile I (RBL Nos. 048827 and 272211), Executive Profile II (RBL Nos.
252189 and 267898), Executive Profile III (RBL Nos. 213736 and
272203), and Executive Profile IV (RBL Nos. 277715 and 277723), as
well as adding T-3 Uptake (CPT 84479) and Free Thyroxine Index ("T-7")
(CPT 82756) to certain Executive Profiles, and RBL submitted and/or
caused to be submitted false claims to the United States for these
tests that RBL knew were not specifically ordered by physician-clients
and were not reasonable and necessary for the diagnosis or treatment
of illness or injury; these tests were billed by and paid to RBL;
O. WHEREAS, the United States alleges that prior to 1990 and
continuing thereafter RBL violated federal statutes and/or common law
doctrines, in connection with the marketing, sale, pricing and billing
of its testing for osmolality (CPT 83930), by routinely and
automatically including such test in Executive Profile D (RBL Nos.
032185 and 040048) and Executive Profiles I and III and other
profiles, and RBL submitted and/or caused to be submitted false claims
to the United States for these tests that RBL knew were not
specifically ordered by physician-clients and were not reasonable and
necessary for the treatment or diagnosis of illness or injury; these
tests were billed by and paid to RBL;
P. WHEREAS, the United States alleges that prior to 1990 and
continuing thereafter RBL violated federal statutes and/or common law
doctrines, in connection with the marketing, sale, pricing and billing
of its testing for fructosamine (CPT 82985) as a routine and automatic
part of its Executive Profile D (RBL Nos. 032185 and 040048),
Executive Profiles III and IV, and other profiles, and RBL submitted
and/or caused to be submitted false claims to the United States for
these tests that RBL knew were not specifically ordered by physician-
clients and were not reasonable and necessary for the diagnosis or
treatment of illness or injury; these tests were billed by and paid to
RBL;
Q. WHEREAS, the United States alleges that prior to 1990 and
continuing thereafter RBL violated federal statutes and/or common law
doctrines in connection with the marketing, sale, pricing and billing
of its testing for Syphilis (CPT 86592) as a routine and automatic
part of its Executive Profile II (RBL No. 252189), Executive Profile
III (RBL No. 213736) and other profiles, and RBL submitted and/or
caused to be submitted false claims to the United States for these
tests that RBL knew were not specifically ordered by a physician and
were not reasonable and necessary for the diagnosis or treatment of
illness or injury; these tests were billed by and paid to RBL;
R. WHEREAS, the United States alleges that NHL violated federal
statutes and/or common law doctrines from January 1, 1993, through
December 31, 1993, in connection with the marketing, sale, pricing and
billing of the HDL test and LDL calculation ("HDL" collectively) as a
routine and automatic part of the NHL's standard "Health Survey
Profile I" ("HSP I") group of blood tests commonly ordered by doctor-
clients of NHL, and the serum ferritin test (a test to estimate iron
storage) as a routine and automatic part of its standard HSP I blood
tests; NHL submitted and/or caused to be submitted false claims to the
United States for these tests which NHL knew were not specifically
ordered by physician-clients and were not reasonable and necessary for
the diagnosis or treatment of illness or injury; these tests were
billed by and paid to NHL;
S. WHEREAS, the United States alleges that the HDL and ferritin
conduct described in Paragraph R above did generate NHL claims for
payment to federally-funded programs for HDL and ferritin tests that
NHL knew were not specifically ordered by physician-clients and were
not reasonable and necessary for the diagnosis or treatment of an
illness or injury, and enabled NHL to collect federal payments from
Medicare, CHAMPUS, RRB, FEHBP, and Medicaid for such tests; these
allegations resulted in tests that were billed by and paid to NHL;
T. WHEREAS, NHL asserts that after December 18, 1992, it took
steps to disclose to its physician-clients the contents of the HSP I
profile and to provide appropriate ordering options to them, but the
United States alleges that NHL's steps to cease submitting false
claims by billing federally-funded programs for medically unnecessary
HDL, LDL, and ferritin tests/calculations were inadequate;
U. WHEREAS, the United States alleges that from January 1,
1989, through June 1993, NHL violated federal statutes and/or common
law doctrines in connection with the marketing, sales, pricing and
billing aspects of its program to provide two separate tests,
prostatic acid phosphatase ("PAP") and prostate-specific antigen
("PSA"), only as a combined PAP/PSA panel, and by performing and
billing for both tests when either test was ordered, combining the
tests on its order forms, and/or presenting literature to healthcare
providers representing that the combination of the PAP and PSA tests
was medically valid and necessary; and NHL submitted and/or caused to
be submitted false claims to the United States for these tests which
NHL knew were not specifically ordered by physician-clients and were
not reasonable and necessary for the diagnosis or treatment of illness
or injury; these allegations resulted in tests that were billed by and
paid to NHL;
V. WHEREAS, the United States alleges that from January 1,
1988, and continuing thereafter Allied violated federal statutes
and/or common law doctrines, in connection with the marketing, sale,
pricing and billing of its testing for serum ferritin (CPT 82728),
gamma glutamyl transpeptidase ("GGT") (CPT 82977), triglycerides
("Trig") (CPT 84478), serum iron (CPT 83540/83545), HDL, LDL, creatine
phosphokinase ("CPK") (CPT 82550), amalyse (CPT 82150), and serum
magnesium tests (CPT 83735/83750), when performed routinely and
automatically in conjunction with Allied chemistry profiles that
included serial multichannel automated chemistry ("SMAC") tests (CPT
80002-80019); and Allied submitted and/or caused to be submitted false
claims to the United States for these tests which Allied knew were not
specifically ordered by physicians-clients and were not reasonable and
necessary for the diagnosis or treatment of illness or injury; these
services were billed by and paid to Allied;
W. WHEREAS, the United States alleges that from January 1,
1988, and continuing thereafter Allied violated federal statutes
and/or common law doctrines in connection with its calculations of and
billing for Complete Blood Count ("CBC"), one or more additional
indices (CPT 85029/85030), when these indices were not ordered by
physician-clients; and Allied submitted and/or caused to be submitted
false claims to the United States for these tests which Allied knew
were not specifically ordered by physician-clients and were not
reasonable and necessary for the diagnosis or treatment of illness or
injury; these services were billed by and paid to Allied;
X. WHEREAS, the United States alleges that commencing on
January 1, 1988, and continuing thereafter Allied violated federal
statutes and/or common law doctrines in connection with its testing
and billing for T-7 (CPT 82756) in conjunction with Allied's thyroid
profiles; and Allied submitted and/or caused to be submitted false
claims to the United States for these tests which Allied knew were not
specifically ordered by physician-clients and were not reasonable and
necessary for the diagnosis or treatment of illness or injury; these
services were billed by and paid to Allied;
Y. WHEREAS, the United States alleges that commencing on
January 1, 1988, and continuing thereafter Allied violated federal
statutes and/or common law doctrines in connection with its testing
and billing for Free Thyroxine ("T-4") (CPT 84435, 84436, 84439) as
reflex tests in conjunction with Allied's TSH tests; and Allied
submitted and/or caused to be submitted false claims to the United
States for these tests which Allied knew were not specifically ordered
by physician-clients and were not reasonable and necessary for the
diagnosis or treatment of illness or injury; these services were
billed by and paid to Allied;
Z. WHEREAS, LabCorp on behalf of Allied, pursuant to an Allied
Corporate Integrity Agreement entered into by HHS-OIG and Allied in
March 1995, reported to HHS-OIG in May 1995, October, 1995, and in six
Quarterly Reports submitted to HHS-OIG accompanied by audits in 1995
and 1996, that Allied had received overpayments by the Medicare
program and enumerated Medicaid programs for certain specified conduct
at identified locations for particular time periods, and LabCorp on
behalf of Allied described in these reports the cost impact of such
conduct;
AA. WHEREAS, the United States alleges that the practices
described in Preamble Paragraphs E though Z above resulted in the
submission of false claims actionable under the False Claims Act,
31 U.S.C. ' 3729 et seq., to the Medicare program, the Railroad
Retirement Medicare program, the CHAMPUS program, the Federal
Employees Health Benefits Program, and the Medicaid programs in the
states listed in Preamble Paragraphs J through L above, which enabled
RBL, NHL, and Allied to improperly collect federal Medicare payments,
Railroad Retirement Medicare program payments, CHAMPUS payments,
Federal Employees Health Benefits Program payments, and Medicaid
program payments from the states listed in Preamble Paragraphs J
through L above;
BB. WHEREAS, LabCorp, RBL, NHL, and Allied deny the contentions
of the United States and the Relators as set forth in Preamble
Paragraphs M through Y above;
CC. WHEREAS, the United States is entering into this Settlement
Agreement on the basis of LabCorp's financial constraints, and in
reliance on the accuracy and completeness of the financial disclosures
made by LabCorp to the United States;
DD. WHEREAS, LabCorp has entered into a Corporate Integrity
Agreement with HHS-OIG; and
EE. WHEREAS, in order to avoid the delay, expense, inconvenience
and uncertainty of protracted litigation of these claims, the Parties
mutually desire to reach a full and final compromise of the civil
claims the United States has against LabCorp, RBL, NHL, and Allied,
pursuant to the statutes and terms set forth in Paragraphs 7 and 8
below and based on the conduct alleged in Preamble Paragraphs M
through Z above, except as reserved in Paragraph 9 below.
TERMS AND CONDITIONS
--------------------
NOW, THEREFORE, in reliance on the representations contained
herein and in consideration of the mutual promises, covenants, and
obligations in this Agreement, and for good and valuable
consideration, receipt of which is hereby acknowledged, the Parties
hereby agree as follows:
1. LabCorp agrees to pay the United States and the
Participating States, collectively, the sum of one hundred eighty two
million dollars ($182,000,000) (the "Settlement Amount"), and this sum
shall constitute a debt immediately due and owing to the United States
and the Participating States on the effective date of this Agreement.
This debt is to be discharged by payments to the United States and the
Participating States, under the following terms and conditions:
a. LabCorp shall pay one hundred eighty two million
dollars ($182,000,000) to the United States and the Participating
States, collectively, no later than three business days after the
effective date on which LabCorp and its current lending banks
refinance LabCorp's existing debt under its Credit Agreement with
Credit Suisse and other banks dated April 28, 1995 ("Refinancing");
b. If the Refinancing is not achieved by January 28, 1997,
LabCorp shall pay one hundred eighty two million dollars
($182,000,000) to the United States and the Participating States,
collectively, by January 31, 1997, or LabCorp shall pay these amounts
by March 31, 1997, together with interest on any amount not paid by
January 31, 1997, at the annual rate of 5.64% compounded monthly from
January 31, 1997, to the date of payment; this interest shall be paid
to the United States no later than January 31, 1998;
c. The payment to the United States described above shall
be electronically transferred pursuant to instructions provided by the
Executive Office for the United States Attorneys, Department of
Justice, Washington, D.C., 20530, and in accordance with the attached
Promissory Note (Exhibit 1). Each payment to the United States
described above and under the attached Promissory Note shall be made
no later than 11:00 a.m. (New York City time) on the date due.
d. Nothing in this Agreement shall preclude LabCorp from
prepaying any payment due under this Agreement.
2. RBL, NHL, Allied, and LabCorp are in default of this
Agreement on the date of occurrence of any of the following events
("Events of Default"):
a. Failure to Make Timely Payments. Failure by LabCorp to
pay any amount provided for in Paragraph 1 when such payment is due
and payable;
b. Commencement of Bankruptcy or Reorganization
Proceeding. If prior to making the full payment of the amount due
under Paragraph 1 above, (i) LabCorp commences any case, proceeding,
or other action (A) under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have any order for
relief of debtors, or seeking to adjudicate it as bankrupt or
insolvent, or (B) seeking appointment of a receiver, trustee,
custodian or other similar official for it or for all or any
substantial part of its assets; or (ii) there shall be commenced
against LabCorp any such case, proceeding or other action referred to
in clause (i) which results in the entry of an order for relief and
any such order remains undismissed, or undischarged or unbonded for a
period of thirty (30) days; or (iii) LabCorp takes any action
authorizing, or in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth above in
this sub-Paragraph 2.b.;
c. Monetary Judgment. If prior to making payment of the
amount due under Paragraph 1 above, any judgment or order for the
payment of money in excess of twenty-five million dollars
($25,000,000) in any individual case, or fifty million dollars
($50,000,000) in the aggregate at any one time, is rendered against
LabCorp, and (i) such judgment or order is not stayed, vacated,
bonded, or dismissed pending appeal within thirty (30) calendar days
of its entry, or (ii) any such judgment or order which is stayed,
vacated, bonded, or dismissed as set forth in sub-Paragraph 2.c.(i),
is then upheld after the exhaustion of all appeals. Notwithstanding
the above, this Paragraph 2.c. shall be deemed to conform with Section
6.01(f) (or the successor section or sub-section) of the Credit
Agreement dated April 28, 1995.
d. Non-monetary Judgment. Any non-monetary judgment or
order against LabCorp (i) that is rendered prior to the payments by
LabCorp to the United States of the amounts due under Paragraph 1
above, and (ii) that is reasonably likely to materially impair (a) the
ability of LabCorp to perform its obligations under this Agreement, or
(b) the rights and remedies of the United States under this Agreement,
and such judgment or order is not stayed, vacated, discharged or
bonded pending appeal within thirty (30) calendar days of its entry,
and such judgment or order which is stayed, vacated, bonded, or
dismissed, is then upheld after the exhaustion of all appeals. The
words "reasonably likely to materially impair" shall have the meaning
they have in the Credit Agreement dated April 28, 1995, and under the
securities laws. Notwithstanding the above, this Paragraph 2.d. shall
be deemed to conform with Section 6.01(g) (or the successor section or
sub-section) of the Credit Agreement dated April 28, 1995;
e. Other Event of Default. Any default occurs after the
effective date of this Agreement under the Credit Agreement dated
April 28, 1995, and such default is not cured or waived.
3. On the date of any such Event of Default as defined in
Paragraph 2 above, RBL, NHL, Allied, and LabCorp agree that:
a. LabCorp shall provide the United States with written
notice of such Event of Default within two (2) business days of such
event (unless the Event of Default has been cured); or
b. The United States may, effective upon ten business days
notice to LabCorp (unless the Event of Default has been cured or, in
the case of an Event of Default pursuant to Paragraph 2.e, waived), in
its sole discretion declare that an Event of Default has occurred;
4. Provided that notice has been given to the United States
under Paragraph 3.a. above or notice has been given to LabCorp under
Paragraph 3.b. above:
a. Unless the Event of Default is under Paragraph 2.b.
above, the Settlement Amount referenced in Paragraph 1 above (minus
any payments of principal made to date) shall become immediately due
and payable, and shall bear interest at the interest rate of 10%
annually above the published Wall Street Journal prime interest rate
(as of November 21, 1996) from the effective date of this Settlement
Agreement, in accordance with the attached Promissory Note;
b. In addition, LabCorp will pay the United States all
reasonable costs of collection and enforcement of this Agreement,
including attorneys' fees and expenses. The United States reserves
the option of referring such matters for private collection. (The
Settlement Amount plus interest described in Paragraph 4.a. above and
the costs of collection and enforcement described in this Paragraph
4.b. will be referred to as the "Default Obligations.");
5. Provided that notice has been given to the United States
under Paragraph 3.a. above or notice has been given to LabCorp under
Paragraph 3.b. above, the United States may take any of the following
actions:
a. The United States may exclude LabCorp from
participation in any federally-funded health care program until the
Default Obligations are satisfied. LabCorp agrees not to contest such
exclusion either administratively or in any state or federal court,
except based on payment in accordance with Paragraph 1 above, lack of
notice, or full satisfaction of the Default Obligations;
b. The United States may satisfy the Default Obligations
or any portion thereof by offset of any monies payable to LabCorp by
any department, agency, or agent of the United States;
c. The United States may confess judgment as set forth in
the attached Promissory Note and LabCorp agrees that it will not
contest the fact or amount of the judgment except based on payment in
accordance with Paragraph 1 above, lack of notice, or full
satisfaction of the Default Obligations.
d. In addition to the rights enumerated in Paragraphs 5.a.
through 5.c. above, in the Event of Default the United States retains
any and all other rights and claims it has or may have under law and
equity.
6. In the event of an Event of Default under Paragraph 2.b.
above (Commencement of Bankruptcy or Reorganization Proceeding):
a. The United States shall have an allowed claim in the
amount of two hundred million dollars ($200,000,000), in accordance
with the confession of judgment provision of the attached Promissory
Note, plus interest of 5% annually above the published Wall Street
Journal prime rate (as of November 21, 1996) from the effective date
of this Settlement Agreement plus other costs and fees, less any
payments of principal already made to the United States under
Paragraph 1 above, in accordance with the attached Promissory Note.
LabCorp agrees not to dispute the validity or amount of this claim
subject only to being provided with calculations in support of the
amount of the claim. LabCorp further agrees not to seek subordination
of the United States' claim;
b. LabCorp agrees not to contest or oppose any motion
filed by the United States seeking relief from or modification of the
automatic stay of 11 U.S.C. ' 362(a) nor to seek relief under 11
U.S.C. ' 105 to enjoin or restrain the United States from recovering
monies owed by LabCorp arising out of this Agreement or the attached
Promissory Note, or recovering monies through offset of monies
otherwise due to LabCorp from any federally-funded health care
program. LabCorp recognizes that this express waiver is in
consideration for the settlement of claims by the United States
described in Paragraphs M through Z above, under the terms and
conditions contained in this Settlement Agreement.
c. By expressly waiving the automatic stay provision,
LabCorp agrees not to oppose or interfere with any motion made in
federal court (including bankruptcy courts) by the United States to
exclude LabCorp from participation in the Title XVIII (Medicare) and
Title XIX (Medicaid) programs;
d. This Agreement shall be voidable at the sole option of
the United States;
e. If any terms of this Agreement are set aside for any
reason, including as a result of a preference action brought pursuant
to 11 U.S.C. ' 547, the United States, at its sole option and in its
discretion, may rescind all terms of this Agreement and seek recovery
of the full amount of claims and allegations identified herein and in
the Civil Actions or in the alternative enforce the remaining terms of
this Agreement. In the event of such rescission, all Parties reserve
all rights, claims, and defenses that are available under law and equity.
f. In addition to the rights enumerated in Paragraph 6.a.
through 6.e. above, the United States and all other Parties shall
retain all rights and claims they have or may have under law and
equity.
7. Subject only to the conditions specified in Paragraph 9
below, on full receipt of the payments described in Paragraph 1 above
by the United States and the Participating States, collectively, the
United States, on behalf of itself, its officers, agents, agencies,
and departments, will release and will be deemed to have released (i)
RBL, NHL, Allied, LabCorp as successor-in-interest to RBL and NHL and
Allied, their divisions and subsidiaries, (ii) their predecessors,
parents, successors, assigns, transferees, (iii) any of their current
or former directors, officers, and employees in such capacity, from
any civil or administrative monetary claims (including recoupment
claims) that the United States has or may have under the False Claims
Act, 31 U.S.C. ' 3729 et seq. (as amended); the Program Fraud Civil
Remedies Act, 31 U.S.C. ' 3801 et seq.; the Civil Monetary Penalties
Law, 42 U.S.C. ' 1320a-7a; the FEHBP civil sanctions provision, 5
U.S.C. ' 8902a (subject to Paragraph 12 below); any statutory
provision applicable to the federally-funded programs in this
Agreement for which the Civil Division, United States Department of
Justice, has actual and present authority to assert and compromise (or
delegate) pursuant to 28 C.F.R. Part 0, Subpart I, ' 0.45(d) (1995);
Titles XVIII and XIX of the Social Security Act, 42 U.S.C. ' 1395
et seq. and 42 U.S.C. ' 1395 et seq.; or common law, for the
allegations set forth in Paragraphs M through Z of the Preamble above
including the Civil Actions with respect to claims submitted or caused
to be submitted to the Medicare program, the Railroad Retirement
Medicare program, the CHAMPUS program, and/or the FEHBP, and to
Medicaid programs of the Participating States.
8. Subject to Paragraph 9 below, the United States releases,
under all of the terms and conditions of Paragraph 7 above and on full
receipt of the payment described in Paragraph 1 above by the United
States and the Participating States, collectively: Hoffmann-La Roche,
Inc. ("HLR"), a New Jersey corporation; HLR Holdings, Inc., a Delaware
corporation, and a direct wholly-owned subsidiary of Hoffmann-La
Roche; Roche Holdings, Inc., a Delaware corporation; F. Hoffmann-La
Roche Ltd., Roche Finance Ltd., Roche Holding AG (otherwise known as
Roche Holding Ltd.), each of which is a corporation organized and
existing under the laws of Switzerland, contingent on and subject to
HLR or its designee making a one hundred million dollar ($100,000,000)
capital investment in LabCorp which will be used to contribute to
LabCorp's recapitalization.
9. Notwithstanding any other provision in this Agreement, the
United States in this Settlement Agreement specifically does not
release RBL, NHL, Allied, LabCorp, HLR or any corporate entity
referenced in Paragraph 8 above, or any other entity or individual
under this Agreement from (a) any potential criminal liability arising
from the subject matter of this Agreement; (b) any potential criminal,
civil or administrative claims arising under Title 26 U.S. Code
(Internal Revenue Code); (c) any potential liability to the United
States (or any agencies thereof) for any conduct other than that
identified in Preamble Paragraphs M through Z above; (d) any conduct
or allegations in United States ex rel. Geoffrey Zuccolo v.
NHL/LabCorp, Civ. No. 96-67-M (Eastern District of Virginia) (filed
January 4, 1996), except that described in Preamble Paragraph U above;
(e) any claims against individuals, including current or former
directors, officers, and employees who are criminally indicted or
convicted of an offense, or who enter a criminal plea or
administrative agreement, related to the conduct alleged in Preamble
Paragraphs M through Z above; (f) any obligations created by this
Agreement; (g) any claims for defective or deficient services,
including quality of testing service claims.
10. Effective on full execution of this Agreement and provided
no Event of Default occurs, the Office of Inspector General of HHS
agrees to release and refrain from instituting, directing, or
maintaining any administrative claim or any action seeking exclusion
from the Medicare program or State health care programs (as defined in
42 U.S.C. ' 1320a-7(h)) against LabCorp as successor to RBL and NHL
and Allied, RBL and NHL, their parents, affiliates, divisions,
subsidiaries, their predecessors, successors, assigns, transferees or
any of their present or former directors, officers, employees, or
agents under 42 U.S.C. ' 1320a-7a (Civil Monetary Penalties Law);
31 U.S.C. '' 3801-3812 (Program Fraud Civil Remedies Act); or 42
U.S.C. ' 1320a-7(b) (permissive exclusion) for the conduct described
in Preamble Paragraphs M through Z above including that alleged in the
Civil Actions, except as reserved in Paragraph 9 above. The Office of
Inspector General of HHS expressly reserves all rights and statutory
obligations to exclude RBL or NHL, or any of its parents, affiliates,
divisions, subsidiaries, successors, or assigns, or any of its present
or former officers, directors, employees, from the Medicare program or
a State health care program under 42 U.S.C. ' 1320a-7(a) (mandatory
exclusion). Nothing in this Paragraph precludes the Office of
Inspector General of HHS from taking action against Allied, or from
taking action against entities or persons, or for conduct and
practices, for which civil claims have been reserved in Paragraph 9
above.
11. Effective on full execution of this Agreement and provided
no Event of Default occurs, OCHAMPUS agrees to release and refrain
from instituting, directing, or maintaining any administrative claim
or any action seeking exclusion from the CHAMPUS program against
LabCorp as successor to RBL and NHL and Allied, RBL and NHL, their
parents, affiliates, divisions, subsidiaries, their predecessors,
successors, assigns, transferees or any of their present or former
directors, officers, employees, or agents under 32 C.F.R. ' 199.9, or
31 U.S.C. '' 3801-3812 (Program Fraud and Civil Remedies Act) for the
conduct described in Preamble Paragraphs M through Z above including
that alleged in the Civil Actions, except as reserved in Paragraph 9
above. OCHAMPUS expressly reserves all rights and statutory
obligations to exclude RBL and NHL, or any of its parents, affiliates,
divisions, subsidiaries, successors, or assigns, or any of its present
or former officers, directors, employees, from the CHAMPUS program
under its mandatory exclusion authority, set forth at 32 C.F.R. ''
199.9 (f)(1)(i)(A), (f)(1)(i)(B), (f)(1)(iii). Nothing in this
Paragraph precludes OCHAMPUS from taking action against Allied, or
from taking action against any entities or persons, or for conduct and
practices, for which civil claims have been reserved in Paragraph 9
above.
12. Effective on full execution of this Agreement and provided
no Event of Default occurs, OPM agrees to release and refrain from
instituting, directing, or maintaining any administrative claim or any
action seeking exclusion from the FEHBP program against LabCorp as
successor to RBL and NHL and Allied, RBL or NHL, their parents,
affiliates, divisions, subsidiaries, their predecessors, successors,
assigns, transferees or any of their present or former directors,
officers, employees, or agents, under 5 U.S.C. ' 8902a, 5 C.F.R. Part
970 or 31 U.S.C. '' 3801-3812 (Program Fraud and Civil Remedies Act)
for the conduct described in Preamble Paragraphs M through Z above
including that alleged in the Civil Actions, except as reserved in
Paragraph 9 above and except if excluded by the Office of Inspector
General of HHS pursuant to 42 U.S.C. ' 1320a-7(a). Nothing in this
paragraph precludes OPM from taking action against Allied, or from
taking action against entities or persons, or for conduct and
practices, for which civil claims have been reserved in Paragraph 9
above.
13. LabCorp and Allied agree not to exercise any right to
contest mandatory exclusion of the San Diego Regional Laboratory of
Allied or permissive exclusion of Allied by HHS, CHAMPUS, RRB, FEHBP,
and/or the Participating States pursuant to 42 U.S.C. ' 1320a-7, 1320a-
7a (Civil Monetary Penalties Law), 1320a-7c, 1320a-7(a) (Mandatory
Exclusion), 1320a-7(b) (Permissive Exclusion), 5 U.S.C. ' 8902a
(FEHBP), 32 C.F.R. ' 199.9 (CHAMPUS), and/or other applicable statutes
and regulations; provided, however, that LabCorp shall have until
January 2, 1997, to conclude the business affairs of Allied.
14. a. Each Relator has agreed and does agree that the
settlement of his or her Civil Action against Roche or NHL (or
successors thereto), is fair, adequate and reasonable under all the
circumstances, pursuant to 31 U.S.C. ' 3730(c)(2)(B). Subject to the
exceptions in Paragraph 9 above, each Relator will release, on full
receipt of the payments described in Paragraph 1 above by the United
States and the Participating States, collectively, NHL, RBL, and/or
LabCorp (to the extent named in each respective Civil Action), their
affiliates, divisions, subsidiaries, their predecessors, successors,
assigns, transferees, and any of their current or former directors,
officers, employees, shareholders, and agents from any and all claims
that may arise under or relate to any of the allegations in the Civil
Actions, except as they relate to a statutory claim for reasonable
attorneys' fees, costs, and expenses, pursuant to 31 U.S.C. ' 3730(d).
b. The United States agrees to pay Geoffrey Zuccolo six
hundred twenty five thousand four hundred dollars ($625,400) from the
payment described in Paragraph 1 above within a reasonable time after
receipt by the United States of such payment. Geoffrey Zuccolo, for
himself, and for his heirs, successors, and assigns, will release and
will be deemed to have released and forever discharged the United
States from any claims pursuant to 31 U.S.C. ' 3730(d)(1) for a share
of the proceeds of the Civil Actions, from any claims arising from the
filing of his Civil Action, and in full settlement of claims under
this Agreement. This Agreement does not resolve or in any manner
affect any claims the United States has or may have against the
Relator Geoffrey Zuccolo arising under Title 26, U.S. Code (Internal
Revenue Code), or any claims arising under this Agreement.
c. The United States agrees to pay Mary J. Downy three
hundred eighty eight thousand nine hundred sixty four dollars
($388,965) from the payment described in Paragraph 1 above within a
reasonable time after receipt by the United States of such payment.
Mary J. Downy, for herself, and for her heirs, successors, and
assigns, will release and will be deemed to have released and forever
discharged the United States from any claims pursuant to 31 U.S.C. '
3730(d)(1) for a share of the proceeds of the Civil Actions, from any
claims arising from the filing of her Civil Action, and in full
settlement of claims under this Agreement. This Agreement does not
resolve or in any manner affect any claims the United States has or
may have against the Relator Mary J. Downy arising under Title 26,
U.S. Code (Internal Revenue Code), or any claims arising under this
Agreement.
15. RBL, NHL, and LabCorp as successor-in-interest to RBL and
NHL hereby agree that they will waive and will not assert any defense,
which may be based in whole or in part on the Double Jeopardy Clause
of the Constitution as set forth in the holding or principles in
United States v. Halper, 490 U.S. 435 (1989), in any criminal
prosecution based on the conduct alleged in Preamble Paragraphs M
through Z above, and they agree that the amounts paid under this
Agreement are not punitive in nature or effect for purposes of such
criminal prosecution. Nothing in this Agreement constitutes an
agreement by the United States concerning the characterization of the
amounts paid hereunder for purposes of any proceeding under Title 26
of the Internal Revenue Code.
16. With respect to the Civil Actions:
a. After this Agreement is executed, the United States
will notify the Court in the Southern District of New York that the
Parties have stipulated that the claims of the United States and
Relator in the Civil Action pending there shall be dismissed with
prejudice effective on full receipt of the payments described in
Paragraph 1 above by the United States and the Participating States,
collectively, pursuant to and consistent with the terms of this
Agreement and the attached Promissory Note.
b. After this Agreement is executed, the United States
will notify the Court in the District of New Mexico that the Parties
have stipulated that the claims of the United States and Relator in
the Civil Action pending there shall be dismissed with prejudice as to
NHL effective on full receipt of the payments described in Paragraph 1
above by the United States and the Participating States, collectively,
pursuant to and consistent with the terms of this Agreement and the
attached Promissory Note.
c. After this Agreement is executed, the United States
will notify the Court in the Eastern District of Virginia that all
Parties have stipulated that the claims of the United States and
Relator in the Civil Action pending there, to the extent alleged in
Paragraph U above only, shall be dismissed with prejudice effective on
full receipt of the payments described in Paragraph 1 above by the
United States and the Participating States, collectively, pursuant to
and consistent with the terms of this Agreement and the attached
Promissory Note. Any claims of the Relator in that Civil Action to
the extent not alleged in Paragraph U above will not be released by
the United States or subject to such stipulated dismissal.
d. After this Agreement is executed, the United States
will notify the Court in the Middle District of North Carolina that
the Parties have stipulated that the claims of the United States and
Relator in the Civil Action pending there shall be dismissed with
prejudice effective on full receipt of the payments described in
Paragraph 1 above by the United States and the Participating States,
collectively, pursuant to and consistent with the terms of this
Agreement and the attached Promissory Note.
e. In addition to Paragraphs 16.a. through 16.d. above,
the United States and the Relator, Dr. Andrew A. Hendricks, will file
a stipulation for a transfer under 28 U.S.C. ' 1404 of his Civil
Action from the Southern District of New York to the Middle District
of North Carolina. That stipulation, and the notification to the
United States District Court for the Middle District of North Carolina
referenced in sub-Paragraph 16.d. above, will request that the United
States District Court for the Middle District of North Carolina
specifically retain jurisdiction with respect to any unresolved issues
in those two Civil Actions, including reasonable attorneys' fees,
costs, expenses, and Relators' shares, if any, of the settlement
proceeds.
f. Within seven business days of the effective date of
this Settlement Agreement, with respect to the Civil Action now
pending in the Middle District of North Carolina and the Civil Action
to be transferred there under Paragraph 16.e. above, the Department of
Justice shall propose to the Court a procedure to resolve in the
Middle District of North Carolina on an expedited basis the issues of
entitlements, if any, to reasonable attorneys' fees, costs, and
expenses, and Relators' shares, if any, of the settlement proceeds.
g. RBL, NHL, Allied and LabCorp agree that the time period
between the effective date of this Agreement and March 31, 1997, shall
not count in the calculation of any defense based on statutes of
limitation, laches, or any other time-based defenses to the Civil
Actions or the allegations described in Paragraphs M through Z above,
pending the full satisfaction of the attached Promissory Note.
17. The payments from LabCorp to the United States and the
Participating States, collectively, under Paragraph 1 above shall not
be offset by any claims for payment now being withheld from payment by
any Medicare carrier or intermediary, by any CHAMPUS or FEHBP carrier
or payor, or by any state payor, related to the tests or conduct
referred to in Paragraphs E through Z above; and RBL, NHL, Allied and
LabCorp agree not to resubmit any claims to a Medicare carrier or
intermediary, or by any CHAMPUS or FEHBP carrier or payor, or by any
state payor, that have been denied for tests billed between January 1,
1989, and November 21, 1996, and agree not to appeal such denials of
claims, where such denial resulted from the practices described in
Preamble Paragraphs M through Z above. Allied will withdraw its
appeal regarding billing for iron tests to the Medicare carrier in
Utah, and the United States will seek no further offset against Allied
for iron tests based on the conduct described in Preamble Paragraph V
above through the effective date of this Agreement.
18. For government contracting purposes and for Medicare,
Railroad Retirement Medicare, FEHBP, CHAMPUS, and state Medicaid
purposes, RBL, NHL, Allied, and LabCorp agree to treat as unallowable
all costs (as defined in the Federal Acquisition Regulations ("FAR")
'31.205.47(a)) incurred by or on behalf of these corporate entities
and/or its current or former officers, directors, agents, employees,
shareholders, parents, subsidiaries, divisions, predecessors and
successors in connection with (a) the matters covered by this
Agreement; (b) the Government's audit and investigation of the matters
covered by this Agreement; (c) these corporate entities'
investigation, defense, and corrective actions; (d) the negotiation
and performance of this Agreement; and (e) the payments made to the
United States provided for in this Agreement. These amounts shall be
separately estimated and accounted for by these corporate entities,
and they will not charge such costs directly or indirectly to any
contracts with the United States, or to any cost report submitted to
the Medicare, Railroad Retirement Medicare, FEHBP, CHAMPUS, or state
Medicaid programs.
19. The Parties agree that this Agreement does not constitute an
admission by any person or entity with respect to any issue of law or
fact.
20. This Agreement shall be binding only on the Parties, their
successors, assigns, and heirs.
21. The undersigned RBL, NHL, Allied, and LabCorp signatories
represent and warrant that they are signing this Agreement in their
official capacities and are fully empowered and authorized by their
Board of Directors to execute this Agreement. The undersigned United
States signatories represent that they are signing this Agreement in
their official capacities and that they are fully empowered and
authorized to do so.
22. This agreement is subject to the acceptance by the United
States District Court for the Middle District of North Carolina of the
guilty plea and sentence set forth in the plea agreement between the
United States and Allied Clinical Laboratories, San Diego Regional
Laboratory, referenced in Preamble Paragraph B above.
23. This Agreement shall become final and binding only on
signing by each respective party hereto.
24. This Agreement may not be changed, altered or modified,
except in writing signed by the United States, LabCorp and, if
applicable, the Party against whom the change, alteration, or
modification is asserted.
25. Any communication required under this Agreement must be in
writing and must be given personally, by FedEx, by facsimile, or by
registered or certified mail, postage prepaid, as follows:
To LabCorp, RBL, Allied, and NHL:
Bradford T. Smith, Esq.
General Counsel
Laboratory Corporation of America Holdings
358 South Main Street
Burlington, North Carolina 27215
Telephone: (800) 222-7566
FAX: (910) 226-3835
To the United States:
Michael F. Hertz, Esq.
Director
Commercial Litigation Branch
Civil Division
United States Department of Justice
950 Pennsylvania Ave., N.W.
Washington, D.C. 20530-0001
Telephone: (202) 514-7179
FAX: (202) 616-3085
at the above addresses, or as otherwise designated by notice. Notice
by personal delivery (messenger or otherwise) shall be effective upon
actual receipt. Notices by mail will be effective three (3) calendar
days after mailing. Notices by facsimile or FedEx will be effective
upon electronic verification of successful receipt or confirmation of
delivery by FedEx, respectively.
26. This Agreement shall be governed by the laws of the United
States. The parties agree that the exclusive jurisdiction and venue
for any dispute arising under this Agreement shall be the United
States District Court for the Middle District of North Carolina.
27. This Agreement may be executed in counterparts, each of
which shall constitute an original and all of which shall constitute
one and the same Agreement.
28. This Agreement is effective on the date signed by the last
signatory.
<PAGE>
<PAGE>
UNITED STATES OF AMERICA
By: /s/ LAURENCE J FREEDMAN Dated: November 21, 1996
--------------------------- -----------------
LAURENCE J. FREEDMAN
Civil Division
United States Department of Justice
By: /s/ CAROL C. LAM Dated: November 20, 1996
--------------------------- -----------------
CAROL C. LAM
Assistant United States Attorney
Southern District of California
By: /s/ WALTER C. HOLTON Dated: November 21, 1996
---------------------------- -----------------
WALTER C. HOLTON, JR.
United States Attorney
Middle District of North Carolina
By: /s/ DAVID A. KOENIGSBERG Dated: November 20, 1996
---------------------------- -----------------
DAVID A. KOENIGSBERG
Assistant United States Attorney
Southern District of New York
By: /s/ LARRY B. SELKOWITZ Dated: November 21, 1996
---------------------------- -----------------
LARRY B. SELKOWITZ
Assistant United States Attorney
Middle District of Pennsylvania
By: /s/ EDWIN WINSTEAD Dated: November 20, 1996
---------------------------- -----------------
EDWIN WINSTEAD
Assistant United States Attorney
District of New Mexico
By: /s/ PAULA NEWETT Dated: November 20, 1996
---------------------------- -----------------
PAULA NEWETT
Assistant United States Attorney
Eastern District of Virginia
By: /s/ LEWIS MORRIS Dated: November 20, 1996
---------------------------- -----------------
LEWIS MORRIS
Assistant Inspector General
Office of the Inspector General
U.S. Department of Health and Human Services
By: /s/ DARA A. CORRIGAN Dated: November 20, 1996
---------------------------- -----------------
DARA A. CORRIGAN
Assistant United States Attorney
District of Columbia
On Behalf of the Office of Personnel Management
Office of Inspector General
By: /s/ ROBERT D. SEAMAN Dated: November 20, 1996
---------------------------- -----------------
ROBERT D. SEAMAN
General Counsel
Office of CHAMPUS
<PAGE>
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS,
LABORATORY CORPORATION OF AMERICA, ROCHE BIOMEDICAL
LABORATORIES, INC., NATIONAL HEALTH LABORATORIES, INC.,
AND ALLIED CLINICAL LABORATORIES, INC.
By: /s/ JAMES B. POWELL, M.D. Dated: November 21, 1996
------------------------- -----------------
JAMES B. POWELL, M.D.
President and Chief Executive Officer
By: /s/ BRADFORD T. SMITH Dated: November 21, 1996
------------------------ -----------------
BRADFORD T. SMITH, ESQ.
General Counsel
By: /s/ DAVID P. KING, ESQ Dated: November 21, 1996
------------------------- -----------------
DAVID P. KING, ESQ.
Hogan & Hartson L.L.P.
Counsel to Roche Biomedical Laboratories, Inc. and
Laboratory Corporation of America Holdings
By: /s/ IRA H. RAPHAELSON Dated: November 20, 1996
------------------------- -----------------
IRA H. RAPHAELSON, ESQ.
O'Melveny & Myers
Counsel to Allied Clinical Laboratories, Inc. and
Laboratory Corporation of America Holdings
By: /s/ HELEN TRILLING, ESQ. Dated: November 21, 1996
------------------------- -----------------
HELEN TRILLING, ESQ.
Hogan & Hartson L.L.P.
Counsel to National Health Laboratories, Inc. and
Laboratory Corporation of America Holdings
<PAGE>
<PAGE>
RELATORS
By: /s/ ANDREW A. HENDRICKS, M.D. Dated: November 20, 1996
----------------------------- -----------------
ANDREW A. HENDRICKS, M.D.
By: /s/ NEIL GETNICK, ESQ. Dated: November 20, 1996
------------------------- -----------------
NEIL GETNICK, ESQ.
Getnick & Getnick
Counsel to Andrew A. Hendricks, M.D.
By: /s/ WILLIAM ST. JOHN LACORTE, M.D. Dated November 20, 1996
---------------------------------- -----------------
WILLIAM ST. JOHN LaCORTE, M.D.
By: /s/ NORMAND PIZZA, ESQ. Dated: November 20, 1996
------------------------- -----------------
NORMAND PIZZA, ESQ.
Brook, Pizza & Van Loon, L.L.P.
Counsel to William St. John LaCorte, M.D.
By: /s/ GEOFFREY L. ZUCCOLO Dated: November 20, 1996
------------------------- -----------------
GEOFFREY L. ZUCCOLO
By: /s/ CANDACE MCCALL Dated: November 20, 1996
------------------------- -----------------
CANDACE McCALL, ESQ.
QUENTIN R. CORRIE, ESQ.
Counsel to Geoffrey Zuccolo
By: /s/ MARY J. DOWNY Dated: November 20, 1996
------------------------- -----------------
MARY J. DOWNY
By: /s/ JAMES A. BRANCH, JR, ESQ. Dated: November 20, 1996
----------------------------- -----------------
JAMES A. BRANCH, JR., ESQ.
Counsel to Mary J. Downy
<PAGE>
<PAGE>
------------------------------------------------------------------
FIFTH WAIVER TO CREDIT AGREEMENT
Dated as of January 27, 1997
Among
LABORATORY CORPORATION OF AMERICA HOLDINGS,
as borrower,
------------
THE BANKS NAMED HEREIN,
as Banks, and
--------
CREDIT SUISSE (NEW YORK BRANCH),
as Administrative Agent
-----------------------
-------------------------------------------------------------------
<PAGE>
<PAGE>
FIFTH WAIVER TO CREDIT AGREEMENT
FIFTH WAIVER TO CREDIT AGREEMENT, dated as of January 27, 1997
(this "Waiver") among LABORATORY CORPORATION OF AMERICA HOLDINGS
(formerly known as NATIONAL HEALTH LABORATORIES HOLDINGS INC.), a
Delaware corporation (the "Borrower"), the banks, financial
institutions and other institutional lenders (the "Banks") listed on
the signature pages hereof, and CREDIT SUISSE (NEW YORK BRANCH), as
administrative agent (the "Administrative Agent") for the Lenders
hereunder .
PRELIMINARY STATEMENTS
The parties hereto have entered into a Credit Agreement dated
as of April 28, 1995 (as amended, the "Credit Agreement") providing
for, among other things, the Lenders to lend to the Borrower up to
$1,250,000,000 on the terms and subject to the conditions set forth
therein. The Borrower has requested that the Banks waive certain
provisions of the Credit Agreement as set forth herein. Each
capitalized term used but not defined herein shall have the meaning
ascribed thereto in the Credit Agreement .
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein, the parties hereto
hereby agree as follows:
ARTICLE I
WAIVERS
SECTION 1. 01. Extension of Third Waiver The undersigned
Required Lenders hereby agree that the Third Waiver to Credit
Agreement dated as of November 4, 1996 by the Required Lenders in
favor of the Borrower (the "Third Waiver"), as extended by the Fifth
Amendment and Fourth Waiver to Credit Agreement dated as of December
23, 1996, shall remain in effect through March 31, 1997
notwithstanding the settlement with the Office of Inspector General of
the U.S. Department of Health and Human Services referred to in
Section 1.02 of the Third Waiver.
SECTION 1.02. Financial Models. The undersigned Required
Lenders hereby waive compliance by the Borrower with the covenant set
forth in Section 5.01(1) (v) of the credit Agreement; provided that
such covenant is complied with no later than March 31, 1997.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.01. Representations and Warranties of the Borrower.
The Borrower represents and warrants as follows :
(a) The Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware.
(b) The execution, delivery and performance by the Borrower of
this Waiver are within its corporate powers, have been duly
authorized by all necessary corporate action, and do not
contravene the Borrower's charter or by-laws.
(c) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory
body is required for the due execution, delivery and performance
by the Borrower of this Waiver.
(d) This Waiver has been duly executed and delivered by the
Borrower. This Waiver is the legal, valid and binding obligation
of the Borrower, enforceable against the Borrower, in accordance
with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the
enforceability of creditors' rights generally and by general
principles of equity.
(e) The representations and warranties contained in Section
4.01 of the Credit Agreement are correct in all material respects
on and as of the date hereof, as though made on and as of the date
hereof.
(f) No event has occurred and is continuing which constitutes
a Default.
ARTICLE III
MISCELLANEOUS
SECTION 3.01. Governing Law. This Waiver shall be governed by, and
construed in accordance with, the laws of the State of New York,
without regard to the conflicts of law principles thereof.
SECTION 3.02. Execution in counterparts. This Waiver may be
executed in any number of counterparts and by any combination of
the parties hereto in separate counterparts, each of which
counterparts shall be an original and all of which taken together
shall constitute one and the same instrument. Delivery of an
executed counterpart of a signature page to this Waiver by
facsimile shall be effective as delivery of a manually executed
counterpart of this Waiver.
SECTION 3.03. Effect on the Credit Agreement. Except as
expressly modified hereby, all of the terms and conditions of the
Credit Agreement shall remain unaltered and in full force and
effect. This Waiver shall become effective as of the date first
above written when counterparts hereof shall have been executed by
the Required Lenders. This Waiver is subject to the provisions of
Section 8.01 of the Credit Agreement.
Each of the undersigned has caused this Waiver to be executed by
its respective officer or officers thereunto duly authorized, as of
the date first written above.
BORROWER: LABORATORY CORPORATION OF AMERICA HOLDINGS
By:/s/ WESLEY R. ELINGBURG
--------------------------------
Name: Wesley R. Elingburg
Title: Executive Vice President
<PAGE>
<PAGE>
ADMINISTRATIVE
AGENT: CREDIT SUISSE FIRST BOSTON,
as Administrative Agent
By:/s/ KARL STUDER
------------------------
Name: Karl Studer
Title: Director
and
By:/s/ HEATHER RIEKENBERG
------------------------
Name: Heather Riekenberg
Title: Vice President
<PAGE>
<PAGE>
LENDERS: CREDIT SUISSE FIRST BOSTON
By:/s/ KARL STUDER
---------------------
Name: Karl Studer
Title: Director
and
By:/s/ RICHARD CAREY
---------------------
Name: Richard Carey
Title: Director
<PAGE>
<PAGE>
BANK OF AMERICA ILLINOIS
By:/s/ WENDY L. LORING
----------------------
Name: Wendy L. Loring
Title: Vice President
<PAGE>
<PAGE>
BANQUE NATIONALE DE PARIS
By:/s/ RICHARD L. STED
----------------------------
Name: Richard L. Sted
Title: Senior Vice President
<PAGE>
<PAGE>
BAYERISCHE LANDESBANK GROZENTRALE
By:/s/ WILFRIED FREUDENBERGER
-------------------------------
Name: Wilfried Freudenberger
Title: Executive Vice President
and General Manager
and
By:/s/ PETER OBERMANN
--------------------------------
Name: Peter Obermann
Title: Senior Vice President
Manager Lending Division
<PAGE>
<PAGE>
THE CHASE MANHATTAN BANK
By:/s/SCOTT S. WARD
------------------------------
Name: Scott S. Ward
Title: Vice President
<PAGE>
<PAGE>
CREDIT LYONNAIS CAYMAN ISLAND BRANCH
By:/s/FARBOUD TAVANGAR
----------------------------
Name: Farboud Tavangar
Title: Authorized Signature
<PAGE>
<PAGE>
DEUTSCHE BANK AG NEW YORK BRANCH
and/or CAYMAN ISLANDS BRANCH
By:/s/ WOLF A. KLUGE
-------------------------------
Name: Wolf A. Kluge
Title: Vice President
and
By:/s/ JAN PETER HARTMANN
-------------------------------
Name: Jan Peter Hartmann
Title: Assistant Vice President
<PAGE>
<PAGE>
FIRST UNION NATIONAL BANK
By:/s/JOSEPH H. TOWELL
----------------------------
Name: Joseph H. Towell:
Title: Senior Vice President
<PAGE>
<PAGE>
THE FUJI BANK, LTD. (NEW YORK BRANCH)
By:/s/MASANOBU KOBAYASHI
---------------------------------
Name: Masanobu Kobayashi
Title: Vice President and Manager
<PAGE>
<PAGE>
NATIONSBANK, N.A.
By:
-------------------------
Name :
Title :
<PAGE>
<PAGE>
SOCIETE GENERALE
By:/s/ GEORG L. PETERS
-------------------------
Name: Georg L. Peters
Title: Vice President
<PAGE>
<PAGE>
SUMITOMO BANK
By:/s/ YOSHINORI KAWAMURA
--------------------------
Name: Yoshinori Kawamura
Title: Joint General Manager
<PAGE>
<PAGE>
SWISS BANK CORPORATION
By:/s/ HANNO HUBER
------------------------------------
Name: Hanno Huber
Title: Associate Director
Corporate Clients Switzerland
and
By:/s/ GUIDO W. SCHULER
------------------------------------
Name: Guido W. Schuler
Title: Executive Director
Corporate Clients Switzerland
<PAGE>
<PAGE>
WACHOVIA BANK OF GEORGIA, N.A.
By:/s/ J. CALVIN RATCLIFF JR.
---------------------------------
Name: J. Calvin Ratcliff Jr.
Title: Vice President
<PAGE>
<PAGE>
WESTDEUTSCHE LANDESBANK
By:/s/ DONALD F. WOLF
--------------------------
Name: Donald F. Wolf
Title: Vice President
and
By:/s/ CATHERINE RUHLAND
--------------------------
Name: Catherine Ruhland
Title: Vice President
<PAGE>
<PAGE>
COMMERZBANK AKTIENGESELLSCHAFT,
Atlanta Agency
By:/s/ A. BREMER
----------------------------
Name: A. Bremer
Title: Senior Vice President
and
By:/s/ E. KAGERER
---------------------------
Name: E. Kagerer
Title: Vice President
<PAGE>
<PAGE>
--------------------------------------------------
SIXTH AMENDMENT AND WAIVER TO
CREDIT AGREEMENT
Dated as of March 31, 1997
Among
LABORATORY CORPORATION OF AMERICA HOLDINGS,
as Borrower,
------------
THE BANKS NAMED HEREIN,
as Banks, and
--------
CREDIT SUISSE FIRST BOSTON,
as Administrative Agent
-----------------------
--------------------------------------------------
<PAGE>
<PAGE>
SIXTH AMENDMENT AND WAIVER TO CREDIT AGREEMENT
SIXTH AMENDMENT AND WAIVER TO CREDIT AGREEMENT,
dated as of March 31, 1997 (this "Amendment") among
LABORATORY CORPORATION OF AMERICA HOLDINGS (formerly known
as NATIONAL HEALTH LABORATORIES HOLDINGS INC.), a Delaware
corporation (the "Borrower"), the banks, financial
institutions and other institutional lenders (the "Banks")
listed on the signature pages hereof, and CREDIT SUISSE
FIRST BOSTON (formerly known as CREDIT SUISSE (NEW YORK
BRANCH)), as administrative agent (the "Administrative
Agent") for the Lenders hereunder.
PRELIMINARY STATEMENTS
The parties hereto (i) have entered into a Credit
Agreement dated as of April 28, 1995 (as amended, the
"Credit Agreement") providing for, among other things, the
Lenders to lend to the Borrower up to $1,250,000,000 on the
terms and subject to the conditions set forth therein and
(ii) desire to amend the Credit Agreement in the manner set
forth herein. Each capitalized term used but not defined
herein shall have the meaning ascribed thereto in the Credit
Agreement.
NOW, THEREFORE, in consideration of the premises
and the mutual covenants and agreements contained herein,
the parties hereto hereby agree as follows:
ARTICLE I
AMENDMENTS
SECTION 1.01. Amendment of Definitions. Section
1.01 of the Credit Agreement is hereby amended as follows:
(a) by (i) deleting the words set forth below in
italic type with strikeover lines and (ii) adding the words
set forth below in bold-face type with underscoring, to read
in its entirety as follows:
"'Roche Debt' means the unsecured Debt of the
Borrower issued in favor of Roche in an aggregate principal
amount not to exceed $187 million, such Debt to (i) rank
pari passu in right of payment with the Obligations of the
Borrower under the Loan Documents, (ii) bear interest at a
rate per annum equal to 6.625% and (iii) be due and payable
on March 31, 1998."
SECTION 1.02. Amendment of Amortization Schedule.
Section 2.03(a) of the Credit Agreement is hereby amended by
(i) deleting the numbers set forth below in italic type with
strikeover lines and (ii) adding the numbers set forth below
in bold-face type with underscoring, to read in its entirety
as follows:
(a) Term Advances. The Borrower shall repay to
the Administrative Agent for the ratable account of the
Lenders having Term Advances the outstanding principal
amount of the Term Advances on the following dates in the
amounts indicated; provided that the last such installment
shall be in an amount sufficient to repay all amounts owed
by the Borrower under the Term Advances:
Date Amount
---- ------
October 31, 1995 $16,666,000
January 31, 1996 16,667,000
April 30, 1996 16,667,000
July 31, 1996 18,750,000
October 31, 1996 18,750,000
January 31, 1997 18,750,000
February 19, 1998 131,250,000
April 30, 1998 37,500,000
July 31, 1998 37,500,000
October 31, 1998 37,500,000
January 31, 1999 37,500,000
April 30, 1999 37,500,000
July 31, 1999 43,750,000
October 31, 1999 43,750,000
January 31, 2000 43,750,000
April 30, 2000 43,750,000
July 31, 2000 50,000,000
October 31, 2000 50,000,000
January 31, 2001 50,000,000
April 30, 2001 50,000,000
----------
Total $800,000,000
============
SECTION 1.03. Amendment of Affirmative Covenants.
Section 5.01 of the Credit Agreement is hereby amended as
follows:
(a) Leverage Ratio. Section 5.01(i) of the
Credit Agreement is hereby amended by (i) deleting the
numbers set forth below in italic type with strikeover lines
and (ii) adding the numbers set forth below in bold-face
type with underscoring, to read in its entirety as follows:
(i) Leverage Ratio. Maintain at the end of each
four fiscal quarter period specified below a Leverage Ratio
of not more than the ratio set forth below:
Four Fiscal
Quarters Ending in Ratio
------------------ -----
September 1996 6.50:1.0
December 1996 6.50:1.0
March 1997 6.50:1.0
June 1997 6.00:1.0
September 1997 5.25:1.0
December 1997 5.25:1.0
March 1998 3.25:1.0
June 1998 3.25:1.0
September 1998 3.25:1.0
December 1998 3.00:1.0
March 1999 3.00:1.0
June 1999 3.00:1.0
September 1999 3.00:1.0
December 1999 2.50:1.0
March 2000 2.50:1.0
June 2000 2.50:1.0
September 2000 2.50:1.0
December 2000 2.50:1.0
March 2001 2.50:1.0
(b) Interest Coverage Ratio. Section 5.01(j of
the Credit Agreement is hereby amended by (i) deleting the
numbers set forth below in italic type with strikeover lines
and (ii) adding the numbers set forth below in bold-face
type with underscoring, to read in its entirety as follows:
(j) Interest Coverage Ratio. Maintain at the end
of each four fiscal quarter period specified below an
Interest Coverage Ratio of not less than the ratio set forth
below:
Four Fiscal
Quarters Ending in Ratio
------------------ -----
September 1996 2.50:1.0
December 1996 2.50:1.0
March 1997 2.25:1.0
June 1997 2.25:1.0
September 1997 2.50:1.0
December 1997 2.50:1.0
March 1998 4.40:1.0
June 1998 4.60:1.0
September 1998 4.60:1.0
December 1998 5.00:1.0
March 1999 5.00:1.0
June 1999 5.40:1.0
September 1999 5.40:1.0
December 1999 5.90:1.0
March 2000 5.90:1.0
June 2000 6.00:1.0
September 2000 6.00:1.0
December 2000 6.50:1.0
March 2001 7.00:1.0
ARTICLE II
WAIVERS
SECTION 2.01. Roche Debt. The undersigned
Required Lenders hereby agree as follows:
(a) the Roche Debt shall be excluded from the
calculation of the Borrower's Consolidated Debt for the
Borrower's four fiscal quarter periods ending March 31,
1997, June 30, 1997, September 30, 1997 and December 31,
1997 for the purpose of determining the Borrower's
compliance with the covenant set forth in Section 5.01(i) of
the Credit Agreement [Leverage Ratio].
(b) the Roche Debt shall be excluded from the
calculation of the Interest Coverage Ratio for the
Borrower's four fiscal quarter periods ending March 31,
1997, June 30, 1997, September 30, 1997 and December 31,
1997 for the purpose of determining compliance with the
covenant set forth in Section 5.01(j) of the Credit
Agreement [Interest Coverage Ratio].
ARTICLE III
CONDITIONS PRECEDENT; OBLIGATION SUBSEQUENT
SECTION 3.01. Conditions Precedent. The
effectiveness of the amendment of the Existing Credit
Agreement as provided for hereby is subject to the following
conditions precedent:
(a) The Administrative Agent shall have received
(in a quantity sufficient for all Lenders) evidence that the
maturity of the Roche Debt has been extended to March 31,
1998.
(b) There shall have occurred no Material Adverse
Change since December 31, 1996 relating to the Borrower.
(c) The Borrower shall have paid all accrued fees
and expenses of the Administrative Agent and the Lenders
(including the reasonable fees and expenses of special
counsel to the Administrative Agent), including, but not
limited to the amendment fee payable to the Administrative
Agent for distribution to the Lenders in proportion to their
Revolving Credit Commitments (without giving effect to any
Competitive Bid Reduction) plus their respective Committed
Advances, equal to 0.375% times (A) the total Revolving
Credit Commitments in effect on the Amendment Effective
Date, plus (B) the total Term Advances outstanding on the
Amendment Effective Date.
(d) The Administrative Agent shall have received
the following, each dated as of the date hereof (unless
otherwise specified), in form and substance satisfactory to
the Administrative Agent (unless otherwise specified) and in
sufficient copies for each Lender and the Administrative
Agent:
(i) certified copies of the resolutions of
the board of directors of the Borrower approving this
Amendment;
(ii) a certificate of the Secretary or an
Assistant Secretary of the Borrower certifying the names and
true signatures of the officers of such Person authorized to
sign this Amendment; and
(iii) a certificate of the Borrower
signed on behalf of the Borrower by its President or a Vice
President and its Secretary or any Assistant Secretary,
dated as of the date hereof, certifying as to the truth in
all material respects of the representations and warranties
made by the Borrower herein.
(e) The Administration Agent shall have received
(in a quantity sufficient for all Lenders) (i) a copy of the
final settlement with the Office of the Inspector General of
the U.S. Department of Health, and (ii) evidence that all
amounts payable pursuant to such settlement have been
irrevocably paid in full.
(f) The representations and warranties contained
in Section 4.01 of the Credit Agreement shall be true and
correct in all material respects on and as of the date
hereof.
(g) The Amended and Restated Credit Agreement
dated as of the date hereof among the Borrower, the Banks
and the Administrative Agent in the form attached hereto as
Exhibit A (the "Amended and Restated Credit Agreement")
shall have been executed and delivered by each of the
parties thereto.
SECTION 3.02 Obligation Subsequent. If the
conditions precedent to effectiveness of the Amended and
Restated Credit Agreement have not been satisfied on or
before June 30, 1997, the Borrower shall pay an additional
fee to the Administrative Agent for distribution to the
Lenders in proportion to their Revolving Credit Commitments
(without giving effect to any Competitive Bid Reduction)
plus their respective Committed Advances, equal to 0.625%
times (A) the total Revolving Credit Commitments in effect
on the Amendment Effective Date, plus (B) the total
Committed Advances outstanding on the Amendment Effective
Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of
the Borrower. The Borrower represents and warrants as
follows:
(a) The Borrower is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Delaware.
(b) The execution, delivery and performance by
the Borrower of this Amendment are within its corporate
powers, have been duly authorized by all necessary corporate
action, and do not contravene the Borrower's charter or by-
laws.
(c) No authorization or approval or other action
by, and no notice to or filing with, any governmental
authority or regulatory body is required for the due
execution, delivery and performance by the Borrower of this
Amendment.
(d) This Amendment has been duly executed and
delivered by the Borrower. This Amendment is the legal,
valid and binding obligation of the Borrower, enforceable
against the Borrower, in accordance with its terms, subject
to applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforceability of
creditors' rights generally and by general principles of
equity.
(e) The representations and warranties contained
in Section 4.01 of the Credit Agreement are correct in all
material respects on and as of the date hereof, as though
made on and as of the date hereof.
(f) No event has occurred and is continuing which
constitutes a Default.
ARTICLE V
MISCELLANEOUS
SECTION 5.01. Governing Law. This Amendment
shall be governed by, and construed in accordance with, the
laws of the State of New York, without regard to the
conflicts of law principles thereof.
SECTION 5.02. Execution in Counterparts. This
Amendment may be executed in any number of counterparts and
by any combination of the parties hereto in separate
counterparts, each of which counterparts shall be an
original and all of which taken together shall constitute
one and the same instrument. Delivery of an executed
counterpart of a signature page to this Amendment by
facsimile shall be effective as delivery of a manually
executed counterpart of this Amendment.
SECTION 5.03. Effect on the Credit Agreement.
Upon execution and delivery of this Amendment, each
reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein", or words of like import
shall mean and be a reference to the Credit Agreement, as
amended hereby and each reference to the Credit Agreement in
any Loan Document (as defined in the Credit Agreement) shall
mean and be a reference to the Credit Agreement, as amended
hereby. Except as expressly modified hereby, all of the
terms and conditions of the Credit Agreement shall remain
unaltered and in full force and effect. This Amendment is
subject to the provisions of Section 8.01 of the Credit
Agreement.
Each of the undersigned has caused this Amendment
to be executed by its respective officer or officers
thereunto duly authorized, as of the date first written
above.
BORROWER: LABORATORY CORPORATION OF AMERICA
HOLDINGS
By: /s/ WESLEY R. ELINGBURG
-------------------------------
Name: Wesley R. Elingburg
Title: Executive Vice President
Chief Financial Officer and
Treasurer
ADMINISTRATIVE CREDIT SUISSE FIRST BOSTON,
AGENT: as Administrative Agent
By: /s/ KARL STUDER
-------------------------------
Name: Karl Studer
Title: Director
By: /s/ HEATHER RIEKENBERG
-------------------------------
Name: Heather Riekenberg
Title: Vice President
<PAGE>
<PAGE>
CREDIT SUISSE FIRST BOSTON
By /s/ KARL STUDER
-------------------------------
Name: Karl Studer
Title: Director
By /s/MARTIN P. LASANCE
-------------------------------
Name: Martin P. Lasance
Title: Associate
<PAGE>
<PAGE>
BANK OF AMERICA ILLINOIS
By: /s/ WENDY L. LORING
-------------------------------
Name: Wendy L. Loring
Title: Vice President
<PAGE>
<PAGE>
BANQUE NATIONALE DE PARIS
By: /s/ RICHARD L. STED
-------------------------------
Name: Richard L. Sted
Title: Senior Vice President
By: /s/ BONNIE G. EISENSTAT
-------------------------------
Name: Bonnie G. Eisenstat
Title: Vice President
Corporate Banking Division
<PAGE>
<PAGE>
BAYERISCHE LANDESBANK GIROZENTRALE
By: /s/ PETER OBERMANN
-------------------------------
Name: Peter Obermann
Title: Senior Vice President
Manager Lending Division
By: /s/ MARTHA ASMA
-------------------------------
Name: Martha Asma
Title: Vice President
<PAGE>
<PAGE>
THE CHASE MANHATTAN BANK
By: /s/ SCOTT S. WARD
-------------------------------
Name: Scott S. Ward
Title: Vice President
<PAGE>
<PAGE>
CREDIT LYONNAIS (NEW YORK BRANCH)
By: /s/ JOHN OBERLE
-------------------------------
Name: John Oberle
Title: Vice President
<PAGE>
<PAGE>
DEUTSCHE BANK AG NEW YORK BRANCH
and/or CAYMAN ISLANDS BRANCH
By: /s/ WOLF A. KLUGE
-------------------------------
Name: Wolf A. Kluge
Title: Vice President
By: /s/ SHERINE FANOUS
-------------------------------
Name: Sherine Fanous
Title: Assistant Vice President
<PAGE>
<PAGE>
FIRST UNION NATIONAL BANK
By: /s/ JOSEPH H. TOWELL
-------------------------------
Name: Joseph H. Towell
Title: Senior Vice President
<PAGE>
<PAGE>
THE FUJI BANK, LTD. (NEW YORK BRANCH)
By: /s/ TOSHIAKI YAKURA
-------------------------------
Name: Toshiaki Yakura
Title: Senior Vice President
<PAGE>
<PAGE>
NATIONSBANK, N.A.
By: /s/ MICHAEL A. CRABB, III
-------------------------------
Name: Michael A. Crabb, III
Title: Vice President
<PAGE>
<PAGE>
SOCIETE GENERALE
By: /s/ GEORG L. PETERS
-------------------------------
Name: Georg L. Peters
Title: Vice President
<PAGE>
<PAGE>
SUMITOMO BANK
By: /s/ JOHN C. KISSINGER
-------------------------------
Name: John C. Kissinger
Title: Joint General Manager
<PAGE>
<PAGE>
SWISS BANK CORPORATION
By: /s/ PAOLO SEIFERLE
-------------------------------
Name: Paolo Seiferle
Title: Associate Director
Corporate Clients
Switzerland
By: /s/ DOROTHY L. MCKINLEY
-------------------------------
Name: Dorothy L. McKinley
Title: Associate Director
Banking Finance
Support, N.A.
<PAGE>
<PAGE>
WACHOVIA BANK OF GEORGIA, N.A.
By: /s/ LISA M. SHAWL
-------------------------------
Name: Lisa M. Shawl
Title: Vice President
<PAGE>
<PAGE>
WESTDEUTSCHE LANDESBANK
By: /s/ DONALD F. WOLF
-------------------------------
Name: Donald F. Wolf
Title: Vice President
By: /s/ C. RUSHLAND
-------------------------------
Name: C. Rushland
Title: Vice President
<PAGE>
<PAGE>
COMMERZBANK AKTIENGESELLSCHAFT,
Atlanta Agency
By: /s/ A. BREMER
-------------------------------
Name: A. Bremer
Title: Sen. Vice President
By: /s/ D. SUTTLES
-------------------------------
Name: D. Suttles
Title: Vice President
<PAGE>
<PAGE>
BANK BRUSSELS LAMBERT,
New York Branch
By: /s/ MARIA LAUDICINA BOYER
-------------------------------
Name: Maria Laudicina Boyer
Title: Assistant Vice President
By: /s/ DOMINICK H.J. VANGAEVER
-------------------------------
Name: Dominick H.J. Vangaever
Title: Senior Vice President Credit
<PAGE>
<PAGE>
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$1,143,750,000
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of March 31, 1997
Among
LABORATORY CORPORATION OF AMERICA HOLDINGS,
as Borrower,
-----------
THE BANKS NAMED HEREIN,
as Banks, and
--------
CREDIT SUISSE FIRST BOSTON,
as Administrative Agent
-----------------------
=================================================================
<PAGE>
<PAGE>
TABLE OF CONTENTS
Section Page
- ------- ----
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS 1
SECTION 1.01. Certain Defined Terms 1
SECTION 1.02. Computation of Time Periods 32
SECTION 1.03. Accounting Terms and Determinations 32
ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES 33
SECTION 2.01. The Advances 33
SECTION 2.02. Making the Advances 35
SECTION 2.03. Repayment 40
SECTION 2.03A. Letters of Credit 41
SECTION 2.04. Reduction of the Commitments 52
SECTION 2.05. Prepayments 52
SECTION 2.06. Interest 55
SECTION 2.07. Interest Rate Determination 56
SECTION 2.08. Fees 58
SECTION 2.09. Increased Costs 58
SECTION 2.10. Illegality 60
SECTION 2.11. Payments and Computations 61
SECTION 2.12. Taxes 63
SECTION 2.13. Sharing of Payments, Etc 67
SECTION 2.14. Removal of Lender 68
SECTION 2.15. Conversion of Advances 69
SECTION 2.16. Defaulting Lenders 69
ARTICLE III CONDITIONS OF LENDING 73
SECTION 3.01. Conditions Precedent to Amendment
Effective Date and Issuance of L/Cs 73
SECTION 3.02. Conditions Precedent to Each Borrowing
and Each L/C Issuance 78
SECTION 3.03. Conditions Precedent to Each Competitive
Bid Borrowing 79
SECTION 3.04. Determinations Under Section 3.01 79
ARTICLE IV REPRESENTATIONS AND WARRANTIES 80
SECTION 4.01. Representations and Warranties of the
Borrower 80
ARTICLE V COVENANTS OF THE BORROWER 86
SECTION 5.01. Affirmative Covenants 86
(a) Compliance with Laws, Etc. 86
(b) Compliance with Environmental Laws 86
(c) Maintenance of Insurance 86
(d) Preservation of Corporate Existence, Etc 87
(e) Visitation Rights 87
(f) Keeping of Books 87
(g) Maintenance of Properties, Etc. 88
(h) Interest Rate Hedging 88
(i) Leverage Ratio 88
(j) Interest Coverage Ratio 89
(k) Minimum Stockholders' Equity 90
(l) Reporting Requirements 90
(m) Monthly Summary Financial Reports 95
(n) Transactions with Affiliates 95
(o) Use of Proceeds 96
(p) Subsidiary Guaranty 96
SECTION 5.02. Negative Covenants 96
(a) Liens, Etc. 96
(b) Lease Obligations 97
(c) Mergers, Etc. 98
(d) Sales, Etc. of Assets 99
(e) Dividends, Repurchases, Etc. 100
(f) Investments 101
(g) Change in Nature of Business 102
(h) Acquisitions 102
(i) Accounting Changes 103
(j) Debt 104
(k) HLR Stockholder Agreement Amendments 105
(l) Prepayments, Etc. of Debt 106
(m) No Negative Pledge 106
(n) Capital Expenditures 106
ARTICLE VI EVENTS OF DEFAULT 107
SECTION 6.01. Events of Default 107
Section 6.02 Cash Collateral 112
ARTICLE VII THE ADMINISTRATIVE AGENT 114
SECTION 7.01. Authorization and Action 114
SECTION 7.02. Administrative Agent's Reliance, Etc. 115
SECTION 7.03. CSFB and Affiliates 116
SECTION 7.04. Lender Credit Decision 116
SECTION 7.05. Indemnification 116
SECTION 7.06. Successor Administrative Agent 117
ARTICLE VIII MISCELLANEOUS 118
SECTION 8.01. Amendments, Etc. 118
SECTION 8.02. Notices, Etc. 119
SECTION 8.03. No Waiver; Remedies 120
SECTION 8.04. Costs; Expenses 120
SECTION 8.05. Right of Set-off 122
SECTION 8.06. Binding Effect 123
SECTION 8.07. Assignments and Participations 123
SECTION 8.08. Governing Law; Submission to Jurisdiction 126
SECTION 8.09. Execution in Counterparts 127
SECTION 8.10. WAIVER OF JURY TRIAL 128
SECTION 8.11. Confidentiality 128
SECTION 8.12. Severability 129
SECTION 8.13. AMENDMENT OF NOTES 129
SECTION 8.14. TERMINATION OF WAIVERS 129
Schedule I - List of Commitments and Applicable Lending Offices
Schedule II - Material Subsidiaries
Schedule III - ERISA Matters
Schedule IV - Roche Holdings Share Ownership
Schedule V - Certain Debt
Schedule VI - Subordinated Debt
Exhibit A-1 - Form of Term Note
Exhibit A-2 - Form of Revolving Credit Note
Exhibit A-3 - Form of Competitive Bid Note
Exhibit B - Form of Assignment and Acceptance
Exhibit C-1 - Form of Notice of Committed Borrowing
Exhibit C-2 - Form of Notice of Competitive Bid Borrowing
Exhibit C-3 - Form of Competitive Bid
Exhibit D - Form of Subsidiary Guaranty
Exhibit E-1 - Opinion of Bradford T. Smith
Exhibit E-2 - Opinion of Davis Polk & Wardwell
Exhibit F - Form of Monthly Summary Financial Report
Exhibit G - Form of Confidentiality Letter
Exhibit H - Form of Guaranty Confirmation
Exhibit I - Form of L/C Issuance Request
<PAGE>
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT dated as of March 31, 1997
(this "Agreement") among LABORATORY CORPORATION OF AMERICA HOLDINGS, a
Delaware corporation (the "Borrower"), the banks, financial institutions and
other institutional lenders (the "Banks") listed on the signature pages
hereof, and CREDIT SUISSE FIRST BOSTON ("CSFB"), as administrative agent
(the "Administrative Agent") for the Lenders hereunder.
PRELIMINARY STATEMENT
The parties hereto have entered into a Credit Agreement dated as
of April 28, 1995 (as amended and in effect immediately prior to the
Amendment Effective Date referred to below, the "Existing Credit Agreement")
providing for, among other things, the Lenders to lend to the Borrower up to
$1,250,000,000 on the terms and subject to the conditions set forth therein.
The Borrower has requested that the Lenders and the Administrative
Agent agree to amend and restate the Existing Credit Agreement, and the
Lenders and the Administrative Agent have indicated their willingness to
amend and restate the Existing Credit Agreement, all on the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties hereto hereby agree
to amend and restate the Existing Credit Agreement effective as of the
Amendment Effective Date so that, as amended and restated, it reads in its
entirety as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this Agreement,
the following terms shall have the following meanings (such meanings to be
equally applicable to both the singular and plural forms of the terms
defined):
"Acquisitions" has the meaning set forth in Section 5.02(h).
"Administrative Agent" has the meaning specified in the recital of
parties to this Agreement.
"Administrative Agent's Account" means the account of the
Administrative Agent maintained by the Administrative Agent at 11 Madison
Avenue, New York, New York 10010, Account No. 368822-05.
"Advance" means a Revolving Credit Advance, a Term Advance or a
Competitive Bid Advance.
"Affiliate" means, as to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common
control with such Person or is a director or officer of such Person. For
purposes of this definition, the terms "control" (including the terms
"controlling", "controlled by" and "under common control with") of a Person
include (except, with respect to the Borrower, in the case of Genentech,
Inc.) the possession, direct or indirect, of the power to vote 5% or more of
the Voting Stock of such Person or to direct or cause direction of the
management and policies of such Person, whether through the ownership of
Voting Stock, by contract or otherwise.
"Amendment Effective Date" means such date as the Borrower and the
Administrative Agent may select; provided that all the conditions set forth
in Section 3.01 shall have been satisfied or waived by the Lenders and the
Administrative Agent on or before such date.
"Application Documents" means the L/C Issuer's customary L/C
application and/or such other standard documents as may reasonably be
required by the L/C Issuer.
"Applicable Lending Office" means, with respect to each Lender,
such Lender's Domestic Lending Office in the case of a Base Rate Advance and
such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate
Advance and, in the case of a Competitive Bid Advance, the office of such
Lender notified by such Lender to the Administrative Agent as its Applicable
Lending Office with respect to such Competitive Bid Advance.
"Applicable Margin" means, with respect to Eurodollar Rate
Advances or Base Rate Advances, as the case may be:
(a) for all times during which the Investor Group Interest equals
or exceeds 25%, the applicable percentage set forth in the chart
immediately below based on the Leverage Ratio of the Borrower:
- -------------------------------------------------------------------------------
Leverage Ratio Greater than or Less than Less than 2.5:1.0
equal to 3.5:1.0 and greater then
equal to
2.5:1.0
- -------------------------------------------------------------------------------
TERM ADVANCES:
- -------------
Eurodollar Rate
Margin 1.00% 0.50% 0.375%
Base Rate
Margin 0.0% 0.0% 0.0%
REVOLVING
CREDIT
ADVANCES:
- --------
Eurodollar Rate
Margin 0.75% 0.3125% 0.25%
Base Rate
Margin 0.0% 0.0% 0.0%
- --------------------------------------------------------------------------------
and (b) for all times during which the Investor Group Interest is
less than 25%, the applicable percentage set forth in the chart
immediately below based on the Leverage Ratio of the Borrower:
Leverage Greater Less than Less than Less than Less
Ratio than or 4.5:1.0 and 4.0:1.0 and 3.0:1.0 and than
equal to greater than greater then greater 2.5:1.0
4.5:1.0 or equal to or equal to than or
4.0:1.0 3.0:1.0 equal to
2.5:1.0
TERM
ADVANCES:
- -----------
Eurodollar
Rate Margin 2.50% 2.25% 2.00% 1.50% 1.375%
Base Rate
Margin 0.0% 0.0% 0.0% 0.0% 0.0%
REVOLVING
CREDIT
ADVANCES:
- -----------
Eurodollar
Rate Margin 2.00% 1.875% 1.75% 1.25% 1.1875%
Base Rate
Margin 0.0% 0.0% 0.0% 0.0% 0.0%
- --------------------------------------------------------------------------------
In each case the Leverage Ratio of the Borrower shall be
determined by reference to the most recent financial statements delivered to
the Administrative Agent pursuant to Section 5.01(l)(i) or (ii), as
applicable (any change in the Applicable Margin based on Leverage Ratio
shall be effective upon the earlier of (i) the date of delivery of financial
statements to the Administrative Agent pursuant to Section 5.01(l)(i) or
(ii), as applicable, which financial statements evidence a Leverage Ratio
requiring such change, and (ii) the latest date permitted for such delivery
pursuant to Section 5.01(l)(i) or (ii), as applicable).
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender and an assignee of such Lender, and accepted by the
Administrative Agent, in substantially the form of Exhibit B hereto.
"Available Excess Cash Flow" means, for any fiscal year, the
amount of Excess Cash Flow for the prior fiscal year not required to be
applied to prepayment of Advances pursuant to subsection 2.05(b)(iv) and not
previously applied in the current fiscal year towards Acquisitions or
Capital Expenditures or paid as cash dividends to holders of the Borrower's
capital stock.
"Bank" has the meaning specified in the recital of parties to this
Agreement.
"Base Rate" means a fluctuating interest rate per annum in effect
from time to time, which rate per annum shall at all times be equal to the
higher of (a) the rate of interest announced publicly by CSFB in New York,
New York, from time to time, as CSFB's base lending rate for commercial
loans in dollars; and (b) 1/2 of 1% per annum above the Federal Funds Rate.
The base lending rate is not the lowest rate of interest charged by CSFB in
connection with extensions of credit.
"Base Rate Advance" means an Advance that bears interest as
provided in Section 2.06(a)(i).
"Beneficiary Documents" has the meaning specified in Section
2.03A(d)(i).
"Borrower" has the meaning specified in the recital of parties to
this Agreement.
"Borrower Common Stock" means the common stock, par value $0.01
per share, of the Borrower.
"Borrower Preferred Stock" means the Borrower Series A Preferred
Stock and the Borrower Series B Preferred Stock.
"Borrower Series A Preferred Stock" means the Borrower's Series A
Convertible Exchangeable Preferred Stock described in the Rights Offering
Registration Statement.
"Borrower Series B Preferred Stock" means the Borrower's Series B
Convertible Pay-in-Kind Preferred Stock described in the Rights Offering
Registration Statement.
"Borrower's Account" means the account of the Borrower maintained
by the Borrower with CSFB at 11 Madison Avenue, New York, New York 10010,
Account No. 36882201.
"Borrowing" means a Revolving Credit Borrowing, a Term Borrowing
or a Competitive Bid Borrowing.
"Business Day" means (a) a day of the year on which banks are not
required or authorized to close in New York City and (b) if the applicable
Business Day relates to an Advance bearing interest based on the Eurodollar
Rate, a day of the year that is also a day on which dealings are carried on
in the London interbank market and banks are open for business in London.
"Capital Expenditures" means, for any period, the sum, without
duplication, of (a) gross additions to property, plant and equipment and
other capital expenditures of the Borrower and its Consolidated Subsidiaries
for such period plus (b) the aggregate principal amount of all Debt assumed
or incurred by the Borrower and its Consolidated Subsidiaries in order to
finance such additions to property, plant and equipment and other capital
expenditures. Capital Expenditures shall not include additions to property,
plant and equipment that constitute Acquisitions subject to Section 5.02(h).
"Capital Ratio" means, with respect to any fiscal quarter, the
ratio (expressed as a percentage) calculated by dividing (a) the total
Consolidated Debt of the Borrower and its Subsidiaries as of the last day of
such fiscal quarter (excluding, to the extent included in Consolidated Debt,
any Obligations to redeem the Preferred Stock) by (b) the sum of (i) the
total Consolidated Debt of the Borrower and its Subsidiaries as of such day
(excluding, to the extent included in Consolidated Debt, any Obligations to
redeem the Preferred Stock) plus (ii) Stockholders' Equity as of such day;
provided, however, that, the net amount (after provision for taxes) of non-
cash write-offs or write-downs of goodwill during such period in connection
with the contribution by the Borrower or any Subsidiary of assets to a joint
venture permitted under Section 5.02(d) shall not be deducted from equity
for the purposes of calculating Stockholder's Equity as of such day.
"Capitalized Leases" has the meaning specified in clause (e) of
the definition of Debt.
"Cash Collateral Account" has the meaning specified in Section
6.02(b).
"Cash Equivalents" means any of the following, to the extent owned
by the Borrower or its Subsidiaries free and clear of all Liens and having a
maturity not greater than 180 days from the date of acquisition thereof:
(a) direct obligations of the Government of the United States or any agency
or instrumentality thereof or obligations unconditionally guaranteed by the
full faith and credit of the Government of the United States, and repurchase
agreements with respect thereto entered into with a commercial bank or trust
company meeting the criteria specified in clause (c) below, (b) certificates
of deposit of or time deposits with any Lender, (c) insured certificates of
deposit of or time deposits with any commercial bank or trust company that
is a member of the Federal Reserve System, issues (or the parent of which
issues) commercial paper rated as described in clause (d), is organized
under the laws of the United States or any State thereof and has combined
capital and surplus of at least $1 billion, (d) commercial paper issued by
any corporation organized under the laws of any State of the United States
and rated at least "Prime-1" (or the then equivalent grade) by Moody's or
"A-1" (or the then equivalent grade) by S&P or (e) shares of money market
mutual or similar funds having assets in excess of $100,000,000 and
substantially all of the assets of which satisfy the requirements of clauses
(a) through (d) of this definition.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980.
"Change of Control" means any acquisition of Control of the
Borrower after the date hereof by any Person or two or more Persons acting
in concert who would constitute a "group" within the meaning of Section
13(d)(3) of the Exchange Act (other than Roche Holdings, so long as it is
under the Control of Roche, or any other Person under the Control of Roche,
or a group consisting of such Persons).
"Closing Date" means April 28, 1995.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated and the rulings issued
thereunder.
"Commitment" means a Revolving Credit Commitment or a Term
Commitment.
"Committed Advance" means a Revolving Credit Advance or a Term
Advance.
"Committed Borrowing" means a Term Borrowing or a Revolving Credit
Borrowing.
"Competitive Bid Advance" means an advance by a Lender to the
Borrower as part of a Competitive Bid Borrowing resulting from the auction
bidding procedure described in Section 2.02(b) and refers to a Fixed Rate
Advance or a LIBO CB Advance.
"Competitive Bid Borrowing" means a borrowing consisting of
simultaneous Competitive Bid Advances from each of the Lenders whose offer
to make one or more Competitive Bid Advances as part of such borrowing has
been accepted under the auction bidding procedure described in Section
2.02(b).
"Competitive Bid Note" means the promissory note of the Borrower
payable to the order of the Administrative Agent for the benefit of each
Lender making a Competitive Bid Advance, in substantially the form of
Exhibit A-3 hereto, evidencing the indebtedness of the Borrower to the
Lenders resulting from Competitive Bid Advances made by the Lenders.
"Competitive Bid Reduction" has the meaning specified in Section
2.01(b).
"Competitive Bid Register" has the meaning specified in Section
2.02(b)(vi).
"Consolidated" for any Person refers to the consolidation of the
financial statements of such Person and its Subsidiaries in accordance with
GAAP.
"Control" by any Person or Persons of any other Person means
(a) beneficial ownership (within the meaning of Rule 13d-3 of the Securities
and Exchange Commission under the Exchange Act) by such Person or Persons,
directly or indirectly, of Voting Stock of such other Person (or other
securities convertible into such Voting Stock) representing 51% or more of
the combined voting power of all Voting Stock of such other Person,
(b) control by such Person or Persons, by contract or otherwise, or entry by
such Person or Persons into a contract or agreement that, upon consummation,
will result in the acquisition by such Person or Persons of control, over
Voting Stock of such other Person (or other securities convertible into such
securities) representing 51% or more of the combined voting power of all
Voting Stock of such other Person, or (c) the possession, directly or
indirectly, by such Person or Persons of the power to direct or cause the
direction of the management and policies of such other Person.
"Conversion", "Convert" and "Converted" each refers to a
conversion of Advances of one Type into Advances of the other Type pursuant
to Section 2.07, 2.10 or 2.15.
"CSFB" has the meaning specified in the recital of parties to this
Agreement.
"Debt" of any Person means, without duplication, (a) all
indebtedness of such Person for borrowed money; (b) all Obligations of such
Person for the deferred purchase price of property or services (other than
trade payables incurred in the ordinary course of such Person's business);
(c) all Obligations of such Person evidenced by notes, bonds, debentures or
other similar instruments; (d) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller
or lender under such agreement in the event of default are limited to
repossession or sale of such property); (e) all Obligations of such Person
as lessees under (i) Tax Finance Leases and (ii) leases that have been or
should be, in accordance with GAAP, recorded as capital leases ("Capitalized
Leases"); (f) all Obligations, contingent or otherwise, of such Person under
acceptance, letter of credit or similar facilities; (g) all Obligations of
such Person to purchase, redeem, retire, defease or otherwise acquire for
value any capital stock of such Person or any warrants, rights or options to
acquire such capital stock; (h) all Debt of others referred to in clauses
(a) through (g) above guaranteed directly or indirectly in any manner by
such Person, or in effect guaranteed directly or indirectly by such Person
through an agreement (i) to pay or purchase such Debt or to advance or
supply funds for the payment or purchase of such Debt, (ii) to purchase,
sell or lease (as lessee or lessor) property, or to purchase or sell
services, primarily for the purpose of enabling the debtor to make payment
of such Debt or to assure the holder of such Debt against loss, (iii) to
supply funds to or in any other manner invest in the debtor (including any
agreement to pay for property or services irrespective of whether such
property is received or such services are rendered) or (iv) otherwise to
maintain a balance sheet condition or to assure a creditor against loss; and
(i) all Debt referred to in clauses (a) through (h) above secured by (or for
which the holder of such Debt has an existing right, contingent or
otherwise, to be secured by) any Lien on property (including, without
limitation, accounts and contract rights) owned by such Person, even though
such Person has not assumed or become liable for the payment of such Debt.
"Default" means any Event of Default or any event that would
constitute an Event of Default but for the requirement that notice be given
or time elapse or both.
"Default Rate" means the rate of interest determined pursuant to
Section 2.06(c) hereof.
"Defaulted Advance" means, with respect to any Lender at any time,
the amount of any Committed Advance required to be made by such Lender to
the Borrower pursuant to Section 2.01 at or prior to such time which has not
been so made as of such time; provided, however, any Committed Advance made
by the Administrative Agent for the account of such Lender pursuant to
Section 2.02(a)(iii) shall not be considered a Defaulted Advance even if, at
such time, such Lender shall not have reimbursed the Administrative Agent
therefor as provided in Section 2.02(a)(iii). In the event that a portion
of a Defaulted Advance shall be deemed made pursuant to Section 2.16(a), the
remaining portion of such Defaulted Advance shall be considered a Defaulted
Advance originally required to be made pursuant to Section 2.01 on the same
date as the Defaulted Advance so deemed made in part.
"Defaulted Amount" means, with respect to any Lender at any time,
any amount required to be paid by such Lender to the Administrative Agent or
any other Lender hereunder or under any other Loan Document at or prior to
such time which has not been so paid as of such time, including, without
limitation, any amount required to be paid by such Lender to (a) the
Administrative Agent pursuant to Section 2.02(a)(iii) to reimburse the
Administrative Agent for the amount of any Committed Advance made by the
Administrative Agent for the account of such Lender, (b) any other Lender
pursuant to Section 2.13 to purchase any participation in Advances owing to
such other Lender and (c) the Administrative Agent pursuant to Section 7.05
to reimburse the Administrative Agent for such Lender's ratable share of any
amount required to be paid by the Lenders to the Administrative Agent as
provided therein. In the event that a portion of a Defaulted Amount shall
be deemed paid pursuant to Section 2.16(b), the remaining portion of such
Defaulted Amount shall be considered a Defaulted Amount originally required
to be made hereunder or under any other Loan Document on the same date as
the Defaulted Amount so deemed paid in part.
"Defaulting Lender" means, at any time, any Lender that, at such
time, (a) owes a Defaulted Advance or a Defaulted Amount or (b) shall take
or be the subject of any action or proceeding of a type described in Section
6.01(e).
"Direct Exposure" has the meaning specified in Section 6.02(d).
"Disposition" means the sale, lease, transfer or other disposition
of any assets of the Borrower or any of its Subsidiaries (including, without
limitation, shares of capital stock or other equity interests of any Person
owned by the Borrower or any such Subsidiary) (other than sales, leases,
transfers or other dispositions permitted by Section 5.02(d) (other than
Section 5.02(d)(x)).
"dollars" and the sign "$" each means lawful money of the United
States.
"Domestic Lending Office" means, with respect to any Lender, the
office of such Lender specified as its "Domestic Lending Office" opposite
its name on Schedule I hereto or in the Assignment and Acceptance pursuant
to which it became a Lender, or such other office of such Lender as such
Lender may from time to time specify to the Borrower and the Administrative
Agent.
"EBIT" means, for any fiscal period of the Borrower, Net Income
plus, to the extent deducted in determining Net Income, the sum of
(a) interest expense net of interest income, (b) income tax expense and
(c) extraordinary losses included in Net Income, less extraordinary gains
included in Net Income, in each case determined for such period without
duplication on a Consolidated basis for the Borrower and its Subsidiaries
and in accordance with GAAP.
"EBITDA" means, for any fiscal period of the Borrower, EBIT plus,
to the extent deducted in determining Net Income, (a) depreciation expense,
(b) amortization expense and (c) non-cash write-offs and write-downs of
amortizable and depreciable items, in each case determined for such period
without duplication on a Consolidated basis for the Borrower and its
Subsidiaries and in accordance with GAAP. Notwithstanding the foregoing,
EBITDA shall be deemed to be (i) $48,400,000 for the fiscal quarter of the
Borrower ended March 31, 1996, (ii) $51,600,000 for the fiscal quarter of
the Borrower ended June 30, 1996, (iii) $39,800,000 for the fiscal quarter
of the Borrower ended September 30, 1996 and (iv) $43,300,000 for the fiscal
quarter of the Borrower ended December 31, 1996.
"Eligible Assignee" means (a) any commercial bank organized under
the laws of the United States, or any State thereof, and having total assets
in excess of $1,000,000,000; (b) any savings and loan association or savings
bank organized under the laws of the United States, or any State thereof,
and having a net worth determined in accordance with GAAP in excess of
$250,000,000; (c) any commercial bank organized under the laws of any other
country that is a member of the Organization for Economic Cooperation and
Development ("OECD") or has concluded special lending arrangements with the
International Monetary Fund Associated with its General Arrangements to
Borrow, or a political subdivision of any such country, and having total
assets in excess of $1,000,000,000, so long as such bank is acting through a
branch or agency located in the United States, in the Cayman Islands or in
the country in which it is organized or another country that is described in
this clause (c); (d) the central bank of any country that is a member of the
OECD; (e) any finance company, insurance company or other financial
institution or fund (whether a corporation, partnership, trust or other
entity) that (i) is not affiliated with the Borrower, (ii) is engaged in
making, purchasing or otherwise investing in commercial loans in the
ordinary course of its business and (iii) has total assets in excess of
$250,000,000; and (f) any other Person (other than an Affiliate of the
Borrower) approved by the Administrative Agent and the Borrower, such
approval not to be unreasonably withheld if such Person is a commercial
bank.
"Environmental Action" means any administrative, regulatory or
judicial action, suit, demand, demand letter, claim, notice of non-
compliance or violation, investigation, proceeding, consent order or consent
agreement based upon or arising out of any Environmental Law or any
Environmental Permit, including, without limitation (a) any claim by any
governmental or regulatory authority for enforcement, cleanup, removal,
response, remedial or other actions or damages pursuant to any Environmental
Law and (b) any claim by any third party seeking damages, contribution, or
injunctive relief arising from alleged injury or threat of injury to health,
safety or the environment.
"Environmental Law" means any federal, state or local law, rule,
regulation, order, writ, judgment, injunction, decree, determination or
award relating to the environment, health or safety including, without
limitation, CERCLA, the Resource Conservation and Recovery Act, the
Hazardous Materials Transportation Act, the Clean Water Act, the Toxic
Substances Control Act, the Clean Air Act, the Safe Drinking Water Act, the
Atomic Energy Act, the Federal Insecticide, Fungicide and Rodenticide Act
and the Occupational Safety and Health Act.
"Environmental Permit" means any permit, approval, identification
number, license or other authorization required under any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"ERISA Affiliate" of any Person means any other Person that for
purposes of Title IV of ERISA is a member of such Person's controlled group,
or under common control with such Person, within the meaning of Section 414
of the Code.
"ERISA Event" with respect to any Person means (a) the occurrence
of a reportable event, within the meaning of Section 4043 of ERISA, with
respect to any Plan of such Person or any of its ERISA Affiliates unless the
30-day notice requirement with respect to such event has been waived by the
PBGC; (b) the provision by the administrator of any Plan of such Person or
any of its ERISA Affiliates of a notice of intent to terminate such Plan,
pursuant to Section 4041(a)(2) of ERISA (including any such notice with
respect to a plan amendment referred to in Section 4041(e) of ERISA);
(c) the cessation of operations at a facility of such Person or any of its
ERISA Affiliates in the circumstances described in Section 4062(e) of ERISA;
(d) the withdrawal by such Person or any of its ERISA Affiliates from a Plan
during a plan year for which it was a substantial employer, as defined in
Section 4001(a)(2) of ERISA; (e) the failure by such Person or any of its
ERISA Affiliates to make a payment to a Plan described in Section 302(f)(1)
of ERISA; (f) the adoption of an amendment to a Plan of such Person or any
of its ERISA Affiliates requiring the provision of security to such Plan,
pursuant to Section 307 of ERISA; or (g) the institution by the PBGC of
proceedings to terminate a Plan of such Person or any of its ERISA
Affiliates, pursuant to Section 4042 of ERISA, or the occurrence of any
event or condition described in Section 4042 of ERISA that would constitute
grounds for the termination of, or the appointment of a trustee to
administer, such Plan; provided, however, that an event described in clause
(a), (c) or (d) of this definition, or in clause (b) of this definition
solely with respect to a standard termination under Section 4041(b) of
ERISA, shall be an ERISA Event only if such event is reasonably likely to
result in a material liability of such Person or any of its ERISA
Affiliates.
"Eurocurrency Liabilities" has the meaning assigned to that term
in Regulation D of the Board of Governors of the Federal Reserve System, as
in effect from time to time.
"Eurodollar Lending Office" means, with respect to any Lender, the
office of such Lender specified as its "Eurodollar Lending Office" opposite
its name on Schedule I hereto or in the Assignment and Acceptance pursuant
to which it became a Lender (or, if no such office is specified, its
Domestic Lending Office), or such other office of such Lender as such Lender
may from time to time specify to the Borrower and the Administrative Agent.
"Eurodollar Rate" means the rate per annum equal to (i) the rate
determined by the Administrative Agent at approximately 11:00 a.m. (London
time) on the date which is two Business Days before the first day of such
Interest Period by reference to the British Bankers' Association Interest
Settlement Rates for deposits in U.S. dollars (as set forth by any service
selected by the Administrative Agent which has been nominated by the British
Bankers' Association as an authorized information vendor for the purpose of
displaying such rates) for a period equal to the relevant Interest Period
divided by (ii) a percentage equal to 100% minus the Eurodollar Rate Reserve
Percentage for such Interest Period; provided that, to the extent that an
interest rate is not ascertainable pursuant to the foregoing provisions of
this definition, the "Eurodollar Rate" shall be the interest rate per annum
determined by the Administrative Agent to be the average (rounded upward to
the nearest whole multiple of one-sixteenth of one percent per annum, if
such average is not such a multiple) of the rates per annum at which
deposits in U.S. dollars are offered to major banks in the London interbank
market in London, England by the Reference Lenders at approximately 11:00
a.m. (London time) on the day which is two Business Days before the first
day of such Interest Period. If any of the Reference Lenders shall be
unable or shall otherwise fail to supply such rates to the Administrative
Agent upon its request, the rate of interest shall be determined on the
basis of the remaining Reference Lenders. The Eurodollar Rate for each
Interest Period for each Eurodollar Rate Advance comprising part of the same
Borrowing shall be determined by the Administrative Agent on the basis of
applicable rates obtained by the Administrative Agent two Business Days
before the first day of such Interest Period, subject, however, to the
provisions of Section 2.07.
"Eurodollar Rate Advance" means a Term Advance or a Revolving
Credit Advance that bears interest as provided in Section 2.06(a)(ii).
"Eurodollar Rate Reserve Percentage" of any Lender for any
Interest Period for any Eurodollar Rate Advance means the reserve percentage
applicable during such Interest Period (or if more than one such percentage
shall be so applicable, the daily average of such percentages for those days
in such Interest Period during which any such percentage shall be so
applicable) under regulations issued from time to time by the Board of
Governors of the Federal Reserve System (or any successor) for determining
the maximum reserve requirement (including, without limitation, any
emergency, supplemental or other marginal reserve requirement) for such
Lender with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities having a term equal to such Interest Period.
"Events of Default" has the meaning specified in Section 6.01.
"Excess Cash Flow" means for any period, without duplication, the
total of the following: (a) EBITDA, less (b) any cash provision for (or
plus any cash benefit from) income or franchise taxes included in the
determination of Net Income, plus (c) decreases (or less increases) in
Working Capital, plus (d) decreases (or less increases) in long-term
deferred tax assets, plus (e) increases (or less decreases) in the long-term
portion of reserves and accrued liabilities, plus (f) increases (or less
decreases) in long-term deferred tax liabilities, less (g) the unfinanced
portion of Capital Expenditures (excluding amounts paid for Capital
Expenditures from Available Excess Cash Flow for such period), less
(h) scheduled amortization of Debt actually paid in cash (but in the case of
Junior Obligations or Subordinated Notes only to the extent such payment was
permitted pursuant to Section 5.02(l)), less (i) the aggregate of all
voluntary prepayments of the Advances (in the case of Revolving Credit
Advances, only to the extent the Revolving Credit Commitments are
simultaneously permanently reduced), less (j) Interest Expense, less (k)
amounts paid in cash for Permitted Acquisitions (excluding amounts paid for
Permitted Acquisitions from Available Excess Cash Flow for such period),
less (l) amounts paid in cash as dividends permitted under Section
5.02(e)(iv), less (m) to the extent included in EBITDA, the amount of any
gain on any Disposition.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Existing Credit Agreement" has the meaning specified in the
Preliminary Statement.
"Facility" means the Revolving Credit Facility or the Term
Facility.
"Facility Fee Percentage" means (a) for all times during which the
Investor Group Interest equals or exceeds 25%, the applicable percentage set
forth in the chart immediately below based on the Leverage Ratio of the
Borrower:
LEVERAGE FACILITY FEE
RATIO PERCENTAGE
--------- ------------
Greater than or equal 0.25%
to 3.5:1.0
Less than 3.5:1.0 and 0.1875%
greater than or equal
to 2.5:1.0
Less than 2.5:1.0 0.125%;
and (b) for all times during which the Investor Group Interest is less than
25%, the applicable percentage set forth in the chart immediately below
based on the Leverage Ratio of the Borrower:
LEVERAGE FACILITY FEE
RATIO PERCENTAGE
-------- ------------
Greater than or equal 0.50%
to 4.5:1.0
Less than 4.5 and 0.375%
greater than or equal
to 4.0:1.0
Less than 4.0:1.0 and 0.25%
greater than or equal
to 2.5:1.0
Less than 2.5:1.0 0.1875%.
In each case the Leverage Ratio shall be determined by reference
to the most recent financial statements delivered to the Administrative
Agent pursuant to Section 5.01(l)(i) and (ii) (any change in the Facility
Fee Percentage based on the Leverage Ratio shall be effective upon the
earlier of (i) the date of delivery of financial statements to the
Administrative Agent pursuant to Section 5.01(l)(i) and (ii), which
financial statements evidence a Leverage Ratio requiring such change, and
(ii) the latest date permitted for such delivery pursuant to Section
5.01(l)(i) and (ii)).
"Federal Funds Rate" means, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted average
of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for
such day (or, if such day is not a Business Day, for the next preceding
Business Day) by the Federal Reserve Bank of New York, or, if such rate is
not so published for any day which is a Business Day, the average of the
quotations for such day on such transactions received by the Administrative
Agent from three Federal funds brokers of recognized standing selected by
it.
"Fixed Rate Advances" has the meaning specified in Section
2.02(b)(i).
"GAAP" means generally accepted accounting principles in the
United States of America as in effect from time to time.
"Guaranty Confirmation" has the meaning specified in Section
3.01(d)(vii).
"Hazardous Materials" means (a) petroleum or petroleum products,
natural or synthetic gas, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation and radon gas, (b) any substances
defined as or included in the definition of "hazardous substances,"
"hazardous wastes," "hazardous materials," "extremely hazardous wastes,"
"restricted hazardous wastes," "toxic substances," "toxic pollutants,"
"contaminants" or "pollutants," or words of similar import, under any
Environmental Law and (c) any other substance exposure to which is regulated
under any Environmental Law.
"Hedge Agreements" means interest rate swap, cap or collar
agreements, interest rate future or option contracts, currency swap
agreements, currency future or option contracts and other similar
agreements.
"HLR" means HLR Holdings Inc., a Delaware corporation and a direct
wholly-owned subsidiary of Hoffmann-La Roche.
"HLR Stockholder Agreement" means the Stockholder Agreement dated
as of April 28, 1995 among HLR, Roche Holdings, Hoffmann-La Roche and the
Borrower, as the same, subject to Section 5.02(k), may be amended,
supplemented or otherwise modified from time to time.
"Hoffmann-La Roche" means Hoffmann-La Roche Inc., a New Jersey
corporation.
"Indemnified Party" has the meaning specified in Section 8.04(c).
"Initial Date" means, for purposes of Section 2.12, in the case of
the Administrative Agent and each Bank, the date of its execution and
delivery of the Existing Credit Agreement and, in the case of each Lender
other than a Bank, the date of the Assignment and Acceptance pursuant to
which it becomes a Lender.
"Interest Coverage Ratio" means with respect to each four fiscal
quarter period, commencing with the four fiscal quarter period ending on
March 31, 1997, the ratio of (x) Consolidated EBITDA of the Borrower and its
Subsidiaries for such period to (y) Consolidated Interest Expense of the
Borrower and its Subsidiaries for such period.
"Interest Expense" means, with respect to any specified period,
the sum of interest expense on all Debt of the Borrower and its Subsidiaries
on a Consolidated basis in accordance with GAAP and including, without
limitation, to the extent not otherwise included in accordance with GAAP (a)
the interest component of obligations under Tax Finance Leases and
Capitalized Leases, (b) commissions, discounts and other fees and charges
payable in connection with letters of credit, (c) the net payment, if any,
payable in connection with Hedge Agreements, (d) fees paid pursuant to
Section 2.08(a), (e) amortization of original issue discount and (f) the
interest portion of any deferred payment obligation.
"Interest Period" means, for each Eurodollar Rate Advance
comprising part of the same Term Borrowing or Revolving Credit Borrowing,
the period commencing on the date of such Eurodollar Rate Advance or the
date of the Conversion of any Base Rate Advance into such Eurodollar Rate
Advance and ending on the last day of the period selected by the Borrower
pursuant to the provisions below and, thereafter, each subsequent period
commencing on the last day of the immediately preceding Interest Period and
ending on the last day of the periods elected by the Borrower pursuant to
the provisions below. The duration of each such Interest Period shall be
one, two, three or six months as the Borrower may, upon notice received by
the Administrative Agent not later than 11:00 A.M. (New York City time) on
the third Business Day prior to the first day of such Interest Period,
select; provided, however, that:
(i) the Borrower may not select any Interest Period which ends
after any principal repayment installment date unless, after giving
effect to such selection, the aggregate principal amount of Base Rate
Advances and of Eurodollar Rate Advances having Interest Periods that
end on or prior to such principal repayment installment date shall be
at least equal to the aggregate principal amount of such Advances due
and payable on or prior to such date;
(ii) whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such Interest
Period shall be extended to occur on the next succeeding Business Day,
provided that, if such extension would cause the last day of such
Interest Period to occur in the next following calendar month, the last
day of such Interest Period shall occur on the next preceding Business
Day; and
(iii) whenever the first day of any Interest Period occurs on a day
in a calendar month for which there is no numerically corresponding day
in the calendar month that succeeds such initial calendar month by the
number of months equal to the number of months in such Interest Period,
such Interest Period shall end on the last Business Day of such
succeeding calendar month.
"Investment" in any Person means any loan or advance to such
Person, any purchase or other acquisition of any capital stock, warrants,
rights, options, debt obligations or other securities of such Person, any
capital contribution to such Person or any other investment in such Person,
including, without limitation, any arrangement pursuant to which the
investor incurs Debt of the type referred to in clause (h) or (i) of the
definition of "Debt" in respect of such Person.
"Investor Group Interest" has the meaning set forth in the HLR
Stockholder Agreement, as in effect on the date hereof.
"Junior Obligations" means unsecured indebtedness of the Borrower
for borrowed money in favor of non-Affiliates of the Borrower: (i) payment
or prepayment (mandatory or optional) of which (whether at maturity, upon
acceleration, pursuant to scheduled amortization or otherwise) is not
permitted or required until after the prior payment in full of the
Obligations under the Loan Documents, (ii) incurred pursuant to loan
agreements or other evidence of indebtedness providing for interest rates,
fees and other returns to the obligee thereof, and for affirmative, negative
and financial covenants and other terms and conditions, not more favorable,
in the judgment of the Required Lenders, than those set forth in the Loan
Documents, and (iii) otherwise subordinated to the prior payment in full of
the Obligations under the Loan Documents on terms and conditions
satisfactory to the Required Lenders.
"L/C(s)" means any standby letter of credit issued by the L/C
Issuer for the account of Borrower pursuant to Section 2.03A hereof, in each
case, as amended, supplemented or modified from time to time.
"L/C Expiration Date" means with respect to any L/C, the date
which is the earlier to occur of (a) three hundred sixty-five (365) days
after the date of issuance or extension thereof, or (b) thirty (30) days
prior to the Revolving Credit Termination Date.
"L/C Issuance Request" means a request in the form of Exhibit I
for the issuance of a L/C.
"L/C Issuer" means either CSFB or any other Lender that has agreed
to become an L/C Issuer, as designated in the related L/C Issuance Request.
"L/C Obligations" means as of any date of determination, all the
existing liabilities (including all fees) of the Borrower to the L/C Issuer,
the Agent and the Lenders in respect of all L/C(s) outstanding, whether such
liability is contingent or fixed, which liabilities shall be computed to
include the sum of the aggregate maximum amount then available to be drawn
under all L/C(s) (assuming, whether or not such is the case, that such
aggregate maximum amount shall have been drawn) and the aggregate amount of
any Unreimbursed Drawings then outstanding.
"L/C Outstandings" means at any time, the sum of (a) the maximum
aggregate amount available to be drawn under all outstanding L/C(s)
(assuming, whether or not such is the case, that such aggregate maximum
amount shall have been drawn) and (b) the amount of all Unreimbursed
Drawings.
"L/C Reimbursement Due Date" has the meaning specified in Section
2.03A(c)(i).
"L/C Sublimit" means at any time, an amount equal to the lesser of
(x) Fifty Million Dollars ($50,000,000), as such amount may be reduced in
accordance with the terms hereof, and (y) the aggregate Unused Revolving
Credit Commitments of all the Lenders at such time. The L/C Sublimit shall
automatically and permanently terminate on the earlier of (i) March 1, 2002
and (ii) the Revolving Credit Termination Date.
"Lenders" means the Banks listed on the signature pages hereof and
each Eligible Assignee that shall become a party hereto pursuant to Section
8.07 and each assignee that shall become a party hereto pursuant to Section
2.14.
"Leverage Ratio" means with respect to each four fiscal quarter
period, commencing with the four fiscal quarter period ending December 31,
1996, the ratio of (x) the total Consolidated Debt of the Borrower and its
Subsidiaries (excluding, to the extent included in Consolidated Debt, any
Obligations to redeem the Preferred Stock) as of the last day of such fiscal
quarter to (y) Consolidated EBITDA of the Borrower and its Subsidiaries for
the four fiscal quarter period ended at the end of such fiscal quarter.
"LIBO CB Advance" has the meaning specified in Section 2.02(b)(i).
"Lien" means any lien, security interest or other charge or
encumbrance of any kind, or any other type of preferential arrangement,
including, without limitation, the lien or retained security title of a
conditional vendor and any easement, right of way or other encumbrance on
title to real property.
"Loan Documents" means this Agreement, the Notes, the Subsidiary
Guaranty and the Guaranty Confirmation.
"Loan Parties" means the Borrower and the Subsidiary Guarantors.
"Mandatory L/C Advance" has the meaning specified in Section
2.03A(c)(i) hereof.
"Margin Stock" has the meaning specified in Regulation U of the
Board of Governors of the Federal Reserve System and any successor
regulations thereto, as in effect from time to time.
"Material Adverse Change" means, with respect to any Person, a
material adverse change in the financial condition, results of operations or
business of such Person and its Subsidiaries, taken as a whole.
"Material Adverse Effect" means a material adverse effect upon
(a) the financial condition, results of operations or business of the
Borrower and its Subsidiaries, taken as a whole, or (b) the ability of a
Loan Party to perform its Obligations under any Loan Document or (c) the
binding nature, validity or enforceability of any Loan Document as an
obligation of any Loan Party.
"Material Subsidiary" means (a) as to any Person, each
"Subsidiary" (as defined in Rule 1-02 of Regulation S-X (17 CFR Part 210)
("Rule 1-02")) that qualifies as a "Significant Subsidiary" (as defined in
Rule 1-02) of such Person, (b) NHL and (c) each Subsidiary of the Borrower
that is a direct or indirect beneficial owner of any shares of capital stock
of NHL.
"Materially Different Business" means a business or line of
business that is materially different from that described for the Borrower
and its Subsidiaries in the Rights Offering Registration Statement.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" of any Person means a multiemployer plan, as
defined in Section 4001(a)(3) of ERISA, which is subject to Title IV of
ERISA, and to which such Person or any of its ERISA Affiliates is making or
accruing an obligation to make contributions, or has within any of the
preceding five plan years made or accrued an obligation to make
contributions.
"Net Cash Proceeds" means, with respect to any sale, lease,
transfer or other disposition of any asset or the sale or issuance by any
Person of any Debt or capital stock or other equity interest, any securities
convertible into or exchangeable for any capital stock or other equity
interest or any warrants, rights or options to acquire any capital stock or
other equity interest, the aggregate amount of cash received from time to
time by or on behalf of such Person in connection with such transaction
after deducting therefrom only (a) reasonable and customary brokerage
commissions, underwriting fees and discounts, legal fees and expenses,
finder's fees, accountants' fees and expenses and other similar fees,
expenses and commissions, (b) the amount of taxes payable or estimated in
good faith to be payable in connection with or as a result of such
transaction and (c) the amount of any Debt that, by the terms of such
transaction or the terms of such Debt, is required to be repaid upon such
disposition, in each case to the extent, but only to the extent, that the
amounts so deducted are payable to a Person that is not an Affiliate and are
properly attributable to such transaction or to the asset that is the
subject thereof.
"Net Income" means, for any Person in any period, the net income
of such Person and its Subsidiaries on a Consolidated basis for such period,
as determined in accordance with GAAP.
"Net Tangible Assets" means, for any Person, total assets of such
Person less all intangible assets of such Person, in each case determined in
accordance with GAAP.
"NHL" means Laboratory Corporation of America, as successor-in-
interest to National Health Laboratories Incorporated, a Delaware
corporation and an indirect wholly-owned Subsidiary of the Borrower, and its
successors.
"Note" means a Revolving Credit Note, a Term Note or a Competitive
Bid Note.
"Notice of Borrowing" means a Notice of Committed Borrowing or a
Notice of Competitive Bid Borrowing.
"Notice of Committed Borrowing" has the meaning specified in
Section 2.02(a).
"Notice of Competitive Bid Borrowing" has the meaning specified in
Section 2.02(b).
"Obligation" means, with respect to any Person, any payment,
performance or other obligation of such Person of any kind, including,
without limitation, any liability of such Person on any claim, whether or
not the right of any creditor to payment in respect of such claim is reduced
to judgment, liquidated, unliquidated, fixed, contingent, matured, disputed,
undisputed, legal, equitable, secured or unsecured, and whether or not such
claim is discharged, stayed or otherwise affected by any proceeding referred
to in Section 6.01(e). Without limiting the generality of the foregoing,
the Obligations of the Loan Parties under the Loan Documents include (a) the
obligation to pay principal, interest, charges, expenses, fees, attorneys'
fees and disbursements, guarantees, indemnities and other amounts payable by
any Loan Party under any Loan Document and (b) the obligation to reimburse
any amount in respect of any of the foregoing that any Lender, in its sole
discretion, may elect to pay or advance on behalf of such Loan Party.
"Other Taxes" has the meaning specified in Section 2.12(b).
"PBGC" means the Pension Benefit Guaranty Corporation, or any
successor agency or entity performing substantially the same functions.
"Permitted Acquisition" means any Acquisition permitted under
Section 5.02(h).
"Person" means an individual, partnership, corporation (including
a business trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity, or a government
or any political subdivision or agency thereof.
"Plan" means an employee pension benefit plan (other than a
Multiemployer Plan) which is subject to Title IV of ERISA, and either (i) is
maintained or contributed to by the Borrower or any of its ERISA Affiliates,
or to which the Borrower or any of its ERISA Affiliates has an obligation to
contribute, for employees of the Borrower or any of its ERISA Affiliates,
(ii) has at any time within the preceding five years been maintained or
contributed to by Borrower or any Person which was at such time an ERISA
Affiliate of the Borrower for employees of Borrower or any Person which was
at such time an ERISA Affiliate of the Borrower or (iii) was at any time
within the five years preceding the merger of RBLI and the Borrower
maintained or contributed to by RBLI or any of its then existing ERISA
Affiliates, or to which RBLI or any of its then existing ERISA Affiliates
had an obligation to contribute, for employees for RBLI or any of its then
existing ERISA Affiliates (an "RBLI Plan") provided, however, that the term
"Plan" shall only apply with respect to an "RBLI Plan" for the period
preceding the merger of RBLI and the Borrower.
"Purchase Price" means, with respect to any Acquisition or
proposed Acquisition, the consideration paid or to be paid for such
Acquisition in cash and property (including, without limitation, all
purchase price installments and all liabilities assumed, Debt incurred and
equity issued by the Borrower or any of its Subsidiaries in connection with
such Acquisition).
"RBLI" means Roche Biomedical Laboratories, Inc., a New Jersey
corporation and a direct wholly-owned subsidiary of HLR, as such corporation
existed immediately prior to the effectiveness of the merger between such
corporation and the Borrower.
"RBLI Plan" has the meaning specified in the definition of "Plan".
"Reference Lenders" means Credit Suisse First Boston, Swiss Bank
Corporation, New York Branch, and Deutsche Bank AG, New York Branch, or such
other Lenders as the Borrower, the Administrative Agent and the Required
Lenders shall designate in writing.
"Register" has the meaning specified in Section 8.07(b).
"Relevant Contingent Exposure" has the meaning specified in
Section 6.02(d).
"Required Lenders" means at any time Lenders holding at least 51%
of the sum of (a) the aggregate principal amount of the Committed Advances
outstanding at such time and (b) the aggregate unused Term Commitments plus
the aggregate Unused Revolving Credit Commitments at such time (provided
that, for purposes hereof, neither the Borrower, nor any of its Affiliates,
if a Lender, shall be included in (x) the Lenders holding such amount of the
Committed Advances or having such amount of the Commitments or (y)
determining the aggregate unpaid principal amount of the Committed Advances
or the total Commitments); provided, however, if any Lender shall be a
Defaulting Lender at such time, there shall be excluded from the
determination of Required Lenders at such time (i) the aggregate principal
amount of the Committed Advances made by such Lender and outstanding at such
time and (ii) the aggregate Commitments of such Lender under both of the
Facilities at such time.
"Revolving Credit Advance" has the meaning specified in Section
2.01(b).
"Revolving Credit Borrowing" means a borrowing consisting of
simultaneous Revolving Credit Advances of the same Type made by the
Revolving Credit Lenders.
"Revolving Credit Commitment" means, with respect to any Revolving
Credit Lender at any time, the amount set forth opposite such Lender's name
on Schedule I hereto under the caption "Revolving Credit Commitment" or, if
such Lender has entered into one or more Assignments and Acceptances, set
forth for such Lender in the Register maintained by the Administrative Agent
pursuant to Section 8.07(b) as such Lender's "Revolving Credit Commitment",
as such amount may be reduced at or prior to such time pursuant to Section
2.04.
"Revolving Credit Facility" means, at any time, the aggregate
amount of the Revolving Credit Lenders' Revolving Credit Commitments at such
time.
"Revolving Credit Lender" means any Lender that has a Revolving
Credit Commitment.
"Revolving Credit Note" means a promissory note of the Borrower
payable to the order of any Lender having a Revolving Credit Commitment or a
Revolving Credit Advance, in substantially the form of Exhibit A-2 to the
Existing Credit Agreement as amended pursuant to Section 8.13 or in
substantially the form of Exhibit A-2 hereto, evidencing the aggregate
indebtedness of the Borrower to such Lender resulting from the Revolving
Credit Advances made or held by such Lender.
"Revolving Credit Termination Date" means the earlier of (a)
March 31, 2002 or (b) the date of termination in whole of the Revolving
Credit Commitments pursuant to Section 2.04 or 6.01.
"Rights Offering Registration Statement" means the Form S-3
Registration Statement filed by the Borrower with the Securities and
Exchange Commission on February 27, 1997 in connection with the offering of
subscription rights for the Borrower Preferred Stock and as the same may be
amended with the consent of the Agent following receipt of comments from the
Securities and Exchange Commission.
"Roche" means Roche Holding Ltd, a corporation organized and
existing under the laws of Switzerland.
"Roche Debt" means the indebtedness of the Borrower evidenced by
the Roche Note.
"Roche Holdings" means Roche Holdings, Inc., a Delaware
corporation.
"Roche Note" means the promissory note of the Borrower in the
principal amount of $187,000,000 dated December 23, 1996 in favor of Roche
Holdings, as amended on March 31, 1997 and as further amended with the
consent of the Required Lenders.
"S&P" means Standard & Poor's Ratings Group.
"Solvent" and "Solvency" mean, with respect to any Person on a
particular date, that on such date (a) the fair value of the property of
such Person is greater than the total amount of liabilities, including,
without limitation, contingent liabilities, of such Person, (b) the present
fair salable value of the assets of such Person is not less than the amount
that will be required to pay the probable liability of such Person on its
debts as they become absolute and matured, (c) such Person does not intend
to, and does not believe that it will, incur debts or liabilities beyond
such Person's ability to pay as such debts and liabilities mature and (d)
such Person is not engaged in business or a transaction, and is not about to
engage in business or a transaction, for which such Person's property would
constitute an unreasonably small capital. The amount of contingent
liabilities at any time shall be computed as the amount that, in the light
of all the facts and circumstances existing at such time, represents the
amount that can reasonably be expected to become an actual or matured
liability.
"Stockholders' Equity" means stockholders equity of the Borrower
and its Subsidiaries on a Consolidated basis, as determined in accordance
with GAAP.
"Subordinated Debt" means unsecured indebtedness of the Borrower
for borrowed money incurred pursuant to the terms and conditions set forth
in Schedule VI.
"Subsidiary" of any Person means any corporation, partnership,
limited liability company, joint venture, trust or estate of which (or in
which) more than 50% of (a) the Voting Stock of such corporation, (b) the
interest in the capital or profits of such partnership, limited liability
company or joint venture or (c) the beneficial interest in such trust or
estate is at the time directly or indirectly owned or controlled by such
Person, by such Person and one or more of its other Subsidiaries or by one
or more of such Person's other Subsidiaries.
"Subsidiary Guarantors" means each Material Subsidiary of the
Borrower, from time to time, that is organized under the laws of a state of
the United States.
"Subsidiary Guaranty" has the meaning specified in Section
3.01(d)(vii).
"Surviving Debt" has the meaning specified in Section 4.01(q).
"Taxes" has the meaning specified in Section 2.12(a).
"Tax Finance Lease" means a lease not required, in accordance with
GAAP, to be recorded as a Capitalized Lease, but which is treated as a
financing lease for federal income tax purposes.
"Term Advance" has the meaning specified in Section 2.01(a).
"Term Borrowing" means a borrowing consisting of simultaneous Term
Advances of the same Type made by the Term Lenders.
"Term Commitment" means, with respect to any Term Lender at any
time, the amount set forth opposite such Lender's name on Schedule I hereto
under the caption "Term Commitment" or, if such Lender has entered into one
or more Assignments and Acceptances, set forth for such Lender in the
Register maintained by the Administrative Agent pursuant to Section 8.07(b)
as such Lender's "Term Commitment", as such amount may be reduced pursuant
to Section 2.04.
"Term Facility" means, at any time, the aggregate amount of the
Term Lenders' Term Commitments at such time.
"Term Lender" means any Lender that has a Term Advance.
"Term Note" means a promissory note of the Borrower payable to the
order of any Lender having a Term Commitment or a Term Advance, in
substantially the form of Exhibit A-1 to the Existing Credit Agreement
hereto as amended pursuant to Section 8.13 or in substantially the form of
Exhibit A-1 hereto, evidencing the indebtedness of the Borrower to such
Lender resulting from the Term Advance made or held by such Lender.
"Termination Date" means March 31, 2004.
"Type" refers to the distinction between Term Advances and
Revolving Credit Advances bearing interest at a rate based upon the Base
Rate and Term Advances and Revolving Credit Advances bearing interest at a
rate based upon the Eurodollar Rate.
"Unfunded Pension Liabilities" with respect to any Plan means the
excess, if any, of its accumulated benefit obligation, as determined in
accordance with Statement of Financial Accounting Standards No. 87 or any
successor thereto (based on interest, mortality and other relevant actuarial
assumptions used to fund such Plan as of its most recent actuarial
valuation), over the fair market value of its assets (as of such date).
"Unreimbursed Drawings" has the meaning specified in Section
2.03A(c)(i).
"Unused Revolving Credit Commitment" means, with respect to any
Revolving Credit Lender at any time, (a) such Lender's Revolving Credit
Commitment at such time, minus (b) the aggregate principal amount of all
Revolving Credit Advances made by such Lender under the Revolving Credit
Facility and outstanding at such time, minus (c) the Competitive Bid
Reduction applicable to such Lender pursuant to Section 2.01(b), and minus
(d) such Lender's pro rata share of the L/C Outstandings.
"Voting Stock" means capital stock issued by a corporation, or
equivalent interests in any other Person, the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for the
election of directors (or persons performing similar functions) of such
Person, even though the right so to vote has been suspended by the happening
of such a contingency.
"Welfare Plan" means a welfare plan, as defined in Section 3(1) of
ERISA.
"Withdrawal Liability" has the meaning specified in Part I of
Subtitle E of Part IV of ERISA.
"Working Capital" means current assets minus current liabilities,
excluding cash, Cash Equivalents, the current portion of long-term Debt, and
the aggregate outstanding principal amount of all Revolving Credit Advances
made under the Revolving Credit Facility.
SECTION 1.02. Computation of Time Periods. In this Agreement in
the computation of periods of time from a specified date to a later
specified date, the word "from" means "from and including" and the words
"to" and "until" each means "to but excluding".
SECTION 1.03. Accounting Terms and Determinations. Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder shall be prepared in
accordance with GAAP, applied on a basis consistent (except for changes
concurred in by the Borrower's independent public accountants) with the most
recent audited consolidated financial statements of the Borrower and its
Consolidated Subsidiaries delivered to the Lenders; provided that, if the
Borrower notifies the Administrative Agent that the Borrower wishes to amend
any covenant in Article V to eliminate the effect of any change in GAAP on
the operation of such covenant (or if the Administrative Agent notifies the
Borrower that the Required Lenders wish to amend Article V for such
purpose), then the Borrower's compliance with such covenant shall be
determined on the basis of GAAP in effect immediately before the relevant
change in GAAP became effective, until either such notice is withdrawn or
such covenant is amended in a manner satisfactory to the Borrower and the
Required Lenders.
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Advances. (a) The Term Advances. On the
Amendment Effective Date the Term Advance made by each Term Lender under the
Existing Credit Agreement shall continue as an advance hereunder (a "Term
Advance"). Term Advances repaid or prepaid may not be reborrowed.
(b) The Revolving Credit Advances. On the Amendment Effective
Date each Revolving Credit Advance made by each Revolving Credit Lender
under the Existing Credit Agreement shall continue as an advance hereunder
and each Revolving Credit Lender severally agrees, on the terms and
conditions hereinafter set forth, to make additional advances (each a
"Revolving Credit Advance") to the Borrower from time to time on any
Business Day during the period from the Amendment Effective Date until the
Revolving Credit Termination Date, in an aggregate amount not to exceed at
any time outstanding such Lender's Revolving Credit Commitment on such
Business Day; provided that the aggregate amount of the Revolving Credit
Commitments of the Lenders shall be deemed used from time to time to the
extent of the aggregate amount of the Competitive Bid Advances then
outstanding and such deemed use of the aggregate amount of the Revolving
Credit Commitments shall be allocated among the Lenders ratably according to
their respective Revolving Credit Commitments (such deemed use of the
aggregate amount of the Revolving Credit Commitments being a "Competitive
Bid Reduction") and provided further that the aggregate amount of the
Revolving Credit Commitments of the Lenders shall be deemed used from time
to time to the extent of the aggregate amount of the L/C Outstandings and
such deemed use of the aggregate amount of the Revolving Credit Commitments
shall be allocated among the Lenders ratably according to their respective
Revolving Credit Commitments. Each Revolving Credit Borrowing shall be in
an aggregate amount not less than $10,000,000 or an integral multiple of
$1,000,000 in excess thereof (or, if less, an aggregate amount equal to the
amount by which the aggregate amount of a proposed Competitive Bid Borrowing
requested by the Borrower exceeds the aggregate amount of Competitive Bid
Advances offered to be made by the Lenders and accepted by the Borrower in
respect of such Competitive Bid Borrowing, if such Competitive Bid Borrowing
is made on the same date as such Revolving Credit Borrowing) and shall
consist of Advances made on the same day by the Revolving Credit Lenders
ratably according to their respective Revolving Credit Commitments. Within
the limits of each Revolving Credit Lender's Unused Revolving Credit
Commitment in effect from time to time, the Borrower may borrow, prepay
pursuant to Section 2.05(a) and reborrow under this Section 2.01(b).
(c) The Competitive Bid Advances. Each Lender severally agrees
that the Borrower may make Competitive Bid Borrowings from time to time on
any Business Day during the period from the Amendment Effective Date until
the date occurring seven days prior to the Revolving Credit Termination Date
in the manner set forth in Section 2.02(b); provided that, following the
making of each Competitive Bid Borrowing, the aggregate amount of the
Revolving Credit Advances and Competitive Bid Advances then outstanding
shall not exceed the aggregate amount of the Revolving Credit Commitments of
the Lenders (calculated without regard to any Competitive Bid Reduction).
Each Competitive Bid Borrowing shall be in an aggregate amount of
$10,000,000 or an integral multiple of $1,000,000 in excess thereof, subject
to the immediately preceding proviso. Within the limits and on the
conditions set forth in this Article II, the Borrower may from time to time
borrow under this Section 2.01(c), repay and reborrow under this Section
2.01(c), provided that a Competitive Bid Borrowing shall not be made within
seven Business Days (or such other period as the Borrower and the
Administrative Agent may agree) of the date of any other Competitive Bid
Borrowing.
SECTION 2.02. Making the Advances. (a) Committed Advances. (i)
Each Committed Borrowing shall be made on notice given not later than 11:00
A.M. (New York City time) on the date of a proposed Base Rate Borrowing or
the third Business Day prior to the date of a proposed Eurodollar Rate
Borrowing, by the Borrower to the Administrative Agent, which shall give to
each Lender prompt notice thereof by telecopier, telex or cable. Each such
notice of a Committed Borrowing (a "Notice of Committed Borrowing") shall be
by telecopier, telex or cable (or by telephone and confirmed immediately
thereafter by telecopier, telex or cable), in substantially the form of
Exhibit C-1 hereto, specifying therein the requested (A) date of such
Committed Borrowing, (B) Type of Advances comprising such Committed
Borrowing, (C) aggregate amount of such Committed Borrowing and (D) Interest
Period for each Eurodollar Rate Advance included in such Committed
Borrowing. In the case of any such proposed Committed Borrowing comprised
of Eurodollar Rate Advances, the Administrative Agent shall promptly notify
the Borrower and each Lender of the applicable interest rate under Section
2.06(a)(ii). Each Lender shall, before 1:00 P.M. (New York City time) on
the date of such Committed Borrowing, make available for the account of its
Applicable Lending Office to the Administrative Agent at the Administrative
Agent's Account, in same day funds, such Lender's ratable portion of such
Committed Borrowing. After the Administrative Agent's receipt of such funds
and upon fulfillment of the applicable conditions set forth in Article III,
the Administrative Agent will make such funds available by crediting the
Borrower's Account. Each Notice of Committed Borrowing shall be irrevocable
and binding on the Borrower.
(ii) The Borrower may not request a Committed Borrowing comprised
of Eurodollar Rate Advances or, pursuant to Section 2.15, convert Base Rate
Advances into Eurodollar Rate Advances or select a new Interest Period for
existing Eurodollar Rate Advances if, after the making or Conversion of such
Advances or the selection of such Interest Period, the number of outstanding
Committed Borrowings comprised of Eurodollar Rate Advances and having
different Interest Periods (whether of different duration or commencing on
different dates) would exceed ten.
(iii) Unless the Administrative Agent shall have received notice
from a Lender prior to the date of any Committed Borrowing under a Facility
under which such Lender has a Commitment that such Lender will not make
available to the Administrative Agent such Lender's ratable portion of such
Committed Borrowing, the Administrative Agent may assume, or at its option
request confirmation from such Lender, that such Lender has made such
portion available to the Administrative Agent on the date of such Committed
Borrowing in accordance with Section 2.02(a)(i) and the Administrative Agent
may, in reliance upon such assumption or confirmation (as the case may be),
make available to the Borrower on such date a corresponding amount. If and
to the extent that such Lender shall not have so made such ratable portion
available to the Administrative Agent, such Lender and the Borrower
severally agree to repay to the Administrative Agent forthwith on demand
such corresponding amount together with interest thereon, for each day from
the date such amount is made available to the Borrower until the date such
amount is repaid to the Administrative Agent, at (A) in the case of the
Borrower, the interest rate applicable at such time under Section 2.06 to
Advances comprising such Committed Borrowing and (B) in the case of such
Lender, the cost (expressed as a rate per annum) to the Administrative Agent
of funding such Lender's ratable portion; provided that, upon the request of
such Lender, the Administrative Agent shall provide such Lender with a
certificate as to the calculation of such amount. If such Lender shall
repay to the Administrative Agent such corresponding amount, such amount so
repaid shall constitute such Lender's Advance as part of such Committed
Borrowing for purposes of this Agreement.
(b) Competitive Bid Advances. (i) The Borrower may request a
Competitive Bid Borrowing by delivering to the Administrative Agent, by
telecopier or telex, confirmed immediately in writing, a notice of a
Competitive Bid Borrowing (a "Notice of Competitive Bid Borrowing"), in
substantially the form of Exhibit C-2 hereto, specifying therein (A) the
date of such proposed Competitive Bid Borrowing, (B) the aggregate amount of
such proposed Competitive Bid Borrowing, (C) the maturity date for repayment
of each Competitive Bid Advance to be made as part of such Competitive Bid
Borrowing (which maturity date may not be earlier than the date occurring
seven days after the date of such Competitive Bid Borrowing or later than
the Revolving Credit Termination Date), (D) the interest payment date or
dates relating thereto and (E) any other terms to be applicable to such
Competitive Bid Borrowing, not later than 11:00 A.M. (New York City time)
(x) at least one Business Day prior to the date of the proposed Competitive
Bid Borrowing, if the Borrower shall specify in the Notice of Competitive
Bid Borrowing that the rates of interest to be offered by the Lenders shall
be fixed rates per annum (the Competitive Bid Advances comprising any such
Competitive Bid Borrowing being referred to herein as "Fixed Rate Advances")
and (y) at least four Business Days prior to the date of the proposed
Competitive Bid Borrowing, if the Borrower shall instead specify in the
Notice of Competitive Bid Borrowing the basis to be used by the Lenders in
determining the rates of interest to be offered by them (the Competitive Bid
Advances comprising any such Competitive Bid Borrowing being referred to
herein as "LIBO CB Advances"). The Administrative Agent shall in turn
promptly notify each Lender of each request for a Competitive Bid Borrowing
received by it from the Borrower by sending such Lender a copy of the
related Notice of Competitive Bid Borrowing.
(ii) Each Lender may, if, in its sole discretion, it elects to do
so, irrevocably offer to make one or more Competitive Bid Advances to the
Borrower as part of such proposed Competitive Bid Borrowing at a rate or
rates of interest specified by such Lender, in its sole discretion, by
submitting a notice, in the form of Exhibit C-3, to the Administrative Agent
(which shall give prompt notice thereof to the Borrower), before 9:30 A.M.
(New York City time) on the date of such proposed Competitive Bid Borrowing,
in the case of a Competitive Bid Borrowing consisting of Fixed Rate
Advances, and three Business Days before the date of such proposed
Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing
consisting of LIBO CB Advances, specifying (A) the minimum amount and
maximum amount of each Competitive Bid Advance which such Lender would be
willing to make as part of such proposed Competitive Bid Borrowing (which
amounts may, subject to the first proviso set forth in Section 2.01(c),
exceed such Lender's Revolving Credit Commitment, if any), (B) the rate or
rates of interest per annum therefor and (C) such Lender's Applicable
Lending Office with respect to such Competitive Bid Advance; provided that
if the Administrative Agent in its capacity as a Lender shall, in its sole
discretion, elect to make any such offer, it shall notify the Borrower of
such offer before 9:15 A.M. (New York City time) on the date on which notice
of such election is to be given to the Administrative Agent by the other
Lenders.
(iii) The Borrower shall, in turn, before 10:30 A.M. (New York
City time) on the date of such proposed Competitive Bid Borrowing, in the
case of a Competitive Bid Borrowing consisting of Fixed Rate Advances, and
before 10:30 A.M. (New York City time) three Business Days before the date
of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid
Borrowing consisting of LIBO CB Advances, either:
(A) cancel such Competitive Bid Borrowing by giving the
Administrative Agent notice to that effect, or
(B) accept one or more of the offers made by any Lender or
Lenders pursuant to Section 2.02(b)(ii), in its sole discretion, by
giving notice to the Administrative Agent of the amount of each
Competitive Bid Advance (which amount shall be equal to or greater than
the minimum amount, and equal to or less than the maximum amount,
notified to the Borrower by the Administrative Agent on behalf of such
Lender for such Competitive Bid Advance pursuant to Section
2.02(b)(ii)) to be made by each Lender as part of such Competitive Bid
Borrowing, and reject any remaining offers made by Lenders pursuant to
Section 2.02(b)(ii) by giving the Administrative Agent notice to that
effect. If the Borrower accepts any offers made by Lenders pursuant to
Section 2.02(b)(ii), such offers shall be accepted in the order of the
lowest to highest interest rates or, if two or more Lenders offer to
make Competitive Bid Advances at the same interest rate, such offers,
if any, shall be accepted in proportion to the amount offered by each
such Lender at such interest rate.
(iv) If the Borrower notifies the Administrative Agent that such
Competitive Bid Borrowing is cancelled pursuant to Section 2.02(b)(iii)(A),
the Administrative Agent shall give prompt notice thereof to the Lenders and
such Competitive Bid Borrowing shall not be made.
(v) If the Borrower accepts one or more of the offers made by any
Lender or Lenders pursuant to Section 2.02(b)(iii)(B), the Administrative
Agent shall in turn promptly notify (A) each Lender that has made an offer
pursuant to Section 2.02(b)(ii) of the date and aggregate amount of such
Competitive Bid Borrowing and whether or not any offer or offers made by
such Lender pursuant to Section 2.02(b)(ii) have been accepted by the
Borrower and (B) each Lender that is to make a Competitive Bid Advance as
part of such Competitive Bid Borrowing of the amount of each Competitive Bid
Advance to be made by such Lender as part of such Competitive Bid Borrowing.
Each Lender that is to make a Competitive Bid Advance as part of such
Competitive Bid Borrowing shall, before 1:00 P.M. (New York City time) on
the date of such Competitive Bid Borrowing, make available for the account
of its Applicable Lending Office to the Administrative Agent at the
Administrative Agent's Account, in same day funds, such Lender's portion of
such Competitive Bid Borrowing. Upon fulfillment of the applicable
conditions set forth in Article III and after receipt by the Administrative
Agent of such funds, the Administrative Agent will make such funds available
to the Borrower by crediting the Borrower's Account. Promptly after each
Competitive Bid Borrowing the Administrative Agent will notify each Lender
of the amount of the Competitive Bid Borrowing, the consequent Competitive
Bid Reduction and the dates upon which such Competitive Bid Reduction
commenced and will terminate.
(vi) The Administrative Agent shall maintain at its address
referred to in Section 8.02 a copy of each Notice of Competitive Bid
Borrowing delivered by the Borrower and a register for the recordation of
the date, amount, maturity, interest rate, interest payment dates, other
terms and Lender of each Competitive Bid Advance accepted by the Borrower
from time to time pursuant to this Section 2.02(b) (the "Competitive Bid
Register"). The entries in the Competitive Bid Register shall be conclusive
and binding for all purposes, absent manifest error, and the Borrower, the
Administrative Agent and the Lenders may treat the entries recorded in the
Competitive Bid Register as evidence of Competitive Bid Advances made
pursuant to this Section 2.02(b). The Competitive Bid Register shall be
available for inspection by the Borrower or any Lender making a Competitive
Bid Advance at any reasonable time and from time to time upon reasonable
prior notice.
(vii) The indebtedness of the Borrower resulting from each
Competitive Bid Advance made to the Borrower as part of a Competitive Bid
Borrowing shall be evidenced by a master Competitive Bid Note of the
Borrower payable to the order of the Administrative Agent for the benefit of
the Lender making such Competitive Bid Advance.
(c) Funding Losses. The Borrower shall indemnify each Lender
against any loss, cost or expense incurred by such Lender as a result of any
failure by the Borrower to fulfill on or before the date specified in any
Notice of Borrowing for the applicable Borrowing the applicable conditions
set forth in Article III, including, without limitation, any loss, cost or
expense incurred by reason of the liquidation or reemployment of deposits or
other funds acquired by such Lender to fund the Advance to be made by such
Lender as part of such Borrowing when such Advance, as a result of such
failure, is not made on such date.
(d) Several Obligations. The failure of any Lender to make the
Advance to be made by it as part of any Borrowing shall not relieve any
other Lender of its obligation, if any, hereunder to make its Advance on the
date of such Borrowing, but no Lender shall be responsible for the failure
of any other Lender to make the Advance to be made by such other Lender on
the date of any Borrowing.
SECTION 2.03. Repayment. (a) Term Advances. The Borrower shall
repay to the Administrative Agent for the ratable account of the Lenders
having Term Advances the outstanding principal amount of the Term Advances
on the following dates in the amounts indicated; provided that the last such
installment shall be in an amount sufficient to repay all amounts owed by
the Borrower under the Term Advances:
DATE AMOUNT
---- ------
March 31, 1999 12,500,000
June 30, 1999 12,500,000
September 30, 1999 12,500,000
December 31, 1999 12,500,000
March 31, 2000 25,000,000
June 30, 2000 25,000,000
September 30, 2000 25,000,000
December 31, 2000 25,000,000
March 31, 2001 37,500,000
June 30, 2001 37,500,000
September 30, 2001 37,500,000
December 31, 2001 37,500,000
March 31, 2002 37,500,000
June 30, 2002 37,500,000
September 30, 2002 37,500,000
December 31, 2002 37,500,000
March 31, 2003 37,500,000
June 30, 2003 37,500,000
September 30, 2003 37,500,000
December 31, 2003 37,500,000
March 31, 2004 93,750,000
----------
Total $693,750,000
============
(b) Revolving Credit Advances. The Borrower shall repay to the
Administrative Agent for the ratable account of the Lenders having Revolving
Credit Advances the aggregate principal amount of the Revolving Credit
Advances on the Revolving Credit Termination Date.
(c) Competitive Bid Advances. The Borrower shall repay to the
Administrative Agent for the account of each Lender that has made a
Competitive Bid Advance, on the maturity date of each Competitive Bid
Advance (such maturity date being that specified by the Borrower for
repayment of such Competitive Bid Advance in the related Notice of
Competitive Bid Borrowing delivered by the Borrower and recorded in the
Competitive Bid Register with respect to such Competitive Bid Advance), the
then unpaid principal amount of such Competitive Bid Advance.
SECTION 2.03A. Letters of Credit.
(a) Amount and Expiration. (i) Subject to the terms and
conditions of this Agreement, the Borrower may request that an L/C Issuer,
in its individual capacity, issue one or more standby L/Cs for the account
of the Borrower, provided, however, that no L/C shall be issued if, after
giving effect to the issuance of such L/C (x) the aggregate amount of all
L/C Outstandings and the aggregate amount of all Revolving Credit Advances
and Competitive Bid Advances then outstanding would exceed the aggregate
amount of the Revolving Credit Commitments of the Lenders at such time or
(y) the aggregate amount of all L/C Outstandings then outstanding would
exceed the L/C Sublimit. Subject to the foregoing, the Borrower may request
the issuance of L/C(s) under this Section 2.03A(a)(i), repay any drawings
thereunder and request the issuance of additional L/Cs under this
Section 2.03A(a)(i). For all purposes of this Agreement, reference to the
"issue" or "issuance" of any L/C or any L/C being "issued" shall include the
amendment, supplement or modification of any L/C, including, without
limitation, any increase in the amount thereof, or any extension or renewal
thereof.
(ii) Each L/C shall expire by its terms not later than the L/C
Expiration Date. Subject to the preceding sentence, each L/C shall expire
on or before the first anniversary of the date of such issuance; provided
that the expiry date of any L/C may be extended from time to time for a
period not exceeding one year (i) at the Borrower's request or (ii) if such
L/C so provides, automatically, in each case so long as such extension is
granted (or the last day on which notice can be given to prevent such
extension occurs) no earlier than three months before the then existing
expiry date thereof. No L/C may be denominated or drawable other than in
United States dollars.
(b) Notice and Issuance. (i) The Borrower shall give notice to
the applicable L/C Issuer and to the Administrative Agent, of a request for
issuance of any L/C not less than five (5) Business Days prior to the
proposed issuance date (which prescribed time period may be waived at the
option of the applicable L/C Issuer in the exercise of its sole discretion).
Each such notice (a "L/C Issuance Request") shall specify: (A) the requested
date of such issuance (which shall be a Business Day); (B) the maximum
amount of such L/C; (C) the expiration date of such L/C; (D) the purpose of
such L/C; (E) the name and address of the beneficiary of such L/C; (F) the
identity of the L/C Issuer for such L/C; and (G) the required documents
under any such L/C and, if one has been supplied by the beneficiary of such
L/C, the form of such L/C (which shall be acceptable to both of such L/C
Issuer and the Administrative Agent, in their respective sole discretion).
The making of each L/C Issuance Request shall be deemed to be a
representation and warranty by the Borrower that such L/C may be issued in
accordance with and will not violate the terms of Section 2.03A(a)(i)
hereof. Each L/C Issuance Request shall be accompanied by the Application
Documents, each duly completed and executed and delivered by the Borrower.
(ii) Upon acceptance of the form of the proposed L/C by the
applicable L/C Issuer and the Administrative Agent and upon fulfillment of
the conditions set forth above in this Section 2.03A(b) and the applicable
conditions in Article III hereof, such L/C Issuer shall issue such L/C and
provide notice thereof to the Administrative Agent. Promptly after
issuance, amendment or any extension of such L/C, such L/C Issuer shall
provide the Administrative Agent with copy of such L/C or amendment thereto.
(iii) Notwithstanding the foregoing, no L/C Issuer shall be under
any obligation to issue any L/C if at the time of such issuance:
(A) any order, judgment or decree of any
governmental authority or arbitrator shall purport by its
terms to enjoin or restrain such L/C Issuer from issuing such
L/C or any requirement of law applicable to such L/C Issuer
or any request or directive (whether or not having the force
of law) from any governmental authority with jurisdiction
over such L/C Issuer shall prohibit, or request that such L/C
Issuer refrain from, the issuance of letters of credit
generally or such L/C in particular, or shall impose upon
such L/C Issuer with respect to such L/C any requirement (for
which such L/C Issuer is not otherwise compensated) not in
effect on the date hereof, or any unreimbursed loss, cost or
expense which was not applicable, in effect or known to such
L/C Issuer as of the date hereof and which such L/C Issuer in
good faith deems material to it; or
(B) such L/C Issuer shall have received notice
from any Lender prior to the issuance of such L/C that one or
more of the applicable conditions specified in this
Section 2.03A(b) or in Article III are not then satisfied, or
that the issuance of such L/C would violate Section 2.01(b)
above.
(iv) Upon the request of any Lender, the applicable L/C Issuer
shall promptly deliver to such Lender the information specified in Sections
2.03A(b)(i)(A) through (D) above and copies of any L/Cs issued by such L/C
Issuer.
(v) Each L/C Issuer shall, on the last Business Day of each
calendar month, provide to the Administrative Agent a report of the L/C
Obligations with respect to the L/Cs issued by it, including the date of
issue, account party, amount, expiration date and reference number of each
L/C issued by it.
(vi) The relevant L/C Issuer shall give the Administrative Agent
at least three (3) Business Days' notice before such L/C Issuer extends (or
allows an automatic extension of) the expiry date of any L/C issued by it.
Such notice shall (i) identify such L/C, (ii) specify the date on which such
extension is to be made (or the last day on which such L/C Issuer can give
notice to prevent such extension from occurring) and (iii) specify the date
to which such expiry date is to be so extended. No L/C Issuer shall extend
(or allow the extension of) the expiry date of any L/C if (x) the extended
expiry date would be after the thirtieth day before the Revolving Credit
Termination Date or (y) such L/C Issuer shall have been notified by the
Administrative Agent or the Required Lenders expressly to the effect that
such issuance would violate the terms of Section 2.03A(a)(i) on the date
such L/C is to be extended.
(c) Reimbursement Obligations. (i) The applicable L/C Issuer
shall give prompt notice to the Administrative Agent and the Borrower of
each payment under an L/C by such L/C Issuer for drafts drawn or any other
amount paid or disbursed under an L/C. The Borrower shall be obligated to
reimburse the Administrative Agent, for the account of the applicable L/C
Issuer, in immediately available funds, on the day of each payment under an
L/C issued by such L/C Issuer or the date on which such L/C Issuer notifies
the Borrower of such payment, whichever is later, for drafts drawn and all
amounts paid or disbursed under each such L/C (all such amounts so drawn,
paid or disbursed until reimbursed are hereinafter referred to as
"Unreimbursed Drawings"); provided that if such notice is given after 11:00
a.m. (New York City time) on the later of such dates, such reimbursement
shall be due and payable on the next following Business Day (the date on
which it is due and payable being an "L/C Reimbursement Due Date"). If any
such Unreimbursed Drawings are not so reimbursed by 12:00 noon (New York
City time) on the related L/C Reimbursement Due Date, the Borrower's
reimbursement obligation in respect of such Unreimbursed Drawings shall be
funded on such date with the borrowing of Base Rate Advances (each such
advance a "Mandatory L/C Advance") in the full amount of the Unreimbursed
Drawings from all Lenders based on each Lender's pro rata share of the
Revolving Credit Commitment. The Administrative Agent shall promptly notify
the applicable L/C Issuer of the amount of any Unreimbursed Drawings and the
Administrative Agent shall promptly notify the Lenders of the amount of each
such Mandatory L/C Advance not later than 1:00 p.m. (New York City time) on
the date on which such Mandatory L/C Advance is to be made. Each such
Lender hereby irrevocably agrees to make Revolving Credit Advances pursuant
to each Mandatory L/C Advance in the amount, and not later than 3:00 p.m.
(New York City time) on the date, and in the manner specified in the
preceding sentence, notwithstanding (A) that the amount of the Mandatory L/C
Advance may not comply with the minimum amount for Advances otherwise
required hereunder, (B) whether any conditions specified in Article III are
then satisfied, (C) whether a Default or an Event of Default then exists,
(D) the date of such Mandatory L/C Advance and (E) any reduction in the
Revolving Credit Commitment after any such L/C was issued. In the event
that the Administrative Agent delivers the above-described notice to any
Lender later than 1:00 p.m. (New York City time) on the date of the required
Mandatory L/C Advance, then such Lender shall not be obligated to effect
such Mandatory L/C Advance until the next succeeding Business Day (but not
later than 12:00 noon (New York City time)).
(ii) Notwithstanding the foregoing, if at any time when a draft is
drawn under an L/C, there are not sufficient funds in any account of
Borrower with the applicable L/C Issuer or sufficient availability to permit
creation of Revolving Credit Advances sufficient to fund payment of the
related Unreimbursed Drawings in full in accordance with clause (i) above,
any funds advanced by an L/C Issuer and the other Lenders in payment thereof
shall be due and payable on the related L/C Reimbursement Date and shall
bear interest until paid in full at the Default Rate, such interest to be
payable on demand. In the event of any conflict, discrepancy or any
omission of terms provided herein between the terms established by the
applicable L/C Issuer in its Application Documents or otherwise and this
Agreement, the terms provided herein shall prevail. The obligations of the
Lenders in respect of any funds so advanced or to be advanced by the L/C
Issuer under Section 2.03A(c)(i) shall be as more particularly described in
Sections 2.03A(e)(ii) and (iii) hereof.
(d) General Unconditional Obligations. The L/C Obligations shall
be absolute, unconditional and irrevocable, and shall be performed strictly
in accordance with the terms of this Agreement and the Application
Documents, under all circumstances whatsoever, including, without
limitation, the following circumstances, whether relating to any one or more
L/Cs:
(i) any agreement between the Borrower and any beneficiary
or any agreement or instrument relating thereto (the "Beneficiary
Documents") proving to be forged, fraudulent, invalid, unenforceable or
insufficient in any respect;
(ii) any amendment or waiver of or any consent to departure
from all or any of the Beneficiary Documents;
(iii) the existence of any claim, setoff, defense or other
rights which the Borrower may have at any time against any beneficiary
or any transferee of any L/C (or any Persons for whom any applicable
beneficiary or any such transferee may be acting), the applicable L/C
Issuer, any other Lender, the Administrative Agent or any other Person,
whether in connection with this Agreement, the Beneficiary Documents or
any unrelated transaction;
(iv) any demand presented under any L/C (or any endorsement
thereon) proving to be forged, fraudulent, invalid, unenforceable or
insufficient in any respect or any statement therein being inaccurate
in any respect whatsoever;
(v) payment by the applicable L/C Issuer under any L/C
against presentation of a demand which does not comply with the terms
of such L/C, including, without limitation, the circumstances referred
to in clause (iv) above or the failure of any document to bear
reference or to bear adequate reference to such L/C, except to the
extent resulting from the gross negligence or willful misconduct of
such L/C Issuer;
(vi) the use to which any L/C may be put or any acts or
omission of any beneficiary in connection therewith; or
(vii) any other circumstances or happening whatsoever, whether
or not similar to any of the foregoing, except to the extent resulting
from the gross negligence or willful misconduct of the applicable L/C
Issuer.
(e) Participations by Lenders. (i) On the date of issuance of
each L/C the applicable L/C Issuer shall be deemed irrevocably and
unconditionally to have sold and transferred to each Lender (excluding, for
all purposes of this Section 2.03A(e), such L/C Issuer, which shall retain a
portion of such L/C based on its pro rata share of the Revolving Credit
Commitments) without recourse or warranty, and each Lender shall be deemed
to have irrevocably and unconditionally purchased and received from such L/C
Issuer, an undivided interest and participation, to the extent of such
Lender's pro rata share of the Revolving Credit Commitments in effect on the
date of such issuance, in such L/C, each substitute letter of credit, each
drawing made thereunder, the related Application Documents and all L/C
Obligations (other than fees under Section 2.03A(h)(ii) relating to such L/C
and all Loan Documents securing, guaranteeing, supporting, or otherwise
benefiting the payment of such L/C Obligation. Each L/C Issuer shall
furnish to any Lender, upon request, copies of any L/C and any Application
Documents as may be requested by such Lender.
(ii) In the event that any reimbursement obligation under
Section 2.03A(c) hereof is not paid to the applicable L/C Issuer with
respect to any L/C in full immediately or by a Mandatory L/C Advance from
all the Lenders pro rata pursuant to Section 2.03A(c)(i), such L/C Issuer
shall promptly notify the Administrative Agent to that effect, and the
Administrative Agent shall promptly notify the Lenders of the amount of such
reimbursement obligation and each such Lender shall immediately pay to the
Administrative Agent, for immediate payment to such L/C Issuer, in lawful
money of the United States and in immediately available funds, an amount
equal to such Lender's ratable portion of the amount of such unpaid
reimbursement obligation; provided, however, that no Lender shall be
responsible to pay any portion of an unpaid reimbursement obligation of any
other Lender.
(iii) The obligation of each Lender to make Revolving Credit
Advances in respect of each Mandatory L/C Advance and to make payments under
the preceding Section 2.03A(e)(ii) shall be absolute and unconditional and
irrevocable and not subject to any qualification or exception whatsoever and
shall be made in accordance with the terms and conditions of this Agreement
under all circumstances and shall not be subject to any conditions set forth
in Article III hereof or otherwise affected by any circumstance including,
without limitation, (A) the occurrence or continuance of a Default or Event
of Default; (B) any adverse change in the business condition (financial or
otherwise), operations, performance, properties or prospects of the
Borrower; (C) any breach of this Agreement or any Application Documents or
other Loan Documents by the Borrower or any Lender (other than a breach by
the relevant L/C Issuer arising from such L/C Issuer's gross negligence or
willful misconduct); (D) any set-off, counterclaim, recoupment, defense or
other right which such Lender or the Borrower may have at any time against
the applicable L/C Issuer, any other Lender or any beneficiary named in any
L/C in connection herewith or otherwise; (E) the validity, sufficiency or
genuineness of documents, or of any endorsement thereon, even if such
documents should prove to be in any or all respects invalid, insufficient,
fraudulent or forged; (F) any lack of validity or enforcement of this
Agreement or any of the Loan Documents; (G) the granting, surrender or
impairment of any security for the performance or observance of any of the
terms of any of the Loan Documents; or (H) any other circumstance, happening
or event whatsoever, whether or not similar to any of the foregoing. The
Borrower agrees that any Lender purchasing a participation in any L/C from a
L/C Issuer hereunder may, to the fullest extent permitted by law, exercise
all of its rights of payment with respect to such participation as fully as
if such Lender were the direct creditor of the Borrower in the amount of
such participation.
(iv) Promptly after the applicable L/C Issuer receives a payment
on account of a reimbursement obligation with respect to any L/C as to which
any other Lender has funded its participation pursuant to
Section 2.03A(e)(ii) above, such L/C Issuer shall promptly pay to the
Administrative Agent, and the Administrative Agent shall promptly pay to
each Lender which funded its participation therein, in lawful money of the
United States and in the kind of funds so received, an amount equal to such
Lender's ratable share thereof.
(v) If any payment received on account of any reimbursement
obligation with respect to an L/C and distributed to a Lender as a
participant under Section 2.03A(e)(i) is thereafter recovered from the
applicable L/C Issuer in connection with any bankruptcy or insolvency
proceeding relating to the Borrower or otherwise, each Lender which received
such distribution shall, upon demand by the Administrative Agent, repay to
such L/C Issuer such Lender's ratable share of the amount so recovered
together with an amount equal to such Lender's ratable share (according to
the proportion of (A) the amount of such Lender's required repayment to
(B) the total amount so recovered) of any interest or other amount paid or
payable by such L/C Issuer in respect of the total amount so recovered.
(f) Non-Liability. The Borrower assumes all risks of the acts or
omissions of any beneficiary or transferee of any L/C with respect to its
use of such L/C. Neither the Administrative Agent, any L/C Issuer nor any
other Lender, nor any of their respective officers or directors, shall be
liable or responsible for: (i) the use that may be made of any L/C or any
acts or omissions of any beneficiary or transferee in connection therewith;
(ii) the validity, sufficiency or genuineness of documents, or of any
endorsement thereon, even if such documents should prove to be in any or all
respects invalid, insufficient, fraudulent or forged; (iii) payment by the
applicable L/C Issuer against presentation of documents that do not comply
with the terms of an L/C, including failure of any documents to bear any
reference or adequate reference to an L/C, except that the Borrower shall
have a claim against such L/C Issuer, and such L/C Issuer shall be liable to
the Borrower, to the extent of any direct, but not consequential, damages
suffered by the Borrower that the Borrower proves were caused solely by
(A) such L/C Issuer's willful misconduct or gross negligence in determining
whether documents presented under any L/C comply with the terms of the L/C
or (B) such L/C Issuer's willful failure to make lawful payment under an L/C
after the presentation to it of a draft and documents and/or certificates
strictly complying with the terms and conditions of the L/C; (iv) for
errors, omissions, interruptions or delays in transmission or delivery of
any messages, by mail, cable, telegraph, telex or otherwise, whether or not
they are in cipher; (v) for errors in interpretation of technical terms;
(vi) for any loss or delay in the transmission or otherwise of any document
required in order to make a drawing under any such L/C or of the proceeds
thereof; and (vii) for any consequence arising from causes beyond the
control of such L/C Issuer, including, without limitation, any government
acts. None of the above shall affect, impair, or prevent the vesting of any
of such L/C Issuer's rights or powers hereunder. In furtherance and not in
limitation of the foregoing, the L/C Issuers may accept documents that
appear on their face to be in order, without responsibility for further
investigation, regardless of any notice or information to the contrary. The
Uniform Customs and Practice for Documentary Credits as most recently
published by the International Chamber of Commerce shall be deemed a part of
this Section 2.03A as if incorporated herein in all respects and shall apply
to the L/Cs.
(g) Indemnification. In addition to amounts payable as elsewhere
provided in this Agreement, without duplication, the Borrower agrees to
indemnify and hold harmless the Administrative Agent and each Lender,
including each L/C Issuer, from and against any and all claims, damages,
losses, liabilities and expenses (including, without limitation, reasonable
fees and expenses of counsel) which any such Administrative Agent or Lender
may incur or be subject to as a consequence, direct or indirect, of the
issuance of any L/C or any action or proceeding relating to a court order,
injunction, or other process or decree restraining or seeking to restrain an
L/C Issuer or the Administrative Agent from paying any amount under any
applicable L/C or the failure of an L/C Issuer to honor a drawing under an
L/C as a result of any act or omission, whether rightful or wrongful of any
present or future de jure or de facto government or governmental authority,
except that no such Person shall be entitled to indemnification for matters
to the extent caused by such Person's gross negligence or willful
misconduct. Without modifying the foregoing, and anything contained herein
to the contrary notwithstanding, the Borrower shall use all reasonable
efforts to cause each L/C issued for its account to be canceled and returned
to the applicable L/C Issuer promptly upon its expiration.
(h) Letter of Credit and Fronting Fees. The Borrower agrees to
pay to (i) the Administrative Agent, for the account of the Lenders in
proportion to their Revolving Credit Commitments, a letter of credit fee for
the period from and including the Amendment Effective Date to the Revolving
Credit Termination Date equal to the Applicable Margin for Revolving Credit
Advances that bear interest at the Eurodollar Rate less 0.125% per annum on
the average daily L/C Outstandings, if any, during such period, such letter
of credit fee to be payable quarterly in arrears on the last Business Day of
each January, April, July and October of each year and on the Revolving
Credit Termination Date commencing on the first such date to occur after the
Amendment Effective Date and (ii) each L/C Issuer a fronting fee, not to
exceed 0.125% per annum on the average daily L/C Outstandings of such L/C
Issuer, in the amount and on the dates as specified in any fee letter
between the Borrower and each such L/C Issuer.
SECTION 2.04. Reduction of the Commitments. (a) Optional. The
Borrower shall have the right, upon at least three Business Days' prior
notice to the Administrative Agent, to terminate in whole or reduce ratably
in part the Term Commitments or the Unused Revolving Credit Commitments;
provided that each partial reduction shall be in an aggregate amount of
$10,000,000 or an integral multiple of $1,000,000 in excess thereof, and
each reduction of the Term Commitment shall be applied pro rata to reduce
the amounts of each installment due pursuant to Section 2.03(a). No
Commitment amount so terminated shall be reinstated.
(b) Mandatory. (i) Dispositions, Etc. The Revolving Credit
Commitments shall be reduced, on a pro rata basis for each Lender, by an
amount equal to the amounts required to be applied to reduce the Revolving
Credit Facility pursuant to Section 2.05(b).
(ii) Revolving Credit Termination Date. The Revolving Credit
Commitments shall terminate in whole on the Revolving Credit Termination
Date.
SECTION 2.05. Prepayments. (a) Optional. The Borrower may,
upon at least one Business Day's notice to the Administrative Agent, in the
case of Base Rate Advances, and three Business Days' notice to the
Administrative Agent, in the case of Eurodollar Rate Advances, stating the
proposed date and aggregate principal amount of the prepayment, and if such
notice is given, the Borrower shall, prepay the outstanding principal
amounts of the Committed Advances comprising part of the same Borrowing in
whole or ratably in part, together with accrued interest to the date of such
prepayment on the principal amount so prepaid; provided, however, that (x)
each partial prepayment shall be in an aggregate principal amount not less
than $10,000,000 or an integral multiple of $1,000,000 in excess thereof
(or, if the aggregate principal amount of all Committed Advances that
constitute part of such Borrowing is less, such aggregate principal amount)
and (y) in the event any such prepayment of Eurodollar Rate Advances is not
made on the last day of an Interest Period, the Borrower shall be obligated
to reimburse the Lenders in respect thereof pursuant to Section 8.04(b).
Each such prepayment of any Term Advances shall be applied to the
installments thereof in inverse order of maturity. The Borrower shall have
no optional right to prepay any principal amount of any Competitive Bid
Advance unless, and then only on the terms, specified by the Borrower for
such Competitive Bid Advance in the related Notice of Competitive Bid
Borrowing delivered by the Borrower and set forth in the Competitive Bid
Register with respect to such Competitive Bid Advance.
(b) Mandatory. (i) Dispositions. The Borrower shall, as
promptly as practicable after the date of receipt by the Borrower or any of
its Subsidiaries of Net Cash Proceeds from any Disposition (other than the
sale of capital stock of the Borrower), which Net Cash Proceeds (A) exceed
$1,000,000 for any single transaction or series of related transactions, and
(B) when aggregated with all other Net Cash Proceeds from Dispositions with
Net Cash Proceeds in excess of $1,000,000 for any single transaction or
series of related transactions received during the term of this Agreement,
exceed $25,000,000, apply an amount equal to 100% of the amount of Net Cash
Proceeds of such Disposition, if the Borrower or such Subsidiary does not
reinvest, within one year of such Disposition, such Net Cash Proceeds in
productive assets of a kind used or usable in the business of the Borrower
or such Subsidiary, as follows: First, to the Term Advances, in prepayment
of the installments thereof pro rata, and second, to the Revolving Credit
Facility, as a reduction in the Revolving Credit Commitments.
(ii) Debt Issuance. The Borrower shall, on the date of receipt of
the Net Cash Proceeds from the sale and issuance by the Borrower or any of
its Subsidiaries of any Debt (other than Debt permitted pursuant to Section
5.02(j) (other than Sections 5.02(j)(ii)(A) and 5.02(j)(ix)), apply an
amount equal to 100% of such Net Cash Proceeds as follows: (A) First, to
the Term Advances, in prepayment of the installments thereof, (1) first, 50%
of such prepayment to be applied to such installments in the inverse order
of maturity and (2) second, 50% of such prepayment to be applied to such
installments pro rata, and (B) Second, to the Revolving Credit Facility, as
a reduction in the Revolving Credit Commitments.
(iii) Equity Issuance. The Borrower shall, on the date of
receipt of the Net Cash Proceeds from the sale and issuance by the Borrower
or any of its Subsidiaries of any capital stock, but only to the extent that
Net Cash Proceeds when aggregated with all other Net Cash Proceeds from the
Preferred Stock Offering and any other sale of capital stock received on or
after the date of this Agreement exceed $250,000,000, apply an amount equal
to (A) 100% of such Net Cash Proceeds in excess of $250,000,000 and less
than or equal to $500,000,000 as follows: First, to pay the Roche Debt,
second, the excess, if any, to prepay $50,000,000 of Term Advances to be
applied to installments thereof pro rata, and third, to the Revolving Credit
Facility, to prepay Revolving Credit Advances and (B) 50% of such Net Cash
Proceeds in excess of $500,000,000 as follows: First, to the Term Advances,
in prepayment of the installments thereof pro rata, and second, to the
Revolving Credit Facility, as a reduction in the Revolving Credit
Commitments.
(iv) Excess Cash Flow. The Borrower shall, within 105 days after
the end of each fiscal year of the Borrower, apply an amount equal to (A) if
the Leverage Ratio for such fiscal year is equal or greater than 3:5:1.0,
75% of Excess Cash Flow for such fiscal year or (B) if the Leverage Ratio
for such fiscal year is less than 3:5:1.0 but greater than 2:5:1.0, 50% of
Excess Cash Flow for such fiscal year, in each case as follows: First, to
the Term Advances, in prepayment of the installments thereof, pro rata, and
second, to the Revolving Credit Facility, as a reduction in the Revolving
Credit Commitments.
(v) Deferral. If any application of Net Cash Proceeds required
by clauses (i) through (iv) above would otherwise require prepayment of
Eurodollar Rate Advances or portions thereof prior to the last day of a then
current Interest Period relating thereto, such reduction shall, unless the
Administrative Agent otherwise notifies the Borrower upon the instructions
of the Required Lenders, be deferred to the last day of the related Interest
Period.
(vi) Overadvance. The Borrower shall, on each Business Day,
prepay an aggregate principal amount of the Revolving Credit Advances (and
any Competitive Bid Advances) equal to the amount by which the aggregate
principal amount of the Revolving Credit Advances (and any Competitive Bid
Advances) plus the L/C Outstandings exceeds the Revolving Credit Facility on
such Business Day.
(vii) Accrued Interest. All prepayments under this Section
2.05(b) shall be made together with accrued interest to the date of such
prepayment on the principal amount prepaid.
SECTION 2.06. Interest. (a) Ordinary Interest on Committed
Advances. The Borrower shall pay interest on the unpaid principal amount of
each Committed Advance owing to each Lender from the date of such Advance
until such principal amount shall be paid in full, at the following rates
per annum:
(i) Base Rate Advances. During such periods as such Advance
is a Base Rate Advance, a rate per annum equal at all times to the sum
of the Base Rate in effect from time to time plus the Applicable Margin
in effect from time to time, payable in arrears quarterly on the last
Business Day of each January, April, July and October during such
periods and on the date such Base Rate Advance shall be Converted or
paid in full.
(ii) Eurodollar Rate Advances. During such periods as such
Advance is a Eurodollar Rate Advance, a rate per annum equal at all
times during each Interest Period for such Advance to the sum of the
Eurodollar Rate for such Interest Period plus the Applicable Margin in
effect from time to time, payable in arrears on (A) the last day of
such Interest Period and (B) if such Interest Period has a duration of
more than three months, on each day that occurs during such Interest
Period every three months from the first day of such Interest Period
(clause (iii) of the definition of "Interest Period" set forth in
Section 1.01 shall apply to payments required by this clause (B), as if
the three-month period referred to herein constitutes an "Interest
Period").
(b) Ordinary Interest on Competitive Bid Advances. The Borrower
shall pay interest on the unpaid principal amount of each Competitive Bid
Advance from the date of such Competitive Bid Advance to the date the
principal amount of such Competitive Bid Advance is repaid in full, at the
rate of interest for such Competitive Bid Advance specified by the Lender
making such Competitive Bid Advance in its notice with respect thereto
delivered pursuant to Section 2.02(b)(ii), payable on the interest payment
date or dates specified by the Borrower for such Competitive Bid Advance in
the related Notice of Competitive Bid Borrowing delivered by the Borrower,
as recorded in the Competitive Bid Register with respect to such Competitive
Bid Advance.
(c) Default Interest. The Borrower shall pay on demand interest
on the unpaid principal amount of each Advance that is not paid when due and
on the unpaid amount of all interest, fees and other amounts then due and
payable hereunder that is not paid when due from the due date thereof to the
date paid, at a rate per annum equal at such time to (i) in the case of any
amount of principal, 2% per annum above the rate of interest per annum
required to be paid on such Advance immediately prior to the date on which
such amount became due and payable and (ii) in the case of all other
amounts, 2% per annum above the rate per annum required to be paid on Base
Rate Advances pursuant to Section 2.06(a)(i).
SECTION 2.07. Interest Rate Determination. (a) The
Administrative Agent shall give prompt notice to the Borrower and each
Lender of the applicable interest rate determined by the Administrative
Agent for purposes of Section 2.06(a) and of any British Bankers'
Association Settlement Rates or Reference Lenders rates obtained by the
Administrative Agent for the purposes of determining the applicable interest
rate under Section 2.06(a).
(b) If neither the British Bankers' Association Settlement Rates
nor the rates of the Reference Lenders are timely available to the
Administrative Agent for determining the Eurodollar Rate, the Administrative
Agent shall forthwith notify the Borrower and each Lender that the interest
rate cannot be determined for such Eurodollar Rate Advances, whereupon (i)
each such Eurodollar Rate Advance will automatically, on the last day of the
then existing Interest Period therefor, Convert into a Base Rate Advance and
(ii) the obligation of the Lenders to make, or to Convert Advances into,
Eurodollar Rate Advances shall be suspended until the Administrative Agent
shall notify the Borrower that the Administrative Agent has determined that
the circumstances causing such suspension no longer exist.
(c) If the Required Lenders notify the Administrative Agent that
the Eurodollar Rate for any Interest Period for such Eurodollar Rate
Advances will not adequately and fairly reflect the cost to such Lenders of
making, funding or maintaining their pro rata shares of such Eurodollar Rate
Advances for such Interest Period, the Administrative Agent shall forthwith
so notify the Borrower and the Lenders, whereupon (i) each such Eurodollar
Rate Advance will automatically, on the last day of the then existing
Interest Period therefor, Convert into a Base Rate Advance and (ii) the
obligation of the Lenders to make, or to Convert Advances into, Eurodollar
Rate Advances shall be suspended until the Administrative Agent shall notify
the Borrower that such Lenders have determined that the circumstances
causing such suspension no longer exist.
(d) If the Borrower shall fail to select the duration of any
Interest Period for any Eurodollar Rate Advances in accordance with the
provisions contained in the definition of "Interest Period" in Section 1.01,
the Administrative Agent will forthwith so notify the Borrower and the
Lenders and the Interest Period for such Eurodollar Rate Advances will be
one month.
SECTION 2.08. Fees. (a) Agency and Facility Fees. In addition
to the fees set forth in Section 2.03A(h), the Borrower agrees (i) to pay to
the Administrative Agent, for its own account, an agency fee at the rate
specified in the fee letter dated December 13, 1994 between the Borrower and
CSFB, as the same may be amended or otherwise modified from time to time,
for the period from and including the Closing Date to the Termination Date,
such agency fee to be payable in advance on the Closing Date and on each
anniversary of the Closing Date and (ii) to pay to the Administrative Agent,
for distribution to the Lenders in proportion to their Revolving Credit
Commitments (without giving effect to any Competitive Bid Reduction), a
facility fee for the period from and including the Amendment Effective Date
to the Revolving Credit Termination Date, equal to the applicable Facility
Fee Percentage per annum on the average daily Revolving Credit Commitments
in effect (without reduction for any Advances that may be outstanding at any
time or from time to time), such facility fee to be payable quarterly in
arrears on the last Business Day of each January, April, July and October of
each year and on the Revolving Credit Termination Date, commencing on the
first such date to occur after the Amendment Effective Date.
(b) Other Fees. Without duplication of any amount specified in
Section 2.08(a), the Borrower shall pay to the Administrative Agent such
fees as are due to the Administrative Agent for its own account as set forth
in the fee letter dated December 13, 1994 between the Borrower and CSFB, as
the same may be amended or otherwise modified from time to time.
SECTION 2.09. Increased Costs. (a) Except as to taxes, levies,
imposts, deductions, charges, withholdings or liabilities with respect
thereto (it being understood that the Borrower shall not have any liability
for any taxes, levies, imposts, deductions, charges, withholdings or
liabilities with respect thereto, except as provided in Section 2.12), if,
due to either (i) the introduction of or any change (other than any change
by way of imposition or increase of reserve requirements included in the
Eurodollar Rate Reserve Percentage) in or in the interpretation of any law
or regulation or (ii) the compliance by any Lender with any guideline or
request from any central bank or other governmental authority in any case
introduced, changed, interpreted or requested after the date hereof (whether
or not having the force of law), there shall be (x) imposed, modified or
deemed applicable any reserve, special deposit or similar requirement
against assets held by, or deposits in or for the account of, any Lender or
(y) imposed on any Lender any other condition relating to this Agreement,
any L/C or the Advances made by it, and the result of any event referred to
in clause (x) or (y) shall be to increase the cost to such Lender of
agreeing to make or making, funding or maintaining any L/C or Eurodollar
Rate Advances or LIBO CB Advances, then the Borrower shall from time to
time, within 15 days after demand by such Lender (with a copy of such demand
to the Administrative Agent) made within 60 days after the first date on
which such Lender has actual knowledge that it is entitled to make demand
for payment under this Section 2.09(a), pay to the Administrative Agent for
the account of such Lender additional amounts sufficient to compensate such
Lender for such increased cost; provided, however, that if such Lender fails
to so notify the Borrower within such 60-day period, such increased cost
shall commence accruing on such later date on which the Lender notifies the
Borrower; provided further that such Lender agrees to use its best efforts
(consistent with its internal policy and legal and regulatory restrictions)
to designate a different Applicable Lending Office if the making of such a
designation would avoid the need for, or reduce the amount of, such
increased cost and would not, in the reasonable judgment of such Lender, be
otherwise disadvantageous to such Lender. A certificate as to the amount of
such increased cost, submitted to the Borrower and the Administrative Agent
by such Lender, shall be conclusive and binding for all purposes, absent
manifest error.
(b) If any Lender determines that compliance with any law or
regulation or any guideline or request from any central bank or other
governmental or monetary authority in regard to capital adequacy (whether or
not having the force of law), in any case in which such law, regulation,
guideline or request became effective or was made after the date hereof, has
or would have the effect of reducing the rate of return on the capital of,
or maintained by, such Lender or any corporation controlling such Lender as
a consequence of such Lender's Advances or Commitments hereunder and other
commitments of this type, by increasing the amount of capital required or
expected to be maintained by such Lender or any corporation controlling such
Lender, to a level below that which such Lender or any corporation
controlling such Lender could have achieved but for such adoption,
effectiveness, change or compliance (taking into account such Lender's or
such corporation's policies with respect to capital adequacy), by an amount
deemed by such Lender to be material, then the Borrower shall, from time to
time, pay such Lender, within 15 days after demand by such Lender (with a
copy of such demand to the Administrative Agent) made within 60 days after
the first date on which such Lender has actual knowledge that it is entitled
to make demand for payment under this Section 2.09(b) of such reduction in
return, such additional amount as may be specified by such Lender as being
sufficient to compensate such Lender for such reduction in return, to the
extent that such Lender reasonably determines such reduction to be
attributable to the existence of such Lender's commitment to lend hereunder;
provided, however, that if such Lender fails to so notify the Borrower
within such 60-day period, such amounts shall commence accruing on such
later date on which the Lender notifies the Borrower. A certificate as to
such amounts submitted to the Borrower and the Administrative Agent by such
Lender shall be conclusive and binding for all purposes, absent manifest
error.
SECTION 2.10. Illegality. Notwithstanding any other provision of
this Agreement, if on or after the date hereof the introduction of or any
change in or in the interpretation of any law or regulation makes it
unlawful, or any central bank or other governmental authority asserts that
it is unlawful, for any Lender or its Eurodollar Lending Office to perform
its obligations hereunder to make Eurodollar Rate Advances or LIBO CB
Advances or to fund or maintain Eurodollar Rate Advances or LIBO CB Advances
hereunder, then, upon written notice by such Lender to the Borrower (with a
copy to the Administrative Agent), (i) each Eurodollar Rate Advance and LIBO
CB Advance of such Lender will automatically Convert into a Base Rate
Advance and (ii) the obligation of such Lender to make, or to Convert Base
Rate Advances into, Eurodollar Rate Advances shall be suspended until such
Lender shall notify the Borrower (with a copy to the Administrative Agent)
that the circumstances causing such suspension no longer exist; provided,
however, that such Lender shall designate a different Eurodollar Lending
Office if the making of such a designation would avoid the need for giving
such notice and would not, in the judgment of such Lender, be otherwise
disadvantageous to such Lender.
For purposes of this Section 2.10, a notice to the Borrower by a
Lender shall be effective with respect to any Advance on the last day of the
then current Interest Period for such Advance; provided, however, that, if
it is not lawful for such Lender to maintain such Advance until the end of
the Interest Period applicable thereto, then the notice to the Borrower
shall be effective upon receipt by the Borrower.
SECTION 2.11. Payments and Computations. (a) The Borrower shall
make each payment hereunder and under the Notes not later than 11:00 A.M.
(New York City time) on the day when due in U.S. dollars to the
Administrative Agent at the Administrative Agent's Account in same day
funds. The Administrative Agent will promptly thereafter cause to be
distributed like funds relating to the payment of principal or interest or
facility or letter of credit fees ratably (other than amounts payable with
respect to Competitive Bid Advances or pursuant to Section 2.03A(h)(ii),
2.09 or 2.12) to the Lenders for the account of their respective Applicable
Lending Offices, and like funds relating to the payment of any other amount
(including Competitive Bid Advances) payable to any applicable Lender to
such Lender for the account of its Applicable Lending Office, in each case
to be applied in accordance with the terms of this Agreement. Upon its
acceptance of an Assignment and Acceptance and recording of the information
contained therein in the Register pursuant to Section 8.07(c), from and
after the effective date specified in such Assignment and Acceptance, the
Administrative Agent shall make all payments hereunder and under the Notes
in respect of the interest assigned thereby to the Lender assignee
thereunder, and the parties to such Assignment and Acceptance shall make all
appropriate adjustments in such payments for periods prior to such effective
date directly between themselves.
(b) The Borrower hereby authorizes each Lender, if and to the
extent payment of principal, interest or fees owed to such Lender is not
made when due hereunder or under the Note or Notes held by such Lender, to
charge from time to time against any or all of the Borrower's accounts with
such Lender any amount so due.
(c) All computations of interest based on the Eurodollar Rate or
the Federal Funds Rate and of facility and letter of credit fees shall be
made by the Administrative Agent on the basis of a year of 360 days, and all
computations of interest based on CSFB's base lending rate shall be made by
the Administrative Agent on the basis of a year of 365 or 366 days, as the
case may be, in each case for the actual number of days (including the first
day but excluding the last day) occurring in the period for which such
interest or facility fees are payable. Each determination by the
Administrative Agent of an interest rate hereunder shall be conclusive and
binding for all purposes, absent manifest error.
(d) Whenever any payment hereunder or under any Note shall be
stated to be due on a day other than a Business Day, such payment shall be
made on the next succeeding Business Day, and such extension of time shall
in such case be included in the computation of payment of interest or
facility fees, as the case may be; provided, however, if such extension
would cause payment of interest on or principal of Eurodollar Rate Advances
or LIBO CB Advances to be made in the next following calendar month, such
payment shall be made on the next preceding Business Day.
(e) Unless the Administrative Agent shall have received notice
from the Borrower prior to the date on which any payment is due to the
Lenders hereunder or under any Note that the Borrower will not make such
payment in full, the Administrative Agent may assume, or at its option
request confirmation from the Borrower, that the Borrower has made such
payment in full to the Administrative Agent on such date and the
Administrative Agent may, in reliance upon such assumption, cause to be
distributed to each Lender on such due date an amount equal to the amount
then due such Lender. If and to the extent the Borrower shall not have so
made such payment in full to the Administrative Agent, each Lender shall
repay to the Administrative Agent forthwith on demand such amount
distributed to such Lender together with interest thereon, for each day from
the date such amount is distributed to such Lender until the date such
Lender repays such amount to the Administrative Agent, at the Federal Funds
Rate.
(f) If the Administrative Agent receives funds for application to
the Obligations under the Loan Documents under circumstances for which the
Loan Documents do not specify the Advances or the Facility to which, or the
manner in which, such funds are to be applied, the Administrative Agent may,
but shall not be obligated to, elect to distribute such funds to each Lender
ratably in accordance with such Lender's proportionate share of the
principal amount of all outstanding Advances then outstanding, in repayment
or prepayment of such of the outstanding Advances or other Obligations owed
to such Lender, and for application to such principal installments, as the
Administrative Agent shall direct.
SECTION 2.12. Taxes. (a) Any and all payments by the Borrower
hereunder or under the Notes shall be made, in accordance with Section 2.11,
free and clear of and without deduction for any and all present or future
taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of each Lender and
the Administrative Agent, (i) taxes imposed on its income, and franchise
taxes imposed on it, by the United States (other than United States
withholding taxes) or the jurisdiction under the laws of which such Lender
or the Administrative Agent (as the case may be) is organized or any
political subdivision or taxing authority thereof or therein, (ii) taxes
imposed on its income, and franchise taxes imposed on it, by the
jurisdiction of such Lender's or the Administrative Agent's principal office
or Applicable Lending Office, or in the case of any foreign jurisdiction
that imposes taxes on the basis of management and control or other concept
of principal residence, by the jurisdiction in which such Lender or the
Administrative Agent is so resident, or any political subdivision or taxing
authority thereof or therein and (iii) United States withholding tax payable
with respect to payments hereunder under laws (including, without
limitation, any statute, treaty, ruling, determination or regulation) in
effect on the Initial Date with respect to such Lender or the Administrative
Agent, but not excluding any United States withholding tax (including backup
withholding taxes) payable as a result of any change in such laws occurring
after the Initial Date (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred
to as "Taxes"). If the Borrower shall be required by law to deduct any
Taxes from or in respect of any sum payable hereunder or under any Note to
any Lender or the Administrative Agent, (i) the sum payable shall be
increased as may be necessary so that after making all required deductions
of Taxes (including deductions of Taxes applicable to additional sums
payable under this Section 2.12) such Lender or the Administrative Agent (as
the case may be) receives an amount equal to the sum it would have received
had no such deductions of Taxes been made, (ii) the Borrower shall make such
deductions and (iii) the Borrower shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
law; provided, however, that any such Lender shall designate a different
Eurodollar Lending Office if, in the judgment of such Lender, such
designation would avoid the need for, or reduce the amount of, any Taxes
required to be deducted from or in respect of any sum payable hereunder to
such Lender or the Administrative Agent and would not, in the judgment of
such Lender, be otherwise disadvantageous to such Lender.
(b) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies that arise from any payment made hereunder or under the Notes
or from the execution, delivery or registration of, or otherwise with
respect to, this Agreement or the Notes (hereinafter referred to as "Other
Taxes").
(c) The Borrower will indemnify each Lender and the
Administrative Agent for the full amount of Taxes or Other Taxes (including,
without limitation, any Taxes or Other Taxes imposed by any jurisdiction on
amounts payable under this Section 2.12) paid by such Lender or the
Administrative Agent (as the case may be) and any liability (including
penalties, additions to tax, interest and costs and expenses (including
reasonable attorneys' fees and expenses)) arising therefrom or with respect
thereto; provided that, in the event such Lender or the Administrative
Agent, as the case may be, successfully contests the assessment of such
Taxes or Other Taxes or any liability arising therefrom or with respect
thereto, such Lender or the Administrative Agent shall refund, to the extent
of any refund or credit thereof made to such Lender or the Administrative
Agent, any amounts paid by the Borrower under this Section 2.12 in respect
of such Taxes, Other Taxes or liabilities arising therefrom or with respect
thereto. Each Lender and the Administrative Agent agrees that it will
contest such Taxes, Other Taxes or liabilities if (i) the Borrower furnishes
to it an opinion of reputable tax counsel (such opinion and such counsel to
be acceptable to such Lender or the Administrative Agent) to the effect that
such Taxes or Other Taxes were wrongfully or illegally imposed and (ii) such
Lender or the Administrative Agent determines, in its sole discretion, that
it would not be materially disadvantaged or prejudiced as a result of such
contest. This indemnification shall be made within 30 days from the date
such Lender or the Administrative Agent (as the case may be) makes written
demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the
Borrower will furnish to the Administrative Agent, at its address referred
to in Section 8.02, appropriate evidence of payment thereof. If no Taxes
are payable in respect of any payment hereunder or under the Notes by the
Borrower from an account or branch outside the United States or on behalf of
the Borrower by a payor that is not a United States person, the Borrower
will furnish to the Administrative Agent, at such address, a certificate
from each appropriate taxing authority, or an opinion of counsel acceptable
to the Administrative Agent, in either case stating that such payment is
exempt from or not subject to Taxes. For purposes of this Section 2.12, the
terms "United States" and "United States person" shall have the meanings
specified in Section 7701 of the Code.
(e) Each Lender organized under the laws of a jurisdiction
outside the United States and the Administrative Agent, if organized under
the laws of a jurisdiction outside the United States, shall, on or prior to
the Initial Date and from time to time thereafter if requested in writing by
the Borrower or the Administrative Agent (but only so long thereafter as
such Lender or the Administrative Agent remains lawfully able to do so),
provide the Borrower and (in the case of any such Lender other than the
Administrative Agent) the Administrative Agent with two duly completed
copies of Internal Revenue Service form 1001 or 4224, as appropriate, or any
successor form prescribed by the Internal Revenue Service, certifying that
such Lender or the Administrative Agent is entitled to benefits under an
income tax treaty to which the United States is a party that reduces the
rate of withholding tax on payments under this Agreement or the Notes or
certifying that the income receivable pursuant to this Agreement or the
Notes is effectively connected with the conduct of a trade or business in
the United States. To the extent permitted by law, as an alternative to
form 1001 or 4224, each such Lender or the Administrative Agent shall so
provide the Borrower and (in the case of any such Lender other than the
Administrative Agent) the Administrative Agent with two duly completed
copies of Internal Revenue Service form W-8, or any successor form
prescribed by the Internal Revenue Service, certifying that such Lender or
the Administrative Agent is exempt from United States federal withholding
tax pursuant to Sections 871(h) or 881(c) of the Code, together with an
annual certificate stating that such Lender is not a Person described in
Sections 871(h)(3) or 881(c)(3) of the Code.
(f) For any period with respect to which the Administrative Agent
or a Lender has failed to provide the Borrower with the appropriate forms
described in subsection (e) above (other than if such failure is due to a
change in law occurring after the date on which such person was originally
required to provide such forms, or if such forms are otherwise not required
under subsection (e) above), the Administrative Agent or such Lender shall
not be entitled to increased payments or indemnification under subsection
(a) or (c) above with respect to Taxes imposed by the United States;
provided, however, that should the Administrative Agent or a Lender become
subject to Taxes because of its failure to deliver a form required
hereunder, the Borrower shall take such steps as the Administrative Agent or
such Lender shall reasonably request to assist the Lender to recover such
Taxes if, in the judgment of the Borrower such steps would avoid the need
for, or reduce the amount of, any Taxes required to be deducted from or in
respect of any sum payable hereunder to the Administrative Agent or such
Lender and would not, in the judgment of the Borrower, be disadvantageous or
prejudicial to the Borrower.
(g) Without prejudice to the survival of any other agreement of
the Borrower hereunder, the agreements and obligations of the Borrower
contained in this Section 2.12 shall survive the payment in full of
principal and interest hereunder and under the Notes.
(h) If a Lender shall change its Applicable Lending Office other
than (i) at the request of the Borrower or (ii) at a time when such change
would not result in this Section 2.12 requiring the Borrower to make a
greater payment than if such change had not been made, such Lender shall not
be entitled to receive any greater payment under this Section 2.12 than such
Lender would have been entitled to receive had it not changed its Applicable
Lending Office.
SECTION 2.13. Sharing of Payments, Etc. If any Lender shall
obtain any payment (whether voluntary, involuntary, through the exercise of
any right of set-off, or otherwise) on account of the Advances owing to it
(other than pursuant to Section 2.09 or 2.12 or on account of any
Competitive Bid Advances owing to it) in excess of its ratable share of
payments on account of the Advances obtained by all the Lenders, such Lender
shall forthwith purchase from the other Lenders such participations in the
Advances owing to them as shall be necessary to cause such purchasing Lender
to share the excess payment ratably with each of them; provided, however,
that, if all or any portion of such excess payment is thereafter recovered
from such purchasing Lender, such purchase from each Lender shall be
rescinded and such Lender shall repay to the purchasing Lender the purchase
price to the extent of such recovery together with an amount equal to such
Lender's ratable share (according to the proportion of (i) the amount of
such Lender's required repayment to (ii) the total amount so recovered from
the purchasing Lender) of any interest or other amount paid or payable by
the purchasing Lender in respect of the total amount so recovered. The
Borrower agrees that any Lender so purchasing a participation from another
Lender pursuant to this Section 2.13 may, to the fullest extent permitted by
law, exercise all its rights of payment (including the right of set-off)
with respect to such participation as fully as if such Lender were the
direct creditor of the Borrower in the amount of such participation.
SECTION 2.14. Removal of Lender. In the event that any Lender
demands payment of costs or additional amounts pursuant to Section 2.09 or
Section 2.12 or asserts pursuant to Section 2.10 that it is unlawful for
such Lender to make Eurodollar Rate Advances, then (subject to such Lender's
right to rescind such demand or assertion within ten days after the notice
from the Borrower referred to below) the Borrower may, upon 20 days' prior
written notice to such Lender and the Administrative Agent, elect to cause
such Lender to assign its Advances and Commitments in full to an assignee
institution selected by the Borrower that meets the criteria of an Eligible
Assignee and is reasonably satisfactory to the Administrative Agent, so long
as such Lender receives payment in full of the outstanding principal amount
of all Advances made by it and all accrued and unpaid interest thereon and
all other amounts due and payable to such Lender as of the date of such
assignment (including without limitation amounts owing pursuant to Section
2.09 or 2.12), and in such case such Lender agrees to make such assignment,
and such assignee shall agree to accept such assignment and assume all
obligations of such Lender hereunder, in accordance with Section 8.07.
SECTION 2.15. Conversion of Advances. (a) Optional. The
Borrower may on any Business Day, upon notice given to the Administrative
Agent not later than 11:00 a.m. (New York City time) on the third Business
Day prior to the date of the proposed Conversion and subject to the
provisions of Sections 2.07 and 2.09, Convert all or any portion of the
Committed Advances of one Type comprising the same Borrowing into Committed
Advances of the other Type; provided, however, that any Conversion of
Eurodollar Rate Advances into Base Rate Advances shall be made on, and only
on, the last day of an Interest Period for such Eurodollar Rate Advances,
and any Conversion of Base Rate Advances into Eurodollar Rate Advances shall
be subject to the limitation set forth in Section 2.02(a)(ii) and in an
amount not less than $10,000,000. Each such notice of Conversion shall,
within the restrictions specified above, specify (i) the date of such
Conversion, (ii) the Committed Advances to be Converted and (iii) if such
Conversion is into Eurodollar Rate Advances, the duration of the initial
Interest Period for such Committed Advances. Each notice of Conversion
shall be irrevocable and binding on the Borrower.
(b) Mandatory. (i) On the date on which the aggregate unpaid
principal amount of Eurodollar Rate Advances comprising any Committed
Borrowing shall be reduced, by payment or prepayment or otherwise, to less
than $10,000,000, such Advances shall automatically Convert into Base Rate
Advances.
(ii) Upon the occurrence and during the continuance of any
Event of Default (or, in the case of any involuntary proceeding described in
Section 6.01(e), a Default), (A) each Eurodollar Rate Advance will
automatically, on the last day of the then existing Interest Period
therefor, Convert into a Base Rate Advance and (B) the obligation of the
Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall
be suspended.
SECTION 2.16. Defaulting Lenders. (a) In the event that, at any
one time, (i) any Lender shall be a Defaulting Lender, (ii) such Defaulting
Lender shall owe a Defaulted Advance to the Borrower and (iii) the Borrower
shall be required to make any payment hereunder or under any other Loan
Document to or for the account of such Defaulting Lender, then the Borrower
may, so long as no Default shall occur or be continuing at such time and to
the fullest extent permitted by applicable law, set off and otherwise apply
the Obligation of the Borrower to make such payment to or for the account of
such Defaulting Lender against the Obligation of such Defaulting Lender to
make such Defaulted Advance. In the event that the Borrower shall so set
off and otherwise apply the Obligation of the Borrower to make any such
payment against the Obligation of such Defaulting Lender to make any such
Defaulted Advance on any date, the amount so set off and otherwise applied
by the Borrower shall constitute for all purposes of this Agreement and the
other Loan Documents a Committed Advance by such Defaulting Lender made on
such date under the Facility pursuant to which such Defaulted Advance was
originally required to have been made pursuant to Section 2.01. Such
Committed Advance shall be a Base Rate Advance and shall be considered, for
all purposes of this Agreement, to comprise part of the Committed Borrowing
in connection with which such Defaulted Advance was originally required to
have been made pursuant to Section 2.01, even if the other Committed
Advances comprising such Committed Borrowing shall be Eurodollar Advances on
the date such Committed Advance is deemed to be made pursuant to this
subsection (a). The Borrower shall notify the Administrative Agent at any
time the Borrower reduces the amount of the Obligation of the Borrower to
make any payment otherwise required to be made by it hereunder or under any
other Loan Document as a result of the exercise by the Borrower of its right
set forth in this subsection (a) and shall set forth in such notice (A) the
name of the Defaulting Lender and the Defaulted Advance required to be made
by such Defaulting Lender and (B) the amount set off and otherwise applied
in respect of such Defaulted Advance pursuant to this subsection (a). Any
portion of such payment otherwise required to be made by the Borrower to or
for the account of such Defaulting Lender which is paid by the Borrower,
after giving effect to the amount set off and otherwise applied by the
Borrower pursuant to this subsection (a), shall be applied by the
Administrative Agent as specified in subsection (b) or (c) of this Section
2.16.
(b) In the event that, at any one time, (i) any Lender shall be a
Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Amount
to the Administrative Agent or any of the other Lenders and (iii) the
Borrower shall make any payment hereunder or under any other Loan Document
to the Administrative Agent for the account of such Defaulting Lender, then
the Administrative Agent may, on its behalf or on behalf of such other
Lenders and to the fullest extent permitted by applicable law, apply at such
time the amount so paid by the Borrower to or for the account of such
Defaulting Lender to the payment of each such Defaulted Amount to the extent
required to pay such Defaulted Amount. In the event that the Administrative
Agent shall so apply any such amount to the payment of any such Defaulted
Amount on any date, the amount so applied by the Administrative Agent shall
constitute for all purposes of this Agreement and the other Loan Documents
payment, to such extent, of such Defaulted Amount on such date. Any such
amount so applied by the Administrative Agent shall be retained by the
Administrative Agent or distributed by the Administrative Agent to such
other Lenders, ratably in accordance with the respective portions of such
Defaulted Amounts payable at such time to the Administrative Agent and such
other Lenders and, if the amount of such payment made by the Borrower shall
at such time be insufficient to pay all Defaulted Amounts owing at such time
to the Administrative Agent and the other Lenders, in the following order of
priority:
(i) first, to the Administrative Agent for any Defaulted
Amount then owing to the Administrative Agent; and
(ii) second, to any other Lenders for any Defaulted Amounts
then owing to such other Lenders, ratably in accordance with such
respective Defaulted Amounts then owing to such other Lenders.
Any portion of such amount paid by the Borrower for the account of such
Defaulting Lender remaining, after giving effect to the amount applied by
the Administrative Agent pursuant to this subsection (b), shall be applied
by the Administrative Agent as specified in subsection (c) of this
Section 2.16.
(c) In the event that, at any one time, (i) any Lender shall be a
Defaulting Lender, (ii) such Defaulting Lender shall not owe a Defaulted
Advance or a Defaulted Amount and (iii) the Borrower, the Administrative
Agent or any other Lender shall be required to pay or distribute any amount
hereunder or under any other Loan Document to or for the account of such
Defaulting Lender, then the Borrower or such other Lender shall pay such
amount to the Administrative Agent to be held by the Administrative Agent,
to the fullest extent permitted by applicable law, in escrow or the
Administrative Agent shall, to the fullest extent permitted by applicable
law, hold in escrow such amount otherwise held by it. Any funds held by the
Administrative Agent in escrow under this subsection (c) shall be deposited
by the Administrative Agent in an account with CSFB, in the name and under
the control of the Administrative Agent, but subject to the provisions of
this subsection (c). The terms applicable to such account, including the
rate of interest payable with respect to the credit balance of such account
from time to time, shall be CSFB's standard terms applicable to escrow
accounts maintained with it. Any interest credited to such account from
time to time shall be held by the Administrative Agent in escrow under, and
applied by the Administrative Agent from time to time in accordance with the
provisions of, this subsection (c). The Administrative Agent shall, to the
fullest extent permitted by applicable law, apply all funds so held in
escrow from time to time to the extent necessary to make any Committed
Advances required to be made by such Defaulting Lender and to pay any amount
payable by such Defaulting Lender hereunder and under the other Loan
Documents to the Administrative Agent or any other Lender, as and when such
Committed Advances or amounts are required to be made or paid and, if the
amount so held in escrow shall at any time be insufficient to make and pay
all such Committed Advances and amounts required to be made or paid at such
time, in the following order of priority:
(i) first, to the Administrative Agent for any amount then
due and payable by such Defaulting Lender to the Administrative Agent
hereunder;
(ii) second, to any other Lenders for any amount then due and
payable by such Defaulting Lender to such other Lenders hereunder,
ratably in accordance with such respective amounts then due and payable
to such other Lenders; and
(iii) third, to the Borrower for any Committed Advance then
required to be made by such Defaulting Lender pursuant to a Commitment
of such Defaulting Lender.
In the event that such Defaulting Lender shall, at any time, cease to be a
Defaulting Lender, any funds held by the Administrative Agent in escrow at
such time with respect to such Defaulting Lender shall be distributed by the
Administrative Agent to such Defaulting Lender and applied by such
Defaulting Lender to the Obligations owing to such Lender at such time under
this Agreement and the other Loan Documents ratably in accordance with the
respective amounts of such Obligations outstanding at such time.
(d) The rights and remedies against a Defaulting Lender under
this Section 2.16 are in addition to other rights and remedies which the
Borrower may have against such Defaulting Lender with respect to any
Defaulted Advance and which the Administrative Agent or any Lender may have
against such Defaulting Lender with respect to any Defaulted Amount.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to Amendment Effective Date
and Issuance of L/Cs. The effectiveness of the amendment and restatement of
the Existing Credit Agreement as provided for hereby, the obligation of each
Lender to extend or continue credit hereunder on the Amendment Effective
Date and the obligation of the L/C Issuers to issue L/C(s) on any date is
subject to the following conditions precedent:
(a) On the Amendment Effective Date, the Administrative Agent
shall have received (in a quantity sufficient for all Lenders) evidence
of the Borrower's receipt of gross cash proceeds from the sale of the
Borrower Preferred Stock in an aggregate amount equal to at least
$250,000,000 and the application thereof as follows:
(i) the first $250,000,000 of Net Cash Proceeds thereof to
(A) pay fees and expenses not in excess of $7,500,000 associated
with the transactions contemplated by the Loan Documents and (B)
prepay Revolving Credit Advances; and
(ii) any Net Cash Proceeds in excess of $250,000,000, first,
to pay the Roche Debt; second, the excess, if any, to prepay up to
$50,000,000 of Term Advances to be applied to installments of the
Term Advances pro rata; and third, the excess, if any, to prepay
Revolving Credit Advances.
(b) The Borrower shall have paid all accrued fees and expenses of
the Administrative Agent and the Lenders (including the reasonable fees
and expenses of special counsel to the Administrative Agent) payable
pursuant to Section 8.04 of this Agreement and for which it has
received an invoice on or before the Amendment Effective Date.
(c) If the Borrower shall have received gross cash proceeds from
the sale of the Borrower Preferred Stock in an aggregate amount of more
than $250,000,000 and less than $440,000,000, the Administrative Agent
shall have received evidence that the maturity of the Roche Note has
been extended to a date not earlier than April 30, 2004.
(d) The Administrative Agent shall have received on or before the
date of the Amendment Effective Date the following, each dated as of
the Amendment Effective Date (unless otherwise specified), in form and
substance satisfactory to the Administrative Agent (unless otherwise
specified) and in sufficient copies for each Lender and the
Administrative Agent:
(i) certified copies of the resolutions of the board of
directors of each Loan Party approving each Loan Document to which
it is or is to be a party, as appropriate, and, if requested by
the Administrative Agent, of all documents evidencing other
necessary corporate action and governmental approvals, if any,
with respect to each Loan Document to which it is or is to be a
party, as appropriate;
(ii) a certificate of the Secretary or an Assistant Secretary
of each Loan Party certifying the names and true signatures of the
officers of such Person authorized to sign each Loan Document to
which such Person is or is to be party and the other documents to
be delivered hereunder and thereunder;
(iii) a copy of the certificate of incorporation (or
equivalent charter document) of each Loan Party and each amendment
thereto, certified (as of a date reasonably near the Amendment
Effective Date) by the secretary of state of the jurisdiction of
its incorporation as being a true and correct copy thereof;
provided, however, if a certificate of incorporation (or
equivalent charter document) of such Loan Party was delivered to
the Administrative Agent on the Closing Date, no amendments to
such certificate have been made since the Closing Date and such
Loan Party delivers a certificate signed on behalf of such Loan
Party by its President or a Vice President and its Secretary or
any Assistant Secretary, dated as of the Amendment Effective Date
certifying as to the absence of any amendments to such certificate
of incorporation (or equivalent charter document) since the
Closing Date, delivery of a certificate of incorporation (or
equivalent charter document) for such Loan Party shall not be
required;
(iv) a copy of a certificate of the secretary of state of the
relevant jurisdiction of incorporation, dated reasonably near the
Amendment Effective Date, listing the certificate of incorporation
(or equivalent charter document) of each Loan Party, as the case
may be, and each amendment thereto on file in his office and
certifying that (A) such amendments are the only amendments to the
charter documents of such Person on file in his office, (B) such
Person has paid all franchise taxes to the date of such
certificate and (C) such Person is duly incorporated and in good
standing under the laws of the jurisdiction of its incorporation;
(v) (A) a certificate of each Loan Party signed on behalf of
such Person by its President or a Vice President and its Secretary
or any Assistant Secretary, dated as of the Amendment Effective
Date (the statements made in such certificate shall be true on and
as of the Amendment Effective Date), certifying as to (1) the
absence of any amendments to the certificate of incorporation (or
equivalent charter document) of such Person since the date of the
secretary of state's certificate referred to in subclause (v)
above, (2) a true and correct copy of the by-laws of such Person
as in effect on the Amendment Effective Date and (3) the absence
of any proceeding for the dissolution or liquidation of such
Person and (B) a certificate of each Loan Party signed on behalf
of such Person by its President or a Vice President and its
Secretary or any Assistant Secretary, dated as of the Amendment
Effective Date (the statements made in such certificate shall be
true on and as of the Amendment Effective Date), certifying as to
the truth in all material respects of the representations and
warranties made by such Person in each Loan Document as
appropriate, as though made on and as of the Amendment Effective
Date;
(vi) a certificate of the Borrower certifying as to the
absence of any event occurring and continuing, or resulting from
the transactions contemplated hereby, that constitutes a Default;
(vii) a confirmation of guaranty in substantially the form of
Exhibit H (as amended from time to time in accordance with its
terms, the "Guaranty Confirmation"), duly executed by the
Subsidiary Guarantors and a supplemental guaranty in substantially
the form of Exhibit A to the guaranty attached hereto as Exhibit D
(as amended from time to time in accordance with its terms, the
"Subsidiary Guaranty") duly executed by any Material Subsidiary,
if any, that is not a Subsidiary Guarantor;
(viii) such financial and business information regarding each
Loan Party and their respective Subsidiaries as the Lenders shall
have reasonably requested, and all documents the Administrative
Agent may reasonably request relating to the existence of the Loan
Parties, the corporate authority for and the validity of the Loan
Documents and any other matters relevant thereto, all in form and
substance satisfactory to the Administrative Agent;
(ix) a letter, in form and substance satisfactory to the
Administrative Agent, from the Borrower to KPMG Peat Marwick, its
independent certified public accountants, advising such
accountants that the Administrative Agent and the Lenders have
been authorized to exercise all rights of the Borrower to require
such accountants to disclose any and all financial statements and
any other information of any kind that they may have with respect
to the Borrower and its Subsidiaries and directing such
accountants to comply with any reasonable request of the
Administrative Agent or any Lender for such information;
(x) a letter, in form and substance satisfactory to the
Administrative Agent, from KPMG Peat Marwick, the Borrower's
independent certified public accountants, to the Administrative
Agent, acknowledging that the Lenders have relied and will rely
upon the financial statements of the Borrower examined by such
accountants in determining whether to enter into, and to take
action or refrain from taking action under, the Loan Documents;
and
(xi) a favorable opinion of Bradford T. Smith, Executive Vice
President and General Counsel of the Borrower, and of Davis Polk &
Wardwell, special New York counsel for the Borrower, substantially
in the forms of Exhibits E-1 and E-2 hereto, respectively, and as
to such other matters as the Administrative Agent may reasonably
request.
(e) The representations and warranties contained in Section 4.01
shall be true and correct in all material respects on and as of the
Amendment Effective Date.
SECTION 3.02. Conditions Precedent to Each Borrowing and Each L/C
Issuance. The obligation of each Lender to make an Advance on the occasion
of each Borrowing (including the initial Borrowing) resulting in an increase
in the aggregate amount of outstanding Advances and the obligation of each
L/C Issuer to issue a L/C shall be subject to the further conditions
precedent that on the date of such Borrowing or the date of issuance of such
L/C, as applicable, the following statements shall be true (and the giving
of the applicable Notice of Borrowing or the applicable L/C Issuance
Request, as applicable, and the acceptance by the Borrower of the proceeds
of such Borrowing, or upon the issuance of such L/C, as applicable, shall
constitute a representation and warranty by the Borrower that on the date of
such Borrowing or the date of issuance of such L/C, as applicable, such
statements are true):
(i) The representations and warranties contained in Section 4.01
are correct in all material respects on and as of the date of such
Borrowing or issuance of such L/C, as applicable, before and after
giving effect to such Borrowing or issuance of such L/C, as applicable,
and to the application of the proceeds therefrom, as though made on and
as of such date; and
(ii) No event has occurred and is continuing, or would result from
such Borrowing, the issuance of such L/C or from the application of the
proceeds therefrom, which constitutes a Default.
SECTION 3.03. Conditions Precedent to Each Competitive Bid
Borrowing. The obligation of each Lender that is to make a Competitive Bid
Advance to make such Competitive Bid Advance as part of a Competitive Bid
Borrowing is subject to the further conditions precedent that (a) the
Administrative Agent shall have received the written confirmatory Notice of
Competitive Bid Borrowing with respect thereto and (b) on or before the date
of such Competitive Bid Borrowing, but prior to such Competitive Bid
Borrowing, the Administrative Agent shall have received for recordation in
the Competitive Bid Register information as to each of the one or more
Competitive Bid Advances to be made by the Lenders as part of such
Competitive Bid Borrowing, the principal amount of each such Competitive Bid
Advance and such other terms agreed to for each such Competitive Bid Advance
in accordance with Section 2.02.
SECTION 3.04. Determinations Under Section 3.01. For purposes of
determining compliance with the conditions specified in Section 3.01, each
Lender shall be deemed to have consented to, approved or accepted or to be
satisfied with each document or other matter required thereunder to be
consented to or approved by or acceptable or satisfactory to the Lenders
unless an officer of the Administrative Agent responsible for the
transactions contemplated by this Agreement shall have received notice from
such Lender prior to the Amendment Effective Date specifying its objection
thereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower.
The Borrower represents and warrants as follows:
(a) Each Loan Party (i) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, (ii) is duly qualified and in good standing as a foreign
corporation in each other jurisdiction in which it owns or leases
property or in which the conduct of its business requires it to so
qualify or be licensed except where the failure to so qualify or be
licensed would not have a Material Adverse Effect and (iii) has all
requisite corporate power and authority to own or lease and operate its
properties and to carry on its business as now conducted and as
proposed to be conducted. All of the outstanding capital stock of the
Borrower has been validly issued, is fully paid and non-assessable.
(b) Set forth on Schedule II hereto is a complete and accurate
list of all Material Subsidiaries of the Borrower, showing as of the
date hereof (as to each such Subsidiary) the jurisdiction of its
incorporation, the number of shares of each class of capital stock
authorized, and the number outstanding and the percentage of the
outstanding shares of each such class owned (directly or indirectly) by
the Borrower, and the number of shares covered by all outstanding
options, warrants, rights of conversion or purchase and similar rights
at the date hereof. All of the outstanding capital stock of all of
such Subsidiaries has been validly issued, is fully paid and non-
assessable and is owned by the Borrower or one or more of its
Subsidiaries free and clear of all Liens. Each such Subsidiary (i) is
a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, (ii) is duly
qualified and in good standing as a foreign corporation in each other
jurisdiction in which it owns or leases property or in which the
conduct of its business requires it to so qualify or be licensed except
where the failure to so qualify or be licensed would not have a
Material Adverse Effect and (iii) has all requisite corporate power and
authority to own or lease and operate its properties and to carry on
its business as now conducted and as proposed to be conducted.
(c) The execution, delivery and performance by each Loan Party of
each Loan Document to which it is or is to be a party, as appropriate,
and the consummation of the transactions contemplated hereby, are
within such Person's corporate powers, have been duly authorized by all
necessary corporate action, and do not (i) contravene such Person's
charter or by-laws, (ii) violate any law (including, without
limitation, the Exchange Act), rule, regulation (including, without
limitation, Regulation X of the Board of Governors of the Federal
Reserve System), order, writ, judgment, injunction, decree,
determination or award, (iii) conflict with or result in the breach of,
or constitute a default under, any loan agreement, contract, indenture,
mortgage, deed of trust, lease or other instrument binding on or
affecting the Borrower, any of its Subsidiaries or any of its
properties, the effect of which conflict, breach or default is
reasonably likely to have a Material Adverse Effect or (iv) result in
or require the creation or imposition of any Lien upon or with respect
to any of the properties of the Borrower or any of its Subsidiaries.
None of the Borrower nor any of its Subsidiaries, is in violation of
any such law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award or in breach of any such contract, loan
agreement, indenture, mortgage, deed of trust, lease or other
instrument, the violation or breach of which would be reasonably likely
to have a Material Adverse Effect.
(d) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body
is required for (i) the due execution, delivery and performance by any
Loan Party of any Loan Document to which it is or is to be a party or
for the consummation of the other transactions contemplated hereby or
(ii) the exercise by the Administrative Agent or any Lender of its
rights under the Loan Documents, except for authorizations, approvals,
actions, notices and filings which have been duly obtained, taken,
given or made and are in full force and effect.
(e) This Agreement has been, and each other Loan Document when
delivered hereunder will have been, duly executed and delivered by each
Loan Party which is a party thereto. This Agreement is, and each other
Loan Document when delivered will be, the legal, valid and binding
obligations of each Loan Party which is a party thereto, enforceable
against such Person, in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforceability of creditors' rights
generally and by general principles of equity.
(f) Each of the audited Consolidated balance sheet of the
Borrower as at December 31, 1996 and the related audited Consolidated
statements of earnings, cash flows and stockholders' equity of the
Borrower for the fiscal year then ended, copies of all of which have
been furnished to each Lender, fairly present the financial condition
of the Borrower and its Subsidiaries as at such date and the results of
the operations of the Borrower and its Subsidiaries for the period
ended on such date, all in accordance with GAAP. Since December 31,
1996, there has been no Material Adverse Change relating to the
Borrower.
(g) There is no pending or threatened action, proceeding,
governmental investigation or arbitration affecting any Loan Party or
any of their Subsidiaries before any court, governmental agency or
arbitrator, which is reasonably likely to have a Material Adverse
Effect or that purports to affect the legality, validity or
enforceability of any Loan Document or the consummation of the
transactions contemplated hereby.
(h) The Borrower is not engaged in the business of extending
credit for the purpose of purchasing or carrying Margin Stock and no
proceeds of any Advance will be used (i) to purchase or carry any
Margin Stock, except in connection with Permitted Acquisitions and the
repurchase by the Borrower of its capital stock, or (ii) to extend
credit to others for the purpose of purchasing or carrying any Margin
Stock.
(i) Except as set forth on Schedule III hereto, the Borrower and
each ERISA Affiliate of the Borrower are in compliance in all material
respects with the applicable provisions of ERISA and the Code with
respect to each Plan. No ERISA Event has occurred or is reasonably
expected to occur with respect to any Plan. The amount of all Unfunded
Pension Liabilities under all current Plans does not exceed
$25,000,000. Neither the Borrower nor any of its ERISA Affiliates has
incurred any Withdrawal Liability to any Multiemployer Plan within the
past five years, and it is not reasonably expected that contributions
shall be made or required or that such liability shall be incurred in
any case in amounts or under circumstances that would be reasonably
likely to result in a material liability to the Borrower or any ERISA
Affiliate of the Borrower. The consolidated financial statements of
the Borrower and its Subsidiaries fully reflect any material liability
with respect to "expected postretirement benefit obligations" within
the meaning of Statement of Financial Accounting Standards No. 106.
Neither the Borrower nor any of its ERISA Affiliates would reasonably
be expected to incur a material liability relating to the funding
status of any RBLI Plan. No ERISA Affiliate of RBLI has incurred any
liability under Title IV of ERISA arising in connection with the
termination of, or complete or partial withdrawal from, any RBLI Plan
or Multiemployer Plan that would reasonably be expected to become a
material liability of the Borrower or any of its ERISA Affiliates.
(j) Except as set forth on Schedule III hereto, neither the
Borrower nor any of its Subsidiaries currently maintains or contributes
to any Welfare Plan which provides post-retirement medical or life
insurance benefits other than pursuant to Section 4980B of the Code or
Section 601 through 608 of ERISA.
(k) The operations and properties of the Borrower and each of its
Subsidiaries comply with all Environmental Laws, all necessary
Environmental Permits have been obtained and are in effect for the
operations and properties of the Borrower and its Subsidiaries and the
Borrower and each of its Subsidiaries are in compliance with all such
Environmental Permits, except, as to all of the above, where the
failure to do so would not be reasonably likely to have a Material
Adverse Effect; and no circumstances exist that are reasonably likely
to (i) form the basis of an Environmental Action against the Borrower
or any of its Subsidiaries or any of their respective properties or
(ii) cause any such property to be subject to any restrictions on
ownership, occupancy, use or transferability under any Environmental
Law that would, in the case of either (i) or (ii) above, be reasonably
likely to have a Material Adverse Effect.
(l) The Borrower and each of its Subsidiaries has filed, has
caused to be filed or has been included in all tax returns (Federal,
state, local and foreign) required to be filed and has paid all taxes
shown thereon to be due, together with applicable interest and
penalties.
(m) None of the Borrower or any of its Subsidiaries is an
"investment company," or an "affiliated person" of, or "promoter" or
"principal underwriter" for, an "investment company," as such terms are
defined in the Investment Company Act of 1940, as amended. Neither the
making of any Advances, nor the application of the proceeds or
repayment thereof by the Borrower, nor the consummation of the other
transactions contemplated hereby, will violate any provision of such
Act or any rule, regulation or order of the Securities and Exchange
Commission thereunder.
(n) Each of the Borrower and each Subsidiary Guarantor is,
individually and together with its Subsidiaries, Solvent.
(o) Neither (i) any information provided by or on behalf of the
Borrower or any of its Subsidiaries to the Administrative Agent or any
Lender nor (ii) the Rights Offering Registration Statement, contained
or contains any material misstatement of fact or omitted or omits to
state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading except that, as to any financial model provided to the
Lenders, such model was prepared in good faith by the Borrower's
management based on assumptions believed to be reasonable when made and
because assumptions as to future results are inherently subject to
uncertainty and contingencies beyond the Borrower's control, actual
results of the Borrower may be higher or lower.
(p) Part A of Schedule IV hereto sets forth the name, amount and
percent of class of each security of the Borrower beneficially owned on
the date hereof by Roche Holdings and its Affiliates and Part B of
Schedule IV hereto sets forth the name, amount and percent of class of
each security of the Borrower to be owned by Roche Holdings and its
Affiliates as of the Amendment Effective Date.
(q) Set forth in Schedule V hereto is a complete and accurate
list of all Debt of the Borrower and its Subsidiaries (other than Debt
under this Agreement) with a principal or face amount in excess of
$5,000,000 (the "Surviving Debt"), showing as of the date hereof the
principal amount outstanding thereunder, the obligor and obligee
thereof, the interest rate applicable thereto, the maturity dates
thereof and a description of the security interests (if any) granted in
respect thereof.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants. So long as any Advance
shall remain unpaid, or any Lender shall have any Commitment hereunder, the
Borrower will:
(a) Compliance with Laws, Etc Comply, and cause each of its
Subsidiaries to comply, in all material respects with all applicable
laws, rules, regulations and orders (such compliance to include,
without limitation, paying before the same become delinquent all taxes,
assessments and governmental charges imposed upon it or upon its
property except to the extent contested in good faith), the failure to
comply with which would, individually or in the aggregate, be
reasonably likely to have a Material Adverse Effect.
(b) Compliance with Environmental Laws. Comply and cause each of
its Subsidiaries and all lessees and all other Persons occupying its
properties to comply, in all material respects, with all Environmental
Laws and Environmental Permits applicable to its operations and
properties; obtain and renew all Environmental Permits necessary for
its operations and properties; and conduct, and cause each of its
Subsidiaries to conduct, any investigation, study, sampling and
testing, and undertake any cleanup, removal, remedial or other action
necessary to remove and clean up all Hazardous Materials from any of
its properties, in accordance with the requirements of all
Environmental Laws; provided, however, that neither the Borrower nor
any of its Subsidiaries shall be required to undertake any such
cleanup, removal, remedial or other action to the extent that its
obligation to do so is being contested in good faith and by proper
proceedings and appropriate reserves are being maintained with respect
to such circumstances.
(c) Maintenance of Insurance. Maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible and reputable
insurance companies or associations in such amounts and covering such
risks as is usually carried by companies engaged in similar businesses
and owning similar properties in the same general areas in which the
Borrower or such Subsidiary operates.
(d) Preservation of Corporate Existence, Etc. Preserve and
maintain, and cause each of its Subsidiaries to preserve and maintain,
its corporate existence, rights (charter and statutory) and franchises,
except for any merger or consolidation permitted under Section 5.02(c);
provided that, neither the Borrower nor any of its Subsidiaries shall
be required to preserve any right or franchise if the Board of
Directors of the Borrower or such Subsidiary shall determine that the
preservation thereof is no longer desirable in the conduct of the
business of the Borrower or such Subsidiary, as the case may be, and
that the loss thereof is not disadvantageous in any material respect to
the Borrower, such Subsidiary or the Lenders.
(e) Visitation Rights. At any reasonable time and from time to
time, upon reasonable prior notice permit the Administrative Agent or
any of the Lenders or any agents or representatives thereof, to the
extent reasonably requested, to examine and make copies of and
abstracts from the records and books of account of, and visit the
properties of, the Borrower and any of its Subsidiaries, and to discuss
the affairs, finances and accounts of the Borrower and any of its
Subsidiaries with any of their officers or directors and with their
independent certified public accountants.
(f) Keeping of Books. Keep, and cause each of its Subsidiaries
to keep, proper books of record and account, in which full and correct
entries shall be made of all financial transactions and the assets and
business of the Borrower and each such Subsidiary to the extent
necessary to permit the preparation of the financial statements
required to be delivered hereunder.
(g) Maintenance of Properties, Etc. Maintain and preserve, and
cause each of its Subsidiaries to maintain and preserve, all of its
properties that in its judgment are used or useful in the conduct of
its business in good working order and condition, ordinary wear and
tear excepted.
(h) Interest Rate Hedging. Maintain until April 28, 1998, the
interest rate Hedge Agreements in effect immediately prior to the
Amendment Effective Date.
(i) Leverage Ratio. Maintain at the end of each four fiscal
quarter period specified below a Leverage Ratio of not more than the
ratio set forth below:
Four Fiscal
Quarters Ending in Ratio
------------------ -----
March 1997 6.50:1.0
June 1997 5.00:1.0
September 1997 4.75:1.0
December 1997 4.75:1.0
March 1998 4.75:1.0
June 1998 4.50:1.0
September 1998 4.25:1.0
December 1998 4.00:1.0
March 1999 4.00:1.0
June 1999 3.75:1.0
September 1999 3.50:1.0
December 1999 3.00:1.0
March 2000 3.00:1.0
June 2000 2.75:1.0
September 2000 2.75:1.0
December 2000 2.50:1.0
March 2001 2.50:1.0
June 2001 2.25:1.0
September 2001 2.25:1.0
December 2001 2.00:1.0
March 2002 2.00:1.0
June 2002 1.75:1.0
September 2002 1.75:1.0
and 1.50:1.0 for each four fiscal quarter period thereafter.
(j) Interest Coverage Ratio. Maintain at the end of each four
fiscal quarter period specified below an Interest Coverage Ratio of not
less than the ratio set forth below:
Four Fiscal
Quarters Ending in Ratio
------------------ -----
March 1997 2.25:1.0
June 1997 2.25:1.0
September 1997 2.50:1.0
December 1997 2.50:1.0
March 1998 2.50:1.0
June 1998 2.75:1.0
September 1998 2.75:1.0
December 1998 3.00:1.0
March 1999 3.00:1.0
June 1999 3.25:1.0
September 1999 3.25:1.0
December 1999 3.50:1.0
March 2000 3.50:1.0
June 2000 4.00:1.0
September 2000 4.00:1.0
December 2000 4.50:1.0
March 2001 4.50:1.0
June 2001 4.75:1.0
September 2001 4.75:1.0
and 5.00:1.0 for each four fiscal quarter period thereafter.
(k) Minimum Stockholders' Equity. Maintain Stockholders' Equity
of not less than (i) on March 31, 1997, $190,000,000 and (ii) on the
last day of each subsequent fiscal quarter, commencing with the fiscal
quarter ending June 30, 1997, a dollar amount equal to (A) if positive,
75% of Net Income for such fiscal quarter plus (B) the minimum amount
of Stockholders' Equity required on the last day of the immediately
preceding fiscal quarter; provided, however, that, the net amount
(after provision for taxes) of non-cash write-offs or write-downs of
goodwill during such period in connection with the contribution by the
Borrower or any Subsidiary of assets to a joint venture permitted under
Section 5.02(d) shall not be deducted from equity for the purposes of
calculating Stockholder's Equity on such day for purposes of this
Section 5.01(k).
(l) Reporting Requirements. Furnish to the Lenders through the
Administrative Agent (in a quantity sufficient for all Lenders and the
Administrative Agent):
(i) as soon as available and in any event within 50 days
after the end of each of the first three quarters of each fiscal
year of the Borrower, Consolidated balance sheets of the Borrower
as of the end of such quarter, Consolidated statements of earnings
and stockholders' equity of the Borrower for such quarter and
Consolidated statements of earnings, cash flows and stockholders'
equity of the Borrower for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter,
certified (subject to normal year-end audit adjustment and the
absence of footnotes) on behalf of the Borrower by the chief
financial officer of the Borrower;
(ii) as soon as available and in any event within 105 days
after the end of each fiscal year of the Borrower, a copy of the
annual report on Form 10-K for such year for the Borrower and its
Subsidiaries, containing financial statements for such year
certified in a manner reasonably acceptable to the Required
Lenders by KPMG Peat Marwick or other independent public
accountants reasonably acceptable to the Required Lenders;
(iii) together with each delivery of financial statements
pursuant to clauses (i) and (ii) above, (A) a certificate executed
on behalf of the Borrower by the chief financial officer of the
Borrower (1) stating that no Default has occurred and is
continuing or, if a Default has occurred and is continuing, a
statement as to the nature thereof and the action that the
Borrower has taken and proposes to take with respect thereto, (2)
setting forth the aggregate amount of all Net Cash Proceeds of all
Dispositions in excess of $1,000,000 received during (x) the
period covered by such financial statements and (y) the period
commencing on the Closing Date and ending on the last day of the
period covered by such financial statements and (3) setting forth,
to the best knowledge of the Borrower, the Investor Group Interest
and (B) a schedule in form reasonably satisfactory to the
Administrative Agent of the computations used by the Borrower in
determining (1) compliance with the covenants contained in
Sections 5.01(i), (j) and (k) and (2) the Leverage Ratio as of the
end of the applicable fiscal quarter or fiscal year;
(iv) as soon as possible and in any event within five days
after knowledge by an executive officer of the Borrower of the
occurrence of each Default continuing on the date of such
statement, a statement executed on behalf of the Borrower by the
chief financial officer of the Borrower setting forth details of
such Default and the action which the Borrower has taken and
proposes to take with respect thereto;
(v) as soon as available and in any event no later than 50
days after the end of each fiscal year of the Borrower, financial
models prepared by management of the Borrower, in form
satisfactory to the Administrative Agent, of balance sheets,
income statements and cash flow statements (including a narrative
description of all assumptions made) on an annual basis for each
fiscal year thereafter until the Termination Date (and, in the
case of the financial models delivered in February 1998, February
1999 and February 2000, on a quarterly basis for the fiscal year
following such fiscal year then ending);
(vi) promptly after the sending or filing thereof, copies of
all reports which the Borrower sends to any of its public security
holders, and copies of all Forms 10-K, 10-Q and 8-K, Schedules
l3E4 (including in the case of such Schedules all exhibits filed
therewith) and registration statements (other than the exhibits
thereto and any registration statements on Form S-8 or its
equivalent) that the Borrower or any Subsidiary files with the
Securities and Exchange Commission or any national securities
exchange;
(vii) promptly and in any event within (A) ten days after the
filing or receipt thereof, copies of all reports and notices with
respect to each Plan of the Borrower or any of its ERISA
Affiliates which the Borrower or any of its ERISA Affiliates files
under ERISA with the Internal Revenue Service or the PBGC or the
U.S. Department of Labor or which the Borrower or any of its ERISA
Affiliates receives from the PBGC, other than a notice described
in clause (D) of this Section 5.01(l)(vii), (B) ten days after the
Borrower or any of its ERISA Affiliates knows or has reason to
know that any ERISA Event with respect to the Borrower or any of
its ERISA Affiliates has occurred, a statement of the chief
financial officer of the Borrower describing such ERISA Event and
the action, if any, that the Borrower or such ERISA Affiliate
proposes to take with respect thereto, (C) ten days after receipt
thereof by the Borrower or any of its ERISA Affiliates from the
sponsor of a Multiemployer Plan of the Borrower or any of its
ERISA Affiliates, a copy of each notice received by any such
Person concerning the imposition of Withdrawal Liability upon such
Person, the reorganization or termination of such Multiemployer
Plan, or the amount of the liability incurred, or that may be
incurred, by the Borrower or any of its ERISA Affiliates in
connection with any such event and (D) five Business Days after
receipt thereof by the Borrower or any of its ERISA Affiliates,
copies of each notice from the PBGC stating its intention to
terminate any Plan of the Borrower or any of its ERISA Affiliates
or to have a trustee appointed to administer any such Plan;
(viii) as promptly as practicable after any change in GAAP from
the date of the financial statements referred to in Section
4.01(f), notice to the Administrative Agent describing the
Borrower's adoption of such change in reasonable detail and, if
requested by the Administrative Agent (A) as promptly as
practicable following the Administrative Agent's receipt of such
notice and (B) upon delivery of any financial statement required
to be furnished under clauses (i) or (ii) of this Section 5.01(l),
a statement of reconciliation conforming any information contained
in such financial statement with GAAP as in effect on the date of
the financial statements referred to in Section 4.01(f);
(ix) promptly upon any executive officer of the Borrower
obtaining knowledge thereof, written notice of (A) the institution
or non-frivolous threat of any action, suit, proceeding,
governmental investigation or arbitration against or affecting the
Borrower or any of its Subsidiaries or any property of the
Borrower or any of its Subsidiaries (any such action, suit,
proceeding, investigation or arbitration being a "Proceeding") or
(B) any material development in any Proceeding that is already
pending, in each case where such Proceeding or development has not
previously been disclosed by the Borrower hereunder and would be
reasonably likely to have a Material Adverse Effect;
(x) as promptly as practicable after request by the
Administrative Agent, such information regarding the HLR
Stockholder Agreement as the Administrative Agent may reasonably
request;
(xi) promptly after the occurrence thereof, notice of any
condition or occurrence on any property of the Borrower or any of
its Subsidiaries that results in a material noncompliance by the
Borrower or any of its Subsidiaries with any Environmental Law or
Environmental Permit or would be reasonably likely to (i) form the
basis of an Environmental Action against the Borrower or any of
its Subsidiaries or any such property that would be reasonably
likely to have a Material Adverse Effect or (ii) cause any such
property to be subject to any restrictions on ownership,
occupancy, use or transferability under any Environmental Law or
Environmental Permit;
(xii) (A) promptly upon any executive officer of the Borrower
obtaining knowledge thereof, written notice of the effective date
of any reduction of the Investor Group Interest to less than 25%
and (B) as promptly as practicable, and in any event at least 15
days prior to the effectiveness of any amendment, supplement or
other modification of the HLR Stockholder Agreement that would
require the consent of the Required Lenders in accordance with
Section 5.02(k), written notice thereof;
(xiii) as promptly as practicable, notice of any Disposition
the Net Cash Proceeds of which would, if not reinvested, be
applied to prepay Term Advances and reduce the Revolving Credit
Commitments in accordance with Section 2.05(b); and
(xiv) such other information respecting the condition
(financial or otherwise), operations, assets or business of the
Borrower or any of its Subsidiaries as any Lender through the
Administrative Agent may from time to time reasonably request.
(m) Monthly Summary Financial Reports. During the period from
the Closing Date through December 31, 1998, furnish to the
Administrative Agent (in a quantity sufficient for all Lenders and the
Administrative Agent) as soon as available, and in any event within 50
days after the end of each calendar month, a summary financial report
as to the Borrower and its Subsidiaries, in the form of Exhibit F, for
the period commencing at the end of the previous month and ending with
the end of such month, signed on behalf of the Borrower by its chief
financial officer.
(n) Transactions with Affiliates. Conduct, and cause each of its
Subsidiaries to conduct, all transactions otherwise permitted under
this Agreement with any of their Affiliates (other than the Borrower or
any of its Subsidiaries) on terms that are fair and reasonable and no
less favorable to the Borrower or such Subsidiary than it would obtain
in a comparable arm's-length transaction with a Person that is not an
Affiliate.
(o) Use of Proceeds. Use the proceeds of the Advances for
general corporate purposes of the Borrower and its Subsidiaries.
(p) Subsidiary Guaranty. Cause each Person that becomes a
Material Subsidiary of the Borrower to become party to the Subsidiary
Guaranty as promptly as practicable after becoming a Material
Subsidiary.
SECTION 5.02. Negative Covenants. So long as any Advance shall
remain unpaid, or any Lender shall have any Commitment hereunder, the
Borrower will not:
(a) Liens, Etc Create or suffer to exist, or permit any of its
Subsidiaries to create or suffer to exist, any Lien, upon or with
respect to any of its properties (other than treasury stock and Margin
Stock), whether now owned or hereafter acquired, or sign or file, or
permit its Subsidiaries to sign or file, under the Uniform Commercial
Code of any jurisdiction, a financing statement that names the Borrower
or any of its Subsidiaries as debtor, or sign, or permit any of its
Subsidiaries to sign, any security agreement authorizing any secured
party thereunder to file such financing statement, or assign, or permit
any of its Subsidiaries to assign, any right to receive income, other
than the following Liens with respect to the Borrower and its
Subsidiaries: (i) Liens existing on the Amendment Effective Date
securing Debt outstanding at the close of business on the Amendment
Effective Date in an aggregate principal or face amount not exceeding
$15,000,000 in the aggregate for the Borrower and its Subsidiaries;
(ii) Liens existing on such property at the time of its acquisition
(directly or indirectly) (other than any such Lien created in
contemplation of such acquisition); (iii) Liens on such property
securing Debt incurred or assumed for the purpose of financing all or
any part of the cost of acquiring such property or improvements
thereto, provided that such Liens attach to such property or
improvements concurrently with or within 90 days after the acquisition
thereof or completion of improvements thereon; (iv) Liens securing Debt
incurred to refinance Debt referred to in clause (ii) or (iii) above,
provided that such Liens are limited to the same property securing the
Debt so refinanced, the principal amount of such Debt shall not be
greater than the principal amount of the Debt so refinanced, and any
direct or contingent obligor of the Debt secured thereby has not been
changed; (v) mechanics', materialmen's, carriers' and similar Liens
arising in the ordinary course of business securing obligations that
are not overdue for a period of more than 60 days or which are being
contested in good faith and by proper proceedings and as to which
appropriate reserves are being maintained; (vi) deposits or Liens to
secure the performance of letters of credit, statutory obligations,
surety and appeal bonds, performance bonds and other obligations of
like nature incurred in the ordinary course of business; (vii) Liens
securing Capitalized Leases permitted by this Agreement; (viii) Liens
for taxes, assessments and governmental charges or levies not yet due
and payable or which are being contested in good faith and by proper
proceedings and as to which appropriate reserves are being maintained;
(ix) judgment or other similar Liens, provided that there shall be no
period of more than 30 consecutive days during which a stay of
enforcement of the related judgment shall not be in effect; (x) Liens
on cash and Cash Equivalents securing Obligations under Hedge
Agreements, provided that the aggregate amount of cash and Cash
Equivalents subject to such Liens may at no time exceed $20,000,000 in
the aggregate for the Borrower and its Subsidiaries; and (xi) Liens not
otherwise permitted by the foregoing clauses of this subsection (a)
securing Debt otherwise permitted by this Agreement in an aggregate
principal or face amount at any date not to exceed 5% of Consolidated
Net Tangible Assets of the Borrower.
(b) Lease Obligations. Create, incur, assume or suffer to exist,
or permit any of its Subsidiaries to create, incur, assume or suffer to
exist, any obligations as lessee (i) for the rental or hire of real or
personal property in connection with any sale and leaseback
transaction, or (ii) for the rental or hire of other real or personal
property of any kind under leases or agreements to lease having an
original term of one year or more that would cause the direct and
contingent liabilities of the Borrower and its Subsidiaries, on a
Consolidated basis, in respect of all such obligations in any period
set forth below to exceed the amount set forth below for such period:
Year Ending in Amount
-------------- ------
December 1997 $65,000,000
December 1998 $70,000,000
December 1999 $75,000,000
December 2000 $80,000,000
December 2001 $85,000,000
December 2002 $90,000,000
December 2003 $95,000,000
December 2004 $100,000,000
(c) Mergers, Etc. Merge or liquidate into or consolidate with
any Person or permit any Person to merge or liquidate into it, or
permit any of its Subsidiaries to do so, except that (i) solely if
required to effect a Permitted Acquisition, the Borrower may merge with
another corporation organized under the laws of a State of the United
States, if the Borrower is the corporation surviving such merger, and
(ii) any wholly-owned Subsidiary of the Borrower may merge or liquidate
into or consolidate with the Borrower or any other Subsidiary of the
Borrower provided that, in the case of any such consolidation, the
Person formed by such consolidation shall be the Borrower or a wholly-
owned Subsidiary of the Borrower and provided that if any Subsidiary
Guarantor is a party to any such merger or consolidation, the Person
surviving such merger or formed by such consolidation shall be a
Subsidiary Guarantor; provided, however, that in each case, immediately
after giving effect thereto, no event shall occur and be continuing
that constitutes a Default.
(d) Sales, Etc. of Assets. Sell, lease, transfer or otherwise
dispose of, or permit any of its Subsidiaries to sell, lease, transfer
or otherwise dispose of, any assets or grant any option or other right
to purchase, lease or otherwise acquire any assets, except (i) sales in
the ordinary course of its business, (ii) dispositions of obsolete,
worn out or surplus property disposed of in the ordinary course of
business, (iii) sales, leases, transfers or other dispositions of
assets by a wholly-owned Subsidiary of the Borrower with any other
wholly-owned Subsidiary of the Borrower (provided that if such
disposition is by a Subsidiary Guarantor, the recipient of such assets
is also a Subsidiary Guarantor), (iv) sales, leases, transfers or other
dispositions of assets by the Borrower to any wholly-owned Subsidiary
Guarantor, or by any wholly-owned Subsidiary to the Borrower, (v) in a
transaction authorized by subsection (c) of this Section, (vi) the
disposition of Margin Stock for cash in an amount equal to the fair
value of such Margin Stock on the date of such disposition, (vii) sales
of assets for cash and for fair value in an aggregate amount not to
exceed $1,000,000 in any year, (viii) sales, leases, transfers or other
dispositions of assets by the Borrower or any Subsidiary not exceeding
$70,000,000 in the aggregate fair market value by contributing such
assets to a joint venture; provided, however, that contributions of
assets to a joint venture in which the Borrower holds less than a 50%
interest shall not exceed $35,000,000 in aggregate fair value in any
year, or (ix) exchanges of assets for assets of equal fair market value
which do not constitute Materially Different Businesses (in each case
as determined by the board of directors of the Borrower), (x) the sale
of any asset not exceeding an amount equal to five percent of the
Borrower's Net Tangible Assets at the time of such sale and not
otherwise permitted by this subsection (d) by the Borrower or any
Subsidiary of the Borrower (other than a bulk sale of inventory and a
sale of receivables other than delinquent accounts for collection
purposes only) so long as (A) the purchase price paid to the Borrower
or such Subsidiary for such asset shall be no less than the fair market
value of such asset at the time of such sale, (B) the purchase price
for such asset shall be paid to the Borrower or such Subsidiary solely
in cash payable at closing or instruments obligating the obligors with
respect thereto to make cash payments within one year of closing, in
the aggregate amount of all such instruments at any one time held by
the Borrower and its Subsidiaries for all such sales not to exceed
$10,000,000 and (C) the Borrower shall prepay the Advances to the
extent required by, and in the order of priority set forth in, Section
2.05(b)(i) and (xi) so long as no Default shall occur and be
continuing, the grant of any option or other right to purchase any
asset in a transaction which would be permitted under the provisions of
the next preceding clause (x).
(e) Dividends, Repurchases, Etc. Declare or pay any dividends,
purchase, redeem, retire, defease or otherwise acquire for value any of
its capital stock or any warrants, rights or options to acquire such
capital stock, now or hereafter outstanding, return any capital to its
stockholders as such, make any distribution of assets, capital stock,
warrants, rights, options, obligations or securities to its
stockholders as such or issue or sell any capital stock or warrants,
rights or options to acquire such capital stock, or permit any of its
Subsidiaries to purchase, redeem, retire, defease or otherwise acquire
for value any capital stock of the Borrower or any warrants, rights or
options to acquire such capital stock or to issue or sell any capital
stock or any warrants, rights or options to acquire such capital stock
(other than to the Borrower), except that:
(i) the Borrower may declare and deliver dividends and
distributions payable only in Borrower Common Stock or warrants,
rights or options to acquire Borrower Common Stock;
(ii) after the second anniversary of the Amendment Effective
Date if (A) the Borrower's Capital Ratio is equal to or less than
50% on the last day of the most recently ended fiscal quarter and
(B) the Leverage Ratio for the most recently ended four fiscal
quarter period is less than or equal to 2.5:1.0, the Borrower may,
during any single fiscal year, declare and pay cash dividends to
holders of Borrower Common Stock in an amount not to exceed ten
percent of the Borrower's Net Income for the fiscal year
immediately preceding the fiscal year in which such dividend is
declared or paid;
(iii) the Borrower may purchase options or warrants to
purchase shares of Borrower Common Stock granted by the Borrower
to employees of the Borrower or any of its Subsidiaries, for an
aggregate purchase price, for all such purchases during any single
fiscal year, of not more than $1,000,000;
(iv) the Borrower may, during any single fiscal year, declare
and pay cash dividends to holders of Borrower Series A Preferred
Stock at a rate not to exceed 10% per annum and at any time after
the third anniversary of the Amendment Effective Date, the
Borrower may, during any such fiscal year, pay cash dividends to
holders of Borrower Series B Preferred Stock at a rate not to
exceed 10% per annum; and
(v) the Borrower may declare and pay dividends to holders of
Borrower Series B Preferred Stock payable in shares of Borrower
Series B Preferred Stock.
provided, however, that, at the time of any payment referred to above
and after giving effect to such payment, no Default shall have occurred
and be continuing.
(f) Investments. Make or hold, or permit any of its Subsidiaries
to make or hold, any Investment in any Person, other than Investments
(i) by the Borrower in any of its respective wholly-owned Subsidiaries
or by any wholly-owned Subsidiary of the Borrower in any other wholly-
owned Subsidiary of the Borrower, (ii) that are Permitted Acquisitions,
(iii) Investments by the Borrower and its Subsidiaries in Cash
Equivalents and in Hedge Agreements in an aggregate notional amount not
to exceed at any time outstanding an amount equal to 100% of the
aggregate outstanding Advances at such time, (iv) Investments permitted
by subsections 5.02(d)(viii), (ix) and (x) (B) and (v) other
Investments in an aggregate amount invested at any one time outstanding
not to exceed $25,000,000.
(g) Change in Nature of Business. Make, or permit any of its
Subsidiaries to make, any material change in the nature of the business
carried on at the date hereof by the Borrower and its Subsidiaries
taken as a whole, except that, subject to the limitations set forth in
Sections 5.02(f) and 5.02(h), the Borrower and its Subsidiaries may
acquire (i) Control of any Person, or all or substantially all of the
assets of any Person, substantially all the business of which consists
of businesses that are not Materially Different Businesses, (ii) any
other assets which the Borrower or such Subsidiary would not use in a
Materially Different Business, or (iii) Control of any Person,
substantially all the business of which consists of Materially
Different Businesses, or other assets which constitute or would be used
by the Borrower or such Subsidiary in a Materially Different Business,
as long as (x) the consideration paid by the Borrower for any such
acquisition pursuant to this clause (iii), together with the aggregate
consideration paid for all previous acquisitions pursuant to this
clause (iii) during the term of this Agreement, does not exceed 20% of
Consolidated Net Tangible Assets of the Borrower as of the last day of
the fiscal quarter next preceding the date of such acquisition and (y)
after giving effect thereto, no Default shall have occurred and be
continuing.
(h) Acquisitions. Make or permit any of its Subsidiaries to make
acquisitions outside the ordinary course of business of assets of or
equity in any Person ("Acquisitions") except that the Borrower may make
or permit any of its Subsidiaries to make the following Acquisitions:
(i) Investments permitted by the terms of Sections 5.02(d)(viii) and
5.02(f) (other than clause (ii) thereof); (ii) Acquisitions permitted
by the terms of Section 5.02(d)(ix); and (iii) other Acquisitions if
the sum of the Purchase Price for such Acquisitions plus the aggregate
Purchase Price for all other Acquisitions made in the immediately
preceding 12 calendar months period, does not exceed (A) $25,000,000
plus (B) Available Excess Cash Flow; provided that if the Purchase
Price for any such Acquisition is greater than $10,000,000 and less
than $25,000,000, then the Borrower shall give the Administrative Agent
and the Lenders at least five Business Days' notice thereof, and if the
Purchase Price is $25,000,000 or more, the following conditions must be
met: (A) at least ten Business Days prior to such proposed
Acquisition, the Borrower shall have delivered to the Administrative
Agent and the Lenders Consolidated modeled financial statements of the
Borrower (including a balance sheet and statements of earnings, cash
flows and stockholders' equity) as at the end of and for the most
recent period of four fiscal quarters ending at least 45 days prior to
the delivery of such financial statements, which financial statements
shall (a) be certified (subject to normal year-end audit adjustments
and the absence of footnotes) on behalf of the Borrower by the chief
financial officer of the Borrower, (b) give effect to all Acquisitions
(including such proposed Acquisition) made or proposed to be made since
the end of such period and (c) show the Borrower would be in compliance
with the Interest Coverage Ratio and Leverage Ratio for such period;
provided further that, at the time of the making of any Acquisition and
after giving effect to such Acquisition, no Default shall have occurred
and be continuing.
(i) Accounting Changes. Make or permit, or permit any of its
Subsidiaries to make or permit, any change in accounting policies
affecting (i) the presentation of financial statements or (ii)
reporting practices, except in either case as required or permitted by
GAAP.
(j) Debt. Create, incur, assume or suffer to exist, or permit
any of its Subsidiaries to create, incur, assume or suffer to exist,
any Debt other than:
(i) Debt under the Loan Documents;
(ii) in the case of (A) the Borrower, Debt in respect of
Junior Obligations, the proceeds of which are applied to prepay
the Obligations of the Borrower under the Loan Documents in
accordance with Section 2.05(b)(ii) and (B) the Borrower and its
Subsidiaries, Debt, not exceeding at any one time $20,000,000 in
the aggregate, in respect of Obligations incurred pursuant to
credit card services agreements providing for processing services
in connection with credit card transactions by customers of the
Borrower and its Subsidiaries;
(iii) the Surviving Debt outstanding as of the Closing Date;
(iv) unsecured contingent obligations arising in connection
with Permitted Acquisitions in an aggregate principal amount not
to exceed $50,000,000 at any time outstanding in the aggregate for
the Borrower and its Subsidiaries, provided that no such
contingent obligation shall exceed an amount equal to 75% of the
Purchase Price of the related Permitted Acquisition;
(v) Debt owed by a Subsidiary to the Borrower or to a wholly-
owned Subsidiary of the Borrower, or by the Borrower to a
Subsidiary in connection with the Borrower's cash management
program;
(vi) Debt secured by Liens permitted by Section 5.02(a)(ii)
and (iv) not to exceed $20,000,000 in the aggregate for the
Borrower and its Subsidiaries;
(vii) endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of
business;
(viii) unsecured trade payables of the kind included in clause
(b) of the definition of Debt;
(ix) Subordinated Debt incurred on or before March 31, 1999;
(x) if the Borrower shall have received gross cash proceeds
from the sale of the Borrower Preferred Stock in an aggregate
amount of more than $250,000,000 and less than $440,000,000, the
Roche Debt;
(xi) Obligations to redeem the Preferred Stock; and
(xii) Debt not otherwise permitted pursuant to this Section
5.02(j), in an aggregate principal amount not to exceed
$32,000,000 at any time outstanding in the aggregate for the
Borrower and its Subsidiaries.
(k) HLR Stockholder Agreement Amendments. Amend, supplement or
otherwise modify, or consent to the amendment, supplement or other
modification of, Sections 2.1 through 2.10, Article 3 or Section 8.2,
9.2(a), 9.4, 9.5 or 9.10 of the HLR Stockholder Agreement, or any
definition related to the foregoing set forth in Article 1 of the HLR
Stockholder Agreement, if such amendment, supplement or other
modification would materially adversely affect the rights of Roche
Holdings thereunder, taken as a whole, unless the Required Lenders have
consented to such amendment, supplement or other modification, which
consent shall not be unreasonably withheld; provided that if the
Borrower has provided the Administrative Agent and the Lenders with
copies of a proposed amendment, supplement or other modification
(together with written notice referencing this Section 5.02(k) and the
15-day consent period required immediately below) and has not been
notified by the Administrative Agent within 15 days of receipt by the
Lenders thereof that the Required Lenders have disapproved such
amendment, supplement or other modification in writing, the Lenders
shall be deemed to have consented thereto.
(l) Prepayments, Etc. of Debt. Prepay, redeem, purchase, defease
or otherwise satisfy prior to the scheduled maturity thereof in any
manner, or make any payment in violation of any subordination terms of,
any Debt, other than (i) the prepayment of the Advances in accordance
with the terms of this Agreement and (ii) regularly scheduled or
required repayments or redemptions of Debt permitted pursuant to
subsection (j) of this Section, or amend, modify or change in any
manner any term or condition of any such Debt, or permit any of its
Subsidiaries to do any of the foregoing other than to prepay any Debt
payable to the Borrower.
(m) No Negative Pledge. Enter into or suffer to exist, or permit
any of its Subsidiaries to enter into or suffer to exist, any agreement
prohibiting or conditioning the creation or assumption of any Lien upon
any of its property or assets or, in the case of a Subsidiary, any
agreement limiting or preventing any payments by such Subsidiary to the
Borrower, other than (i) in favor of the Administrative Agent and the
Lenders or (ii) in connection with (A) with respect to the Borrower any
Surviving Debt or (B) any Debt permitted by Section 5.02(j) secured by
a Lien on specific property so long as such prohibition or conditions
relates solely to the specific property securing such Debt.
(n) Capital Expenditures. Not make, or permit any of its
Subsidiaries to make, any Capital Expenditures that would cause the
aggregate of all such Capital Expenditures made by the Borrower and its
Subsidiaries in any period set forth below to exceed the amount set
forth below for such period:
Year Ending in Amount
-------------- ------
December 1997 $70,000,000
December 1998 $70,000,000
December 1999 $72,500,000
December 2000 $77,500,000
December 2001 $82,500,000
December 2002 $87,500,000
December 2003 $90,000,000
December 2004 $22,500,000;
provided, however, that if in any period specified above the amount of
Capital Expenditures set forth above for such period exceeds the amount
of Capital Expenditures actually made by the Borrower and its
Subsidiaries in such period, the Borrower and its Subsidiaries shall be
entitled to make additional Capital Expenditures in the next period
specified above in an amount of up to (i) the lesser of (a) the amount
of such excess and (b) $20,000,000 plus (ii) Available Excess Cash
Flow.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events
("Events of Default") shall occur and be continuing:
(a) The Borrower shall fail to (i) pay any principal of any
Advance when the same becomes due and payable, (ii) reimburse any L/C
Issuer for any payment made by such L/C Issuer under or in respect of
any L/C Obligations when the same becomes due and payable by the
Borrower or (iii) pay any interest on any Advance, or any fees payable
to the Administrative Agent, any Lender or any L/C Issuer hereunder
within five Business Days after the same becomes due and payable; or
any Loan Party shall fail to make any other payment hereunder within
five Business Days after the same becomes due and payable; or
(b) Any representation or warranty made by any Loan Party under
or in connection with any Loan Document shall prove to have been
incorrect in any material respect when made or deemed made; or
(c) (i) The Borrower shall fail to perform or observe any term,
covenant or agreement contained in 5.01(i) [Leverage Ratio], 5.01(j)
[Interest Coverage Ratio], 5.01(k) [Minimum Stockholders' Equity],
5.01(l) [Reporting Requirements], 5.01(m) [Monthly Summary Financial
Reports] or 5.02, or (ii) any Loan Party shall fail to perform or
observe any other term, covenant or agreement contained in any Loan
Document on its part to be performed or observed if such failure shall
remain unremedied for 30 days after written notice thereof shall have
been given to the Borrower by the Administrative Agent or any Lender;
or
(d) The Borrower or any of its Subsidiaries shall fail to pay any
principal of or premium or interest on any Debt which is outstanding in
a principal amount of at least $25,000,000 in the aggregate (but
excluding Debt outstanding hereunder) of the Borrower or such
Subsidiary (as the case may be), when the same becomes due and payable
(whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise), and such failure shall continue after the
applicable grace period, if any, specified in the agreement or
instrument relating to such Debt; or any other event shall occur or
condition shall exist under any agreement or instrument relating to any
such Debt and shall continue after the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such event
or condition is to accelerate, or to permit the acceleration of, the
maturity of such Debt; or any such Debt shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled
required prepayment), redeemed, purchased or defeased, or an offer to
prepay, redeem, purchase or defease such Debt shall be required to be
made, in each case prior to the stated maturity thereof and not at the
option of the Borrower or such Subsidiary; or
(e) The Borrower or any of its Subsidiaries shall generally not
pay its debts as such debts become due, or shall admit in writing its
inability to pay its debts generally, or shall make a general
assignment for the benefit of creditors; or any proceeding shall be
instituted by or against the Borrower or any of its Subsidiaries
seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment
of a receiver, trustee, custodian or other similar official for it or
for any substantial part of its property and, in the case of any such
proceeding instituted against it (but not instituted by it), either
such proceeding shall remain undismissed or unstayed for a period of 60
days, or any of the actions sought in such proceeding (including,
without limitation, the entry of an order for relief against, or the
appointment of a receiver, trustee, custodian or other similar official
for, it or for any substantial part of its property) shall occur; or
the Borrower or any of its Subsidiaries shall take any corporate action
to authorize any of the actions set forth above in this Section
6.01(e); or
(f) Any judgment or order for the payment of money in excess of
(x) $25,000,000 in any individual case, or (y) $50,000,000 in the
aggregate at any one time, shall be rendered against the Borrower or
any of its Subsidiaries and there shall be any period of 30 consecutive
days during which a stay of enforcement of such judgment or order, by
reason of a pending appeal or otherwise, shall not be in effect unless
such judgment or order shall have been vacated, satisfied or dismissed
or bonded pending appeal; provided, however, that any such judgment or
order shall not be an Event of Default under this Section 6.01(f) if
and for so long as (i) the entire amount of such judgment or order is
covered by a valid and binding policy of insurance between the
defendant and the insurer covering payment thereof and (ii) such
insurer, which shall be rated at least "A" by A.M. Best Company, has
been notified of, and has not disputed the claim made for payment of
the amount of such judgment or order; or
(g) Any non-monetary judgment or order shall be rendered against
the Borrower or any of its Subsidiaries that is reasonably likely to
have a Material Adverse Effect and there shall be any period of 30
consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in
effect unless such judgment or order shall have been vacated,
satisfied, discharged or bonded pending appeal; or
(h) A Change of Control shall occur or the Borrower shall fail
(i) to own, directly or indirectly (A) through one or more Subsidiary
Guarantors, 100% of the capital stock (by vote and value) of NHL or (B)
subject to transactions permitted pursuant to Section 5.02(c), 100% of
the capital stock (by vote and value) of each other Material Subsidiary
of the Borrower existing on the date hereof or (ii) subject to
transactions permitted pursuant to Section 5.02(c), to maintain Control
of each other Person that shall qualify as a Material Subsidiary of the
Borrower from time to time; or
(i) Any ERISA Event shall have occurred with respect to the
Borrower or any of its ERISA Affiliates and such ERISA Event, together
with any and all other ERISA Events that shall have occurred with
respect to the Borrower or any of its ERISA Affiliates, is reasonably
likely to result in a liability of the Borrower and its ERISA
Affiliates with respect to any Plan of the Borrower or any of its ERISA
Affiliates in excess of $25,000,000; or
(j) The Borrower or any of its ERISA Affiliates shall have been
notified by the sponsor of a Multiemployer Plan of the Borrower or any
of its ERISA Affiliates that it has incurred Withdrawal Liability to
such Multiemployer Plan in an amount that, when aggregated with all
other amounts required to be paid to Multiemployer Plans by the
Borrower and its ERISA Affiliates as Withdrawal Liability (determined
as of the date of such notification), exceeds $25,000,000 or requires
payments exceeding $5,000,000 per annum; or
(k) The Borrower or any of its ERISA Affiliates shall have been
notified by the sponsor of a Multiemployer Plan of the Borrower or any
of its ERISA Affiliates that such Multiemployer Plan is in
reorganization or is being terminated, within the meaning of Title IV
of ERISA, and as a result of such reorganization or termination the
aggregate annual contributions of the Borrower and its ERISA Affiliates
to all Multiemployer Plans that are then in reorganization or being
terminated have been or will be increased over the amounts contributed
to such Multiemployer Plans for the plan years of such Multiemployer
Plans immediately preceding the plan year in which such reorganization
or termination occurs by an amount exceeding $5,000,000; or
(l) Any material provision of any Loan Document shall be
determined by any court, administrative agency or arbitrator to be
invalid, not binding or unenforceable, or any Loan Party or any
Affiliate thereof shall so assert in writing;
then, and in any such event, the Administrative Agent (i) shall at the
request, or may with the consent, of the Required Lenders, by notice to the
Borrower, declare the obligation of each Lender to make Advances to be
terminated, whereupon the same shall forthwith terminate, and (ii) shall at
the request, or may with the consent, of the Required Lenders, by notice to
the Borrower, declare the Notes, all interest thereon and all other amounts
payable under this Agreement to be forthwith due and payable, whereupon the
Notes, all such interest and all such amounts shall become and be forthwith
due and payable, without presentment, demand, protest or further notice of
any kind, all of which are hereby expressly waived by the Borrower;
provided, however, that, in the event of an actual or deemed entry of an
order for relief with respect to the Borrower under the Federal Bankruptcy
Code, (A) the obligation of each Lender to make Advances shall automatically
be terminated and (B) the Notes, all such interest and all such amounts
shall automatically become and be due and payable, without presentment,
demand, protest or any notice of any kind, all of which are hereby expressly
waived by the Borrower.
SECTION 6.02. Cash Collateral. (a) If any Event of Default
described in Section 6.01(e) shall occur or the Notes shall have otherwise
been accelerated or the obligation of each Lender to make Advances been
terminated pursuant to Section 6.01, then without any request or the taking
of any other action by the Administrative Agent or any of the Lenders, the
Borrower shall be obligated forthwith to pay to the Administrative Agent an
amount in immediately available funds equal to the aggregate L/C
Outstandings (regardless of whether any conditions to any drawing can then
be met), to be held by the Administrative Agent as cash collateral as
provided below.
(b) All amounts required to be deposited as cash collateral with
the Administrative Agent pursuant to Section 6.02 shall be deposited in a
cash collateral account (the "Cash Collateral Account") established by the
Borrower with the Administrative Agent, to be held, applied or released for
application as provided in this Section 6.02.
(c) If any Event of Default occurs resulting from the issuance of
an L/C which does not comply with the terms of Section 2.03A(a)(i) or (ii),
the Borrower may cure such Event of Default by depositing in the Cash
Collateral Account within two (2) Business Days after the Borrower has
received written notice thereof an amount equal to the aggregate L/C
Outstandings with respect to such L/C, such amount to be held, applied or
released for application as provided in this Section 6.02.
(d) If and when any portion of the L/C Obligations on which any
deposit of cash collateral was based (the "Relevant Contingent Exposure")
shall become fixed (a "Direct Exposure") as a result of the payment by a L/C
Issuer of a draft presented under any relevant L/C, the amount of such
Direct Exposure (but not more than the amount in the Cash Collateral Account
at the time) shall be withdrawn by the Administrative Agent from the Cash
Collateral Account and shall be paid to the relevant L/C Issuer to be
applied against such Direct Exposure and the Relevant Contingent Exposure
shall thereupon be reduced by such amount. If at any time the amount in the
Cash Collateral Account exceeds the Relevant Contingent Exposure, such
excess amount shall be retained in the Cash Collateral Account and, if and
when requested by the Required Lenders, shall be withdrawn by the
Administrative Agent and applied first to repay the Advances, L/C
Obligations and other due and unpaid amounts required to be paid by the
Borrower hereunder and second any remaining excess shall be paid to the
Borrower; provided however, that (x) if at any time there is no Relevant
Contingent Exposure, such excess amount shall be paid to the Borrower and
(y) so long as no Event of Default shall have occurred and be continuing, a
portion of such excess amount up to the amount deposited and held pursuant
to Section 6.02(c) shall be paid to the Borrower. If at any time the amount
in the Cash Collateral Account is less than the Relevant Contingent
Exposure, the Borrower shall promptly deposit in the Cash Collateral Account
additional cash collateral in the amount of such shortfall.
(e) Interest and other payments and distributions made on or with
respect to the cash collateral held by the Administrative Agent shall be for
the account of the Borrower and shall constitute cash collateral to be held
by the Administrative Agent or returned to the Borrower in accordance with
subsection (d) of this Section 6.02; provided that the Administrative Agent
shall have no obligation to invest any cash collateral on behalf of the
Borrower or any other Person (except that the Administrative Agent shall
invest such cash collateral in Cash Equivalents pursuant to the
Administrative Agent's customary practices if so directed by the Borrower).
Beyond the exercise of reasonable care in the custody thereof, the
Administrative Agent shall have no duty as to any cash collateral in its
possession or control or in the possession or control of any agent or bailee
or any income thereon or as to the preservation of rights against prior
parties or any other rights pertaining thereto. The Administrative Agent
shall be deemed to have exercised reasonable care in the custody and
preservation of the cash collateral in its possession if the cash collateral
is accorded treatment substantially equal to that which it accords its own
property, and shall not be liable or responsible for any loss or damage to
any of the cash collateral, or for any diminution in the value thereof, by
reason of the act or omission of any agent or bailee selected by the
Administrative Agent in good faith. All reasonable expenses and liabilities
incurred by the Administrative Agent in connection with taking, holding and
disposing of any cash collateral (including customary custody and similar
fees with respect to any cash collateral held directly by the Administrative
Agent) shall be paid by the Borrower from time to time upon demand. The
Administrative Agent shall be entitled to apply (and, at the request of the
Required Lenders but subject to applicable law, shall apply) cash collateral
or the proceeds thereof to payment of any such expenses, liabilities and
fees.
ARTICLE VII
THE ADMINISTRATIVE AGENT
SECTION 7.01. Authorization and Action. Each Lender hereby
appoints and authorizes the Administrative Agent to take such action as
agent on its behalf and to exercise such powers under this Agreement and the
other Loan Documents as are delegated to the Administrative Agent by the
terms hereof and thereof, together with such powers as are reasonably
incidental thereto. As to any matters not expressly provided for by the
Loan Documents (including, without limitation, enforcement or collection of
the Notes), the Administrative Agent shall not be required to exercise any
discretion or take any action, but shall be required to act or to refrain
from acting (and shall be fully protected in so acting or refraining from
acting) upon the instructions of the Required Lenders, and such instructions
shall be binding upon all Lenders and all holders of Notes; provided,
however, that the Administrative Agent shall not be required to take any
action which exposes the Administrative Agent to personal liability or which
is contrary to this Agreement or applicable law. The Administrative Agent
agrees to give to each Lender prompt notice of each notice and other report
given to it by the Borrower pursuant to the terms of this Agreement.
SECTION 7.02. Administrative Agent's Reliance, Etc. Neither the
Administrative Agent nor any of its directors, officers, agents or
employees, shall be liable for any action taken or omitted to be taken by it
or them under or in connection with the Loan Documents or any L/C, except
for its or their own gross negligence or willful misconduct. Without
limitation of the generality of the foregoing, the Administrative Agent: (i)
may treat the payee of any Note as the holder thereof until the
Administrative Agent receives and accepts an Assignment and Acceptance
entered into by the Lender that is the payee of such Note, as assignor, and
an Eligible Assignee, as assignee, as provided in Section 8.07; (ii) may
consult with legal counsel (including counsel for the Borrower), independent
public accountants and other experts selected by it and shall not be liable
for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or experts; (iii)
makes no warranty or representation to any Lender and shall not be
responsible to any Lender for any statements, warranties or representations
(whether written or oral) made in or in connection with the Loan Documents
or any L/C; (iv) shall not have any duty to ascertain or to inquire as to
the performance or observance of any of the terms, covenants or conditions
of the Loan Documents or any L/C on the part of the Borrower or to inspect
the property (including the books and records) of the Borrower; (v) shall
not be responsible to any Lender for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of, or the perfection or
priority of any lien or security interest created or purported to be created
under or in connection with the Loan Documents, any L/C or any other
instrument or document furnished pursuant hereto; and (vi) shall incur no
liability under or in respect of the Loan Documents or any L/C by acting
upon any notice, consent, certificate or other instrument or writing (which
may be by telecopier, telegram, cable or telex) believed by it to be genuine
and signed or sent by the proper party or parties.
SECTION 7.03. CSFB and Affiliates. With respect to its
Commitments, the Advances made by it, the Notes issued to it or in its favor
and any L/Cs issued by it, CSFB shall have the same rights and powers under
the Loan Documents as any other Lender and may exercise the same as though
it were not the Administrative Agent and the term "Lender" or "Lenders"
shall, unless otherwise expressly indicated, include CSFB hereunder in its
individual capacity. CSFB and its affiliates may accept deposits from, lend
money to, act as trustee under indentures of, accept investment banking
engagements from and generally engage in any kind of business with, the
Borrower, any of its Subsidiaries and any Person who may do business with or
own securities of the Borrower or any such Subsidiary, all as if CSFB were
not the Administrative Agent and without any duty to account therefor to the
Lenders.
SECTION 7.04. Lender Credit Decision. Each Lender acknowledges
that it has, independently and without reliance upon the Administrative
Agent or any other Lender and based on the financial statements referred to
in Section 4.01(f) and such other documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Lender also acknowledges that it will, independently and
without reliance upon the Administrative Agent or any other Lender and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action
under this Agreement.
SECTION 7.05. Indemnification. The Lenders agree to indemnify
the Administrative Agent and its affiliates (to the extent not reimbursed by
or on behalf of the Borrower), ratably according to the respective principal
amounts of the Advances then owing to each of them (or if no Advances are at
the time outstanding or if any Advances are then owing to Persons which are
not Lenders, ratably according to the respective amounts of their
Commitments), from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed on,
incurred by, or asserted against the Administrative Agent or any such
affiliate in any way relating to or arising out of the Loan Documents, any
L/C or any action taken or omitted by the Administrative Agent under the
Loan Documents or any L/C, provided that no Lender shall be liable for any
portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from
the Administrative Agent's or any such affiliate's gross negligence or
willful misconduct. Without limitation of the foregoing, each Lender agrees
to reimburse the Administrative Agent promptly upon demand for its ratable
share of unpaid fees owing to the Administrative Agent, and any out-of-
pocket expenses (including counsel fees) incurred by the Administrative
Agent and any such affiliate, in connection with the preparation, execution,
delivery, administration, modification, amendment or enforcement (whether
through negotiations, legal proceedings or otherwise) of, or legal advice in
respect of rights or responsibilities under, any Loan Document or any L/C,
to the extent that the Administrative Agent is not paid such fees, or the
Administrative Agent or any such affiliate is not reimbursed for such
expenses, by the Borrower.
SECTION 7.06. Successor Administrative Agent. The Administrative
Agent may resign at any time by giving written notice thereof to the Lenders
and the Borrower and may be removed at any time with or without cause by the
Required Lenders. Upon any such resignation or removal, the Required
Lenders shall have the right to appoint, with the consent of the Borrower, a
successor Administrative Agent which shall be a Lender, or if no Lender
consents to act as Administrative Agent hereunder, a commercial bank
organized or licensed under the laws of the United States or of any State
thereof and having a combined capital and surplus of at least $500,000,000
(a "Qualified Bank"). If no successor Administrative Agent shall have been
so appointed by the Required Lenders, and shall have accepted such
appointment, within 30 days after the retiring Administrative Agent's giving
of notice of resignation or the Required Lenders' removal of the retiring
Administrative Agent, then the retiring Administrative Agent may, on behalf
of the Lenders, appoint a successor Administrative Agent, which shall be a
Qualified Bank that is acceptable to the Borrower (which shall not
unreasonably withhold its approval). Upon the acceptance of any appointment
as Administrative Agent thereunder by a successor Administrative Agent, such
successor Administrative Agent shall thereupon succeed to and become vested
with all the rights, powers, privileges and duties of the retiring
Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations under the Loan Documents. After
any retiring Administrative Agent's resignation or removal hereunder as
Administrative Agent, the provisions of this Article VII shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver of any
provision of this Agreement or the Term Notes or the Revolving Credit Notes,
nor consent to any departure by the Borrower therefrom, shall in any event
be effective unless the same shall be in writing and signed by the Required
Lenders, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given; provided,
however, that (a) no amendment, waiver or consent shall, unless in writing
and signed by each of the Lenders affected thereby (other than any Lender
which is, at such time, a Defaulting Lender), do any of the following: (i)
waive any of the conditions specified in Section 3.01 or, in the case of the
Borrowing on or immediately after the Amendment Effective Date, Section
3.02, (ii) change the definition of the term "Required Lenders" or (iii)
amend this Section 8.01 and (b) no amendment, waiver or consent shall,
unless in writing and signed by the Required Lenders and each Lender that
has an Advance or Commitment affected by such amendment, waiver or consent,
(i) increase the Commitment of such Lender or subject such Lender to any
additional obligations, (ii) reduce the principal of, or interest on, the
Term Notes or the Revolving Credit Notes held by such Lender or any fees or
other amounts payable hereunder to such Lender, (iii) release any Subsidiary
Guarantor or any rights under the Subsidiary Guaranty (except, in the case
of this clause (iii), by operation of law as a consequence of a transaction
permitted by Section 5.02(c)) or (iv) postpone the Revolving Credit
Termination Date, any L/C Expiration Date or the Termination Date or any
date fixed for any payment of principal of or interest on the Term Notes or
the Revolving Credit Notes held by such Lender or any fees or other amounts
payable hereunder to such Lender; provided, further, that no amendment,
waiver or consent shall, unless in writing and signed by the Administrative
Agent in addition to the Lenders required above to take such action, affect
the rights or duties of the Administrative Agent under this Agreement or any
Note.
SECTION 8.02. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing (including telecopier,
telegraphic, telex or cable communication) and mailed, telecopied,
telegraphed, telexed, cabled or delivered, if to the Borrower, at its
address at 358 South Main Street, Burlington, North Carolina 27215,
Attention: each of Chief Financial Officer (fax no. (910) 222-1568) and
General Counsel (fax no. (910) 226-3835); if to any Bank at its Domestic
Lending Office on Schedule I hereto; if to any other Lender, at the address
specified in the Assignment and Acceptance pursuant to which it became a
Lender; and if to the Administrative Agent, at its address at 11 Madison
Avenue, 21st floor, New York, New York 10010, Attention: Syndicated
Finance/Agency (fax no. (212) 325-8304); or, as to the Borrower or the
Administrative Agent, at such other address as shall be designated by such
party in a written notice to the other parties and, as to each other party,
at such other address as shall be designated by such party in a written
notice to the Borrower and the Administrative Agent. All such notices and
communications shall be effective (i) when received, if mailed or delivered
or telecopied (if telecopied, only when non-machine confirmation of receipt
is received), or (ii) when confirmed by telex answerback, except that
notices and communications to the Administrative Agent pursuant to Article
II or VII shall not be effective until received by the Administrative Agent.
SECTION 8.03. No Waiver; Remedies. No failure on the part of any
Lender, or the Administrative Agent to exercise, and no delay in exercising,
any right hereunder or under any Note shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right preclude any other or
further exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
SECTION 8.04. Costs; Expenses. (a) The Borrower agrees to pay
on demand all reasonable out-of-pocket costs and expenses of the
Administrative Agent and its affiliates in connection with the preparation,
execution, delivery, administration, modification and amendment of, or
waiver under, the Loan Documents, any L/C and the other documents to be
delivered hereunder (including, without limitation, (A) all reasonable due
diligence, transportation, computer, duplication, appraisal, audit and
insurance expenses and fees and expenses of consultants engaged with the
prior consent of the Borrower (which consent shall not be unreasonably
withheld) and (B) the reasonable fees and out-of-pocket expenses of counsel
for the Administrative Agent with respect thereto, with respect to advising
the Administrative Agent as to its rights and responsibilities, or the
protection or preservation of rights or interests, under the Loan Documents
or any L/C, with respect to negotiations with the Borrower or with other
creditors of the Borrower arising out of any Default or any events or
circumstances that may give rise to a Default and with respect to presenting
claims in, monitoring or otherwise participating in any bankruptcy,
insolvency or other similar proceeding affecting creditors' rights generally
and any proceeding ancillary thereto). The Borrower further agrees to pay
on demand all reasonable out-of-pocket costs and expenses of the
Administrative Agent and the Lenders in connection with the enforcement of
the Loan Documents and the other documents to be delivered hereunder,
whether in action, suit, litigation, any bankruptcy, insolvency or other
similar proceeding affecting creditors' rights generally or otherwise
(including, without limitation, the reasonable fees and reasonable expenses
of counsel for the Administrative Agent and each Lender with respect
thereto) and expenses in connection with the enforcement of rights under
this Section 8.04(a).
(b) If any payment of principal of any Eurodollar Rate Advance or
LIBO CB Advance is made by the Borrower to or for the account of a Lender
other than on the last day of the Interest Period for such Advance, as a
result of a payment or Conversion pursuant to Section 2.05, 2.11 or 2.15,
acceleration of the maturity of the Notes pursuant to Section 6.01 or for
any other reason, or if for any reason any Advance to be Converted to a
Eurodollar Rate Advance on the date specified in the notice of conversion
with respect thereto is not so Converted, the Borrower shall, within ten
days after demand by such Lender (with a copy of such demand to the
Administrative Agent), pay to the Administrative Agent for the account of
such Lender any amounts required to compensate such Lender for any
additional losses, costs or expenses which it may reasonably incur as a
result of such payment or failure to Convert, including, without limitation,
any loss, cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by any Lender to fund or
maintain such Advance; provided that such Lender shall have delivered to the
Borrower a written notice setting forth the amount and calculation of such
loss or expense.
(c) The Borrower agrees to indemnify and hold harmless the
Administrative Agent and each Lender and each of their affiliates and their
officers, directors, employees, agents and advisors (each, an "Indemnified
Party") from and against any and all claims, damages, losses, liabilities
and expenses (including, without limitation, reasonable fees and expenses of
counsel) that may be incurred by or asserted or awarded against any
Indemnified Party, in each case arising out of or in connection with or by
reason of (or in connection with the preparation for a defense of) any
investigation, litigation or proceeding arising out of, related to or in
connection with the Loan Documents and the transactions contemplated thereby
or any L/C, whether or not an Indemnified Party is a party thereto, whether
or not the transactions contemplated hereby are consummated and whether or
not any such claim, investigation, litigation or proceeding is brought by
the Borrower or any other person, except (i) to the extent such claim,
damage, loss, liability or expense (x) is found in a final, non-appealable
judgment by a court of competent jurisdiction (a "Final Judgment") to have
resulted from such Indemnified Party's gross negligence or willful
misconduct or (y) arises from any legal proceedings commenced against any
Lender by any other Lender (in its capacity as such and not as
Administrative Agent), and (ii) in the case of any litigation brought by the
Borrower (A) seeking a judgment against any Indemnified Party for any
wrongful act or omission of such Indemnified Party and (B) in which a Final
Judgment is rendered in the Borrower's favor against such Indemnified Party,
the provisions of this paragraph will not be available to provide
indemnification for any damage, loss, liability or expense incurred by such
Indemnified Party in connection with such litigation.
SECTION 8.05. Right of Set-off. Upon (i) the occurrence and
during the continuance of any Event of Default and (ii) the making of the
request, or the granting of the consent, of the Required Lenders specified
by Section 6.01 to authorize the Administrative Agent to declare the Notes
due and payable pursuant to the provisions of Section 6.01, each Lender is
hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by such Lender to or for the credit or the
account of the Borrower against any and all of the obligations of the
Borrower to such Lender now or hereafter existing under this Agreement and
the Note or Notes held by such Lender, whether or not such Lender shall have
made any demand under this Agreement or such Note or Notes and although such
obligations may be unmatured. Each Lender agrees promptly to notify the
Borrower and the Administrative Agent after any such set-off and application
shall be made by such Lender, provided that the failure to give such notice
shall not affect the validity of such set-off and application. The rights
of each Lender under this Section 8.05 are in addition to other rights and
remedies (including, without limitation, other rights of set-off) which such
Lender may have.
SECTION 8.06. Binding Effect. This Agreement shall be binding
upon and inure to the benefit of the Borrower, the Administrative Agent and
each Lender and their respective successors and permitted assigns.
SECTION 8.07. Assignments and Participations. (a) The Borrower
shall not have the right to assign its rights hereunder or any interest
herein without the prior written consent of the Administrative Agent and
each Lender. Each Lender may and, if demanded by the Borrower pursuant to
Section 2.14, will assign to one or more banks or other entities all or a
proportionate part of all of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitments, L/C
Obligations, the Committed Advances owing to it and the Term Notes or the
Revolving Credit Notes held by it, but excluding such Lender's Competitive
Bid Advances); provided, however, that (i) each such assignment shall be of
a uniform, and not a varying, percentage of all rights and obligations under
and in respect of the Facilities, (ii) the amount of the Commitment of the
assigning Lender being assigned pursuant to each such assignment (determined
as of the date of the Assignment and Acceptance with respect to such
assignment) shall in no event be less than $5,000,000 and shall be an
integral multiple of $1,000,000 in excess thereof, or shall be an assignment
to another Lender or an assignment of all of the assigning Lender's rights
and obligations hereunder and under the Notes, (iii) each such assignment
shall be to another Lender, an Affiliate of the assigning Lender or, subject
(at all times prior to the occurrence and continuance of an Event of
Default) to the consent of the Borrower (such consent not to be unreasonably
withheld), to an Eligible Assignee, (iv) each such assignment made as a
result of a demand by the Borrower pursuant to Section 2.14 shall be
arranged by the Borrower after consultation with the Administrative Agent
and shall be either an assignment of all of the rights and obligations of
the assigning Lender under this Agreement or an assignment of a portion of
such rights and obligations made concurrently with another such assignment
or other such assignments that together cover all of the rights and
obligations of the assigning Lender under this Agreement, (v) no Lender
shall be obligated to make any such assignment as a result of a demand by
the Borrower pursuant to Section 2.14 unless and until such Lender shall
have received one or more payments from either the Borrower or one or more
Eligible Assignees in an aggregate amount at least equal to the aggregate
outstanding principal amount of the Advances owing to such Lender, together
with accrued interest thereon to the date of payment of such principal
amount and all other amounts payable to such Lender under this Agreement and
(vi) the parties to each such assignment shall execute and deliver to the
Administrative Agent, for its acceptance and recording in the Register, an
Assignment and Acceptance, together with any Term Notes or Revolving Credit
Notes subject to such assignment and a processing and recordation fee of
$3,500 from the assignee. Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in each Assignment
and Acceptance, (x) the assignee thereunder shall be a party hereto and, to
the extent that rights and obligations hereunder have been assigned to it
pursuant to such Assignment and Acceptance, have the rights and obligations
of a Lender hereunder and (y) the Lender assignor thereunder shall, to the
extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an
assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto).
(b) The Administrative Agent will maintain at its address
referred to in Section 8.02 a copy of each Assignment and Acceptance
delivered to and accepted by it and a register for the recordation of the
names and addresses of the Lenders and the Commitment of, and principal
amount of the Committed Advances owing under each Facility to, each Lender
from time to time (the "Register"). The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Administrative Agent and the Lenders shall treat each Person
whose name is recorded in the Register as a Lender hereunder for all
purposes of this Agreement. The Register shall be available for inspection
by the Borrower or any Lender at any reasonable time and from time to time
upon reasonable prior notice.
(c) Upon its receipt of an Assignment and Acceptance executed by
an assigning Lender and an assignee representing that it is an Eligible
Assignee, together with any Term Notes or Revolving Credit Notes subject to
such assignment if the assigning Lender is assigning all of its rights and
obligations under this Agreement, the Administrative Agent shall, if such
Assignment and Acceptance has been completed and is in substantially the
form of Exhibit B hereto, (i) accept such Assignment and Acceptance, (ii)
record the information contained therein in the Register and (iii) give
prompt notice thereof to the Borrower. Within five Business Days after its
receipt of such notice, the Borrower, at its own expense, shall execute and
deliver to the Administrative Agent a new Term Note or Revolving Credit Note
to the order of such Eligible Assignee if it is not already a Lender. Such
new Term Note or Revolving Credit Note shall be dated the effective date of
such Assignment and Acceptance and shall otherwise be in substantially the
form of Exhibit A-1 or Exhibit A-2, as the case may be. No assignment shall
be effective unless the Assignment and Acceptance has been registered in the
Register as provided in this Section 8.07(c).
(d) Each Lender may sell participations to one or more banks or
other entities in or to all or a portion of its rights and obligations under
this Agreement (including, without limitation, all or a portion of its
Commitment, L/C Obligations, the Committed Advances and the Competitive Bid
Advances owing to it, the Term Notes or Revolving Credit Notes held by it
and its interests in the Competitive Bid Note); provided, however, that (i)
such Lender's obligations under this Agreement (including, without
limitation, its Commitment to the Borrower hereunder) shall remain
unchanged, (ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, (iii) such Lender
shall remain the holder of any such Term Note or Revolving Credit Note, and
a beneficiary of the Competitive Bid Note, for all purposes of this
Agreement, (iv) the Borrower, the Administrative Agent and the other Lenders
shall continue to deal solely and directly with such Lender in connection
with such Lender's rights and obligations under this Agreement and (v) no
participant under any such participation shall have any right to approve any
amendment or waiver of any provision of any Loan Document, or any consent to
any departure by the Borrower therefrom, except to the extent that such
amendment, waiver or consent would reduce or postpone any date fixed for
payment of principal of, or interest on, the Term Notes, Revolving Credit
Notes or Competitive Bid Note or any fees or other amounts payable hereunder
or extend any L/C Expiration Date in each case to the extent subject to such
participation.
(e) Any Lender may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this
Section 8.07, disclose to the assignee or participant or proposed assignee
or participant, any information relating to the Borrower furnished to such
Lender by or on behalf of the Borrower; provided that, prior to any such
disclosure, the assignee or participant or proposed assignee or participant
shall agree pursuant to an agreement substantially in the form of Exhibit G
to preserve the confidentiality of any confidential information relating to
the Borrower received by it from such Lender.
(f) Notwithstanding any other provision set forth in this
Agreement, any Lender may at any time create a security interest in all or
any portion of its rights under this Agreement (including, without
limitation, the Committed Advances and Competitive Bid Advances owing to it
and the Term Notes or Revolving Credit Notes held by it, and its interests
in the Competitive Bid Note) in favor of any Federal Reserve Bank in
accordance with Regulation A of the Board of Governors of the Federal
Reserve System.
SECTION 8.08. Governing Law; Submission to Jurisdiction.
(a) This Agreement and the Notes shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to the
conflicts of law principles thereof.
(b) The Borrower hereby irrevocably and unconditionally submits,
for itself and its property, to the nonexclusive jurisdiction of any New
York State court or Federal court of the United States of America sitting in
New York City, and any appellate court thereof, in any action or proceeding
arising out of or relating to this Agreement or any other Loan Document, or
for recognition or enforcement of any judgment, and each of the parties
hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in such
New York State or, to the extent permitted by law, in such Federal court.
Each of the parties hereto agrees that a final judgment in any such action
or proceeding shall be conclusive and may be enforced in other jurisdictions
by suit on the judgment or in any other manner provided by law. Subject to
the foregoing and to paragraph (c) below, nothing in this Agreement shall
affect any right that any party hereto may otherwise have to bring any
action or proceeding relating to this Agreement against any other party
hereto in the courts of any jurisdiction.
(c) The Borrower hereby irrevocably and unconditionally waives,
to the fullest extent it may legally and effectively do so, any objection
which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement in any New
York State or Federal court and the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(d) The Borrower agrees that service of process may be made on
the Borrower by personal service of a copy of the summons and complaint or
other legal process in any such suit, action or proceeding, or by registered
or certified mail (postage prepaid) to the address of the Borrower specified
in Section 8.02, or by any other method of service provided for under the
applicable laws in effect in the State of New York.
SECTION 8.09. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be
an original and all of which taken together shall constitute one and the
same agreement. Delivery of an executed counterpart of a signature page to
this Agreement by telecopier shall be effective as delivery of a manually
executed counterpart of this Agreement.
SECTION 8.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
ADMINISTRATIVE AGENT AND THE LENDERS IRREVOCABLY WAIVES ALL RIGHT TO TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN
DOCUMENTS, THE ADVANCES, ANY L/C OR THE ACTIONS OF THE ADMINISTRATIVE AGENT,
THE BORROWER OR ANY LENDER IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE
OR ENFORCEMENT THEREOF.
SECTION 8.11. Confidentiality. Each Lender acknowledges that it
has been and will be furnished non-public information concerning the
Borrower and its Subsidiaries in connection with the Loan Documents (all
such non-public information, whether furnished before or after the date of
this Agreement, collectively the "Transaction Information"). Each Lender
agrees to keep confidential (and to cause its affiliates, officers,
directors, employees, agents and representatives to keep confidential) all
Transaction Information, except that each Lender shall be permitted to
disclose details of the Transaction Information (a) to such of its
affiliates, officers, directors, employees, agents and representatives
(which agents and representatives shall not include any non-affiliated
financial institutions) and legal or other advisors who need to know such
information in connection with its role as a Lender (or as Administrative
Agent) hereunder and who receive such information with the understanding
that it is confidential; (b) to the extent required by applicable laws and
regulations or by any subpoena or similar legal process (provided that, to
the extent permitted by applicable law, such Lender will promptly notify the
Borrower of such requirement as far in advance of its disclosure as is
practicable to enable the Borrower to seek a protective order and, to the
extent practicable, such Lender will cooperate with the Borrower in seeking
any such order), or requested by any governmental agency or authority having
jurisdiction over such Lender (provided that, to the extent permitted by
applicable law, such Lender will first inform the Borrower of any such
request) other than those from bank regulatory authorities or examiners; (c)
to the extent the Borrower shall have consented to such disclosure in
writing; and (d) to the extent that a public announcement or dissemination
of such Transaction Information shall have been made other than as a result
of a breach of this Section 8.11. Each Lender will use the Transaction
Information only in connection with its role as a Lender (or as
Administrative Agent) hereunder.
SECTION 8.12. Severability. The invalidity, illegality or
unenforceability in any jurisdiction of any provision in or obligation under
this Agreement or any other Loan Document shall not affect or impair the
validity, legality or enforceability of the remaining provisions or
obligations under this Agreement, the Notes or any other Loan Document or of
such provision or obligation in any other jurisdiction.
SECTION 8.13. AMENDMENT OF NOTES. ON AND AS OF THE AMENDMENT
EFFECTIVE DATE, THE NOTES OF EACH LENDER ARE HEREBY AMENDED BY CHANGING THE
RESPECTIVE MATURITY DATES SET FORTH BELOW, AND EACH LENDER IS HEREBY
AUTHORIZED TO STRIKE OUT THE MATURITY DATE INDICATED ON EACH OF SUCH
LENDER'S (I) TERM NOTES AND MARK THE DATE "MARCH 31, 2004" AS THE AMENDED
MATURITY DATE IN LIEU THEREOF AND (II) COMPETITIVE BID NOTES AND REVOLVING
CREDIT NOTES AND MARK THE DATE "MARCH 31, 2002" AS THE AMENDED MATURITY DATE
IN LIEU THEREOF.
SECTION 8.14. Termination of Waivers. All prior waivers of any
provision of the Existing Credit Agreement shall terminate on and as of the
Amendment Effective Date.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers thereunto duly authorized, as of
the date first above written.
BORROWER: LABORATORY CORPORATION OF
-------- AMERICA HOLDINGS
By:/s/ WESLEY R. ELINGBURG
---------------------------------
Name: Wesley R. Elingburg
Title: Executive Vice President
Chief Financial Officer
and Treasurer
ADMINISTRATIVE
AGENT: CREDIT SUISSE FIRST BOSTON,
-------------- as Administrative Agent
By:/s/ KARL STUDER
-------------------------------
Name: Karl Studer
Title: Director
By:/s/ HEATHER RIEKENBERG
-------------------------------
Name: Heather Riekenberg
Title: Vice President
<PAGE>
<PAGE>
CREDIT SUISSE FIRST BOSTON
By:/s/ KARL STUDER
-------------------------------
Name: Karl Studer
Title: Director
By:/s/ MARTIN P. LASANCE
-------------------------------
Name: Martin P. Lasance
Title: Associate
<PAGE>
<PAGE>
BANK OF AMERICA ILLINOIS
By:/s/ WENDY L. LORING
-------------------------------
Name: Wendy L. Loring
Title: Vice President
<PAGE>
<PAGE>
BANQUE NATIONALE DE PARIS
By:/s/ RICHARD L. STED
-------------------------------
Name: Richard L. Sted
Title: Senior Vice President
By:/s/ BONNIE G. EISENSTAT
-------------------------------
Name: Bonnie G. Eisenstat
Title: Vice President
Corporate Banking Director
<PAGE>
<PAGE>
BAYERISCHE LANDESBANK GIROZENTRALE
By:/s/ PETER OBERMANN
-------------------------------
Name: Peter Obermann
Title: Senior Vice President
Manager Lending Division
By:/s/ MARTHA ASMA
-------------------------------
Name: Martha Asma
Title: Vice President
<PAGE>
<PAGE>
THE CHASE MANHATTAN BANK
By:/s/ SCOTT S. WARD
-------------------------------
Name: Scott S. Ward
Title: Vice President
<PAGE>
<PAGE>
CREDIT LYONNAIS (NEW YORK BRANCH)
By:/s/ JOHN OBERLE
-------------------------------
Name: John Oberle
Title: Vice President
<PAGE>
<PAGE>
DEUTSCHE BANK AG NEW YORK BRANCH
and/or CAYMAN ISLANDS BRANCH
By:/s/ WOLF A. KLUGE
-------------------------------
Name: Wolf A. Kluge
Title: Vice President
By:/s/ SHERINE FANOUS
-------------------------------
Name: Sherine Fanous
Title: Assistant Vice President
<PAGE>
<PAGE>
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
By:/s/ JOSEPH H. TOWELL
-------------------------------
Name: Joseph H. Towell
Title: Senior Vice President
<PAGE>
<PAGE>
THE FUJI BANK, LTD. (NEW YORK BRANCH)
By:/s/ TOSHIAKI YAKURA
-------------------------------
Name: Toshiaki Yakura
Title: Senior Vice President
<PAGE>
<PAGE>
NATIONSBANK, N.A.
By:/s/ MICHAEL A. CRABB, III
-------------------------------
Name: Michael A. Crabb, III
Title: Vice President
<PAGE>
<PAGE>
SOCIETE GENERALE
By:/s/ GEORG L. PETERS
-------------------------------
Name: Georg L. Peters
Title: Vice President
<PAGE>
<PAGE>
THE SUMITOMO BANK, LIMITED
(NEW YORK BRANCH)
By:/s/ JOHN C. KISSINGER
-------------------------------
Name: John C. Kissinger
Title: Joint General Manager
<PAGE>
<PAGE>
SWISS BANK CORPORATION
By:/s/ PAOLO SEIFERLE
-------------------------------
Name: Paolo Seiferle
Title: Associate Director
Corporate Clients
Switzerland
By:/s/ DOROTHY L. MCKINLEY
-------------------------------
Name: Dorothy L. McKinley
Title: Associate Director
Banking Finance
Support, N.A.
<PAGE>
<PAGE>
WACHOVIA BANK OF GEORGIA, N.A.
By:/s/ LISA M. SHAWL
-------------------------------
Name: Lisa M. Shawl
Title: Vice President
<PAGE>
<PAGE>
WESTDEUTSCHE LANDESBANK
By:/s/ DONALD F. WOLF
-------------------------------
Name: Donald F. Wolf
Title: Vice President
By:/s/ C. RUSHLAND
-------------------------------
Name: C. Rushland
Title: Vice President
<PAGE>
<PAGE>
COMMERZBANK AKTIENGESELLSCHAFT,
Atlanta Agency
By:/s/ A. BREMER
-------------------------------
Name: A. Bremer
Title: Sen. Vice President
By: /s/ D. SUTTLES
-------------------------------
Name: D. Suttles
Title: Vice President
<PAGE>
<PAGE>
BANK BRUSSELS LAMBERT,
New York Branch
By:/s/ MARIA LAUDICINA BOYER
-------------------------------
Name: Maria Laudicina Boyer
Title: Assistant Vice President
By: /s/ DOMINICK H.J. VANGAEVER
-------------------------------
Name: Dominick H.J. Vangaever
Title: Senior Vice President Credit
<PAGE>
<PAGE>
FIRST AMENDMENT TO PROMISSORY NOTE GIVEN BY
LABORATORY CORPORATION OF AMERICA HOLDINGS TO
ROCHE HOLDINGS INC. DATED DECEMBER 30, 1996
This First Amendment shall document the agreement to amend the above-
referenced Promissory Note (the "Note") as follows:
The Maturity Date set forth in the Note shall be
extended from March 31, 1997 to March 31, 1998.
Except as expressly modified above, all terms and conditions set
forth in the Note shall remain unchanged and in full force and effect.
Agreed to and accepted:
ROCHE HOLDINGS INC.
By:/s/ HENRI MEIER
------------------------------
Henri Meier
LABORATORY CORPORATION OF AMERICA
HOLDINGS
By:/s/ WESLEY R. ELINGBURG
------------------------------
Wesley R. Elingburg
<PAGE>
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS
LIST OF SUBSIDIARIES
Laboratory Corporation of America a Delaware company
Executive Tower Travel Inc. a Delaware company
Tower Collection Center, Inc. a Delaware company
National Laboratory Center Inc. d/b/a/ MedExpress a
Tennessee company
CompuChem Corporation a Massachusetts company
CompuChem Laboratories, Inc. a Delaware company
ChemWest Analytical Laboratories, Inc. a Delaware company
LabCorp Limited a United Kingdom company
Lab Delivery Service of New York City, Inc. a New York
company
<PAGE>
<PAGE>
EXHIBIT 23.1
Independent Auditors' Consent
-----------------------------
The Board of Directors
Laboratory Corporation of America Holdings:
We consent to incorporation by reference in the registration
statements (No. 33-29182 and No. 33-43006) as amended, and
registration statements (No. 33-55065, No. 33-62913 and No.
333-17793) on Form S-8 and registration statement (No. 33-
58307) on Form S-3/S-4 of Laboratory Corporation of America
Holdings of our report dated February 14, 1997, except for
notes 9 and 10 as to which the date is March 31, 1997,
relating to the consolidated balance sheets of Laboratory
Corporation of America Holdings and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended
December 31, 1996, and the related schedule, which report
appears in the December 31, 1996 annual report on Form 10-K
of Laboratory Corporation of America Holdings.
KPMG Peat Marwick LLP
Raleigh, North Carolina
April 4, 1997
<PAGE>
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints Bradford T. Smith 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 Laboratory Corporation of America
Holdings (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1996 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 31st day of March, 1997.
By:/s/ JEAN-LUC BELINGARD
-------------------------
Jean-Luc Belingard
<PAGE>
<PAGE>
EXHIBIT 24.2
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints Bradford T. Smith 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 Laboratory Corporation of America
Holdings (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1996 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 31st day of March, 1997.
By:/s/ WENDY E. LANE
------------------------
Wendy E. Lane
<PAGE>
<PAGE>
EXHIBIT 24.3
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints Bradford T. Smith 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 Laboratory Corporation of America
Holdings (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1996 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 19th day of March, 1997.
By:/s/ ROBERT E. MITTELSTAEDT, JR.
-------------------------------
Robert E. Mittelstaedt, Jr.
<PAGE>
<PAGE>
EXHIBIT 24.4
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints Bradford T. Smith 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 Laboratory Corporation of America
Holdings (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1996 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 19th day of March, 1997.
By:/s/ JAMES B. POWELL, M.D.
-------------------------
James B. Powell, M.D.
<PAGE>
<PAGE>
EXHIBIT 24.5
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints Bradford T. Smith 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 Laboratory Corporation of America
Holdings (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1996 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 31st day of March, 1997.
By:/s/ DAVID B. SKINNER
-----------------------------
David B. Skinner
<PAGE>
<PAGE>
EXHIBIT 24.6
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints Bradford T. Smith 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 Laboratory Corporation of America
Holdings (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1996 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 31st day of March, 1997.
By:/s/ ANDREW G. WALLACE, M.D.
------------------------------
Andrew G. Wallace, M.D.
<PAGE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEETS AND STATEMENT OF EARNINGS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000920148
<NAME> LABORATORY CORPORATION OF AMERICA HOLDINGS
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 29,300
<SECURITIES> 0
<RECEIVABLES> 617,200
<ALLOWANCES> 111,600
<INVENTORY> 44,300
<CURRENT-ASSETS> 721,500
<PP&E> 457,600
<DEPRECIATION> 174,700
<TOTAL-ASSETS> 1,917,000
<CURRENT-LIABILITIES> 252,800
<BONDS> 1,270,500
0
0
<COMMON> 1,200
<OTHER-SE> 256,900
<TOTAL-LIABILITY-AND-EQUITY> 1,917,000
<SALES> 1,607,700
<TOTAL-REVENUES> 1,607,700
<CGS> 1,183,800
<TOTAL-COSTS> 1,183,800
<OTHER-EXPENSES> 542,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71,700
<INCOME-PRETAX> (188,278)
<INCOME-TAX> (34,800)
<INCOME-CONTINUING> (153,500)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (153,500)
<EPS-PRIMARY> (1.25)
<EPS-DILUTED> (1.25)
<PAGE>
<PAGE>
</TABLE>
