AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 21, 2003
REGISTRATION NO. 333-88330
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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QUEST DIAGNOSTICS INCORPORATED
(Exact name of Registrant as specified in its charter)
DELAWARE 8071 16-1387862
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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ONE MALCOLM AVENUE
TETERBORO, NEW JERSEY 07608
(201) 393-5000
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
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LEO C. FARRENKOPF, JR.
QUEST DIAGNOSTICS INCORPORATED
VICE PRESIDENT AND SECRETARY
ONE MALCOLM AVENUE
TETERBORO, NEW JERSEY 07608
(201) 393-5000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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COPIES TO:
STEPHEN T. GIOVE
CLARE O'BRIEN
SHEARMAN & STERLING
599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022
(212) 848-4000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
promptly as practicable after this Registration Statement becomes effective and
upon consummation of the transactions described in the enclosed prospectus.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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PROSPECTUS SUPPLEMENT NO. 1, JANUARY 21, 2003. THE INFORMATION IN THIS
PROSPECTUS SUPPLEMENT NO. 1 MAY BE CHANGED. NEITHER QUEST DIAGNOSTICS
INCORPORATED NOR QUEST DIAGNOSTICS NEWCO INCORPORATED MAY SELL THESE SECURITIES
UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT NO. 1 IS NOT AN OFFER TO
SELL THESE SECURITIES AND NEITHER QUEST DIAGNOSTICS INCORPORATED NOR QUEST
DIAGNOSTICS NEWCO INCORPORATED IS SOLICITING OFFERS TO BUY THESE SECURITIES IN
ANY STATE WHERE THE EXCHANGE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS SUPPLEMENT NO. 1 FILE NO. 333-88330
(TO PROSPECTUS DATED AUGUST 6, 2002)
(QUEST DIAGNOSTICS INCORPORATED LOGO)
QUEST DIAGNOSTICS INCORPORATED
PROSPECTUS SUPPLEMENT
DATED JANUARY 21, 2003
This Prospectus Supplement No. 1 (this "Prospectus Supplement No. 1")
amends and supplements the prospectus dated August 6, 2002 (the "Prospectus")
relating to the offer (the "Original Exchange Offer") by Quest Diagnostics
Incorporated ("Quest Diagnostics"), through Quest Diagnostics Newco
Incorporated, our wholly-owned subsidiary (the "Purchaser"), to exchange shares
of Quest Diagnostics common stock and/or to pay cash for all outstanding shares
of Unilab Corporation ("Unilab") common stock that are validly tendered and not
properly withdrawn in the Original Exchange Offer. We will refer to the Original
Exchange Offer, as amended and supplemented by this Prospectus Supplement No. 1,
as the "Amended Exchange Offer".
This Prospectus Supplement No. 1 describes the changes to the consideration
being offered by Quest Diagnostics for the shares of Unilab common stock and
certain other terms and conditions of the Original Exchange Offer. This
Prospectus Supplement No. 1 is not complete without, and may not be utilized
except in connection with, the Prospectus. This Prospectus Supplement No. 1 is
qualified by reference to the Prospectus, except to the extent that the
information contained in this Prospectus Supplement No. 1 supplements or
supersedes the information contained in the Prospectus. You should carefully
read the Prospectus in conjunction with this Prospectus Supplement No. 1 for a
complete discussion of the terms and conditions of the Amended Exchange Offer.
This Prospectus Supplement No. 1 is first being mailed to Unilab stockholders on
or about January 21, 2003.
IF YOU WOULD LIKE AN ADDITIONAL COPY OF THE PROSPECTUS OR ANY OTHER
DOCUMENTS RELATING TO THE AMENDED EXCHANGE OFFER, PLEASE CALL OUR INFORMATION
AGENT, GEORGESON SHAREHOLDER COMMUNICATIONS, INC., COLLECT AT 212-440-9800 OR
TOLL-FREE AT 1-866-318-0509, OR THE DEALER MANAGER, MERRILL LYNCH & CO.,
TOLL-FREE AT 1-866-276-1462, AND ONE WILL BE MADE AVAILABLE TO YOU PROMPTLY.
The Dealer Manager for this Offer is:
MERRILL LYNCH & CO.
The date of this Prospectus Supplement No. 1 is January 21, 2003.
SUPPLEMENTAL INFORMATION
As previously announced, subsequent to the commencement of the Original
Exchange Offer, Quest Diagnostics and Unilab received a request for additional
information from the Federal Trade Commission ("FTC") pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. After
complying with the request for additional information, Quest Diagnostics and
Unilab continued discussions with the FTC regarding their transaction and, as a
result of such discussions, Quest Diagnostics has submitted a proposal to the
FTC to divest (the "Divestiture Transaction") certain of its assets in Northern
California to a third party after the consummation of the merger between Unilab
and the Purchaser. Quest Diagnostics is not required to consummate the Amended
Exchange Offer if the FTC has not provisionally approved the consent decree
reflecting, among other things, the Divestiture Transaction. The Divestiture
Transaction is not expected to have any material financial impact on Quest
Diagnostics either before or following its acquisition of Unilab.
TERMS OF THE AMENDED EXCHANGE OFFER
Overview. On January 4, 2003, in conjunction with the potential
Divestiture Transaction and to reflect the impact on the value to be realized
from Quest Diagnostics' transaction with Unilab, Quest Diagnostics and Unilab
entered into an amendment (the "merger agreement amendment") to their agreement
and plan of merger, dated as of April 2, 2002, as previously amended on May 13,
2002, June 20, 2002 and September 25, 2002 (as so amended, the "amended merger
agreement"). Pursuant to the amended merger agreement, we are offering, through
the Purchaser, to exchange shares of Quest Diagnostics common stock, which we
refer to as Quest Diagnostics shares, or to pay cash for each outstanding share
of Unilab common stock, which we refer to as Unilab shares.
Under the Amended Exchange Offer, Unilab stockholders may elect to receive
either 0.3424 of a Quest Diagnostics share or $19.10 in cash for each Unilab
share that is validly tendered and not withdrawn in the Amended Exchange Offer,
as compared to 0.3256 of a Quest Diagnostics share or $26.50 in cash under the
Original Exchange Offer. The ratio of 0.3424 of a Quest Diagnostics share for
each Unilab share was determined by dividing the new cash offer price of $19.10
by the closing trading price of a Quest Diagnostics share on November 29, 2002.
However, both the aggregate amounts of cash and stock that Unilab stockholders
may receive in the Amended Exchange Offer are subject to pro rata reduction
because there are limits to the number of Unilab shares that will be exchanged
for Quest Diagnostics shares as well as for cash as described below. Under the
Original Exchange Offer, only the number of Unilab shares that would be
exchanged for cash was subject to a limitation.
Cash Limitation. Under the Amended Exchange Offer, Quest Diagnostics will
not pay more than $297 million in cash. As a result, not more than 41.62% of the
Unilab shares outstanding on a fully diluted basis immediately prior to the
acceptance date (as defined below), which we refer to as the "Maximum Cash
Election Number," can be exchanged for cash in the Amended Exchange Offer. The
"acceptance date" means the date on which the Purchaser accepts for payment or
exchange all Unilab shares validly tendered and not withdrawn in the Amended
Exchange Offer.
Accordingly, if the number of validly tendered and not withdrawn Unilab
shares electing and being deemed to have elected to receive cash in the Amended
Exchange Offer, which we refer to as the "cash-electing Unilab shares," exceeds
the Maximum Cash Election Number, then all such Unilab shares will be exchanged
on a pro rata basis for a combination of cash and Quest Diagnostics shares so
that the aggregate number of Unilab shares exchanged for cash does not exceed
the Maximum Cash Election Number. UNDER THE AMENDED EXCHANGE OFFER, ALL VALIDLY
TENDERED AND NOT WITHDRAWN UNILAB SHARES WITH RESPECT TO WHICH NO PROPER
ELECTION HAS BEEN MADE WILL BE DEEMED TO HAVE ELECTED TO RECEIVE CASH, AS
COMPARED TO BEING DEEMED TO HAVE ELECTED TO RECEIVE QUEST DIAGNOSTICS SHARES
UNDER THE ORIGINAL EXCHANGE OFFER. In such event, (a) each Unilab share validly
tendered and not withdrawn in the Amended Exchange Offer electing to receive
Quest
Diagnostics shares will be exchanged for 0.3424 of a Quest Diagnostics share and
(b) each cash-electing Unilab share will be exchanged for:
- an amount of cash, without interest, equal to the product of (1) $19.10
and (2) a fraction, which we refer to as the cash fraction, the numerator
of which will be the Maximum Cash Election Number, and the denominator of
which will be the number of cash-electing Unilab shares, and
- a number of Quest Diagnostics shares equal to the product of (1) 0.3424
of a Quest Diagnostics share and (2) a fraction equal to one minus the
cash fraction.
If the number of cash-electing Unilab shares is equal to or less than the
Maximum Cash Election Number, then each such Unilab share will be exchanged for
$19.10 in cash, without interest.
Share Limitation. In addition, Quest Diagnostics will not issue more than
8,500,000 Quest Diagnostics shares in the Amended Exchange Offer and the Merger
(as defined below) in respect of the following:
- all Unilab shares validly tendered and not withdrawn in the Amended
Exchange Offer validly electing to receive Quest Diagnostics shares,
which we refer to as the "stock-electing Unilab shares";
- all Unilab shares that are not tendered in, or are validly tendered and
properly withdrawn from, the Amended Exchange Offer, other than the
Unilab shares with respect to which appraisal rights have been exercised,
which we refer to as the "non-tendered Unilab shares";
- 50,000 restricted Unilab shares issued in January 2002, which we refer to
as the "restricted shares"; and
- all Unilab options outstanding on the acceptance date that will be
converted into options to acquire Quest Diagnostics shares, which we
refer to as the "underlying option shares".
We refer to all of the stock-electing Unilab shares, the non-tendered Unilab
shares, the restricted shares and the underlying option shares collectively as
the "Designated Unilab Shares."
Accordingly, if the number of Quest Diagnostics shares issuable in respect
of the Designated Unilab Shares would exceed 8,500,000, then, in the Amended
Exchange Offer, all stock-electing Unilab shares will be exchanged on a pro rata
basis for a combination of cash and Quest Diagnostics shares so that the number
of Quest Diagnostics shares (1) issued in respect of the stock-electing Unilab
shares and (2) issuable in respect of the non-tendered Unilab shares, the
restricted shares and the underlying option shares does not exceed 8,500,000. In
such event, (a) each cash-electing Unilab share will be exchanged for $19.10 in
cash, without interest, and (b) each stock-electing Unilab share will be
exchanged for:
- a number of Quest Diagnostics shares equal to the product of (1) 0.3424
and (2) a fraction, which we refer to as the stock fraction, the
numerator of which will be the quotient obtained by dividing the Maximum
Stock Number (as defined below) by 0.3424, and the denominator of which
will be the number of stock-electing Unilab shares and the number of
non-tendered Unilab shares, and
- an amount in cash equal to the product of (1) $19.10 in cash, without
interest, and (2) a fraction equal to one minus the stock fraction.
The "Maximum Stock Number" means 8,500,000 less the number of Quest
Diagnostics shares issuable in respect of the restricted shares and the
underlying option shares outstanding on the acceptance date (after giving effect
to any exercises of the underlying option shares in connection with the Amended
Exchange Offer prior to the acceptance date).
If the number of Quest Diagnostics shares issuable in respect of all
Designated Unilab Shares would be equal to or less than 8,500,000, then each
stock-electing Unilab share will be exchanged for 0.3424 of a Quest Diagnostics
share.
Subject to the foregoing provisions, you will be permitted to elect to
receive cash for a portion of your Unilab shares and Quest Diagnostics shares
for another portion of your Unilab shares. You will not receive any fractional
Quest Diagnostics shares in the Amended Exchange Offer. Instead, you will
receive cash in an
S-2
amount equal to the then market value of any fractional shares you would
otherwise have been entitled to receive.
Termination Date. Under the merger agreement amendment, either Quest
Diagnostics or Unilab may terminate the amended merger agreement after January
31, 2003. Unless terminated, the amended merger agreement remains in effect.
LETTER OF ELECTION AND TRANSMITTAL
If you have previously tendered your Unilab shares and properly made an
election pursuant to the Original Exchange Offer, you are not required to change
your previous election but such election will be subject to the terms and
conditions of the Amended Exchange Offer. However, if you wish to change your
election, you must withdraw your previously tendered shares in order to do so.
Following an effective withdrawal, you may change your election and re-tender
your withdrawn Unilab shares at any time prior to the expiration date by
following one of the procedures described in the Prospectus under the caption
entitled "Procedure for Tendering and Electing". We have included a revised
Letter of Election and Transmittal with this Prospectus Supplement No. 1 and you
may use the revised Letter of Election and Transmittal should you wish to change
your previous election. As described in the Prospectus, we will determine
questions as to the validity, form, eligibility (including time of receipt) and
acceptance for exchange of any tender of Unilab shares or election with respect
to your Unilab shares, in our sole discretion, and our determination will be
final and binding.
UNDER THE AMENDED EXCHANGE OFFER, ALL VALIDLY TENDERED AND NOT WITHDRAWN
UNILAB SHARES WITH RESPECT TO WHICH NO PROPER ELECTION HAS BEEN MADE WILL BE
DEEMED TO HAVE ELECTED TO RECEIVE CASH, AS COMPARED TO BEING DEEMED TO HAVE
ELECTED TO RECEIVE QUEST DIAGNOSTICS SHARES UNDER THE ORIGINAL EXCHANGE OFFER.
ACCORDINGLY, YOU MUST PROPERLY ELECT QUEST DIAGNOSTICS SHARES IN ORDER TO
RECEIVE QUEST DIAGNOSTICS SHARES IN EXCHANGE FOR YOUR UNILAB SHARES. IF NO
PROPER ELECTION IS MADE, YOU WILL BE DEEMED TO HAVE ELECTED CASH.
Any questions with respect to submitting a new Letter of Election and
Transmittal may be directed to our information agent, Georgeson Shareholder
Communications, Inc., collect at 212-440-9800 or toll-free at 1-866-318-0509, or
the dealer manager, Merrill Lynch & Co., toll-free at 1-866-276-1462.
EXPIRATION OF THE AMENDED EXCHANGE OFFER
The modifications described above constitute "material" changes to the
Original Exchange Offer and, as such, pursuant to Rule 14d-4(d)(2)(ii) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Amended
Exchange Offer must remain open for an additional ten business days from the
date of this Prospectus Supplement No. 1. It is now anticipated that the Amended
Exchange Offer will expire on February 3, 2003, which we refer to as the
"expiration date", unless we extend the period of time during which the Amended
Exchange Offer is open, in which case the term "expiration date" means the
latest time and date on which the Amended Exchange Offer, as so extended,
expires.
CONVERSION OF UNILAB SHARES IN THE MERGER
We intend, as promptly as practicable after completion of the Amended
Exchange Offer, to seek to merge Unilab with the Purchaser (the "Merger"). At
the time of the effectiveness of the Merger, each non-tendered Unilab share will
be converted into 0.3424 of a Quest Diagnostics share. However, Quest
Diagnostics will not issue more than 8,500,000 Quest Diagnostics shares in
respect of the Designated Unilab Shares, including the non-tendered Unilab
shares. Accordingly, if the aggregate number of Quest Diagnostics shares issued
or issuable in respect of the Designated Unilab Shares exceeds 8,500,000, then
each non-tendered Unilab share will be exchanged on a pro rata basis for a
combination of Quest Diagnostics shares and/or cash in the same manner as
provided for with respect to the stock-electing Unilab shares under the Amended
Exchange Offer.
S-3
FEDERAL INCOME TAX CONSEQUENCES
Prior to the execution of the merger agreement amendment, it would have
been possible under certain circumstances for the parties to consummate the
Original Exchange Offer and the Merger as a tax-free reverse merger of the
Purchaser with and into Unilab. Because the merger agreement amendment limits
the number of Unilab shares that can be exchanged for Quest Diagnostics shares,
it will no longer be possible for the parties to consummate the Amended Exchange
Offer and the Merger as a tax-free reverse merger. As a result, the Amended
Exchange Offer and the Merger will be effected either as a tax-free forward
merger of Unilab with and into the Purchaser or as a taxable reverse merger of
the Purchaser with and into Unilab. The United States federal income tax
consequence to Unilab shareholders of a tax-free forward merger or a taxable
reverse merger are described in the Prospectus.
We will notify you via a press release announcing the consummation of the
Merger as to how you should account for the treatment of the consideration
received in the Amended Exchange Offer and the Merger for United States federal
income tax purposes.
APPRAISAL RIGHTS
The Amended Exchange Offer does not entitle you to appraisal rights.
However, in the event that any Unilab shares are converted into the right to
receive cash in the merger or in the event a "short-form" merger is consummated
pursuant to Section 253 of the General Corporation Law of the State of Delaware
("DGCL"), appraisal rights under Section 262 of the DGCL will be available. For
a complete statement of the law relating to appraisal rights, a summary of
procedures for seeking appraisal rights and the full text of Section 262 of the
DGCL, please refer to Annex C of the Prospectus, which is incorporated herein by
reference.
S-4
SELECTED HISTORICAL FINANCIAL DATA FOR QUEST DIAGNOSTICS
The following table summarizes selected historical financial data for Quest
Diagnostics and its subsidiaries at the dates and for each of the periods
presented. Quest Diagnostics derived the selected historical financial data for
the years 1997 through 2001 from its audited consolidated financial statements.
As discussed in Note 2 to the consolidated financial statements in Quest
Diagnostics' Form 10-K for the year ended December 31, 2001, all per share data
has been restated to reflect Quest Diagnostics' two-for-one stock split effected
on May 31, 2001. Quest Diagnostics derived the historical financial data for the
nine months ended September 30, 2002 and 2001 from its unaudited interim
consolidated financial statements. The unaudited interim consolidated financial
statements reflect all adjustments which, in the opinion of management, are
necessary for a fair statement of the financial condition and results of
operations as of and for the periods presented. Except as otherwise disclosed in
the notes to the unaudited interim consolidated financial statements, all such
adjustments are of a normal recurring nature. The unaudited interim consolidated
financial statements have been compiled without audit and are subject to
year-end adjustments. Operating results for the interim periods are not
necessarily indicative of the results that may be expected for the full year.
The selected historical financial data is only a summary and should be read
together with the consolidated financial statements and related notes, and
management's discussion and analysis of financial condition and results of
operations included in Quest Diagnostics' Quarterly Report on Form 10-Q for the
nine months ended September 30, 2002 and Annual Report on Form 10-K for the year
ended December 31, 2001.
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
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2002(A) 2001 2001 2000 1999(B) 1998 1997
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATIONS DATA:
Net revenues............... $3,074,286 $2,717,331 $3,627,771 $3,421,162 $ 2,205,243 $1,458,607 $1,528,695
Provisions for
restructuring and other
special charges.......... -- 5,997(c) 5,997(c) 2,100(d) 73,385(e) -- 48,688(f)
Income (loss) before
extraordinary loss....... 240,457 132,974 183,912(g) 104,948(h) (1,274)(i) 26,885 (22,260)
Net income (loss).......... 240,457 111,365 162,303(g) 102,052(h) (3,413)(i) 26,885 (22,260)
BASIC NET INCOME (LOSS) PER
COMMON SHARE:
Income (loss) before
extraordinary loss....... $ 2.50 $ 1.43 $ 1.98 $ 1.17 $ (0.02) $ 0.45 $ (0.38)
Net income (loss).......... 2.50 1.20 1.74 1.14 (0.05) 0.45 (0.38)
DILUTED NET INCOME (LOSS)
PER COMMON SHARE:(j)
Income (loss) before
extraordinary loss....... $ 2.41 $ 1.37 $ 1.88 $ 1.11 $ (0.02) $ 0.44 $ (0.38)
Net income (loss).......... $ 2.41 1.14 1.66 1.08 (0.05) 0.44 (0.38)
BALANCE SHEET DATA (AT END
OF PERIOD):
Accounts receivable, net... $ 576,461 $ 513,637 $ 508,340 $ 485,573 $ 539,256 $ 220,861 $ 238,369
Total assets............... 3,465,737 2,933,470 2,930,555 2,864,536 2,878,481 1,360,240 1,400,928
Long-term debt............. 796,778 677,913 820,337 760,705 1,171,442 413,426 482,161
Preferred stock............ -- 1,000 --(k) 1,000 1,000 1,000 1,000
Common stockholders'
equity................... 1,677,726 1,242,922 1,335,987 1,030,795 862,062 566,930 540,660
OTHER DATA:
Net cash provided by
operating activities..... $ 349,927 $ 301,280 $ 465,803 $ 369,455 $ 249,535 $ 141,382 $ 176,267
Net cash used in investing
activities............... (439,786) (152,584) (296,616) (48,015) (1,107,990) (39,720) (35,101)
Net cash provided by (used
in) financing
activities............... 81,381 (81,294) (218,332) (177,247) 682,831 (60,415) (21,465)
Provision for doubtful
accounts................. 164,892 165,670 218,271 234,694 142,333 89,428 118,223(l)
Rent expense............... 71,752 61,127 82,769 76,515 59,073 46,259 47,940
Capital expenditures....... 118,403 110,183 148,986 116,450 76,029 39,575 30,836
Adjusted EBITDA(m)......... 542,816 413,035 556,851 459,380 237,038 158,609 153,800
S-5
---------------
(a) As discussed in Quest Diagnostics' Form 10-Q for the nine months ended
September 30, 2002, in July 2001, the Financial Accounting Standards Board,
or FASB, issued SFAS 142, "Goodwill and Other Intangible Assets", or SFAS
142, which was adopted by Quest Diagnostics on January 1, 2002. Assuming
the nonamortization provisions of SFAS 142 had been effective at the
beginning of fiscal 2001, net income for the nine months ended September
30, 2001 would have increased by $27.1 million, representing the reduction
in goodwill amortization, net of taxes.
The following table presents net income and basic and diluted earnings per
common share adjusted to reflect results as if the nonamortization
provisions of SFAS 142 had been in effect for the periods presented (in
thousands, except per share data):
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
2001 2000 1999
--------- --------- ---------
NET INCOME (LOSS)
Reported net income (loss).................................. $162,303 $102,052 $ (3,413)
Add back: Amortization of goodwill, net of taxes............ 35,964 36,023 22,013
-------- -------- --------
Adjusted net income......................................... $198,267 $138,075 $ 18,600
======== ======== ========
Income before extraordinary loss, adjusted to exclude
amortization of goodwill, net of taxes.................... $219,876 $140,971 $ 20,739
BASIC EARNINGS (LOSS) PER COMMON SHARE
Reported net income (loss).................................. $ 1.74 $ 1.14 $ (0.05)
Amortization of goodwill.................................... 0.39 0.40 0.31
-------- -------- --------
Adjusted net income......................................... $ 2.13 $ 1.54 $ 0.26
======== ======== ========
Income before extraordinary loss, adjusted to exclude
amortization of goodwill, net of taxes.................... $ 2.37 $ 1.57 $ 0.29
DILUTED EARNINGS (LOSS) PER COMMON SHARE
Reported net income (loss).................................. $ 1.66 $ 1.08 $ (0.05)
Amortization of goodwill.................................... 0.37 0.38 0.31
-------- -------- --------
Adjusted net income......................................... $ 2.03 $ 1.46 $ 0.26
======== ======== ========
Income before extraordinary loss, adjusted to exclude
amortization of goodwill, net of taxes.................... $ 2.25 $ 1.49 $ 0.29
(b) On August 16, 1999, Quest Diagnostics completed the acquisition of
SmithKline Beecham Clinical Laboratories, Inc., or SBCL. Consolidated
operating results for 1999 include the results of operations of SBCL
subsequent to the closing of the acquisition. See Note 3 to the
consolidated financial statements included in Quest Diagnostics' Form 10-K
for the year ended December 31, 2001, which is incorporated by reference
into this prospectus.
(c) Represents charges incurred in conjunction with Quest Diagnostics' debt
refinancing in the second quarter of 2001, as discussed in Note 7 to the
consolidated financial statements included in Quest Diagnostics' Form 10-K
for the year ended December 31, 2001, which is incorporated by reference
into this prospectus.
(d) During the second quarter of 2000, Quest Diagnostics recorded a net special
charge of $2.1 million. This net charge resulted from a $13.4 million
charge related to the costs to cancel certain contracts that Quest
Diagnostics believed were not economically viable as a result of the SBCL
acquisition, and which were principally associated with the cancellation of
a co-marketing agreement for clinical trials testing services, which
charges were in large part offset by a reduction in reserves attributable
to a favorable resolution of outstanding claims for reimbursements
associated with billings of certain tests.
(e) Represents charges principally incurred in conjunction with the acquisition
and planned integration of SBCL, as discussed in Note 7 to the consolidated
financial statements included in Quest Diagnostics' Form 10-K for the year
ended December 31, 2001, which is incorporated by reference into this
prospectus.
(f) Includes a charge of $16 million to write-down goodwill reflecting the
estimated impairment related to Quest Diagnostics' consolidation plan
announced in the fourth quarter of 1997.
(g) In conjunction with Quest Diagnostics' debt refinancing in the second
quarter of 2001, Quest Diagnostics recorded an extraordinary loss of $36
million ($22 million, net of taxes). The loss represented the write-off of
deferred financing costs
S-6
of $23 million, associated with the debt which was refinanced, and $12.8
million of payments related primarily to the tender premium incurred in
connection with the cash tender offer for Quest Diagnostics' 10 3/4% senior
subordinated notes due 2006.
(h) During the fourth quarter of 2000, Quest Diagnostics recorded an
extraordinary loss of $4.8 million ($2.9 million, net of taxes)
representing the write-off of deferred financing costs resulting from the
prepayment of $155 million of term loans under its senior secured credit
facility.
(i) In conjunction with the acquisition of SBCL, Quest Diagnostics repaid the
entire amount outstanding under Quest Diagnostics' then existing credit
agreement. The extraordinary loss recorded in the third quarter of 1999
represented $3.6 million ($2.1 million, net of taxes) of deferred financing
costs which were written-off in connection with the extinguishment of the
credit agreement.
(j) Potentially dilutive common shares primarily include stock options and
restricted common shares granted under Quest Diagnostics' Employee Equity
Participation Program. During periods in which net income available for
common stockholders is a loss, diluted weighted average common shares
outstanding will equal basic weighted average common shares outstanding,
since under these circumstances, the incremental shares would have an
anti-dilutive effect.
(k) On December 31, 2001, Quest Diagnostics repurchased all of its then
outstanding preferred stock for its par value of $1 million plus accrued
dividends.
(l) Includes a fourth quarter charge of $5.3 million, which was part of the
$6.8 million charge recorded in the same quarter, to increase the provision
for doubtful accounts to recognize the reduced recoverability of certain
receivables from accounts which were no longer to be served as a result of
the consolidation plan announced in the fourth quarter of 1997.
(m) Adjusted EBITDA represents income (loss) before extraordinary loss, income
taxes, net interest expense, depreciation, amortization and special items.
Special items include the provisions for restructuring and other special
charges reflected in the selected historical financial data above, $8.9
million of costs related to the integration of SBCL which were included in
operating costs and expensed as incurred in 2000, a $3.0 million gain
related to the sale of an investment in 1999 and charges of $2.5 million and
$6.8 million recorded in selling, general and administrative expenses in
1998 and 1997, respectively, related to Quest Diagnostics' consolidation of
its laboratory network announced in the fourth quarter of 1997. Adjusted
EBITDA is presented and discussed because management believes that Adjusted
EBITDA is a useful adjunct to net income and other measurements under
accounting principles generally accepted in the United States since it is a
meaningful measure of a company's performance and ability to meet its future
debt service requirements, fund capital expenditures and meet working
capital requirements. Adjusted EBITDA is not a measure of financial
performance under accounting principles generally accepted in the United
States and should not be considered as an alternative to (i) net income (or
any other measure of performance under generally accepted accounting
principles) as a measure of performance or (ii) cash flows from operating,
investing or financing activities as an indicator of cash flows or as a
measure of liquidity.
S-7
SELECTED HISTORICAL FINANCIAL DATA FOR UNILAB
The following table summarizes selected historical financial data for
Unilab at the dates and for each of the periods presented. Unilab derived the
selected historical financial data for the years 1997 through 2001 from its
audited financial statements. Unilab derived the historical financial data for
the nine months ended September 30, 2002 and 2001 from its unaudited interim
financial statements. The unaudited interim financial statements reflect all
adjustments which, in the opinion of management, are necessary for a fair
statement of the financial condition and results of operations as of and for the
periods presented. Except as otherwise disclosed in the notes to the unaudited
interim financial statements, all such adjustments are of a normal recurring
nature. The unaudited interim financial statements have been compiled without
audit and are subject to year-end adjustments. Operating results for the interim
periods are not necessarily indicative of the results that may be expected for
the full year. The selected historical financial data is only a summary and
should be read together with the financial statements and related notes, and
management's discussion and analysis of financial condition and results of
operations included in Unilab's Quarterly Report on Form 10-Q for the nine
months ended September 30, 2002 and Annual Report on Form 10-K for the year
ended December 31, 2001.
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------- -----------------------------------------------------------
2002(A) 2001 2001 2000 1999 1998 1997
-------- --------- --------- --------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATIONS DATA:
Net revenues..................... $323,502 $ 293,258 $ 390,205 $ 337,508 $ 285,163 $217,370 $214,001
Provisions for special charges... 4,511(b) 5,450(c) 6,938(c) -- 25,767(d) -- --
Income before extraordinary
loss........................... 28,129 11,871(e) 3,425(f) 41,568 6,781 10,703 536
Net income (loss)................ 28,129 5,526(g) (2,920)(g) 41,568 (13,992)(h) 10,703 536
BASIC NET INCOME (LOSS) PER
COMMON SHARE:(i)
Income before extraordinary
loss........................... $ 0.84 $ 0.41 $ 0.11 $ 1.63 $ 0.17 $ 0.26 $ 0.01
Net income (loss)................ 0.84 0.19 (0.10) 1.63 (0.36) 0.26 0.01
DILUTED NET INCOME (LOSS) PER
COMMON SHARE:(i)
Income before extraordinary
loss........................... $ 0.80 $ 0.40 $ 0.11 $ 1.63 $ 0.17 $ 0.25 $ 0.01
Net income (loss)................ 0.80 0.19 (0.09) 1.63 (0.28) 0.25 0.01
BALANCE SHEET DATA (AT END OF
PERIOD):
Accounts receivable, net......... $ 65,340 $ 67,642 $ 62,702 $ 62,860 $ 50,281 $ 41,326 $ 36,583
Total assets..................... 295,914 253,049 266,528 235,911 193,530 142,460 118,700
Long-term debt................... 189,714 197,817 195,799 303,318 310,941 137,170 124,285
Preferred stock.................. -- -- -- -- -- 4 4
Common stockholders' equity
(deficit)...................... 52,699 7,329 23,540 (112,436) (158,289) (21,367) (32,283)
OTHER DATA:
Net cash provided by (used in)
operating activities........... $ 39,541 $ 31,700 $ 40,231 $ 15,938 $ (8,410) $ 13,996 $ 3,715
Net cash used in investing
activities..................... (6,831) (14,335) (16,289) (21,901) (14,890) (3,675) (3,759)
Net cash provided by (used in)
financing activities........... (4,602) (1,967) (2,335) (4,001) 15,720 (1,836) (1,384)
Provision for doubtful
accounts....................... 22,495 21,287 28,342 24,524 20,572 15,662 15,663
Rent expense..................... 13,994 13,379 17,729 17,660 15,278 10,791 10,222
Capital expenditures............. 3,923 6,075 8,029 4,843 6,286 3,005 1,935
Adjusted EBITDA(j)............... 72,382 61,330 80,755 63,488 49,652 31,833 23,489
---------------
(a) As discussed in Unilab's Form 10-Q for the nine months ended September 30,
2002, in July 2001, the FASB issued SFAS 142, which was adopted by Unilab on
January 1, 2002. Assuming the nonamortization provisions of SFAS 142 had
been effective at the beginning of fiscal 2001, net income for the nine
months ended September 30, 2001 would have increased by $3.8 million,
representing the reduction in goodwill amortization, net of taxes.
S-8
The following table presents net income and basic and diluted earnings per
common share adjusted to reflect results as if the nonamortization
provisions of SFAS 142 had been in effect for the periods presented (in
thousands, except per share data):
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
2001 2000 1999
--------- --------- ----------
NET INCOME (LOSS)
Reported net income (loss).................................. $(2,920) $41,568 $(13,922)
Add back: Amortization of goodwill, net of taxes............ 4,958 4,463 3,013
------- ------- --------
Adjusted net income (loss).................................. $ 2,038 $46,031 $(10,979)
======= ======= ========
Income before extraordinary loss, adjusted to exclude
amortization of goodwill, net of taxes.................... $ 8,383 $46,031 $ 9,794
BASIC EARNINGS (LOSS) PER COMMON SHARE
Reported net income (loss).................................. $ (0.10) $ 1.63 $ (0.36)
Amortization of goodwill.................................... 0.17 0.18 0.08
------- ------- --------
Adjusted net income (loss).................................. $ 0.07 $ 1.81 $ (0.28)
======= ======= ========
Income before extraordinary loss, adjusted to exclude
amortization of goodwill, net of taxes.................... $ 0.28 $ 1.81 $ 0.25
DILUTED EARNINGS (LOSS) PER COMMON SHARE
Reported net income (loss).................................. $ (0.09) $ 1.63 $ (0.28)
Amortization of goodwill.................................... 0.16 0.17 0.07
------- ------- --------
Adjusted net income (loss).................................. $ 0.07 $ 1.80 $ (0.21)
======= ======= ========
Income before extraordinary loss, adjusted to exclude
amortization of goodwill, net of taxes.................... $ 0.27 $ 1.80 $ 0.24
(b) For the nine months ended September 30, 2002, the provision for special
charges represents $4.5 million of direct transaction costs incurred and
expensed by Unilab in conjunction with the merger agreement between Unilab
and Quest Diagnostics.
(c) The provision for special charges includes non-recurring charges of $3.0
million related to a federal investigation under the False Claims Act
relating to Unilab's billings and $2.5 million paid to Unilab's majority
stockholder for the termination of annual fees for financial advisory
services provided to Unilab during the nine months ended September 30, 2001
and $0.9 million related to the secondary offering of Unilab's common stock
and $0.6 million of legal fees related to the settlement of claims brought
by a former employee regarding employment benefits in the fourth quarter of
2001. See Note 5 to the financial statements included in Unilab's Form 10-K
for the year ended December 31, 2001 which is incorporated by reference into
this prospectus.
(d) The provision for special charges includes a non-recurring charge of $25.2
million for merger/recapitalization expenses related primarily to financial
advisory fees, other financing fees and expenses, legal and accounting fees,
printing costs, severance costs and other miscellaneous items incurred in
connection with Unilab's merger with UC Acquisition Sub, Inc. The provision
for special charges also includes a non-recurring charge of $0.6 million
related to a settlement with a group of insurance companies regarding claims
by the insurance companies that Unilab over-billed them in the early to
mid-1990s in connection with several chemistry profile tests that were
previously the subject of a settlement agreement with the government. See
Notes 4 and 5 to the financial statements included in Unilab's Form 10-K for
the year ended December 31, 2001 which is incorporated by reference into
this prospectus.
(e) Includes $1.5 million of non-cash charges related to stock-based
compensation for options issued to non-employee consultants in 2001.
(f) Includes $23.8 million of stock-based compensation comprised of a $1.5
million non-cash charge related to service options issued to non-employee
consultants that were accelerated in 2001 and $22.3 million of non-cash
charges
S-9
related to performance-based stock options that met certain contingent
vesting provisions in 2001. See Note 10 to the financial statements included
in Unilab's Form 10-K for the year ended December 31, 2001 which is
incorporated by reference into this prospectus.
(g) In 2001, Unilab recorded an extraordinary loss of $10.7 million ($6.3
million, net of taxes) representing the retirement premium and the write-off
of deferred financing costs and discount related to debt which was retired
with certain of the proceeds from the company's IPO completed on June 6,
2001. See Notes 8 and 9 to the financial statements included in Unilab's
Form 10-K for the year ended December 31, 2001 which is incorporated by
reference into this prospectus.
(h) In 1999, Unilab recorded an extraordinary loss of $20.8 million representing
the retirement premium and the write-off of deferred financing costs related
to debt, which was retired in connection with the Company's recapitalization
in 1999. See Notes 4, 7 and 8 to the financial statements included in
Unilab's Form 10-K for the year ended December 31, 2001 which is
incorporated by reference into this prospectus.
(i) All periods presented were retroactively adjusted to reflect a 1 for
0.986312 reverse stock split of Unilab's common stock, effected on May 16,
2001. See Note 9 to the financial statements included in Unilab's Form 10-K
for the year ended December 31, 2001 which is incorporated by reference into
this prospectus.
(j) Adjusted EBITDA represents income before extraordinary loss, income taxes,
net interest expense, depreciation, amortization and special items. Special
items include the provision for special charges reflected in the selected
historical financial data above and $1.5 million and $23.8 million,
respectively, of stock-based compensation charges included in selling,
general and administrative expenses for the nine months ended September 30,
2001 and for the year ended December 31, 2001. Adjusted EBITDA is presented
because it is a widely accepted financial indicator of a company's ability
to generate cash flow and to service or incur indebtedness. Adjusted EBITDA
should not be considered an alternative to net income as a measure of
operating results or to cash flows from operations as a measure of liquidity
or performance in accordance with GAAP. Adjusted EBITDA as presented may not
be comparable to similarly captioned measures used by other companies.
Moreover, Unilab's principal financing agreements contain covenants in which
Adjusted EBITDA is used as a measure of financial performance.
S-10
UNAUDITED COMPARATIVE PER SHARE DATA
We have summarized below the per share information for Quest Diagnostics
and Unilab on a historical, unaudited pro forma combined and unaudited pro forma
diluted equivalent basis for the periods and as of the dates indicated below.
The unaudited pro forma combined financial data has been derived from and should
be read in conjunction with the unaudited pro forma consolidated financial
statements and related notes under the heading "Unaudited Pro Forma Combined
Financial Statements" on page S-12. The unaudited pro forma combined balance
sheet per share data as of September 30, 2002 gives effect to the Unilab
acquisition, the repayment of substantially all of Unilab's existing outstanding
debt and the borrowings under Quest Diagnostics' term loan facility as if they
had occurred on September 30, 2002. The unaudited pro forma combined statements
of operations per share data assume the AML and Unilab acquisitions, the
repayment of substantially all of AML's and Unilab's existing outstanding debt
and the borrowings under Quest Diagnostics' existing credit facilities and term
loan facility were effected on January 1, 2001. The unaudited pro forma combined
financial data is not necessarily indicative of the combined financial position
or results of operations that would have been realized had Quest Diagnostics,
AML and Unilab been a single entity during the periods presented. In addition,
the unaudited pro forma combined financial data is not necessarily indicative of
the future results that Quest Diagnostics will experience after the
acquisitions. You should read this information in conjunction with the
historical financial statements of Quest Diagnostics and Unilab incorporated by
reference into this document.
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, 2002 DECEMBER 31, 2001
------------------ -----------------
Statement of Operations Data:
Income before extraordinary loss per diluted share:
Quest Diagnostics (historical)......................... $ 2.41 $ 1.88
Unilab (historical).................................... 0.80 0.11
Quest Diagnostics pro forma............................ 2.53 1.98
Unilab pro forma merger equivalent..................... 0.87(a) 0.68(a)
Balance Sheet Data:
Net book value per diluted share:
Quest Diagnostics (historical)......................... $16.82 $13.69
Unilab (historical).................................... 1.50 0.76
Quest Diagnostics pro forma............................ 20.09 --
Unilab pro forma merger equivalent..................... 6.88(b) --
---------------
(a) Calculated as Quest Diagnostics pro forma income before extraordinary loss
per diluted share, for the respective period, multiplied by 0.3424, the
ratio of exchange for each share of Unilab common stock.
(b) Calculated as Quest Diagnostics pro forma net book value per diluted share,
at the respective date, multiplied by 0.3424, the ratio of exchange for each
share of Unilab common stock.
S-11
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements of Quest
Diagnostics have been prepared to illustrate the effects of the following
transactions:
- Quest Diagnostics' purchase of all of Unilab's outstanding common stock
through the exchange of Quest Diagnostics common stock for the majority
of the purchase price and payment of the cash portion of the purchase
price and related transaction costs, and the repayment of substantially
all of Unilab's $200 million of outstanding debt with cash on-hand and
borrowings under a $450 million amortizing term loan facility, available
for the acquisition of Unilab.
- For purposes of these unaudited pro forma combined financial statements,
we have assumed that of the 3.8 million outstanding options to acquire
shares of Unilab common stock, 3.6 million options are exercised and 0.2
million options are canceled, and that approximately $236 million of cash
is paid to Unilab stockholders in the Amended Exchange Offer and Merger,
with the remaining portion of the purchase price paid through the
issuance of approximately 8.5 million shares of common stock of Quest
Diagnostics (valued at approximately $498 million or $58.54 per share,
based on the average closing stock price of Quest Diagnostics shares for
the five trading days ended January 17, 2003).
- Quest Diagnostics' purchase, on April 1, 2002, of American Medical
Laboratories, Incorporated, or AML, its financing of the all cash
purchase price and related transaction costs associated with the AML
acquisition, and the repayment of substantially all of AML's outstanding
debt and related accrued interest with cash on-hand and $300 million of
borrowings under its secured receivables credit facility and $175 million
of borrowings under its unsecured revolving credit facility.
During the second and third quarters of 2002, Quest Diagnostics repaid all
of the $175 million borrowed under its unsecured revolving credit facility and
$75 million borrowed under its secured receivables credit facility,
respectively. During the fourth quarter of 2002 Quest Diagnostics repaid the
remaining $225 million outstanding under its secured receivables facility.
The acquisition of AML was accounted for under the purchase method of
accounting. As such, the cost to acquire AML has been allocated to the assets
and liabilities acquired based on estimated fair values as of the closing date.
The purchase price allocation will be finalized after completion of the
valuation of certain assets and liabilities. Quest Diagnostics' historical
financial statements as of and for the nine months ended September 30, 2002
include the results of operations of AML subsequent to the closing of the AML
acquisition, on April 1, 2002.
Although not required by the applicable SEC rules, we believe it would be
beneficial to Unilab stockholders to reflect the AML acquisition and the related
borrowings in the following unaudited pro forma combined financial statements to
assist them in understanding the combined financial position and results of
operations of Quest Diagnostics after giving effect to both the AML and Unilab
acquisitions and the related borrowings.
In the Amended Exchange Offer, Unilab stockholders may elect to receive
either 0.3424 of a Quest Diagnostics share or $19.10 in cash for each Unilab
share that is validly tendered and not withdrawn in the Amended Exchange Offer.
However, not more than 41.62% of Unilab shares may be exchanged for cash in the
Amended Exchange Offer and the Merger and Quest Diagnostics will not issue more
than 8.5 million shares in the Amended Exchange Offer and the Merger. The
following table summarizes the potential range of the consideration paid for the
Unilab common stock depending on the elections made by Unilab stockholders in
the Amended Exchange Offer and the impact on the total consideration paid of
each $1 per
S-12
share change in the value attributed to the Quest Diagnostics shares, based on
the trading price of those shares issued in the Amended Exchange Offer or the
Merger (in millions, except for percentages):
VALUE OF QUEST
CASH PORTION OF QUEST DIAGNOSTICS DIAGNOSTICS SHARES TOTAL PURCHASE CHANGE IN
CASH PERCENTAGE(A) PURCHASE PRICE(B) SHARES ISSUED(C) ISSUED(D) PRICE(E) PURCHASE PRICE(F)
-------------------- ----------------- ------------------- ------------------ -------------- -----------------
41.80% $297.0 7.4 $434.0 $731.0 $7.4
33.27% 236.4 8.5 497.6 734.0 8.5
---------------
(a) Represents the maximum and minimum percentage of Unilab shares that can be
exchanged for $19.10 in cash in the Amended Exchange Offer and the Merger.
Assuming that, of the 3.8 million outstanding options to acquire shares of
Unilab common stock, 3.6 million options are exercised and 0.2 million
options are cancelled, the 41.8% represents the maximum percentage of
Unilab shares that can be exchanged for cash. Under the assumption that all
of the outstanding options to acquire shares of Unilab common stock are
exercised, the maximum cash percentage is 41.62%. The 33.27% represents the
minimum percentage of Unilab shares that can be exchanged for cash in the
event that the number of Quest Diagnostics shares issued is 8.5 million
shares.
(b) Represents the product of (i) the 37.2 million shares of Unilab outstanding
as of September 30, 2002, including 3.6 million shares issuable upon the
exercise of outstanding options to acquire shares of Unilab common stock,
(ii) the cash percentage specified in column (a) above and (iii) the cash
consideration per share of $19.10.
(c) Represents the maximum and minimum number of Quest Diagnostics shares that
can be issued to Unilab stockholders in exchange for their Unilab shares.
The number of Quest Diagnostics shares issued is equal to the product of
(i) the 37.2 million shares of Unilab outstanding as of September 30, 2002,
including 3.6 million shares issuable upon the exercise of outstanding
options to acquire shares of Unilab common stock, (ii) the percentage of
Unilab shares exchanged for stock (calculated by deducting the cash
percentage from 100%) and (iii) the exchange ratio of 0.3424.
(d) The value of Quest Diagnostics common stock issued is calculated as the
product of (i) the number of Quest Diagnostics shares in column (c) above
and (ii) $58.54 per share (representing the average closing stock price of
Quest Diagnostics shares for the five trading days ended January 17, 2003).
(e) The total purchase price is equal to the sum of (i) the cash portion of the
purchase price in column (b) above and (ii) the value of the Quest
Diagnostics shares in column (d) above. The total purchase price does not
include the approximately $200 million of Unilab debt assumed in connection
with the transaction.
(f) Represents the change in the total purchase price for every $1 change in
the per share price of Quest Diagnostics shares in column (c) above from
$58.54.
The AML acquisition and Unilab acquisition are collectively referred to by
us as the Acquisitions. The borrowings under Quest Diagnostics' existing credit
facilities and anticipated amortizing term loan facility are collectively
referred to by us as the Borrowings.
The unaudited pro forma combined balance sheet as of September 30, 2002
gives effect to the acquisition of Unilab, the repayment of substantially all of
Unilab's existing outstanding debt and the borrowings under the amortizing term
loan facility as if they had occurred on September 30, 2002. The acquisition of
Unilab will be accounted for under the purchase method. As such, the cost to
acquire Unilab will be allocated to the respective assets and liabilities
acquired based on their estimated fair values at the closing of the Unilab
acquisition. An allocation of the costs to acquire Unilab has been made to the
assets and liabilities of Unilab in the accompanying unaudited pro forma
combined financial statements based on estimates. The final allocation may be
different from the amounts reflected in the accompanying unaudited pro forma
combined financial statements. The unaudited pro forma combined statements of
operations assume the Acquisitions, the repayment of substantially all of AML's
and Unilab's existing outstanding debt and the Borrowings were effected on
January 1, 2001.
The estimated costs related to the integration of Unilab into our
laboratory network are not included in the unaudited pro forma combined balance
sheet as of September 30, 2002. We estimate that Quest Diagnostics will incur up
to $20 million of costs to integrate Quest Diagnostics and Unilab. A significant
S-13
portion of these costs is expected to require cash outlays and is expected to
primarily relate to severance and other integration-related costs during 2003,
including the elimination of excess capacity and workforce reductions. These
estimates are preliminary and will be subject to revisions as detail integration
plans are developed and finalized. To the extent that the costs relate to
actions that impact the employees and operations of Unilab, such costs will be
accounted for as a cost of the Unilab acquisition and included in goodwill. To
the extent that the costs relate to actions that impact Quest Diagnostics'
employees and operations, such costs will be accounted for as a charge to
earnings in the periods that the related actions are taken. Upon completion of
the Unilab integration, we expect to realize approximately $25 million to $30
million of annual synergies and we expect to achieve this annual rate of
synergies by the end of 2005.
The unaudited pro forma combined statements of operations do not include
the costs of integrating Unilab, nor do they include the estimated annual
synergies expected to be realized upon completion of the integration of the
Acquisitions.
No adjustment to the pro forma combined financial statements has been made
to reflect the impact of the Divestiture Transaction due to the immaterial
impact on Quest Diagnostics' financial condition, results of operations and cash
flow either before or following its acquisition of Unilab. Quest Diagnostics'
net revenues associated with the assets proposed to be sold in Northern
California represent less than 1% of net revenues for both the nine months ended
September 30, 2002 and the year ended December 31, 2001.
The pro forma adjustments, and the assumptions on which they are based, are
described in the accompanying notes to the unaudited pro forma combined
financial statements.
The unaudited pro forma combined financial statements are presented for
illustrative purposes only to aid you in your analysis of the impact to Quest
Diagnostics of the Acquisitions and the Borrowings. The unaudited pro forma
combined financial statements are not necessarily indicative of the combined
financial position or results of operations that would have been realized had
Quest Diagnostics, AML and Unilab been a single entity during the periods
presented. In addition, the unaudited pro forma combined financial statements
are not necessarily indicative of the future results that Quest Diagnostics will
experience after the Acquisitions. The unaudited pro forma combined financial
statements and related notes should be read in conjunction with the historical
financial statements of Quest Diagnostics and Unilab incorporated by reference
into this document.
S-14
QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 2002
(IN THOUSANDS)
HISTORICAL
------------------------ PRO FORMA
QUEST COMBINED
DIAGNOSTICS UNILAB ADJUSTMENTS WITH UNILAB
----------- -------- ----------- ------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...... $ 113,854 $ 52,308 $ 446,314(a)
(222,353)(c)
(7,887)(d)
(230,935)(e) $ 151,301
Accounts receivable, net of
allowance.................... 576,461 65,340 641,801
Inventories.................... 59,015 4,875 63,890
Deferred income taxes.......... 139,812 20,583 160,395
Prepaid expenses and other
current assets............... 41,003 2,229 43,232
---------- -------- ---------- ----------
Total current assets......... 930,145 145,335 (14,861) 1,060,619
PROPERTY, PLANT AND EQUIPMENT,
NET.......................... 571,516 12,024 583,540
GOODWILL, NET.................. 1,789,452 93,508(c)(1) 676,990(c)(6) 2,559,950
INTANGIBLE ASSETS, NET......... 22,261 140 (140)(c)(2) 22,261
DEFERRED INCOME TAXES.......... 53,087 39,408 92,495
OTHER ASSETS................... 99,276 5,499 3,686(a)
(1,520)(c)
(3,648)(c)(3) 103,293
---------- -------- ---------- ----------
TOTAL ASSETS................... $3,465,737 $295,914 $ 660,507 $4,422,158
========== ======== ========== ==========
LIABILITIES & STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses..................... $ 610,407 $ 39,932 $ 4,287(b)
(27,803)(c)(5)
(7,887)(d)
(6,468)(e) $ 612,468
Short-term borrowings and
current portion of long-term
debt......................... 251,100 8,220 90,000(a)
(7,553)(e) 341,767
---------- -------- ---------- ----------
Total current liabilities.... 861,507 48,152 44,576 954,235
LONG-TERM DEBT................. 796,778 189,714 360,000(a)
27,954(c)(4)
(216,914)(e) 1,157,532
OTHER LIABILITIES.............. 129,726 5,349 135,075
---------- -------- ---------- ----------
Total liabilities............ 1,788,011 243,215 215,616 2,246,842
COMMON STOCKHOLDERS' EQUITY.... 1,677,726 52,699 (4,287)(b)
449,178(c)(6) 2,175,316
---------- -------- ---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS'EQUITY.......... $3,465,737 $295,914 $ 660,507 $4,422,158
========== ======== ========== ==========
See the accompanying notes to the unaudited pro forma combined financial
statements.
S-15
QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL
HISTORICAL --------------------- PRO FORMA
---------------------- PRO FORMA COMBINED
QUEST COMBINED WITH AML
DIAGNOSTICS AML (F) ADJUSTMENTS WITH AML UNILAB ADJUSTMENTS AND UNILAB
----------- -------- ----------- ---------- -------- ----------- ----------
NET REVENUES................ $3,074,286 $ 78,415 $ -- $3,152,701 $323,502 $ -- $3,476,203
COSTS AND EXPENSES
Cost of service............. 1,813,071 52,680 1,728(h)(2)
1,130(h)(3) 1,868,609 210,089 2,622(o)(1)
(22,495)(o)(2) 2,058,825
Selling, general and
administrative............ 807,811 21,169 129(h)(2)
(1,130)(h)(3) 827,979 41,031
2,622(o)(1)
22,495(o)(2) 894,127
Interest, net............... 40,979 3,537 368(h)(1)
(689)(i) 44,195 13,686 (4,505)(p) 53,376
Amortization of intangible
assets.................... 6,243 913 (368)(h)(1)
(545)(j) 6,243 442 (442)(q) 6,243
Depreciation................ -- 1,857 (1,857)(h)(2) -- 5,244 (5,244)(o)(1) --
Provisions for restructuring
and other special
charges................... -- 14,454(g) (14,454)(k) -- 4,511(n) (4,511)(r) --
Minority share of income.... 11,481 -- -- 11,481 -- -- 11,481
Other, net.................. (10,439) (34) -- (10,473) -- -- (10,473)
---------- -------- ------- ---------- -------- -------- ----------
Total..................... 2,669,146 94,576 (15,688) 2,748,034 275,003 (9,458) 3,013,579
---------- -------- ------- ---------- -------- -------- ----------
INCOME (LOSS) BEFORE TAXES
AND EXTRAORDINARY LOSS.... 405,140 (16,161) 15,688 404,667 48,499 9,458 462,624
INCOME TAX EXPENSE
(BENEFIT)................. 164,683 (3,419) 3,349(l) 164,613 20,370 3,854(s) 188,837
---------- -------- ------- ---------- -------- -------- ----------
INCOME (LOSS) BEFORE
EXTRAORDINARY LOSS........ $ 240,457 $(12,742) $12,339 $ 240,054 $ 28,129 $ 5,604 $ 273,787
========== ======== ======= ========== ======== ======== ==========
BASIC EARNINGS PER COMMON
SHARE:
Income (loss) before
extraordinary loss........ $ 2.50 $ 2.49 $ 2.61
DILUTED EARNINGS PER COMMON
SHARE:
Income (loss) before
extraordinary loss........ $ 2.41 $ 2.41 $ 2.53
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic....................... 96,238 96,238 8,500(t) 104,738
Diluted..................... 99,772 99,772 8,500(t) 108,272
See the accompanying notes to the unaudited pro forma combined financial
statements.
S-16
QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
(IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL
HISTORICAL ----------------------- PRO FORMA
---------------------- PRO FORMA COMBINED
QUEST COMBINED WITH AML
DIAGNOSTICS AML ADJUSTMENTS WITH AML UNILAB ADJUSTMENTS AND UNILAB
----------- -------- ----------- ---------- ---------- ----------- ----------
NET REVENUES.......... $3,627,771 $297,647 $ -- $3,925,418 $390,205 $ -- $4,315,623
COSTS AND EXPENSES
Cost of service....... 2,151,594 201,184 6,278(h)(2)
8,719(h)(3) 2,367,775 259,491 3,564(o)(1)
(28,342)(o)(2) 2,602,488
Selling, general and
administrative...... 1,018,680 61,566 469(h)(2)
(8,719)(h)(3) 1,071,996 73,745(m) 3,563(o)(1)
28,342(o)(2) 1,177,646
Interest, net......... 70,523 15,422 1,392(h)(1)
(3,950)(i) 83,387 27,452 (15,028)(p) 95,811
Amortization of
intangible assets... 46,107 8,109 (1,392)(h)(1)
(6,717)(j) 46,107 8,205 (8,205)(q) 46,107(u)
Depreciation.......... -- 6,747 (6,747)(h)(2) -- 7,127 (7,127)(o)(1) --
Provisions for
restructuring and
other special
charges............. 5,997 -- -- 5,997 6,938(n) -- 12,935
Minority share of
income.............. 9,953 -- -- 9,953 -- -- 9,953
Other, net............ (7,687) (25) -- (7,712) -- -- (7,712)
---------- -------- -------- ---------- -------- -------- ----------
Total................. 3,295,167 293,003 (10,667) 3,577,503 382,958 (23,233) 3,937,228
---------- -------- -------- ---------- -------- -------- ----------
INCOME (LOSS) BEFORE
TAXES AND
EXTRAORDINARY
LOSS................ 332,604 4,644 10,667 347,915 7,247 23,233 378,395
INCOME TAX EXPENSE
(BENEFIT)........... 148,692 4,208 2,060(l) 154,960 3,822 9,382(s) 168,164
---------- -------- -------- ---------- -------- -------- ----------
INCOME (LOSS) BEFORE
EXTRAORDINARY
LOSS................ $ 183,912 $ 436 $ 8,607 $ 192,955 $ 3,425 $ 13,851 $ 210,231
BASIC EARNINGS PER
COMMON SHARE:
Income (loss) before
extraordinary
loss................ $ 1.98 $ 2.07 $ 2.07
DILUTED EARNINGS PER
COMMON SHARE:
Income (loss) before
extraordinary
loss................ $ 1.88 $ 1.98 $ 1.98
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING:
Basic................. 93,053 93,053 8,500(t) 101,553
Diluted............... 97,610 97,610 8,500(t) 106,110
See the accompanying notes to the unaudited pro forma combined financial
statements.
S-17
QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BALANCE SHEET PRO FORMA ADJUSTMENTS
RELATING TO THE UNILAB ACQUISITION
(a) Reflects the gross cash proceeds of $450 million in borrowings under Quest
Diagnostics' new $450 million amortizing term loan facility to finance the
cash portion of the purchase price and related transaction costs associated
with the acquisition of Unilab and to repay substantially all of Unilab's
existing outstanding debt. The term loan, which is contingent upon the
completion of the Unilab transaction, will carry interest at LIBOR plus
1.3125% and require principal repayments of the initial amount borrowed
equal to 16.25%, 20%, 20%, 21.25% and 22.5% in years one through five,
respectively. The gross proceeds have been reduced for debt financing costs
of approximately $4 million, which will be capitalized and amortized over
the term of the facility.
(b) Reflects special charges expected to be incurred and expensed by Unilab in
conjunction with the Unilab acquisition as follows (in millions):
INCREASE (DECREASE) IN
-------------------------------------------------------
ACCOUNTS
PAYABLE AND ADDITIONAL- TOTAL
ACCRUED RETAINED PAID-IN STOCKHOLDERS'
EXPENSES EARNINGS CAPITAL EQUITY
----------- -------- ----------- -------------
Stock based compensation charge due to
the accelerated vesting of outstanding
Unilab stock options................... $ --(b)(1) $ (6.6) $ 6.6 $ --
Accrued merger costs and expenses........ 7.9(b)(2) (7.9) -- (7.9)
Tax benefit associated with the stock
based compensation and merger related
expenses outlined above................ (3.6) 3.6 -- 3.6
----- ------ ------ -----
Total pro forma adjustment............. $ 4.3 $(10.9) $ 6.6 $(4.3)
===== ====== ====== =====
--------------------
(b)(1) Represents approximately $6.6 million of non-cash expenses related
to stock based compensation due to the accelerated vesting of
outstanding Unilab stock options. The stock based compensation for
the options would be recorded as a charge to earnings with an
offsetting increase in additional paid-in-capital. In the
accompanying unaudited pro forma combined balance sheet, this
non-recurring charge incurred in conjunction with the acquisition of
Unilab, is reflected as a reduction in retained earnings within
common stockholders' equity.
(b)(2) Represents the accrual of additional direct transaction costs,
primarily comprised of investment banking and legal fees, which are
expected to be incurred and expensed by Unilab in conjunction with
the closing of the merger agreement between Unilab and Quest
Diagnostics.
(c) Reflects the purchase of all the outstanding Unilab shares and the payment
of transaction costs associated with the acquisition of Unilab. For purposes
of the unaudited pro forma combined financial statements, Quest Diagnostics
assumed that of the 3.8 million outstanding options to acquire shares of
Unilab common stock, 3.6 million options are exercised and 0.2 million
options are canceled, and that approximately $236 million of cash is paid to
Unilab stockholders in the Amended Exchange Offer, with the remaining
portion of the purchase price paid through the issuance of approximately 8.5
million shares of common stock of Quest Diagnostics (valued at approximately
$498 million, or $58.54 per share, based on the average closing stock price
of Quest Diagnostics shares for the five trading days ended January 17,
2003). The components of acquisition cost as are follows (in millions):
S-18
COMPONENTS OF ACQUISITION COST
Purchase price to acquire all of Unilab's outstanding common
stock..................................................... $734.0
Transaction costs incurred by Quest Diagnostics, consisting
primarily of fees and expenses of investment bankers,
attorneys and accountants................................. 14.8
------
TOTAL ACQUISITION COST.................................... 748.8
Value of Quest Diagnostics shares issued.................... (497.6)
Transaction costs paid by Quest Diagnostics and classified
within other assets in Quest Diagnostics' historical
balance sheet as of September 30, 2002.................... (1.5)
Proceeds from options exercised to acquire Unilab common
stock..................................................... (27.3)
------
NET CASH PAID TO FUND CASH PORTION OF UNILAB PURCHASE
PRICE AND RELATED TRANSACTION COSTS.................... $222.4
======
The preliminary allocation of acquisition cost to the Unilab assets and
liabilities acquired under the purchase method of accounting is as follows
(in millions):
PRELIMINARY PURCHASE PRICE ALLOCATION
Net assets of Unilab per historical balance sheet as of
September 30, 2002........................................ $ 52.7
Increase (decrease) in net assets due to:
Proceeds from options exercised to acquire Unilab common
stock..................................................... 27.3
Special charges incurred by Unilab in conjunction with the
Unilab acquisition, net of taxes and the increase in
additional paid-in-capital related to the vesting of
outstanding Unilab stock options (see note (b) above)..... (4.3)
--------
Adjusted historical net assets of Unilab.................... 75.7(c)(1)
Adjustments to record net assets acquired based on estimated
fair values:
Intangible assets........................................... (0.1)(c)(2)
Other assets................................................ (3.6)(c)(3)
Long-term debt.............................................. (28.0)(c)(4)
Accounts payable and accrued expenses....................... 27.8(c)(5)
Incremental goodwill recorded............................... 677.0(c)(6)
--------
TOTAL ACQUISITION COST...................................... $ 748.8
========
-------------------------
(c) (1) Includes $93.5 million of goodwill recorded in Unilab's historical
balance sheet as of September 30, 2002.
(c) (2) Represents the adjustment to reduce Unilab's historical net book value
of intangible assets to estimated fair value. Based on the nature and
operations of the businesses of Quest Diagnostics and Unilab, and Quest
Diagnostics' strategic rationale for pursuing the Unilab acquisition,
Quest Diagnostics management determined, in consultation with third
party valuation specialists, that none of the potential Unilab
intangible assets qualify for inclusion as intangible assets under SFAS
141.
(c) (3) Represents the reduction in unamortized deferred financing costs of
$3.6 million related to Unilab's outstanding debt expected to be repaid
at the closing of the Unilab acquisition.
(c) (4) Represents the increase in the carrying value of Unilab's outstanding
debt as of September 30, 2002 to its estimated fair value, based on the
net present value of the estimated remaining cash flows, primarily
reflecting the estimated premium of approximately $25 million to
refinance Unilab's 12 3/4% senior subordinated debentures with the
remainder due to the acceleration of unamortized bond discount related
to Unilab's 12 3/4% senior subordinated debentures.
(c) (5) Primarily represents the tax benefit associated with the tax deductible
employee compensation related to the exercise of Unilab's outstanding
options at the closing of the Unilab acquisition and the tax benefit
associated with the estimated premium to refinance Unilab's 12 3/4%
senior subordinated debentures.
S-19
(c) (6) Based on the estimated allocation of the acquisition cost of Unilab and
the amount of goodwill recorded in Unilab's historical balance sheet as
of September 30, 2002, a pro forma adjustment of $677.0 million,
representing incremental goodwill acquired, was reflected in the
unaudited pro forma combined balance sheet at September 30, 2002.
The increase in common stockholders' equity of $449.2 million
primarily represents the elimination of Unilab's historical net equity
of $52.7 million, reduced for the impact of the special charges
expected to be incurred and expensed by Unilab in conjunction with the
Unilab acquisition of $4.3 million (as outlined in footnote (b)
above), offset by the value of the 8.5 million shares of Quest
Diagnostics common stock assumed to be issued in conjunction with the
Unilab acquisition of $497.6 million.
(d) Reflects the payment of the cash portion of Unilab's accrued merger costs
and expenses accrued for in (b) above.
(e) Reflects the repayment of substantially all of Unilab's outstanding debt of
$224.5 million (including the impact of the preliminary purchase price
allocation adjustments above of $28.0 million), plus accrued interest
payable of $6.4 million as of September 30, 2002. The portion of Unilab's
outstanding debt not repaid is principally associated with obligations
under capital leases totaling $0.8 million as of September 30, 2002.
STATEMENT OF OPERATIONS PRO FORMA ADJUSTMENTS
RELATING TO THE AML ACQUISITION
(f) Represents the historical results of operations of AML for the period
January 1, 2002 through the closing of the AML acquisition on April 1,
2002.
(g) For the nine months ended September 30, 2002, the provision for special
charges represents $14.5 million of direct transaction costs incurred and
expensed by AML immediately prior to the closing of the AML acquisition.
(h) In order to provide more meaningful comparisons, Quest Diagnostics recorded
this pro forma adjustment to reclassify certain costs and expenses in the
historical financial statements of AML on a basis consistent with that of
Quest Diagnostics. These adjustments have no net impact on results of
operations and are primarily associated with the reclassification of:
(1) Amortization of deferred financing costs,
(2) Depreciation expense, and
(3) Information technology costs in support of laboratory operations,
occupancy costs and the costs related to professional liability
insurance programs.
(i) The pro forma adjustment to net interest expense represents the difference
between AML's historical interest expense and the assumed interest expense
associated with the borrowings under Quest Diagnostics' existing credit
facilities to finance the acquisition of AML and related transaction costs,
and repayment of substantially all of AML's existing outstanding debt. For
purposes of calculating the pro forma net interest expense adjustment, the
borrowings consisted of $300 million under Quest Diagnostics' secured
receivables credit facility and $175 million under Quest Diagnostics'
unsecured revolving credit facility. Both the secured receivables credit
facility and unsecured revolving credit facility bear interest at variable
rates. The assumed interest rates on the borrowings under the secured
receivables credit facility and unsecured revolving credit facility were
2.42% and 3.2%, respectively. If the assumed interest rates fluctuate by
1/8%, interest expense fluctuates by approximately $0.6 million annually.
During the second and third quarters of 2002, Quest Diagnostics repaid all
of the $175 million borrowed under its unsecured revolving credit facility
and $75 million borrowed under its secured receivables credit facility,
respectively. During the fourth quarter of 2002 Quest Diagnostics repaid
the remaining $225 million outstanding under its secured receivables
facility.
S-20
(j) Reflects the pro forma impact on the amortization of goodwill and
intangible assets to eliminate AML's historical amortization of goodwill
and intangible assets, assuming that the nonamortization provisions of
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangibles" ("SFAS 142"), were in effect as of January 1, 2001, related to
the goodwill acquired in the AML acquisition. Based on our preliminary
allocation of purchase price and in consultation with third party valuation
specialists, no intangibles assets, meeting the criteria under SFAS 141
were identified for AML.
(k) Reflects the pro forma adjustment to remove non-recurring merger costs of
$14.5 million, consisting of direct transaction costs incurred and expensed
by AML immediately prior to the closing of the AML acquisition.
(l) The pro forma adjustment to income tax expense represents the estimated
income tax impact of the pro forma adjustments at an incremental tax rate
of approximately 40%. The effective tax rate related to the pro forma
adjustments is impacted by the pro forma adjustment to AML's historical
amortization of goodwill and intangible assets and AML's merger costs and
expenses incurred in conjunction with the acquisition of AML, the majority
of which are not deductible for tax purposes.
RELATING TO THE UNILAB ACQUISITION
(m) Includes $23.8 million of stock based compensation comprised of a $1.5
million non-cash charge related to service options issued to non-employee
consultants that were accelerated in 2001 and $22.3 million of non-cash
charges related to performance-based stock options that met certain
contingent vesting provisions in 2001.
(n) For the nine months ended September 30, 2002, the provision for special
charges represents $4.5 million of direct transaction costs incurred and
expensed by Unilab in conjunction with the merger agreement between Unilab
and Quest Diagnostics.
The provision for special charges for the year ended December 31, 2001
includes non-recurring charges of $3.0 million related to a federal
investigation under the False Claims Act relating to Unilab's billings,
$2.5 million paid to Unilab's majority shareholder in consideration for the
termination of annual fees for financial advisory services provided to
Unilab, $0.9 million related to the secondary offering of Unilab's common
stock and $0.6 million of legal fees related to the settlement of claims
brought by a former employee regarding employment benefits.
(o) In order to provide more meaningful comparisons, Quest Diagnostics recorded
this pro forma adjustment to reclassify certain costs and expenses in the
historical financial statements of Unilab on a basis consistent with that
of Quest Diagnostics. These adjustments have no net impact on results of
operations and are primarily associated with the reclassification of:
(1) Depreciation expense and,
(2) Bad debt expense
(p) The pro forma adjustment to net interest expense represents the difference
between Unilab's historical interest expense and the assumed interest
expense associated with the assumed borrowings under the new amortizing
term loan facility to finance the acquisition of Unilab and related
transaction costs, and repayment of substantially all of Unilab's existing
outstanding debt. For purposes of calculating the pro forma net interest
expense adjustment, the borrowings were assumed to consist of $450 million
under Quest Diagnostics' new $450 million amortizing term loan facility.
The assumed interest rate on the borrowings under the new term loan
facility, including amortization of deferred financing costs of
approximately $0.8 million on an annual basis, was 2.9%. If the assumed
interest rate fluctuates by 1/8%, interest expense fluctuates by
approximately $0.6 million annually. Depending upon interest rates and the
rate at which Quest Diagnostics is able to repay debt, amounts borrowed
under the new term loan facility and ultimately net interest expense may
vary from that indicated above.
(q) Reflects the pro forma impact on the amortization of goodwill and
intangible assets to eliminate Unilab's historical amortization of goodwill
and intangible assets, assuming that the nonamortization provisions of
S-21
SFAS 142 were in effect as of January 1, 2001, related to the goodwill
acquired in the Unilab acquisition. Based on our preliminary allocation of
purchase price and in consultation with third party valuation specialists,
no intangibles assets, meeting the criteria under SFAS 141, were identified
for Unilab.
(r) Reflects the pro forma adjustment to remove non-recurring merger costs of
$4.5 million, consisting of direct transaction costs incurred and expensed
by Unilab in conjunction with the merger agreement between Unilab and Quest
Diagnostics.
(s) The pro forma adjustment to income tax expense represents the estimated
income tax impact of the pro forma adjustments at an incremental tax rate
of approximately 40%.
(t) Basic earnings per common share is calculated by dividing net income, less
preferred stock dividends (approximately $118 for 2001), by the weighted
average number of common shares outstanding. Diluted earnings per common
share is calculated by dividing net income, less preferred stock dividends,
by the weighted average number of common shares outstanding, after giving
effect to all potentially dilutive common shares outstanding during the
period. Potentially dilutive common shares primarily include stock options
and restricted common shares granted under Quest Diagnostics' Employee
Equity Participation Program. Basic and diluted earnings per common share
on a pro forma combined basis gives effect to the assumed 8.5 million of
Quest Diagnostics common stock issued to Unilab stockholders to effectuate
the acquisition of Unilab, assuming that the Unilab acquisition closed on
January 1, 2001. For purposes of these unaudited pro forma combined
financial statements, we assumed that of the 3.8 million outstanding
options to acquire shares of Unilab common stock, 3.6 million options are
exercised and 0.2 million options are canceled, and that approximately $236
million of cash is paid to Unilab stockholders in the Amended Exchange
Offer, with the remaining portion of the purchase price paid through the
issuance of approximately 8.5 million shares of common stock of Quest
Diagnostics.
(u) Quest Diagnostics adopted SFAS 142 on January 1, 2002. Assuming the
nonamortization provisions of SFAS 142 had been effective at the beginning
of fiscal 2001, pro forma combined net income for the year ended December
31, 2001 would have increased by $36.0 million, representing the reduction
in Quest Diagnostics' historical goodwill amortization, net of taxes.
S-22
COMPARATIVE STOCK PRICES AND DIVIDEND INFORMATION
Quest Diagnostics shares are listed and traded on the New York Stock
Exchange under the symbol "DGX". Unilab shares are listed and traded on the
Nasdaq National Market under the symbol "ULAB".
The following tables outline, for the periods indicated, the high and low
sales prices per Quest Diagnostics share, as reported on the New York Stock
Exchange Composite Transaction Tape, and per Unilab share, as reported on the
Nasdaq National Market.
QUEST
DIAGNOSTICS UNILAB
------------- -------------
FISCAL YEAR HIGH LOW HIGH LOW
----------- ----- ----- ----- -----
2000
Quarter ended March 31, 2000........................... 20.19 14.57 n/a n/a
Quarter ended June 30, 2000............................ 37.73 18.50 n/a n/a
Quarter ended September 29, 2000....................... 70.50 36.63 n/a n/a
Quarter ended December 29, 2000........................ 73.13 41.37 n/a n/a
2001
Quarter ended March 30, 2001........................... 70.47 36.60 n/a n/a
Quarter ended June 29, 2001............................ 75.75 42.15 27.00 20.33
Quarter ended September 28, 2001....................... 75.50 48.10 29.81 20.35
Quarter ended December 31, 2001........................ 72.27 55.02 27.15 18.75
2002
Quarter ended March 29, 2002........................... 84.10 66.00 25.09 18.00
Quarter ended June 28, 2002............................ 96.14 79.25 31.19 24.11
Quarter ended September 30, 2002....................... 85.31 51.29 27.46 15.51
Quarter ended December 31, 2002........................ 66.99 49.09 22.29 18.01
On April 1, 2002 the last trading day prior to the announcement of the
execution of the merger agreement, the closing price of Unilab shares was $25.00
per share and the closing price of Quest Diagnostics shares was $82.79 per
share, as reported by the Dow Jones News Service. On January 17, 2003, the last
full trading day prior to the filing of this Prospectus Supplement No. 1, the
closing price of Unilab shares was $19.65 per share and the closing price of
Quest Diagnostics shares was $59.17 per share.
The market prices of Unilab shares and Quest Diagnostics shares are subject
to fluctuation. As a result, Unilab and Quest Diagnostics stockholders are urged
to obtain current market quotations.
On November 13, 2002, there were approximately 33,523,700 Unilab shares
outstanding and 29 holders of record of Unilab common stock, and on January 17,
2003, there were approximately 98,002,146 Quest Diagnostics shares outstanding
and 6,200 holders of record of Quest Diagnostics common stock.
S-23
FURTHER INFORMATION
For further information, you can contact our information agent, Georgeson
Shareholder Communications, Inc., collect at 212-440-9800 or toll-free at
1-866-318-0509, or the dealer manager, Merrill Lynch & Co., toll-free at
1-866-276-1462.
EXPERTS
The financial statements incorporated in this Prospectus Supplement No. 1
by reference to the Annual Report on Form 10-K of Quest Diagnostics Incorporated
for the year ended December 31, 2001 have been so incorporated in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements and the related financial statement schedule of
Unilab Corporation as of December 31, 2001 and 2000 and for the years then ended
incorporated in this Prospectus Supplement No. 1 by reference from Unilab
Corporation's Annual Report on Form 10-K for the year ended December 31, 2001
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports, which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The statements of operations, shareholder' deficit and cash flows of Unilab
Corporation for the year ended December 31, 1999 incorporated in this Prospectus
Supplement No. 1 by reference from Unilab Corporation's Annual Report on Form
10-K for the year ended December 31, 2001 have been audited by Arthur Andersen
LLP, Independent public accountants, as indicated in their report with respect
thereto. We have included the statements of operations, shareholder' deficit and
cash flows of Unilab Corporation in this Prospectus Supplement No. 1 in reliance
on Arthur Andersen LLP's report. We have not been able to obtain the written
consent of Arthur Andersen LLP to our naming it in this Prospectus Supplement
No. 1. This may limit your ability to recover from Arthur Andersen LLP for any
claims that you may assert as a result of the work performed by Arthur Andersen
LLP. In addition, your ability to recover from Arthur Andersen LLP may be
limited by the amount of assets of Arthur Andersen LLP that may be available for
claims in the future.
---------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
Prospectus Supplement No. 1 is truthful or complete. Any representation to the
contrary is a criminal offense.
---------------------
S-24
WHERE YOU CAN FIND MORE INFORMATION ABOUT
QUEST DIAGNOSTICS AND UNILAB
Quest Diagnostics and Unilab file annual, quarterly and special reports,
proxy statements and other information with the SEC. You may read and copy any
reports, statements or other information Quest Diagnostics and Unilab filed with
the SEC at its public reference rooms at 450 Fifth Street, N.W., Washington,
D.C. 20549 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Quest Diagnostics' and Unilab's filings are also available to
the public on the Internet, through a database maintained by the SEC at
http://www.sec.gov.
In addition, you can inspect and copy Quest Diagnostics' reports, proxy
statements and other information at the offices of the New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005.
Quest Diagnostics filed a registration statement on Form S-4 to register
with the SEC the securities described in the Prospectus. The Prospectus is part
of that registration statement. As permitted by SEC rules, the Prospectus does
not contain all the information contained in the registration statement or the
exhibits to the registration statement. In addition, Quest Diagnostics also
filed with the SEC a statement on Schedule TO pursuant to Rule 14d-3 under the
Exchange Act to furnish certain information about the Original and Amended
Exchange Offers. You may obtain copies of the Form S-4 and the Schedule TO (and
any amendments to those documents) in the manner described above. IF YOU WOULD
LIKE AN ADDITIONAL COPY OF THE PROSPECTUS, PLEASE CALL OUR INFORMATION AGENT,
GEORGESON SHAREHOLDER COMMUNICATIONS, INC., COLLECT AT 212-440-9800 OR TOLL-FREE
AT 1-866-318-0509, OR THE DEALER MANAGER, MERRILL LYNCH & CO., TOLL-FREE AT
1-866-276-1462, AND ONE WILL BE MADE AVAILABLE TO YOU PROMPTLY.
The SEC allows Quest Diagnostics to incorporate by reference into this
Prospectus Supplement No. 1. This means that Quest Diagnostics can disclose
important business, financial and other information to you by referring you to
other documents separately filed with the SEC. All information incorporated by
reference is part of this Prospectus Supplement No. 1, unless and until that
information is updated and superseded by the information contained in this
Prospectus Supplement No. 1 or any information incorporated later. This
Prospectus Supplement No. 1 incorporates by reference the documents set forth
below that Quest Diagnostics and Unilab have previously filed with the SEC.
These documents contain important information about Quest Diagnostics and Unilab
and their financial condition.
The following documents filed by Quest Diagnostics with the SEC are
incorporated by reference and shall be deemed to be a part hereof:
1. Quest Diagnostics' quarterly report on Form 10-Q for the fiscal quarter
ended September 30, 2002, as filed on October 31, 2002;
2. Quest Diagnostics' quarterly report on Form 10-Q for the fiscal quarter
ended June 30, 2002, as filed on August 13, 2002;
3. Quest Diagnostics' quarterly report on Form 10-Q for the fiscal quarter
ended March 31, 2002, as filed on May 13, 2002;
4. Quest Diagnostics' annual report on Form 10-K for the fiscal year ended
December 31, 2001, as filed on March 4, 2002;
5. Quest Diagnostics' current report on Form 8-K filed on April 12, 2002;
6. Quest Diagnostics' current report on Form 8-K filed on April 2, 2002;
7. Quest Diagnostics' Definitive Proxy Statement filed on March 19, 2002;
and
8. The description of Quest Diagnostics' common stock contained in Quest
Diagnostics' registration statement on Form 10, filed pursuant to Section
12(b) of the Exchange Act on September 23, 1996, as amended by Amendment
No. 1 on Form 10/A, filed on November 6, 1996, Amendment No. 2 on
S-25
Form 10/A, filed on November 19, 1996, Amendment No. 3 on Form 10/A filed
on November 25, 1996 and Amendment No. 4 on Form 10/A filed on November 26,
1996.
The following documents filed by Unilab with the SEC are incorporated by
reference and shall be deemed to be a part hereof:
1. Unilab's quarterly report on Form 10-Q for the fiscal quarter ended
September 30, 2002, as filed on November 13, 2002;
2. Unilab's quarterly report on Form 10-Q for the fiscal quarter ended
June 30, 2002, as filed on August 14, 2002;
3. Unilab's quarterly report on Form 10-Q for the fiscal quarter ended
March 31, 2002, as filed on May 6, 2002;
4. Unilab's annual report on Form 10-K for the fiscal year ended December
31, 2001, as filed on March 29, 2002;
5. Unilab's current report on Form 8-K filed on April 2, 2002;
6. Unilab's Definitive Proxy Statement filed on April 30, 2002; and
7. The description of Unilab's common stock contained in Unilab's
registration statement on Form 8-A, filed pursuant to Section 12 of the
Exchange Act on June 5, 2001, including any amendment or report filed with
the SEC for the purpose of updating any such description.
Quest Diagnostics also incorporates by reference all other documents
subsequently filed by Quest Diagnostics or Unilab under Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act on or after the date of this Prospectus
Supplement No. 1 and prior to the termination of the Amended Exchange Offer.
Documents incorporated by reference are available from Quest Diagnostics
without charge upon request to the information agent, Georgeson Shareholder
Communications, Inc., 17 State Street, 10th Floor, New York, New York 10004,
call collect at (212) 440-9800 or toll-free at 1-866-318-0509. In order to
ensure timely delivery, any request should be submitted no later than January
30, 2003. If you request any incorporated documents from us, we will mail them
to you by first class mail, or another equally prompt means, within one business
day after we receive your request.
You should rely only on the information contained or incorporated by
reference in this Prospectus Supplement No. 1 and the Prospectus. Quest
Diagnostics has not authorized any other person to provide you with different or
additional information. If anyone provides you with such information you should
not rely on it. Quest Diagnostics is not making the Amended Exchange Offer in
any jurisdiction where the Amended Exchange Offer is not permitted. You should
assume that the information appearing in this Prospectus Supplement No. 1 and
the Prospectus, and information incorporated by reference herein and therein, is
accurate only as of the date of the documents containing the information. Quest
Diagnostics' business, financial condition, results of operation and prospects
may have changed since that date.
S-26
COMMISSION FILE NO. 333-88330
QUEST DIAGNOSTICS INCORPORATED
OFFER TO EXCHANGE
0.3256 OF A SHARE OF COMMON STOCK
(INCLUDING THE ASSOCIATED RIGHT TO PURCHASE PREFERRED STOCK)
OF
QUEST DIAGNOSTICS INCORPORATED
OR
$26.50 IN CASH
FOR
EACH OUTSTANDING SHARE OF COMMON STOCK
OF
UNILAB CORPORATION
SUBJECT, IN EACH CASE, TO THE PRORATION AND ELECTION PROCEDURES DESCRIBED IN
THIS PROSPECTUS AND THE RELATED LETTER OF ELECTION AND TRANSMITTAL.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON TUESDAY, JULY 16, 2002, UNLESS EXTENDED. SHARES TENDERED PURSUANT TO
THIS OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION OF THE OFFER.
On April 2, 2002, we entered into an Agreement and Plan of Merger with
Unilab Corporation to acquire all the outstanding shares of Unilab common stock.
THE BOARD OF DIRECTORS OF UNILAB HAS DETERMINED THAT THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER, ARE
FAIR TO AND IN THE BEST INTERESTS OF UNILAB AND UNILAB STOCKHOLDERS, HAS
APPROVED AND DECLARED THE ADVISABILITY OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER, AND
RECOMMENDS THAT UNILAB STOCKHOLDERS ACCEPT THE OFFER AND, IF APPLICABLE, VOTE IN
FAVOR OF THE ADOPTION OF THE MERGER AGREEMENT.
We are offering to exchange 0.3256 of a share of Quest Diagnostics
Incorporated common stock (including the associated right to purchase preferred
stock), or to pay $26.50 in cash, for each outstanding share of Unilab common
stock that is validly tendered and not properly withdrawn in the offer, subject
to the proration and election procedures described in this prospectus and the
related letter of election and transmittal. In the offer, Unilab stockholders
may elect to receive shares of Quest Diagnostics common stock or cash in
exchange for each of their shares of Unilab common stock. However, the aggregate
cash consideration that Unilab stockholders may receive is subject to a pro rata
reduction because not more than 30% of the shares of Unilab common stock
outstanding immediately prior to the expiration of the offer can be exchanged
for cash. See "The Offer -- Basic Terms" for a detailed description of the
proration procedure.
The purpose of our offer is for Quest Diagnostics to acquire control of,
and ultimately the entire common equity interest in, Unilab. After completion of
the offer, we intend to merge Unilab with Quest Diagnostics Newco Incorporated,
our wholly owned subsidiary. In that merger, each outstanding share of Unilab
common stock that is not exchanged in the offer will be converted into 0.3256 of
a share of Quest Diagnostics common stock, subject to appraisal rights if
available under Delaware law. Accordingly, if your shares of Unilab common stock
are not exchanged in the offer, and the merger is effected, you will receive
0.3256 of a share of Quest Diagnostics common stock for each Unilab share that
you own, the receipt of which may be delayed due to the possibility of a delay
in completing the merger after completion of the offer. NOTWITHSTANDING THE
AMOUNT, IF ANY, OF CASH PAID IN THE OFFER, STOCKHOLDERS WHO DO NOT TENDER THEIR
SHARES OF UNILAB COMMON STOCK IN THE OFFER WILL NOT RECEIVE ANY CASH
CONSIDERATION IN EXCHANGE FOR THEIR UNILAB SHARES IN THE MERGER (EXCEPT FOR
CASH, IF ANY, THAT IS PAID IN LIEU OF FRACTIONAL SHARES OF QUEST DIAGNOSTICS
COMMON STOCK OR CASH THAT MAY BE RECEIVED FOLLOWING THE EXERCISE OF APPRAISAL
RIGHTS, IF APPLICABLE).
Our obligation to exchange shares of Quest Diagnostics common stock and
cash for shares of Unilab common stock in the offer is subject to the conditions
listed under "The Offer -- Conditions to the Offer", including the condition
that a majority of the shares of Unilab common stock outstanding on a fully
diluted basis be tendered into the offer.
Quest Diagnostics' common stock is listed on the New York Stock Exchange
under the symbol "DGX", and Unilab's common stock is listed on the Nasdaq
National Market under the symbol "ULAB".
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED UNDER THIS
PROSPECTUS OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR ADEQUATE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT YOU SHOULD CONSIDER IN CONNECTION WITH THE OFFER.
WE ARE NOT ASKING FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
Any solicitation of proxies will be made only pursuant to separate proxy
solicitation materials complying with the requirements of Section 14(a) of the
Securities Exchange Act of 1934.
The Dealer Manager for this Offer is:
MERRILL LYNCH & CO.
The date of this prospectus is July 11, 2002.
TABLE OF CONTENTS
PAGE
----
Questions and Answers about the Proposed Transaction........ iv
Summary..................................................... 1
Risk Factors................................................ 9
Risks Relating to the Offer and the Merger................ 9
Risks Relating to Ownership of Quest Diagnostics Shares... 10
Selected Historical Financial Data For Quest Diagnostics.... 20
Selected Historical Financial Data For Unilab............... 23
Summary Unaudited Pro Forma Combined Financial Data......... 26
Unaudited Comparative Per Share Data........................ 28
Comparative Market Price Information........................ 29
The Companies............................................... 30
Quest Diagnostics and Purchaser........................... 30
Unilab.................................................... 31
Reasons for the Offer....................................... 32
Quest Diagnostics' Reasons for the Offer; Factors
Considered............................................. 32
Reasons for the Unilab Board's Recommendation............. 33
Background of the Offer..................................... 34
The Offer................................................... 38
Basic Terms............................................... 38
Extension, Termination and Amendment...................... 39
Procedure for Tendering and Electing...................... 41
Withdrawal Rights and Change of Election.................. 44
Exchange of Unilab Shares; Delivery of Quest Diagnostics
Shares and Cash........................................ 44
Cash Instead of Fractional Quest Diagnostics Shares....... 45
Exchange Fund; Distributions on Quest Diagnostics
Shares................................................. 45
Federal Income Tax Consequences........................... 46
Purpose of the Offer...................................... 48
The Merger................................................ 49
Appraisal Rights.......................................... 49
Conditions to the Offer................................... 50
Regulatory Approvals...................................... 52
Certain Effects of the Offer.............................. 54
Source and Amount of Funds................................ 55
Accounting Treatment of the Merger........................ 56
Fees and Expenses......................................... 56
Stock Exchange Listing.................................... 57
The Merger Agreement........................................ 58
The Offer................................................. 58
The Merger................................................ 59
Conversion of Securities; Exchange of Certificates........ 60
Unilab Board of Directors................................. 61
Treatment of Unilab Stock Options......................... 62
i
PAGE
----
Representations and Warranties............................ 62
Conduct of Business Pending the Merger.................... 64
Additional Agreements..................................... 66
Conditions to the Merger.................................. 71
Termination of the Merger Agreement....................... 71
Termination Fees and Expenses............................. 72
Amendments and Waiver..................................... 73
The Stockholders Agreement.................................. 74
Tender of Shares of Unilab Common Stock................... 74
Voting Agreement and Proxy................................ 74
The Option................................................ 74
Representations and Warranties............................ 76
Covenants................................................. 76
Registration Rights....................................... 76
Termination............................................... 77
Interests of Certain Persons................................ 77
Employment Agreements..................................... 77
Unilab Stock Options...................................... 80
Indemnification of Directors and Officers................. 81
Comparative Stock Prices and Dividend Information........... 82
Quest Diagnostics Dividend Policy......................... 82
Unaudited Pro Forma Combined Financial Statements........... 83
Description of Quest Diagnostics Capital Stock.............. 96
Comparison of Stockholder Rights............................ 99
Legal Matters............................................... 107
Experts..................................................... 107
Cautionary Statement Concerning Forward-Looking
Statements................................................ 107
Where You Can Find More Information......................... 110
SCHEDULE I.................................................. S-1
Directors and Executive Officers of Quest Diagnostics
Incorporated........................................... S-1
Directors and Executive Officers of Purchaser............. S-6
ANNEXES
Annex A Agreement and Plan of Merger and Amendments No. 1 and No. 2 to
Agreement and Plan of Merger
Annex B Stockholders Agreement and Amendment to Stockholders Agreement
Annex C Appraisal Rights Procedures Relating to Unilab Common Stock
ii
ADDITIONAL INFORMATION
THIS DOCUMENT INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION
ABOUT QUEST DIAGNOSTICS AND UNILAB FROM DOCUMENTS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION THAT HAVE NOT BEEN INCLUDED IN OR DELIVERED WITH THIS
DOCUMENT. THIS INFORMATION IS AVAILABLE AT THE INTERNET WEB SITE THAT THE
SECURITIES AND EXCHANGE COMMISSION MAINTAINS AT HTTP://WWW.SEC.GOV, AS WELL AS
FROM OTHER SOURCES. SEE "WHERE YOU CAN FIND MORE INFORMATION ABOUT QUEST
DIAGNOSTICS AND UNILAB" ON PAGE 110.
YOU ALSO MAY REQUEST COPIES OF THESE DOCUMENTS FROM US, WITHOUT CHARGE,
UPON WRITTEN OR ORAL REQUEST TO OUR INFORMATION AGENT, GEORGESON SHAREHOLDER
COMMUNICATIONS INC., AT 17 STATE STREET, 10TH FLOOR, NEW YORK, NEW YORK 10004,
CALL COLLECT AT 212-440-9800 OR TOLL-FREE AT 1-866-318-0509. IN ORDER TO RECEIVE
TIMELY DELIVERY OF THE DOCUMENTS, YOU MUST MAKE YOUR REQUESTS NO LATER THAN JULY
10, 2002.
iii
QUESTIONS AND ANSWERS ABOUT THE PROPOSED TRANSACTION
Q: WHO IS OFFERING TO EXCHANGE MY SECURITIES?
A: We are Quest Diagnostics Incorporated, the nation's leading provider of
diagnostic testing and related services for the healthcare industry. Quest
Diagnostics Newco Incorporated, which we refer to as Purchaser, is a newly
formed Delaware corporation and our wholly owned subsidiary. Purchaser has
been organized in connection with this transaction and has not carried on
any activities other than in connection with this transaction.
Q: WHAT IS QUEST DIAGNOSTICS PROPOSING?
A: We are offering, through Purchaser, to exchange shares of Quest Diagnostics
common stock, which we refer to as Quest Diagnostics shares, or cash for
each outstanding share of Unilab common stock, which we refer to as Unilab
shares. After the successful completion of the offer and the satisfaction of
other conditions specified in the merger agreement, Unilab will be merged
with Purchaser.
Q: WHAT CAN I RECEIVE IN EXCHANGE FOR MY UNILAB SHARES IN THE OFFER?
A: In exchange for each of your Unilab shares that are validly tendered and not
properly withdrawn in the offer, you may elect to receive 0.3256 of a Quest
Diagnostics share, or $26.50 in cash. However, the total cash consideration
you may receive in exchange for your Unilab shares is subject to a pro rata
reduction because not more than 30% of the Unilab shares outstanding
immediately prior to the expiration of the offer can be exchanged for cash.
An election to receive Quest Diagnostics shares for all of your Unilab
shares will not be subject to proration.
For more information on the election procedure and the manner in which
Unilab shares will be exchanged, please read the detailed information set
forth under "The Offer -- Basic Terms and Procedure for Tendering and
Electing" beginning on page 38.
Q: WHAT IF THE HOLDERS OF MORE THAN 30% OF UNILAB'S SHARES ELECT TO RECEIVE
CASH IN THE OFFER? HOW WILL THE PRORATION PROCEDURE AFFECT ME IF I HAVE
ELECTED TO RECEIVE CASH IN THOSE CIRCUMSTANCES?
A: If the holders of more than 30% of the Unilab shares outstanding immediately
prior to the expiration of the offer, which we refer to as the maximum cash
election number, elect to receive cash in exchange for all of their Unilab
shares, then all such cash electing Unilab shares will be exchanged on a pro
rata basis into a combination of cash and Quest Diagnostics shares so that
the total number of Unilab shares exchanged for cash does not exceed the
maximum cash election number.
THIS MEANS THAT THERE CAN BE NO ASSURANCE THAT YOU WILL RECEIVE 100% OF THE
OFFER CONSIDERATION IN THE FORM OF CASH FOR EACH UNILAB SHARE THAT YOU
PROPERLY ELECT TO EXCHANGE FOR THE CASH CONSIDERATION. HOWEVER, REGARDLESS
OF THE NUMBER OF UNILAB SHARES THAT ARE THE SUBJECT OF CASH ELECTIONS, EACH
UNILAB STOCKHOLDER ELECTING TO RECEIVE CASH IN EXCHANGE FOR ALL OF HIS OR
HER UNILAB SHARES WILL BE ENTITLED TO RECEIVE CASH FOR AT LEAST 30% OF SUCH
STOCKHOLDER'S UNILAB SHARES.
For a more detailed description of the proration procedure, see "The
Offer -- Basic Terms".
Q: HOW WAS THE EXCHANGE RATIO OF 0.3256 OF A QUEST DIAGNOSTICS SHARE FOR EACH
UNILAB SHARE DETERMINED?
A: This ratio was determined by dividing $26.50 by the average closing trading
price of a Quest Diagnostics share on the New York Stock Exchange for the
five trading days ended March 28, 2002.
Q: WHAT EFFECT WILL CHANGES TO THE PRICE OF QUEST DIAGNOSTICS SHARES HAVE ON
WHAT I RECEIVE IN THE OFFER OR THE MERGER?
A: Because the number of Quest Diagnostics shares that you will receive in the
offer or the merger is fixed at 0.3256, the price that you receive for the
Quest Diagnostics shares if you should decide to sell them after receipt
iv
will vary depending on their trading price at that time. For example, on
April 2, 2002, the date of the announcement of the transaction, 0.3256 of a
Quest Diagnostics share would have been worth $26.96, based on the closing
price for each Quest Diagnostics share of $82.79 on April 1, and on July 11,
2002, 0.3256 of a Quest Diagnostics share would have been worth $23.44 based
on the closing price of $72.00 for each Quest Diagnostics share on July 10.
There can be no assurance as to what price the Quest Diagnostics shares will
trade at the time of the expiration of the offer or the closing of the
merger.
Q: WHAT WILL HAPPEN TO MY UNILAB SHARES IF I DO NOT EXCHANGE THEM IN THE OFFER?
A: If you decide not to tender your Unilab shares in the offer and the merger
occurs, you will receive 0.3256 of a Quest Diagnostics share in exchange for
each Unilab share that you own. This is the same consideration that you
would have received had you tendered your shares in the offer and either
made no election as to the form of consideration you wished to receive or
elected to receive Quest Diagnostics shares. NOTWITHSTANDING THE AMOUNT, IF
ANY, OF CASH PAID IN THE OFFER, YOU WILL NOT RECEIVE ANY CASH CONSIDERATION
IN EXCHANGE FOR YOUR UNILAB SHARES IN THE MERGER (EXCEPT FOR CASH, IF ANY,
THAT IS PAID IN LIEU OF FRACTIONAL QUEST DIAGNOSTICS SHARES OR FOLLOWING THE
EXERCISE OF APPRAISAL RIGHTS, IF APPLICABLE TO THE MERGER).
Q: WILL I RECEIVE ANY FRACTIONAL QUEST DIAGNOSTICS SHARES IN THE OFFER OR THE
MERGER?
A: You will not receive any fractional Quest Diagnostics shares in the offer or
the merger. Instead, you will receive cash in an amount equal to the then
market value of any fractional shares you would otherwise have been entitled
to receive.
Q: HOW LONG WILL IT TAKE TO COMPLETE THE OFFER AND THE MERGER?
A: We hope to complete the offer by Monday, June 17, 2002, the initial
scheduled expiration date. However, we may decide, or be required, to extend
the offer if certain conditions of the offer have not been satisfied by the
initial scheduled expiration date. We expect to complete the merger shortly
after successful completion of the offer or, if Unilab stockholder approval
is required, shortly after such approval is obtained either at a special
meeting of the Unilab stockholders called for that purpose or following the
receipt of the requisite approval of Unilab stockholders acting by written
consent. If the conditions to the offer are satisfied, including the minimum
tender condition, Purchaser will have sufficient votes to adopt the merger
agreement without the need for any other Unilab stockholders to vote in
favor of such adoption.
Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS?
A: If you are the record owner of Unilab shares and you tender your Unilab
shares directly to the offer exchange agent, you will not have to pay
brokerage fees or incur similar expenses. If you own your Unilab shares
through a broker or other nominee, and your broker tenders the Unilab shares
on your behalf, your broker may charge you a fee for doing so. You should
consult your broker or nominee to determine whether any charges will apply.
Q: WHAT DOES UNILAB'S BOARD OF DIRECTORS THINK OF THE OFFER AND THE MERGER?
A: Unilab's board of directors has determined that the merger agreement and the
transactions contemplated thereby, including the offer and the merger, are
fair to and in the best interests of Unilab and Unilab's stockholders, and
recommends that Unilab's stockholders accept the offer and, if applicable,
adopt the merger agreement. Information about the recommendation of Unilab's
board of directors is more fully set forth in Unilab's Solicitation/
Recommendation Statement on Schedule 14D-9, which is being mailed to
Unilab's stockholders together with this prospectus.
Q: HAVE ANY UNILAB STOCKHOLDERS AGREED TO TENDER THEIR SHARES?
A: Yes. Pursuant to an agreement dated April 2, 2002, Kelso Investment
Associates VI, L.P. and KEP VI, LLC, which on such date collectively owned
approximately 37.0% of the outstanding Unilab shares on a fully diluted
basis and 41.2% of the outstanding
v
Unilab shares on a non-fully diluted basis, have agreed to tender and not
withdraw all of their Unilab shares in the offer. In addition to agreeing to
tender and not withdraw their Unilab shares, each of these stockholders have
agreed to vote their shares against any competing transaction and, if the
merger agreement is terminated under certain circumstances, to sell their
Unilab shares to us. For more information about this agreement, see "The
Stockholders Agreement" on page 74.
Q: WHAT PERCENTAGE OF QUEST DIAGNOSTICS SHARES WILL UNILAB STOCKHOLDERS OWN
AFTER THE OFFER?
A: If all Unilab stock options are exercised prior to the consummation of the
offer, and if all Unilab stockholders elect to receive Quest Diagnostics
shares in the offer, then former Unilab stockholders would own approximately
11.1% of the outstanding Quest Diagnostics shares after the offer, based
upon the number of Unilab shares and Quest Diagnostics shares outstanding on
May 14, 2002.
If no Unilab stock options are exercised between the date of this prospectus
and prior to the consummation of the offer, and if Unilab stockholders
receive 70% of the offer consideration in the form of Quest Diagnostics
shares, then former Unilab stockholders would own approximately 7.3% of the
outstanding Quest Diagnostics shares after the offer, based upon the number
of Unilab shares and Quest Diagnostics shares outstanding on May 14, 2002.
Q: WHAT ARE THE MOST SIGNIFICANT CONDITIONS TO THE OFFER?
A: The offer is subject to several significant conditions, including:
- 50.1% of the outstanding Unilab shares, on a fully diluted basis, having
been validly tendered and not properly withdrawn, which we refer to as
the minimum tender condition,
- all waiting periods under applicable antitrust laws having expired or
been terminated,
- the registration statement, of which this prospectus is a part, having
been declared effective by the Securities and Exchange Commission, or
SEC, and not being subject to any stop order or proceedings seeking a
stop order,
- the Quest Diagnostics shares to be issued in the offer and the merger
having been approved for listing on the New York Stock Exchange, subject
to official notice of issuance,
- Unilab and/or Quest Diagnostics not having failed to perform in any
material respect any of their respective obligations, covenants or
agreements contained in the merger agreement, and
- Unilab and/or Quest Diagnostics not having breached any of their
respective representations or warranties contained in the merger
agreement, except for breaches that have not resulted in or are not
reasonably likely to result in a material adverse effect on Unilab and
its subsidiary or Quest Diagnostics and its subsidiaries, as the case may
be, in each case taken as a whole.
These conditions and other conditions to the offer are discussed in this
prospectus under "The Offer -- Conditions to the Offer" beginning on page
50.
Q: HOW LONG DO I HAVE TO DECIDE WHETHER TO TENDER IN THE OFFER?
A: You will have at least until 12:00 midnight, New York City time, on Tuesday,
July 16, 2002, to decide whether to tender your Unilab shares in the offer.
If you cannot deliver everything that is required in order to make a valid
tender by that time, you may be able to use a guaranteed delivery procedure
which is described under "The Offer -- Procedure for Tendering and
Electing".
Q: CAN THE OFFER BE EXTENDED, AND UNDER WHAT CIRCUMSTANCES?
A: Yes. Subject to the terms of the merger agreement, in certain circumstances,
we will be obligated to extend the offer in increments of not more than ten
business days each up to September 30, 2002, if the conditions to the offer
have not been satisfied or waived prior to such time. The offer may also be
extended at our option for a period of not more than ten business days if
all of the
vi
conditions to the offer have been satisfied or waived, but the number of
Unilab shares tendered and not withdrawn pursuant to the offer equals more
than 80%, but less than 90%, of the outstanding Unilab shares on a fully
diluted basis. For a detailed description of the circumstances under which
the offer may or must be extended, see "The Offer -- Extension, Termination
and Amendment".
Q: HOW WILL I BE NOTIFIED IF THE OFFER IS EXTENDED?
A: If we extend the offer, we will inform the offer exchange agent of that
fact, and will issue a press release giving the new expiration date no later
than 9:00 a.m., New York City time, on the day after the day on which the
offer was previously scheduled to expire. See "The Offer -- Extension,
Termination and Amendment".
Q: HOW DO I ACCEPT THE OFFER?
A: To tender your Unilab shares, you should do the following:
- if you hold Unilab shares in your own name, complete and sign the
enclosed letter of election and transmittal and return it with your
Unilab share certificates to Computershare Trust Company of New York, the
offer exchange agent, at the appropriate address specified on the back
cover page of this prospectus before the expiration date of the offer,
- if you hold your Unilab shares in "street name" through a broker,
instruct your broker as to your election and to tender your Unilab shares
before the expiration date, or
- if your Unilab share certificates are not immediately available or if you
cannot deliver your Unilab share certificates and any other required
documents to the offer exchange agent prior to the expiration of the
offer, or you cannot complete the procedure for delivery by book-entry
transfer on a timely basis, you may still tender your Unilab shares if
you comply with the guaranteed delivery procedures described under "The
Offer -- Procedure for Tendering and Electing".
Q: HOW DO I MAKE MY ELECTION?
A: You may elect to receive Quest Diagnostics shares or cash for each of your
Unilab shares in the offer by indicating your preference on the letter of
election and transmittal. You do not have to elect to exchange all of your
Unilab shares into one form of consideration or the other. Instead, you may
elect to receive the cash consideration in exchange for some of your Unilab
shares, and you may elect to receive Quest Diagnostics shares in exchange
for other of your Unilab shares.
Any election that you make to receive the cash consideration will be subject
to the proration procedure described in this prospectus.
If you validly tender your Unilab shares but fail to properly make an
election, you will be deemed to have elected to receive Quest Diagnostics
shares and you will receive 0.3256 of a Quest Diagnostics share for each
Unilab share that you validly tender for exchange. If you decide to change
your election after you have tendered your Unilab shares, you must first
withdraw your tendered shares and then re-tender your Unilab shares prior to
the expiration of the offer with a new letter of election and transmittal
that indicates your revised election. See "The Offer -- Withdrawal Rights
and Change of Election".
Q: UNTIL WHAT TIME CAN I WITHDRAW PREVIOUSLY TENDERED SHARES?
A: You may withdraw previously tendered Unilab shares any time prior to the
expiration of the offer, and, unless we have accepted Unilab shares pursuant
to the offer, you may also withdraw any tendered Unilab shares at any time
after July 13, 2002 if the offer is still pending. Once we have accepted
Unilab shares for exchange pursuant to the offer, all tenders become
irrevocable. See "The Offer -- Withdrawal Rights and Change of Election".
Q: HOW DO I WITHDRAW PREVIOUSLY TENDERED SHARES?
A: To withdraw previously tendered Unilab shares, you must deliver a written or
facsimile notice of withdrawal with the required
vii
information to the offer exchange agent while you still have the right to
withdraw. If you tendered Unilab shares by giving instructions to a broker
or bank, you must instruct the broker or bank to arrange for the withdrawal
of your Unilab shares. See "The Offer -- Withdrawal Rights and Change of
Election".
Q: IF A MAJORITY OF THE UNILAB SHARES ARE TENDERED AND ACCEPTED FOR EXCHANGE,
WILL UNILAB CONTINUE AS A PUBLIC COMPANY?
A: If at least a majority of the outstanding Unilab shares on a fully diluted
basis are tendered and accepted for exchange, Quest Diagnostics will effect
the merger if all of the conditions to the merger contained in the merger
agreement have been satisfied or, to the extent permitted, waived by Quest
Diagnostics. If the merger takes place, Unilab will no longer be publicly
owned. Even if the merger does not take place, if we purchase all the
tendered Unilab shares, there may be so few remaining Unilab stockholders
and publicly held Unilab shares that Unilab shares will no longer be
eligible to be traded through the Nasdaq National Market or on a securities
exchange. In that event, there may not be a public trading market for Unilab
shares, and Unilab may cease making filings with the SEC or otherwise cease
being required to comply with the SEC rules relating to publicly held
companies.
Q: AM I ENTITLED TO APPRAISAL RIGHTS?
A: Unilab stockholders do not have appraisal rights in connection with the
offer.
If we acquire less than 90% of the outstanding Unilab shares in the offer,
we intend to effect a long-form merger to acquire the balance of the Unilab
shares not exchanged in the offer. Unilab stockholders that do not validly
tender their Unilab shares in the offer will not have appraisal rights in
connection with the long-form merger.
However, if we acquire 90% or more of the outstanding Unilab shares in the
offer, we intend to effect a short-form merger to acquire the balance of the
Unilab shares not exchanged in the offer. Holders of Unilab shares that do
not validly tender their shares in the offer will have the right under
Delaware law to dissent and demand appraisal of their Unilab shares in
connection with the short-form merger.
For more information on appraisal rights, see "The Offer -- Appraisal
Rights" on page 49.
Q: WILL I BE TAXED ON THE QUEST DIAGNOSTICS SHARES AND CASH THAT I RECEIVE?
A: Assuming the merger is completed as planned, the offer and the merger are
expected to be treated together as a tax-free "reorganization" for United
States federal income tax purposes. As a result, if you exchange all of your
Unilab shares for Quest Diagnostics shares in the offer and/or the merger,
you will not recognize any gain or loss except with respect to cash received
in lieu of fractional Quest Diagnostics shares. If you exchange all of your
Unilab shares for cash in the offer, you generally will recognize gain or
loss measured by the difference between the aggregate amount of cash
received for your Unilab shares and your tax basis in those Unilab shares.
If you exchange some of your Unilab shares for Quest Diagnostics shares in
the offer and/or the merger and you exchange some of your Unilab shares for
cash in the offer, you will recognize gain, but not loss, equal to the
lesser of (1) the amount of cash you received in the offer and (2) an amount
equal to the excess, if any, of (a) the sum of the amount of cash you
received in the offer and the fair market value of the Quest Diagnostics
shares you received in the offer and/or the merger over (b) the aggregate
tax basis in all of your Unilab shares.
The tax consequences described in the preceding paragraph assume that the
merger will be completed as planned as a tax-free "forward merger" or
tax-free "reverse merger". Under certain limited conditions described
herein, however, the merger may be completed as a taxable "reverse merger",
in which case you will recognize all of your gain or loss on the disposition
of your Unilab shares in the offer and/or the reverse merger, regardless of
whether you exchange your Unilab shares for Quest Diagnostics shares or
cash. We will notify you via a press release announcing the consummation of
the merger as to how you should account for the treatment of the
consideration received in the
viii
offer and the merger for federal income tax purposes.
You are urged to carefully read the discussion under "The Offer -- Federal
Income Tax Consequences" beginning on page 46, and to consult your tax
advisor on the consequences of participation in the offer or the merger.
Q: IS QUEST DIAGNOSTICS' FINANCIAL PERFORMANCE RELEVANT TO MY DECISION TO
TENDER MY UNILAB SHARES IN THE OFFER?
A: Yes. If you tender Unilab shares in the offer you may become a stockholder
of Quest Diagnostics, either because you elect to receive Quest Diagnostics
shares in exchange for your Unilab shares, or because you received a pro
rated combination of cash and Quest Diagnostics shares after electing to
receive the cash consideration in exchange for your Unilab shares. You
should therefore consider our financial performance before you decide to
tender your Unilab shares in the offer. In considering Quest Diagnostics'
financial performance, you should review the pro forma financial information
contained in this prospectus as well as the documents incorporated by
reference in this prospectus, including, among others, Quest Diagnostics'
Annual Report on Form 10-K and Quest Diagnostics' Quarterly Report on Form
10-Q, because they contain detailed business, financial and other
information about us. See "Where You Can Find More Information About Quest
Diagnostics and Unilab" on page 110.
Q: DO THE STATEMENTS ON THE COVER PAGE REGARDING THIS PROSPECTUS BEING SUBJECT
TO CHANGE AND THE REGISTRATION STATEMENT FILED WITH THE SEC NOT YET BEING
EFFECTIVE MEAN THAT THE OFFER HAS NOT COMMENCED?
A: No. The offer has commenced and the effectiveness of the registration
statement is not necessary for you to tender Unilab shares. The SEC rules
permit exchange offers to begin before the related registration statement
has become effective, although we cannot accept for exchange any Unilab
shares tendered in the offer until the SEC has declared this registration
statement effective and the other conditions to the offer have been
satisfied or, to the extent permitted, waived.
Q: WHERE CAN I FIND OUT MORE INFORMATION ABOUT QUEST DIAGNOSTICS AND UNILAB?
A: You can find out information about Quest Diagnostics and Unilab from various
sources described under "Additional Information" on page iii and under
"Where You Can Find More Information about Quest Diagnostics and Unilab"
beginning on page 110.
Q: WHO CAN I CALL WITH QUESTIONS ABOUT THE OFFER?
A: You can contact our information agent, Georgeson Shareholder Communications
Inc., collect at 212-440-9800 or toll-free at 1-866-318-0509, or the dealer
manager, Merrill Lynch & Co., toll-free at 1-866-276-1462.
ix
SUMMARY
This brief summary does not contain all of the information that may be
important to you. You should carefully read this entire document and the other
documents to which this document refers to fully understand the offer. See
"Where You Can Find More Information About Quest Diagnostics and Unilab" on page
110.
INFORMATION ABOUT QUEST DIAGNOSTICS AND UNILAB (PAGE 30)
QUEST DIAGNOSTICS INCORPORATED
ONE MALCOLM AVENUE
TETERBORO, NEW JERSEY 07608
(201) 393-5000
WWW.QUESTDIAGNOSTICS.COM
Quest Diagnostics is the nation's leading provider of diagnostic testing,
information and related services for the healthcare industry with net revenues
in excess of $3.6 billion during 2001. Quest Diagnostics offers a broad range of
clinical laboratory testing services used by physicians in the detection,
diagnosis, evaluation, monitoring and treatment of diseases and other medical
conditions. Quest Diagnostics has a more extensive national network of
laboratories and patient service centers than its competitors and for the year
ended December 31, 2001, Quest Diagnostics' net revenues were approximately
sixty-five percent greater than those of its nearest competitor. Quest
Diagnostics has the leading market share in clinical laboratory testing and
esoteric testing, including molecular diagnostics, as well as non-hospital based
anatomic pathology services and testing for drugs of abuse.
Quest Diagnostics processed over 105 million requisitions in 2001 and
operates a leading esoteric testing facility known as the Nichols Institute,
located in San Juan Capistrano, California.
On April 1, 2002, Quest Diagnostics completed the acquisition of American
Medical Laboratories, Incorporated, or AML, for approximately $500 million in
cash. AML processed approximately 9 million requisitions in 2001 and has
operations in Nevada and an esoteric testing facility located in Chantilly,
Virginia.
QUEST DIAGNOSTICS NEWCO INCORPORATED
ONE MALCOLM AVENUE
TETERBORO, NEW JERSEY 07608
(201) 393-5000
WWW.QUESTDIAGNOSTICS.COM
Purchaser is a recently incorporated Delaware corporation and a wholly
owned subsidiary of Quest Diagnostics. Since its incorporation, Purchaser has
not carried on any activities, other than in connection with the offer and the
merger.
UNILAB CORPORATION
18448 OXNARD STREET
TARZANA, CALIFORNIA 91356
(818) 996-7300
WWW.UNILAB.COM
Unilab is the largest independent clinical laboratory testing company in
California and one of the largest in the nation, with revenues of $390 million
during 2001. Unilab offers a broad range of clinical laboratory testing services
used by physicians and other healthcare providers in the detection, diagnosis,
evaluation, monitoring and treatment of diseases and other medical conditions.
Unilab has an extensive network of laboratories and patient service centers in
California, resulting in statewide geographic coverage and a strong presence in
the state's major population centers. Unilab processed approximately 14.5
million requisitions in 2001.
1
THE OFFER (PAGE 38)
Summary of the Offer
We have entered into an agreement and plan of merger with Unilab, dated as
of April 2, 2002, and amended as of May 13, 2002 and as of June 20, 2002, which
we refer to as the merger agreement. Pursuant to the merger agreement, we are
offering, through Purchaser, to exchange Quest Diagnostics shares or cash for
each outstanding Unilab share. In the offer, Unilab stockholders may elect to
receive either 0.3256 of a Quest Diagnostics share, or $26.50 in cash, for each
Unilab share that is validly tendered and not withdrawn. However, the aggregate
amount of cash that Unilab stockholders may receive in the offer is subject to a
pro rata reduction because there is a limit to the number of Unilab shares that
will be exchanged for cash as described in the following paragraph. The ratio of
0.3256 of a Quest Diagnostics share for each Unilab share was determined by
dividing $26.50 by the average closing trading price of a Quest Diagnostics
share on the New York Stock Exchange for the five trading days ended March 28,
2002.
In the offer, not more than 30% of the number of Unilab shares outstanding
immediately prior to the expiration of the offer can be exchanged for cash. As a
result, if the holders of more than such number of Unilab shares elect to
receive cash in exchange for all their Unilab shares, then all such cash
electing Unilab shares will be exchanged on a pro rata basis for a combination
of cash and Quest Diagnostics shares so that the aggregate number of Unilab
shares exchanged for cash does not exceed 30% of the number of Unilab shares
outstanding immediately prior to the expiration of the offer.
Because there is a limit on the number of Unilab shares that will be
exchanged for cash in the offer, there can be no assurance that you will receive
100% of the offer consideration in the form of cash for each Unilab share that
you properly elect to exchange for the cash consideration. Instead, depending
upon the number of Unilab shares that are the subject of proper cash elections,
you may receive a pro rated combination of cash and Quest Diagnostics shares for
the Unilab shares that you elect to exchange for cash. However, regardless of
the number of Unilab shares that are the subject of cash elections, each Unilab
stockholder electing to receive cash in exchange for all of his or her Unilab
shares will be entitled to receive cash for at least 30% of such stockholder's
Unilab shares. For a more detailed description of the proration procedure, see
"The Offer -- Basic Terms".
An election to receive Quest Diagnostics shares for all your Unilab shares
will not be subject to proration.
You will not receive any fractional Quest Diagnostics shares in the offer.
Instead, you will receive cash in an amount equal to the then market value of
any fractional shares you would otherwise have been entitled to receive.
The term "expiration date" means 12:00 midnight, New York City time, on
Monday, June 17, 2002, unless we extend the period of time during which this
offer is open, in which case the term "expiration date" means the latest time
and date on which the offer, as so extended, expires.
Conditions to the Offer
Our obligation to exchange Quest Diagnostics shares or cash for Unilab
shares is subject to several conditions referred to under "The
Offer -- Conditions to the Offer" beginning on page 50, including conditions
that require that there be validly tendered into the offer and not withdrawn at
least 50.1% of the aggregate number of outstanding Unilab shares on a fully
diluted basis, which we refer to as the minimum tender condition, and receipt of
all required regulatory approvals.
Timing of the Offer
Our offer is currently scheduled to expire at 12:00 midnight, New York City
time, on Tuesday, July 16, 2002. However, we may decide, or be required, to
extend our offer from time to time as necessary until September 30, 2002 if
certain conditions to the offer have not been satisfied or waived prior to such
time. See "The Offer -- Extension, Termination and Amendment" beginning on page
39.
2
Extension, Termination and Amendment
The merger agreement provides that, unless Unilab otherwise agrees, we
must, and, in the case of the third bullet below, we have the option to, extend
the offer in the following circumstances for one or more periods not in excess
of ten business days each:
- beyond the initial scheduled expiration date, up to September 30, 2002,
if, at the scheduled or extended expiration date of the offer, any of the
conditions to the offer have not been satisfied or, to the extent
permitted, waived, until all the conditions to the offer are satisfied or
waived. However, if the minimum tender condition is not satisfied at the
time such extension would otherwise be required, we will not be required
to extend the offer pursuant to this provision of the merger agreement
if:
- the applicable waiting period under the HSR Act has expired or been
terminated,
- the registration statement on Form S-4 has become effective under the
Securities Act and is not the subject of any stop order or proceeding
seeking a stop order, and
- the Quest Diagnostics shares to be issued in the offer and the merger
have been approved for listing on the NYSE,
and we have publicly announced the existence of such facts and our
intention not to extend the offer at least two business days prior to the
date that the extension would otherwise have been required,
- for any period required by any SEC rule, regulation or position or any
period required by applicable law, or
- for an aggregate period of not more than ten business days beyond the
latest applicable date that would otherwise be permitted as described in
the first and second bullets above, if, as of the expiration date, all of
the conditions to the offer have been satisfied or waived, but the number
of Unilab shares validly tendered and not withdrawn equals more than 80%,
but less than 90%, of the outstanding Unilab shares on a fully diluted
basis. However, if we elect to extend the expiration date pursuant to
this provision of the merger agreement, we will be deemed to have
irrevocably waived all of the conditions to the offer set forth in detail
under the caption "The Offer -- Conditions to the Offer" and you will
maintain your withdrawal rights during the pendency of such extension.
Except as described in this provision of the merger agreement, we are not
permitted to extend the offer without the prior written consent of Unilab
at the time that all conditions to the offer have been satisfied or
waived.
Subject to the SEC's applicable rules and regulations and the terms of the
merger agreement, we also reserve the right to waive any of the conditions to
the offer and to make any change in the terms of or conditions to the offer.
However, without Unilab's consent, we cannot:
- decrease the consideration payable in the offer,
- change the form of consideration to be paid in the offer to a form other
than cash or Quest Diagnostics shares,
- decrease the aggregate amount of cash available in the offer or change
the relative amount of cash and Quest Diagnostics shares available in the
offer,
- reduce the number of Unilab shares to be purchased in the offer,
- impose conditions to the offer in addition to those set forth in the
merger agreement,
- modify or waive the minimum tender condition,
- except pursuant to the merger agreement, change the expiration date, or
- make any other change that is adverse to the Unilab stockholders or to
stockholders that have elected a particular form of consideration in the
offer.
We will follow any extension, termination, amendment or delay, as promptly
as practicable, with a public announcement. Any announcement of an extension
will be issued no later than 9:00 a.m., New York City
3
time, on the next business day after the previously scheduled expiration date.
Subject to applicable law, including Rules 14d-4(d), 14d-6(c) and 14e-1 under
the Securities Exchange Act of 1934, which we refer to as the Exchange Act,
which require that any material change in the information published, sent or
given to the stockholders in connection with the offer be promptly sent to
stockholders in a manner reasonably designed to inform stockholders of such
change, and without limiting the manner in which we may choose to make any
public announcement, we assume no obligation to publish, advertise or otherwise
communicate any such public announcement other than by making a release to the
Dow Jones News Service or the PR Newswire Association, Inc. During any such
extension of the offer, all Unilab shares previously tendered and not properly
withdrawn will remain subject to the offer, subject to your right to withdraw
your Unilab shares.
Exchange of Unilab Shares; Delivery of Quest Diagnostics Shares and Cash
Upon the terms and subject to the conditions of our offer, including, if
the offer is extended or amended, the terms and conditions of any extension or
amendment, we will accept for exchange, and will exchange, Unilab shares validly
tendered and not properly withdrawn promptly after the expiration date. The
offer exchange agent will deliver, or cause to be delivered, cash and Quest
Diagnostics shares in exchange for Unilab shares pursuant to the offer promptly
after it receives notice of our acceptance of the validly tendered Unilab
shares.
Withdrawal Rights
Unilab shares tendered pursuant to the offer may be withdrawn at any time
prior to the expiration date of the offer, and, unless we have previously
accepted and paid for them pursuant to the offer, may also be withdrawn at any
time after July 13, 2002. Once we have accepted Unilab shares for exchange
pursuant to the offer, all tenders not previously withdrawn become irrevocable.
Procedure for Tendering Shares
For you to validly tender Unilab shares pursuant to our offer, you must,
- prior to the expiration of the offer, deliver to the offer exchange agent
at one of its addresses set forth on the back cover of the prospectus a
properly completed and duly executed letter of election and transmittal,
or a manually signed facsimile of that document, together with any
required signature guarantees, and any other required documents, and the
certificates representing the tendered Unilab shares,
- prior to the expiration of the offer, deliver to the offer exchange agent
at one of such addresses either (a) a properly completed and duly
executed letter of election and transmittal, or a manually signed
facsimile of that document, together with any required signature
guarantees, or (b) an agent's message, which is explained below, in each
case with any other required documents, and transfer the Unilab shares
tendered pursuant to the procedures for book-entry transfer set forth in
the section of the prospectus entitled "The Offer -- Procedure for
Tendering and Electing", or
- comply with the guaranteed delivery procedures described in "The
Offer -- Procedure for Tendering and Electing -- Guaranteed Delivery".
Election Procedure
In exchange for each of your Unilab shares, you may elect to receive cash
or Quest Diagnostics shares, subject, in the case of an election to receive
cash, to the proration procedure described in this prospectus, by indicating
your preference on the letter of election and transmittal. You are not required
to exchange all of your Unilab shares into one form of consideration or the
other. Instead, if you own more than one Unilab share, you may elect to receive
the cash consideration in exchange for some of your Unilab shares and you may
elect to receive Quest Diagnostics shares in exchange for other of your Unilab
shares. If you validly tender your Unilab shares, but fail to properly make an
election, you will be deemed to have elected to receive Quest Diagnostics shares
and you will receive 0.3256 of a Quest Diagnostics share for each Unilab share
that
4
you tender for exchange in the offer. If you decide to change your election
after you have tendered your Unilab shares, you must first withdraw your
tendered shares and then re-tender your shares with a new letter of election and
transmittal that indicates your revised election prior to the expiration of the
offer.
REASONS FOR THE OFFER (PAGE 32)
We believe the proposed transaction represents a compelling opportunity to
enhance value for both Quest Diagnostics and Unilab stockholders. The boards of
directors of Quest Diagnostics and Unilab have each separately approved the
merger agreement and the transactions contemplated by the merger agreement,
including the offer and the merger. For a list of the factors considered by each
board of directors in making its determination, please see "Reasons for the
Offer" on page 32 and Unilab's Solicitation/Recommendation Statement on Schedule
14D-9, which accompanies the prospectus.
RISK FACTORS (PAGE 9)
In deciding whether to tender your Unilab shares pursuant to the offer, you
should read carefully this prospectus, the accompanying
Solicitation/Recommendation Statement on Schedule 14D-9 of Unilab and the other
documents to which we refer you. You should also carefully consider the
following factors:
Risk Factors Relating to the Offer and the Merger
- Quest Diagnostics shares to be received by Unilab stockholders in the
offer and the merger will fluctuate in value and, accordingly, at the
time you receive such shares in the offer or the merger, may be worth
less than or more than the equivalent of the $26.50 in cash you would
have received if you had elected and received cash for your Unilab
shares,
- the need for governmental approvals may delay consummation of the offer
and the merger, which, among other things, may affect the trading prices
of Quest Diagnostics shares and Unilab shares and could result in Unilab
stockholders receiving Quest Diagnostics shares with a market value lower
than expected,
- if the Internal Revenue Service successfully challenged the treatment of
the transaction as a tax-free reorganization or if the merger were
effected as a taxable reverse merger, the transaction would be fully
taxable for you; and
- the acceptance of Unilab shares in the offer may reduce their liquidity
and market value during the period prior to the consummation of the
merger, may result in their delisting from the Nasdaq National Market and
may cause the Unilab shares to lose their status as "margin securities".
Risks Relating to Ownership of Quest Diagnostics Shares
- integration of operations may be difficult and, if unsuccessfully
executed, may have a material adverse impact on Quest Diagnostics'
business,
- the acquisitions of AML and Unilab may not produce the anticipated
benefits,
- Quest Diagnostics may not be able to achieve the anticipated benefits of
its Six Sigma and Standardization initiatives,
- failure to timely or accurately bill for services could have a material
adverse impact on Quest Diagnostics' net revenues and bad debt expense,
- failure in the information technology systems of Quest Diagnostics,
including failures resulting from systems conversions, could
significantly increase turnaround time and otherwise disrupt Quest
Diagnostics' operations, which could reduce its customer base and result
in lost net revenues,
- the development of new, more cost-effective tests that can be performed
by physicians in their offices or by patients could negatively impact
Quest Diagnostics' testing volume and net revenues,
5
- FDA regulation of laboratory-developed genetic testing could lead to
increased cost and delay in introducing new genetic tests,
- efforts by third party payers, including the government, to reduce
utilization and pricing could have a material adverse impact on Quest
Diagnostics' net revenues and profitability,
- failure to provide a higher quality of service than that of its
competitors could have a material adverse impact on Quest Diagnostics'
net revenues and profitability,
- if Quest Diagnostics fails to comply with extensive laws and regulations,
it could suffer fines and penalties or be required to make significant
changes to its operations,
- the final privacy regulations that will take effect in 2003 and proposed
federal security regulations under the Health Insurance Portability and
Accountability Act of 1996 may increase Quest Diagnostics' costs,
- Quest Diagnostics' tests and business processes may infringe on the
intellectual property rights of others, which could cause Quest
Diagnostics to engage in costly litigation, pay substantial damages or
prohibit it from selling certain of its tests,
- professional liability litigation could have an adverse financial impact
on Quest Diagnostics and an adverse impact on Quest Diagnostics' client
base and reputation,
- substantial debt may impair the financial and operating flexibility of
Quest Diagnostics,
- future sales of Quest Diagnostics shares could adversely affect the price
of Quest Diagnostics shares, and
- certain provisions of its charter, by-laws and Delaware law may delay or
prevent a change of control of Quest Diagnostics.
THE MERGER (PAGE 58)
We intend, as promptly as practicable after completion of the offer, to
seek to merge Unilab with Purchaser. Upon completion of the merger, each Unilab
share that has not been exchanged or accepted for exchange in the offer will be
converted into 0.3256 of a Quest Diagnostics share. NOTWITHSTANDING THE AMOUNT,
IF ANY, OF CASH PAID IN THE OFFER, STOCKHOLDERS WHO DO NOT TENDER THEIR UNILAB
SHARES IN THE OFFER WILL NOT RECEIVE ANY CASH CONSIDERATION IN EXCHANGE FOR
THEIR UNILAB SHARES IN THE MERGER (EXCEPT FOR CASH, IF ANY, THAT IS PAID IN LIEU
OF FRACTIONAL QUEST DIAGNOSTICS SHARES AND FOLLOWING THE EXERCISE OF APPRAISAL
RIGHTS, IF AVAILABLE IN THE MERGER).
If, after completing the offer, we have acquired between 50.1% and 90% of
the outstanding Unilab shares, we will effect a long-form merger as permitted
under Delaware law to acquire the balance of the outstanding Unilab shares. If,
after completing the offer, we have acquired 90% or more of the outstanding
Unilab shares, we will effect a short-form merger as permitted under Delaware
law to acquire the balance of the outstanding Unilab shares without having a
vote of Unilab stockholders.
THE STOCKHOLDERS AGREEMENT (PAGE 74)
Concurrently with entering into the merger agreement, we entered into a
stockholders agreement with Kelso Investment Associates VI, L.P. and KEP VI,
LLC, which we refer to as Kelso, under which they have agreed, among other
things, to validly tender and not withdraw their Unilab shares into the offer,
to vote their Unilab shares against any transaction that would compete with this
one, and to sell their Unilab shares to us, at our discretion, for the same
consideration they would have received in the offer, if the merger agreement is
terminated under certain circumstances. On April 2, 2002, these stockholders
collectively owned either beneficially or of record 13,841,178 Unilab shares,
constituting approximately 37% of the Unilab shares outstanding at such time on
a fully diluted basis and 41.2% of the Unilab shares outstanding at such time on
a non-fully diluted basis. For a more detailed description of the terms and
conditions of the stockholders agreement, see page 74, "The Stockholders
Agreement".
6
INTERESTS OF CERTAIN PERSONS (PAGE 77)
In considering the recommendation of the Unilab board of directors to
accept the offer and, if applicable, adopt the merger agreement, Unilab
stockholders should be aware that some members of the Unilab board of directors
and Unilab management may have interests in the transactions that will be in
addition to, or different from, interests of other Unilab stockholders. For
example, certain Unilab executives have entered into employment agreements with
Quest Diagnostics and Unilab under which they will continue employment with
Quest Diagnostics and Unilab following the transaction, and the investment
banking firm of which a member of Unilab's board of directors is a partner will
receive a fee upon the closing of the transaction. The employment agreements
with certain Unilab executives provide that Quest Diagnostics will grant such
persons stock options to purchase Quest Diagnostics shares.
Generally, all outstanding unvested service stock options and most
outstanding unvested performance stock options to purchase Unilab shares will
become vested at the effective time of the merger and all unexercised stock
options will become stock options to purchase Quest Diagnostics shares, with
appropriate adjustments to be made to the number of shares and the exercise
price under such stock options based on the exchange ratio.
APPRAISAL RIGHTS (PAGE 49)
The offer does not entitle you to appraisal rights. However, the merger may
entitle you to appraisal rights with respect to your Unilab shares. For a
detailed description of the circumstances in which appraisal rights will be
available in the merger, see "The Offer -- Appraisal Rights".
FEDERAL INCOME TAX CONSEQUENCES (PAGE 46)
The offer and the merger are structured so as to be treated together as a
tax-free "reorganization" for United States federal income tax purposes. As a
tax-free "reorganization", if you exchange all of your Unilab shares for Quest
Diagnostics shares in the offer and/or the merger, you will not recognize any
gain or loss except with respect to cash received in lieu of fractional Quest
Diagnostics shares. If you exchange all of your Unilab shares for cash in the
offer, you generally will recognize gain or loss measured by the difference
between the aggregate amount of cash received for your Unilab shares and your
tax basis in those Unilab shares. If you exchange some of your Unilab shares for
Quest Diagnostics shares in the offer and/or the merger and you exchange some of
your Unilab shares for cash in the offer, you will recognize gain, but not loss,
equal to the lesser of (1) the amount of cash you received in the offer and (2)
an amount equal to the excess, if any, of (a) the sum of the amount of cash you
received in the offer and the fair market value of the Quest Diagnostics shares
you received in the offer and/or the merger over (b) the aggregate tax basis in
all your Unilab shares.
The tax consequences described in the preceding paragraph are based on a
transaction in which Unilab will be merged with and into Purchaser in a tax-free
"forward merger" or in which Purchaser will be merged with and into Unilab in a
tax-free "reverse merger". Under certain limited conditions as permitted under
the merger agreement and as further described herein, however, Purchaser may, at
our discretion, be merged with and into Unilab in a taxable "reverse merger"
when the transaction cannot qualify as a tax-free "reorganization". In this
case, instead of the tax consequences described in the preceding paragraph, you
will recognize all of your gain or loss on the disposition of your Unilab shares
in the offer and/or the reverse merger, regardless of whether you exchange your
Unilab shares for Quest Diagnostics shares or cash. We will notify you via a
press release announcing the consummation of the merger as to how you should
account for the treatment of the consideration received in the offer and the
merger for federal income tax purposes.
THE FEDERAL INCOME TAX CONSEQUENCES DESCRIBED ABOVE MAY NOT APPLY TO ALL
UNILAB STOCKHOLDERS, INCLUDING CERTAIN UNILAB STOCKHOLDERS SPECIFICALLY REFERRED
TO ON PAGE 46. YOUR TAX CONSEQUENCES, INCLUDING ANY STATE, LOCAL AND NON-UNITED
STATES TAX CONSEQUENCES, WILL DEPEND ON YOUR OWN SITUATION. YOU SHOULD CONSULT
YOUR TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES OF THE OFFER AND
MERGER TO YOU.
7
ACCOUNTING TREATMENT OF THE OFFER AND THE MERGER (PAGE 56)
Quest Diagnostics will account for the merger as a purchase for financial
reporting purposes.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION (PAGE 82)
Quest Diagnostics shares are listed on the New York Stock Exchange under
the symbol "DGX". Unilab shares trade on the Nasdaq National Market under the
symbol "ULAB".
On April 1, 2002, the last full trading day before the public announcement
of the merger agreement, the closing stock price of Quest Diagnostics shares on
the New York Stock Exchange Composite Transaction Tape was $82.79 and the
closing stock price of Unilab shares on the Nasdaq National Market was $25.00,
and on July 10, 2002, the last full trading day prior to the filing of this
prospectus, the closing stock price of Quest Diagnostics shares on the New York
Stock Exchange Composite Transaction Tape was $72.00 and the closing stock price
of Unilab shares on the Nasdaq National Market was $23.60. Unilab stockholders
are urged to obtain current market quotations for Quest Diagnostics and Unilab
shares before deciding whether to tender their Unilab shares in the offer and,
if tendering, before electing the form of offer consideration they wish to
receive.
8
RISK FACTORS
In deciding whether to tender your Unilab shares pursuant to the offer, you
should carefully read this prospectus, the accompanying
Solicitation/Recommendation Statement on Schedule 14D-9 of Unilab and the other
documents to which we refer you. You should also carefully consider the risks
described below before making a decision to tender your Unilab shares. The risks
and uncertainties described below are not the only ones facing Quest
Diagnostics. Additional risks and uncertainties not currently known to Quest
Diagnostics or that it currently deems immaterial may also adversely affect its
business and operations.
RISKS RELATING TO THE OFFER AND THE MERGER
QUEST DIAGNOSTICS SHARES TO BE RECEIVED BY UNILAB STOCKHOLDERS IN THE OFFER AND
THE MERGER WILL FLUCTUATE IN VALUE
The market price of the Quest Diagnostics shares to be issued in the offer
and the merger may change as a result of changes in our or Unilab's business,
operations or prospects, market assessments of the impact of the offer and the
merger or general market conditions. Although our principal business is similar
to that of Unilab, our results of operations, as well as the market price of
Quest Diagnostics shares, may be affected by factors different from those
affecting Unilab's results of operations and the market price of Unilab shares.
Because the market price of the Quest Diagnostics shares fluctuates, the value
of the Quest Diagnostics shares to be received by Unilab stockholders in the
offer or the merger will depend upon the market price of Quest Diagnostics
shares at the time they are received pursuant to the offer or the merger. There
can be no assurance as to this value. In addition, because the fraction of a
Quest Diagnostics share being offered for each Unilab share is fixed, there is
no limit to the amount by which the value of the consideration that you actually
receive in the offer or the merger could decline from the value of such fraction
of a share on the date of this prospectus. Accordingly, at the time you receive
Quest Diagnostics shares in the offer or the merger, such shares may be worth
less than or more than the equivalent of the $26.50 in cash that you would have
received if you had elected and received cash for your Unilab shares.
THE NEED FOR GOVERNMENTAL APPROVALS MAY DELAY CONSUMMATION OF THE OFFER AND THE
MERGER, WHICH, AMONG OTHER THINGS, MAY AFFECT THE TRADING PRICES OF QUEST
DIAGNOSTICS SHARES AND UNILAB SHARES AND COULD RESULT IN UNILAB STOCKHOLDERS
RECEIVING QUEST DIAGNOSTICS SHARES WITH A MARKET VALUE LOWER THAN EXPECTED
The offer is conditioned upon the expiration or termination of the
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, which we refer to as the HSR Act. Delays in the
consummation of the offer and the merger resulting from the failure of the HSR
Act waiting period to expire following the initial 30-day waiting period, among
other things, may cause the trading price of Quest Diagnostics shares to decline
and that could result in Unilab stockholders receiving Quest Diagnostics shares
with a market value lower than expected.
You are urged to carefully read the discussion under "The
Offer -- Conditions to the Offer" beginning on page 50 and "Regulatory
Approvals" beginning on page 52 for more information.
IF THE MERGER WERE EFFECTED AS A TAXABLE REVERSE MERGER, THE TRANSACTION WOULD
BE FULLY TAXABLE FOR YOU
The merger agreement permits the offer and the merger to be effected either
as a tax-free "reorganization" that would be tax-free to you to the extent you
receive Quest Diagnostics shares or, if the transaction cannot be effected as a
tax-free "reorganization", as a taxable reverse merger that would be a fully
taxable transaction for you. Whether the offer and the merger will be effected
as a tax-free "reorganization" or as a taxable reverse merger will depend upon
future events that are not within the control of Quest Diagnostics or Unilab,
such as the aggregate amount of cash consideration exchanged for Unilab shares
in the offer and the market value of Quest Diagnostics shares issued in exchange
for Unilab shares pursuant to (and at the time of) the completion of the offer
and in the merger. In the event that the aggregate market value of all Quest
Diagnostics shares payable to Unilab stockholders upon consummation of the offer
and the merger, based on the lower of the closing price of Quest Diagnostics
shares on the New York Stock Exchange Composite Tape on the date immediately
prior to the effective time of the merger or the date that Quest Diagnostics
accepts
9
Unilab shares for payment, which we refer to as the stock value, is not less
than 42% of the sum of the stock value and all cash payable to Unilab
stockholders upon consummation of the offer and the merger, Shearman & Sterling,
counsel to Quest Diagnostics, and Skadden, Arps, Slate, Meagher & Flom LLP,
counsel to Unilab, believe that it is more likely than not that the transaction
will be a tax-free "reorganization". The possibility of a taxable reverse
merger, however, should not be dismissed. We will notify you via a press release
announcing the consummation of the merger as to how you should account for the
treatment of the consideration received in the offer and the merger for federal
income tax purposes. You are urged to carefully read the discussion under "The
Offer -- Federal Income Tax Consequences" beginning on page 46, and to consult
your tax advisor on the consequences of participation in the offer and/or the
merger.
IF THE INTERNAL SERVICE SUCCESSFULLY CHALLENGED THE TREATMENT OF THE TRANSACTION
AS A "REORGANIZATION", THE TRANSACTION WOULD BE FULLY TAXABLE FOR YOU
Although the offer and the merger may be structured so as to qualify as a
tax-free "reorganization", no assurance can be given that the Internal Revenue
Service would not challenge the treatment of the offer and the merger as an
integrated transaction that constitutes such a reorganization for United States
federal income tax purposes. If the Internal Revenue Service successfully
challenged the treatment of the offer and the merger as a "reorganization", you
would recognize all of your gain or loss on the disposition of your Unilab
shares in the offer and/or the merger. You are urged to carefully read the
discussion under "The Offer -- Federal Income Tax Consequences" beginning on
page 46, and to consult your tax advisor on the consequences of participation in
the offer and/or the merger.
THE ACCEPTANCE OF UNILAB SHARES IN THE OFFER MAY REDUCE THEIR LIQUIDITY AND
MARKET VALUE DURING THE PERIOD PRIOR TO THE CONSUMMATION OF THE MERGER, MAY
RESULT IN THEIR DELISTING FROM THE NASDAQ NATIONAL MARKET AND MAY CAUSE THE
UNILAB SHARES TO LOSE THEIR STATUS AS "MARGIN SECURITIES"
The acceptance of Unilab shares pursuant to the offer will reduce the
number of holders of Unilab shares that might otherwise trade publicly, and may
therefore reduce the liquidity and market value of the remaining Unilab shares
held by the public during the period prior to the consummation of the merger.
Depending on the number of Unilab shares acquired pursuant to the offer, Unilab
shares may no longer meet the requirements of the Nasdaq National Market for
continued listing. Should that occur, it is possible that Unilab shares would be
traded on other securities exchanges or in the over-the-counter market, and that
price quotations would be reported by those other exchanges or by other sources,
but we can provide no assurances that this will be the case. The Unilab shares
may also no longer constitute "margin securities" for the purposes of the
Federal Reserve Board's margin regulations, in which event the Unilab shares
would be ineligible as collateral for margin loans made by brokers.
RISKS RELATING TO OWNERSHIP OF QUEST DIAGNOSTICS SHARES
Some of the following factors relate principally to Quest Diagnostics'
business and the industry in which it operates. Other factors relate principally
to an investment in Quest Diagnostics shares. If any of the matters included in
the following risks were to occur, Quest Diagnostics' business, financial
condition, results of operations, cash flows or prospects could be materially
adversely affected. In such case, all or part of an investment in Quest
Diagnostics shares could be lost.
INTEGRATION OF OPERATIONS MAY BE DIFFICULT AND, IF UNSUCCESSFULLY EXECUTED, MAY
HAVE A MATERIAL ADVERSE IMPACT ON QUEST DIAGNOSTICS' BUSINESS
On April 1, 2002, Quest Diagnostics acquired American Medical Laboratories,
Incorporated, or AML, which has annual revenues of approximately $300 million
and has principal laboratories in Chantilly, Virginia and in Las Vegas, Nevada.
While Quest Diagnostics is not closing any of AML's principal laboratories, the
process of integrating the operations of both Unilab and AML at the same time
that Quest Diagnostics is standardizing its existing operations, systems and
processes will be difficult and will require the dedication of significant
management resources. Each of these acquisitions involves the integration of
separate companies that have previously operated independently and have
different systems, processes and cultures. The process of
10
combining such companies may be disruptive to their businesses and may cause an
interruption of, or a loss of momentum in, such businesses as a result of the
following difficulties, among others:
- loss of key customers or employees;
- inconsistencies in standards, controls, procedures and policies among the
companies being combined make it more difficult to implement and
harmonize company-wide financial, accounting, billing, information and
other systems;
- failure to maintain the quality of services that such companies have
historically provided;
- diversion of management's attention from the day-to-day business of Quest
Diagnostics as a result of the need to deal with the foregoing
disruptions and difficulties; and
- the added costs of dealing with such disruptions.
In addition, because most of Quest Diagnostics' clinical laboratory testing is
performed under arrangements that are terminable at will or on short notice, any
such interruption of or deterioration in its services may result in a customer's
decision to stop using Quest Diagnostics for clinical laboratory testing. We
cannot assure you that Quest Diagnostics will be able to retain key technical
and management personnel or that Quest Diagnostics will realize the anticipated
benefits of the acquisitions of AML and Unilab, either at all or in a timely
manner. As part of its growth strategy, Quest Diagnostics may in the future
acquire additional clinical laboratories or other healthcare-related businesses.
THE ACQUISITIONS OF UNILAB AND AML MAY NOT PRODUCE THE ANTICIPATED BENEFITS
Even if Quest Diagnostics is able to successfully complete the integration
of the operations of AML and Unilab, Quest Diagnostics may not be able to
realize all or any of the benefits that it expects to result from such
integrations, either in monetary terms or in a timely manner. Upon completion of
the integration of the operations of Unilab, which is expected to occur within
two years after closing, the acquisition of Unilab is expected to generate
annual synergies of approximately $30 million. Quest Diagnostics also expects to
generate additional annual synergies of approximately $15 million by the end of
2004 from the integration of AML's operations. However, there can be no
assurance that such synergies will be realized and, if realized at all, in such
amounts.
QUEST DIAGNOSTICS MAY NOT BE ABLE TO ACHIEVE THE ANTICIPATED BENEFITS OF ITS SIX
SIGMA AND STANDARDIZATION INITIATIVES
Quest Diagnostics is implementing a Six Sigma initiative throughout its
organization. Six Sigma is a management approach that requires a thorough
understanding of customer needs and requirements, process discipline, rigorous
tracking and measuring of services, and training of employees in methodologies
so that they can be held accountable for improving results. During the second
half of 2001, Quest Diagnostics began to integrate its Six Sigma initiative with
its initiative to standardize operations, systems and processes across all of
Quest Diagnostics by adopting identified "company best" practices. Quest
Diagnostics has previously announced that it expects that successful
implementation of these initiatives will result in measurable improvements in
customer satisfaction and will generate at least $150 million in annual net
benefits by the end of 2004. We cannot assure you that Quest Diagnostics will be
able to realize the anticipated benefits of its Six Sigma and Standardization
initiatives, either at all or in a timely manner.
FAILURE TO TIMELY OR ACCURATELY BILL FOR SERVICES COULD HAVE A MATERIAL ADVERSE
IMPACT ON QUEST DIAGNOSTICS' NET REVENUES AND BAD DEBT EXPENSE
Billing for laboratory services is extremely complicated. Quest Diagnostics
provides testing services to a broad range of healthcare providers. Quest
Diagnostics considers a "payer" as the party that pays for the test and a
"customer" as the party who refers tests to it. Depending on the billing
arrangement and applicable law, Quest Diagnostics must bill various payers, such
as patients, insurance companies, Medicare, Medicaid, physicians and employer
groups, all of which have different billing requirements. In addition, auditing
for
11
compliance with applicable laws and regulations as well as internal compliance
policies and procedures adds further complexity to the billing process. Among
many other factors complicating billing are:
- pricing differences between Quest Diagnostics' fee schedules and the
reimbursement rates of the payers;
- disputes with payers as to which party is responsible for payment; and
- disparity in coverage and information requirements among various
carriers.
Quest Diagnostics believes that most of its bad debt expense, which was
6.0% of its net revenues for the year ended December 31, 2001, is the result of
several non credit-related issues, primarily missing or incorrect billing
information on requisitions received from healthcare providers. In general, in
order not to compromise patient care, Quest Diagnostics performs the requested
tests and reports test results regardless of whether the billing information is
incorrect or missing. Quest Diagnostics subsequently attempts to contact the
provider to obtain any missing information or rectify incorrect billing
information. Missing or incorrect information on requisitions adds complexity to
and slows the billing process, creates backlogs of unbilled requisitions, and
generally increases the aging of accounts receivable. When all issues relating
to the missing or incorrect information are not resolved in a timely manner, the
related receivables are written off to the allowance for doubtful accounts.
FAILURE IN THE INFORMATION TECHNOLOGY SYSTEMS OF QUEST DIAGNOSTICS, INCLUDING
FAILURES RESULTING FROM SYSTEMS CONVERSIONS, COULD SIGNIFICANTLY INCREASE
TURNAROUND TIME AND OTHERWISE DISRUPT QUEST DIAGNOSTICS' OPERATIONS, WHICH COULD
REDUCE ITS CUSTOMER BASE AND RESULT IN LOST NET REVENUES
Information systems are used extensively in virtually all aspects of Quest
Diagnostics' business, including laboratory testing, customer service, logistics
and management of medical data. Quest Diagnostics' success depends, in part, on
the continued and uninterrupted performance of its information technology, or
IT, systems. Quest Diagnostics' computer systems are vulnerable to damage from a
variety of sources, including telecommunications failures, malicious human acts
and natural disasters. Moreover, despite network security measures, some of
Quest Diagnostics' servers are potentially vulnerable to physical or electronic
break-ins, computer viruses and similar disruptive problems. Despite the
precautions Quest Diagnostics has taken, unanticipated problems affecting its
systems could cause failures in its IT systems. Sustained or repeated system
failures that interrupt the ability of Quest Diagnostics to process test orders,
deliver test results or perform tests in a timely manner would adversely affect
its reputation and likely result in a loss of customers and net revenues.
Quest Diagnostics is in the process of standardizing its systems, which is
a difficult process and will take several years to complete. Quest Diagnostics
plans to begin to develop and implement a new laboratory information system and
a new billing system that combine the functionality of its principal existing
systems. Quest Diagnostics expects that the development and implementation of
the enhanced systems will take several years. During systems conversions of this
type, workflow may be temporarily interrupted, which may cause backlogs. In
addition, the implementation process, including the transfer of databases and
master files to new data centers, presents significant conversion risks that
could cause failures in Quest Diagnostics' IT systems and disrupt Quest
Diagnostics' operations.
THE DEVELOPMENT OF NEW, MORE COST-EFFECTIVE TESTS THAT CAN BE PERFORMED BY
PHYSICIANS IN THEIR OFFICES OR BY PATIENTS COULD NEGATIVELY IMPACT QUEST
DIAGNOSTICS' TESTING VOLUME AND NET REVENUES
The diagnostics testing industry is faced with changing technology and new
product introductions. Advances in technology may lead to the development of
more cost-effective tests that can be performed outside of an independent
clinical laboratory such as (1) point-of-care tests that can be performed by
physicians in their offices and (2) home testing that can be performed by
patients. Development of such technology and its use by Quest Diagnostics'
customers would reduce the demand for Quest Diagnostics' laboratory testing
services and negatively impact Quest Diagnostics' revenues.
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Currently, most clinical laboratory testing is categorized as "high" or
"moderate" complexity, and thereby subject to extensive and costly regulation
under the Clinical Laboratory Improvement Amendments of 1988, or CLIA.
Manufacturers of laboratory equipment and test kits could seek to increase their
sales by marketing point-of-care laboratory equipment to physicians and by
selling test kits approved for home use to both physicians and patients.
Over-the-counter diagnostics tests are automatically deemed under CLIA to be
"waived" tests, which may then be performed in physician office laboratories as
well as by patients in their homes with minimal regulatory oversight. The Food
and Drug Administration, or FDA, has regulatory responsibility over instruments,
test kits, reagents and other devices used by clinical laboratories and recently
has taken responsibility from the Center for Disease Control, or CDC, for test
classification. Increased approval of home test kits could lead to increased
testing by physicians in their offices, which could affect Quest Diagnostics'
market for laboratory testing services and negatively impact Quest Diagnostics'
revenues.
FDA REGULATION OF LABORATORY-DEVELOPED GENETIC TESTING COULD LEAD TO INCREASED
COSTS AND DELAY IN INTRODUCING NEW GENETIC TESTS
In the past, the FDA has claimed regulatory authority over
laboratory-developed tests, but has exercised enforcement discretion in not
regulating tests performed by CLIA-certified laboratories. In response to recent
recommendations by the DHHS Secretary's Advisory Committee on Genetic Testing,
or SACGT, the FDA is considering whether to regulate laboratory-developed
genetic testing. CDRH, a branch of the FDA, is considering a proposal to require
laboratories to submit a "template" of information about their laboratory-
developed genetic tests before they may introduce new genetic tests. CBER,
another branch of the FDA, in draft compliance guidance and in letters to
laboratories, has expressed the view that analyte specific reagents, or ASRs,
used in laboratory-developed tests for HIV Genotyping for Drug Resistance must
have pre-market approval. Representatives of clinical laboratories, including
Quest Diagnostics, and the American Clinical Laboratory Association, the
industry's trade association, have met with both branches of the FDA to address
their respective issues and expect to continue those discussions until the FDA's
issues and concerns are resolved. FDA regulation of laboratory-developed genetic
testing could lead to increased costs and delay in introducing new genetic
tests.
EFFORTS BY THIRD PARTY PAYERS, INCLUDING THE GOVERNMENT, TO REDUCE UTILIZATION
AND PRICING COULD HAVE A MATERIAL ADVERSE IMPACT ON QUEST DIAGNOSTICS' NET
REVENUES AND PROFITABILITY
Government payers, such as Medicare and Medicaid, as well as private
payers, including managed care organizations, have taken steps and may continue
to take steps to control the cost, utilization and delivery of healthcare
services, including clinical laboratory services. Primarily as a result of
recent reimbursement rate reductions and utilization controls implemented by
government regulations, the percentage of Quest Diagnostics' aggregate net
revenues derived from Medicare and Medicaid programs declined from 20% in 1995
to 14% in 2001. For a more detailed description of the developments in
government regulations, investors should read carefully Quest Diagnostics' most
recent annual report on Form 10-K incorporated by reference into this
prospectus.
In addition to changes in government reimbursement programs, private
payers, including managed care organizations, are demanding discounted fee
structures or the assumption by clinical laboratory service providers of all or
a portion of the financial risk through capitated payment contracts. Under
capitated payment contracts, clinical laboratories receive a fixed monthly fee
per individual enrolled with the managed care organization for all laboratory
tests performed during the month regardless of the number or cost of the tests
actually performed. In particular, managed care organizations, which have
significant bargaining power, frequently negotiate for capitated payment
contracts. In 2001, Quest Diagnostics derived approximately 9% of its revenues
from capitated payment contracts with managed care organizations. As the number
of patients covered by managed care organizations increased during the 1990s,
more patients were covered under capitated payment contracts, which resulted in
reduced opportunities for higher priced fee-for-service business and adversely
affected Quest Diagnostics' profit margin.
Quest Diagnostics expects efforts to impose reduced reimbursements and more
stringent cost controls by government and other payers to continue. If Quest
Diagnostics cannot offset additional reductions in the
13
payments it receives for its services by reducing costs, increasing test volume
and/or introducing new procedures, it could have a material adverse impact on
Quest Diagnostics' net revenues and profitability.
FAILURE TO PROVIDE A HIGHER QUALITY OF SERVICE THAN THAT OF ITS COMPETITORS
COULD HAVE A MATERIAL ADVERSE IMPACT ON QUEST DIAGNOSTICS' NET REVENUES AND
PROFITABILITY
While there has been significant consolidation in the clinical laboratory
testing business in recent years, it remains a fragmented and highly competitive
industry. Quest Diagnostics competes with three types of laboratory
providers -- hospital-affiliated laboratories, other independent clinical
laboratories and physician-office laboratories. Most physicians have admitting
privileges or other relationships with hospitals as part of their medical
practice. Almost all hospitals maintain an on-site laboratory to perform routine
clinical testing on their inpatients and outpatients. Many hospitals leverage
their relationships with community physicians and encourage the physicians to
send their outreach (non-hospital patients) testing to the hospital's
laboratory. In addition, hospitals that own physician practices generally
require the physicians to refer tests to the hospital's affiliated laboratories.
As a result of this affiliation between hospitals and community physicians,
Quest Diagnostics competes against hospital-affiliated laboratories primarily
based on quality of service. Quest Diagnostics' failure to provide service
superior to hospital-affiliated laboratories and other laboratories could have a
material adverse impact on Quest Diagnostics' net revenues and profitability.
IF QUEST DIAGNOSTICS FAILS TO COMPLY WITH EXTENSIVE LAWS AND REGULATIONS, IT
COULD SUFFER FINES AND PENALTIES OR BE REQUIRED TO MAKE SIGNIFICANT CHANGES TO
ITS OPERATIONS
Quest Diagnostics is subject to extensive and frequently changing federal,
state and local laws and regulations. Quest Diagnostics believes that, based on
its experience with government settlements and public announcements by various
government officials, the federal government continues to strengthen its
position on healthcare fraud. In addition, legislative provisions relating to
healthcare fraud and abuse give federal enforcement personnel substantially
increased funding, powers and remedies to pursue suspected fraud and abuse.
While Quest Diagnostics believes that it is in material compliance with all
applicable laws, many of the regulations applicable to Quest Diagnostics,
including those relating to billing and reimbursement of tests and those
relating to relationships with physicians and hospitals, are vague or indefinite
and have not been interpreted by the courts. They may be interpreted or applied
by a prosecutorial, regulatory or judicial authority in a manner that could
require Quest Diagnostics to make changes in its operations, including its
billing practices. If Quest Diagnostics fails to comply with applicable laws and
regulations, it could suffer civil and criminal fines and penalties, including
the loss of licenses or its ability to participate in Medicare, Medicaid and
other federal and state healthcare programs, in addition to recoupment of prior
billings.
During the mid-1990s, Quest Diagnostics and SmithKline Beecham Clinical
Laboratories, or SBCL, which we acquired in 1999, settled government claims that
primarily involved industry-wide billing and marketing practices that both
companies believed to be lawful. The aggregate amount of the settlements for
these claims exceeded $500 million. The federal or state governments may bring
additional claims based on new theories as to Quest Diagnostics' practices that
Quest Diagnostics believes to be in compliance with law. The federal government
has substantial leverage in negotiating settlements as the amount of potential
fines and penalties far exceeds the rates at which Quest Diagnostics is
reimbursed. In addition, the government has the remedy of excluding a
non-compliant provider from participation in the Medicare and Medicaid programs,
which represented approximately 14% of Quest Diagnostics' aggregate net revenues
during 2001.
At March 31, 2002, Quest Diagnostics' recorded reserves, relating primarily
to billing claims, including those indemnified by SBCL, approximated $13
million. Although Quest Diagnostics' management believes that established
reserves for both indemnified and non-indemnified claims are sufficient, it is
possible that additional information may become available that may cause the
final resolution of these matters to exceed established reserves by an amount
which could be material to Quest Diagnostics' results of operations and cash
flows in the quarter in which such claims are settled. Quest Diagnostics does
not believe that these issues will have a material adverse effect on its overall
financial condition. However, Quest Diagnostics understands that there may be
pending qui tam claims brought by former employees or other "whistle blowers" as
to which
14
Quest Diagnostics has not been provided with a copy of the complaint and
accordingly cannot determine the extent of any potential liability.
For additional information, see Quest Diagnostics' most recent annual
report on Form 10-K and most recent quarterly report on Form 10-Q incorporated
by reference into this prospectus.
THE FINAL PRIVACY REGULATIONS THAT WILL TAKE EFFECT IN 2003 AND PROPOSED FEDERAL
SECURITY REGULATIONS UNDER THE HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY
ACT OF 1996 MAY INCREASE QUEST DIAGNOSTICS' COSTS
Pursuant to the Health Insurance Portability and Accountability Act of
1996, or HIPAA, on December 28, 2000, the Secretary of the Department of Health
and Human Services, or HHS, issued final regulations that established
comprehensive federal standards with respect to the use and disclosure of
protected health information by health plans, healthcare providers and
healthcare data clearinghouses. The regulations establish a complex regulatory
framework on a variety of subjects, including:
- the circumstances under which disclosures and uses of protected health
information require a general patient consent, specific authorization by
the patient, or no patient consent or authorization,
- the content of notices of privacy practices for protected health
information,
- patients' rights to access, amend and receive an accounting of the
disclosures and uses of protected health information, and
- administrative, technical and physical safeguards required of entities
that use or receive protected health information.
The regulations establish a "floor" and do not supersede state laws that
are more stringent. Therefore, Quest Diagnostics is required to comply with both
federal privacy standards and varying state privacy laws. In addition, for
healthcare data transfers relating to citizens of other countries, Quest
Diagnostics will need to comply with the laws of other countries. The federal
privacy regulations became effective in April 2001 for healthcare providers, but
healthcare providers have until April 2003 to comply with the regulations. In
March 2002, HHS issued a Notice of Proposed Rulemaking, or NPRM, to modify the
final privacy standards. In addition, final standards for electronic
transactions were issued in August 2000 and will become effective in October
2002. Covered entities that file a compliance plan with HHS not later than the
compliance date describing how they will come into compliance with the rules
will not be considered non-compliant before October 16, 2003. These regulations
provide uniform standards for code sets (codes representing medical procedures
and laboratory tests and diagnosis codes, which are used, among others, in
connection with the identification and billing of medical procedures and
laboratory tests), electronic claims, remittance advice, enrollment, eligibility
and other electronic transactions.
Finally, the proposed security and electronic signature regulations issued
by the Secretary of HHS in August 1998 pursuant to HIPAA are expected to be
finalized this year. HIPAA provides for significant fines and other penalties
for wrongful disclosure of protected health information. Compliance with the
HIPAA requirements, when finalized, will require significant capital and
personnel resources from all healthcare organizations, including Quest
Diagnostics. However, Quest Diagnostics will not be able to estimate the cost of
complying with all of these regulations, which it expects to be significant,
until after all the regulations are finalized.
QUEST DIAGNOSTICS' TESTS AND BUSINESS PROCESSES MAY INFRINGE ON THE INTELLECTUAL
PROPERTY RIGHTS OF OTHERS, WHICH COULD CAUSE QUEST DIAGNOSTICS TO ENGAGE IN
COSTLY LITIGATION, PAY SUBSTANTIAL DAMAGES OR PROHIBIT IT FROM SELLING CERTAIN
OF ITS TESTS
Other companies or individuals, including Quest Diagnostics' competitors,
may obtain patents or other property rights that would prevent, limit or
interfere with the ability of Quest Diagnostics to develop, perform or sell its
tests or operate its business. As a result, Quest Diagnostics may be involved in
intellectual property
15
litigation and it may be found to infringe on the proprietary rights of others,
which could force it to do one or more of the following:
- cease developing, performing or selling products or services that
incorporate the challenged intellectual property,
- obtain and pay for licenses from the holder of the infringed intellectual
property right,
- redesign or reengineer its tests,
- change its business processes, or
- pay substantial damages, court costs and attorneys' fees, including
potentially increased damages for any infringement held to be willful.
Patents generally are not issued until several years after an application
is filed. The possibility that, before a patent is issued to a third party,
Quest Diagnostics may be performing a test or other activity covered by the
patent is not a defense to an infringement claim. Thus, even tests that Quest
Diagnostics develops could become the subject of infringement claims if a third
party obtains a patent covering those tests.
Infringement and other intellectual property claims, regardless of their
merit, can be expensive and time-consuming to litigate. In addition, any
requirement for Quest Diagnostics to re-engineer its tests or change its
business processes could substantially increase its costs or force it to
interrupt product sales or delay new test releases. In the past, Quest
Diagnostics has settled several disputes regarding its alleged infringement of
intellectual property of third parties. Quest Diagnostics is currently involved
in settling several additional disputes. Quest Diagnostics does not believe that
resolution of these disputes will have a material adverse effect on its
operations or financial condition. However, infringement claims could arise in
the future as patents could be issued on tests or processes that Quest
Diagnostics may be performing, particularly in such emerging areas as gene-based
testing and other specialty testing.
PROFESSIONAL LIABILITY LITIGATION COULD HAVE AN ADVERSE FINANCIAL IMPACT ON
QUEST DIAGNOSTICS AND AN ADVERSE IMPACT ON QUEST DIAGNOSTICS' CLIENT BASE AND
REPUTATION
As a general matter, providers of clinical laboratory testing services may
be subject to lawsuits alleging negligence or other similar legal claims. These
suits could involve claims for substantial damages. Any professional liability
litigation could also have an adverse impact on Quest Diagnostics' client base
and reputation. Quest Diagnostics maintains various professional liability
insurance programs for claims that could result from providing or failing to
provide clinical laboratory testing services, including inaccurate testing
results and other exposures. However, Quest Diagnostics is essentially
self-insured for most of these claims. Quest Diagnostics does maintain coverage
which caps its exposure on individual claims. The basis for Quest Diagnostics'
insurance reserves is the actuarially determined projected losses based upon its
historical loss experience. Quest Diagnostics' management believes that present
insurance coverage and reserves are sufficient to cover currently estimated
exposures, but Quest Diagnostics cannot assure you that we will not incur
liabilities in excess of recorded reserves. Similarly, although Quest
Diagnostics believes that it will be able to obtain adequate insurance coverage
in the future at acceptable costs, Quest Diagnostics cannot assure you that it
will be able to do so.
SUBSTANTIAL DEBT MAY IMPAIR THE FINANCIAL AND OPERATING FLEXIBILITY OF QUEST
DIAGNOSTICS
As of March 31, 2002, Quest Diagnostics would have had approximately $1,824
million of debt outstanding on a pro forma basis after giving effect to (1) the
AML acquisition, (2) the completion of the proposed acquisition of Unilab, (3)
the borrowings of approximately $475 million under Quest Diagnostics' existing
credit facilities to consummate the AML acquisition and (4) the borrowings of
approximately $525 million under Quest Diagnostics' new bridge credit facility
to finance the anticipated cash required in connection with the Unilab
acquisition, assuming 30% of the Unilab shares are exchanged for cash, and the
refinancing of Unilab's existing debt. Through June 19, 2002, Quest Diagnostics
has repaid $175 million of
16
principal amount outstanding under its $325 million unsecured revolving credit
facility, reducing AML-related acquisition debt from $475 million to $300
million.
On June 19, 2002, Quest Diagnostics had outstanding debt of approximately
$1.1 billion. In addition, Quest Diagnostics has a $550 million Unilab-related
bridge facility commitment, approximately $297 million available under its
unsecured revolving credit facility and approximately $65 million in cash.
Except for operating leases, Quest Diagnostics does not have any off-balance
sheet financing arrangements in place or available. Set forth in the table
below, for each of the next five years, is the aggregate amount of principal,
interest and total payments with respect to Quest Diagnostics' debt, including
capital leases. This table is presented on a pro forma basis taking into account
the AML and Unilab-related borrowings described above and the repayments through
June 19, 2002 of $175 million of principal under its $325 million unsecured
revolving credit facility.
TWELVE MONTHS
ENDED DECEMBER 31, PRINCIPAL INTEREST TOTAL
------------------ --------- -------- --------
(IN THOUSANDS)
2002.................................................. $196,703 $70,324 $267,027
2003.................................................. 109,996 89,782 199,778
2004.................................................. 105,000 89,063 194,063
2005.................................................. 105,000 84,117 189,117
2006.................................................. 386,563 67,391 453,954
2007.................................................. 98,438 48,347 146,785
The foregoing table assumes that the entire $525 million bridge loan
facility is refinanced into a five-year term loan with quarterly amortization of
principal, that the closing of the exchange offer occurs in July 2002 and that
the first scheduled amortization payment is December 31, 2002. In addition,
Quest Diagnostics has obtained a $450 million term loan commitment. Quest
Diagnostics believes that the term loan commitment, along with the $297 million
available for borrowing under its unsecured revolving credit facility, will
provide sufficient funds to refinance the borrowings, if any, under the bridge
loan facility.
The foregoing table excludes the principal payments due on the $300 million
secured receivables credit facility, portions of which mature in 2002 and 2003.
However, it is Quest Diagnostics' current intention to roll-over this facility
annually as it has done since 2001. If Quest Diagnostics is not able to
roll-over all or part of this facility, it will need to refinance this secured
receivables credit facility with cash on-hand, its unsecured revolving credit
agreement or a new financing agreement.
The foregoing table assumes that the holders of 1.75% contingent
convertible debentures due 2021 will not exercise their option on November 30,
2004 and 2005 to require Quest Diagnostics to repurchase the holders'
debentures. If these options are exercised by the holders, Quest Diagnostics may
choose to repurchase the debentures with cash or its common stock or a
combination of cash and common stock, at a purchase price equal to the principal
amount plus accrued and unpaid interest. Quest Diagnostics may not have the
financial resources, or be able to arrange financing, to pay in cash for all of
the debentures that might be delivered by holders of debentures seeking to
exercise their options. As a result, any payment to the holders in common stock
will be dilutive to then existing stockholders of Quest Diagnostics.
Quest Diagnostics' debt portfolio is sensitive to changes in interest
rates. Interest rates on the unsecured revolving credit facility and bridge loan
facility are also subject to a pricing schedule that fluctuates based on changes
in Quest Diagnostics credit rating from Standard and Poor's and Moody's
Investors Service. As of March 31, 2002, Quest Diagnostics would have had
approximately $1,007 million of floating rate debt on a pro forma basis after
giving effect to the AML and Unilab acquisitions that are described in clauses
(1) through (4) in the first paragraph of this risk factor. If the applicable
interest rate fluctuates by 1%, interest expense will fluctuate by approximately
$10.2 million annually. In addition, any future borrowings by Quest Diagnostics
under the unsecured revolving credit facility, the secured receivables credit
facility or the issuance of other floating rate debt will expose Quest
Diagnostics to additional interest rate risk.
17
Quest Diagnostics' debt agreements contain various restrictive covenants.
These restrictions could limit the ability of Quest Diagnostics to use operating
cash flow in other areas of its business because it must use a portion of these
funds to make principal and interest payments on its debt.
Quest Diagnostics has obtained ratings on its debt from Standard and Poor's
and Moody's Investors Service. There can be no assurance that any rating so
assigned will remain for any given period of time or that a rating will not be
lowered or withdrawn entirely by a rating agency if, in that rating agency's
judgment, future circumstances relating to the basis of the rating, such as
adverse changes in Quest Diagnostics or the clinical testing industry, so
warrant.
Quest Diagnostics and its subsidiaries may incur additional indebtedness in
the future. Quest Diagnostics' ability to make principal and interest payments
depends on its ability to generate cash in the future. If additional debt is
added to the current debt of Quest Diagnostics, a greater portion of its cash
flows will be needed to satisfy its debt service obligations, and if it does not
generate sufficient cash to meet its debt service requirements, Quest
Diagnostics may need to seek additional financing. This may make it more
difficult for Quest Diagnostics to obtain financing on terms that are acceptable
to it or at all. As a result, Quest Diagnostics would be more vulnerable to
general adverse economic, industry and capital markets conditions as well as the
other risks associated with indebtedness.
FUTURE SALES OF QUEST DIAGNOSTICS' SHARES COULD ADVERSELY AFFECT THE PRICE OF
QUEST DIAGNOSTICS SHARES
As of May 14, 2002, approximately 9.3 million Quest Diagnostics shares were
issuable upon exercise of outstanding stock options under Quest Diagnostics'
employee stock option plans, and its non-employee director stock option plan,
and an additional approximately 7.1 million Quest Diagnostics shares were
reserved for the issuance of additional options and shares under these plans. In
addition, at the closing, up to an additional approximately 1.2 million Quest
Diagnostics' shares will be issuable upon exercise of outstanding stock options
under Unilab's stock option plans. Quest Diagnostics also issues shares of its
common stock under its employee stock purchase plan, employee stock ownership
plan and supplemental deferred compensation plan. In addition, up to an
additional approximately 2.9 million Quest Diagnostics shares could be issued
upon conversion of Quest Diagnostics' 1.75% convertible debentures due 2021 in
accordance with the terms of the indenture.
In addition, SmithKline Beecham, which owns approximately 22.1 million
outstanding Quest Diagnostics shares or approximately 22.8% of the outstanding
Quest Diagnostics shares as of May 14, 2002, is entitled to demand up to four
times that Quest Diagnostics register SmithKline Beecham's Quest Diagnostics
shares and to participate in registered offerings initiated by Quest Diagnostics
or a third party. Also, SmithKline Beecham has three million Quest Diagnostics
shares registered in a shelf registration statement and may sell shares pursuant
to Rule 144 under the Securities Act. In addition, during the year following the
completion of the offer, the Kelso stockholders, which collectively own
approximately 13,841,178 Unilab shares, will be entitled to demand that Quest
Diagnostics register the Quest Diagnostics shares that they will own following
the completion of the offer.
Future sales of Quest Diagnostics shares and instruments convertible or
exchangeable into such shares and transactions involving equity derivatives
relating to shares, including sales or transactions by SmithKline Beecham, or
the perception that such sales or transactions could occur, could adversely
affect the market price of Quest Diagnostics shares.
CERTAIN PROVISIONS OF ITS CHARTER, BY-LAWS AND DELAWARE LAW MAY DELAY OR PREVENT
A CHANGE OF CONTROL OF QUEST DIAGNOSTICS
Quest Diagnostics' corporate documents and Delaware law contain provisions
that may enable Quest Diagnostics' management to resist a proposal regarding a
change of control of Quest Diagnostics. These provisions include a staggered or
classified board of directors, limitations on persons authorized to call a
special meeting of stockholders and advance notice procedures required for
stockholders to make nominations of candidates for election as directors or to
bring matters before an annual meeting of stockholders. Quest Diagnostics also
has a stockholder rights plan designed to make it more costly and thus more
difficult to gain
18
control of Quest Diagnostics. These anti-takeover defenses might discourage,
delay or prevent a change of control. In addition, Quest Diagnostics, unlike
Unilab, is subject to Section 203 of the DGCL. These provisions also could
discourage proxy contests and make it more difficult for our stockholders to
elect directors and cause Quest Diagnostics to take other corporate actions. In
addition, the existence of these provisions, together with Delaware law, might
hinder or delay an attempted takeover other than through negotiations with Quest
Diagnostics' board of directors.
19
SELECTED HISTORICAL FINANCIAL DATA FOR QUEST DIAGNOSTICS
The following table summarizes selected historical financial data for Quest
Diagnostics and its subsidiaries at the dates and for each of the periods
presented. Quest Diagnostics derived the selected historical financial data for
the years 1997 through 2001 from its audited consolidated financial statements.
As discussed in Note 2 to the consolidated financial statements in Quest
Diagnostics' Form 10-K for the year ended December 31, 2001, all per share data
has been restated to reflect Quest Diagnostics' two-for-one stock split effected
on May 31, 2001. Quest Diagnostics derived the historical financial data for the
three months ended March 31, 2002 and 2001 from its unaudited interim
consolidated financial statements. The unaudited interim consolidated financial
statements reflect all adjustments which, in the opinion of management, are
necessary for a fair statement of the financial condition and results of
operations as of and for the periods presented. Except as otherwise disclosed in
the notes to the unaudited interim consolidated financial statements, all such
adjustments are of a normal recurring nature. The unaudited interim consolidated
financial statements have been compiled without audit and are subject to
year-end adjustments. Operating results for the interim periods are not
necessarily indicative of the results that may be expected for the full year.
The selected historical financial data is only a summary and should be read
together with the consolidated financial statements and related notes, and
management's discussion and analysis of financial condition and results of
operations included in Quest Diagnostics' Quarterly Report on Form 10-Q for the
three months ended March 31, 2002 and Annual Report on Form 10-K for the year
ended December 31, 2001.
QUARTER ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------------- -------------------------------------------------------------------
2002(A) 2001 2001 2000 1999(B) 1998 1997
---------- ---------- ---------- ---------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATIONS DATA:
Net revenues............... $ 946,762 $ 882,553 $3,627,771 $3,421,162 $ 2,205,243 $1,458,607 $1,528,695
Provisions for
restructuring and other
special charges.......... -- -- 5,997(c) 2,100(d) 73,385(e) -- 48,688(f)
Income (loss) before
extraordinary loss....... 66,689 35,748 183,912(g) 104,948(h) (1,274)(i) 26,885 (22,260)
Net income (loss).......... 66,689 35,748 162,303(g) 102,052(h) (3,413)(i) 26,885 (22,260)
BASIC NET INCOME (LOSS) PER
COMMON SHARE:
Income (loss) before
extraordinary loss....... $ 0.70 $ 0.39 $ 1.98 $ 1.17 $ (0.02) $ 0.45 $ (0.38)
Net income (loss).......... 0.70 0.39 1.74 1.14 (0.05) 0.45 (0.38)
DILUTED NET INCOME (LOSS)
PER COMMON SHARE:(j)
Income (loss) before
extraordinary loss....... $ 0.67 $ 0.37 $ 1.88 $ 1.11 $ (0.02) $ 0.44 $ (0.38)
Net income (loss).......... $ 0.67 0.37 1.66 1.08 (0.05) 0.44 (0.38)
BALANCE SHEET DATA (AT END
OF PERIOD):
Accounts receivable, net... $ 548,400 $ 509,272 $ 508,340 $ 485,573 $ 539,256 $ 220,861 $ 238,369
Total assets............... 3,005,716 2,903,235 2,930,555 2,864,536 2,878,481 1,360,240 1,400,928
Long-term debt............. 820,190 758,481 820,337 760,705 1,171,442 413,426 482,161
Preferred stock............ -- 1,000 --(k) 1,000 1,000 1,000 1,000
Common stockholders'
equity................... 1,445,598 1,099,216 1,335,987 1,030,795 862,062 566,930 540,660
OTHER DATA:
Net cash provided by
operating activities..... $ 52,854 $ 40,731 $ 465,803 $ 369,455 $ 249,535 $ 141,382 $ 176,267
Net cash used in investing
activities............... (32,303) (90,268) (296,616) (48,015) (1,107,990) (39,720) (35,101)
Net cash provided by (used
in) financing
activities............... 6,544 (1,210) (218,332) (177,247) 682,831 (60,415) (21,465)
Provision for doubtful
accounts................. 55,315 55,283 218,271 234,694 142,333 89,428 118,223(l)
Rent expense............... 22,406 19,950 82,769 76,515 59,073 46,259 47,940
Capital expenditures....... 41,266 (43,615) 148,986 116,450 76,029 39,575 30,836
Adjusted EBITDA(m)......... 155,508 122,438 556,851 459,380 237,038 158,609 153,800
20
---------------
(a) As discussed in Quest Diagnostics' Form 10-Q for the three months ended
March 31, 2002, in July 2001, the Financial Accounting Standards Board, or
FASB, issued SFAS 142, "Goodwill and Other Intangible Assets", or SFAS 142,
which was adopted by Quest Diagnostics on January 1, 2002. Assuming the
nonamortization provisions of SFAS 142 had been effective at the beginning
of fiscal 2001, net income for the three months ended March 31, 2001 would
have increased by $8.6 million, representing the reduction in goodwill
amortization, net of taxes.
The following table presents net income and basic and diluted earnings per
common share adjusted to reflect results as if the nonamortization
provisions of SFAS 142 had been in effect for the periods presented (in
thousands, except per share data):
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
2001 2000 1999
--------- --------- ---------
NET INCOME
Reported net income (loss).................................. $162,303 $102,052 $ (3,413)
Add back: Amortization of goodwill, net of taxes............ 35,964 36,023 22,013
-------- -------- --------
Adjusted net income......................................... $198,267 $138,075 $ 18,600
======== ======== ========
Income (loss) before extraordinary loss, adjusted to exclude
amortization of goodwill, net of taxes.................... $219,876 $140,971 $ 20,739
BASIC NET INCOME (LOSS) PER COMMON SHARE
Reported net income (loss).................................. $ 1.74 $ 1.14 $ (0.05)
Amortization of goodwill.................................... 0.39 0.40 0.31
-------- -------- --------
Adjusted net income......................................... $ 2.13 $ 1.54 $ 0.26
======== ======== ========
Income (loss) before extraordinary loss, adjusted to exclude
amortization of goodwill, net of taxes.................... $ 2.37 $ 1.57 $ 0.29
DILUTED NET INCOME (LOSS) PER COMMON SHARE
Reported net income (loss).................................. $ 1.66 $ 1.08 $ (0.05)
Amortization of goodwill.................................... 0.37 0.38 0.31
-------- -------- --------
Adjusted net income......................................... $ 2.03 $ 1.46 $ 0.26
======== ======== ========
Income (loss) before extraordinary loss, adjusted to exclude
amortization of goodwill, net of taxes.................... $ 2.25 $ 1.49 $ 0.29
(b) On August 16, 1999, Quest Diagnostics completed the acquisition of
SmithKline Beecham Clinical Laboratories, Inc., or SBCL. Consolidated
operating results for 1999 include the results of operations of SBCL
subsequent to the closing of the acquisition. See Note 3 to the
consolidated financial statements included in Quest Diagnostics' Form 10-K
for the year ended December 31, 2001, which is incorporated by reference
into this prospectus.
(c) Represents charges incurred in conjunction with Quest Diagnostics' debt
refinancing in the second quarter of 2001, as discussed in Note 7 to the
consolidated financial statements included in Quest Diagnostics' Form 10-K
for the year ended December 31, 2001, which is incorporated by reference
into this prospectus.
(d) During the second quarter of 2000, Quest Diagnostics recorded a net special
charge of $2.1 million. This net charge resulted from a $13.4 million
charge related to the costs to cancel certain contracts that Quest
Diagnostics believed were not economically viable as a result of the SBCL
acquisition, and which were principally associated with the cancellation of
a co-marketing agreement for clinical trials testing services, which
charges were in large part offset by a reduction in reserves attributable
to a favorable resolution of outstanding claims for reimbursements
associated with billings of certain tests.
(e) Represents charges principally incurred in conjunction with the acquisition
and planned integration of SBCL, as discussed in Note 7 to the consolidated
financial statements included in Quest Diagnostics' Form 10-K for the year
ended December 31, 2001, which is incorporated by reference into this
prospectus.
(f) Includes a charge of $16 million to write-down goodwill reflecting the
estimated impairment related to Quest Diagnostics' consolidation plan
announced in the fourth quarter of 1997.
(g) In conjunction with Quest Diagnostics' debt refinancing in the second
quarter of 2001, Quest Diagnostics recorded an extraordinary loss of $36
million ($22 million, net of taxes). The loss represented the write-off of
deferred financing costs
21
of $23 million, associated with the debt which was refinanced, and $12.8
million of payments related primarily to the tender premium incurred in
connection with the cash tender offer for Quest Diagnostics' 10 3/4% senior
subordinated notes due 2006.
(h) During the fourth quarter of 2000, Quest Diagnostics recorded an
extraordinary loss of $4.8 million ($2.9 million, net of taxes)
representing the write-off of deferred financing costs resulting from the
prepayment of $155 million of term loans under its senior secured credit
facility.
(i) In conjunction with the acquisition of SBCL, Quest Diagnostics repaid the
entire amount outstanding under Quest Diagnostics' then existing credit
agreement. The extraordinary loss recorded in the third quarter of 1999
represented $3.6 million ($2.1 million, net of taxes) of deferred financing
costs which were written-off in connection with the extinguishment of the
credit agreement.
(j) Potentially dilutive common shares primarily include stock options and
restricted common shares granted under Quest Diagnostics' Employee Equity
Participation Program. During periods in which net income available for
common stockholders is a loss, diluted weighted average common shares
outstanding will equal basic weighted average common shares outstanding,
since under these circumstances, the incremental shares would have an
anti-dilutive effect.
(k) On December 31, 2001, Quest Diagnostics repurchased all of its then
outstanding preferred stock for its par value of $1 million plus accrued
dividends.
(l) Includes a fourth quarter charge of $5.3 million, which was part of the
$6.8 million charge recorded in the same quarter, to increase the provision
for doubtful accounts to recognize the reduced recoverability of certain
receivables from accounts which were no longer to be served as a result of
the consolidation plan announced in the fourth quarter of 1997.
(m) Adjusted EBITDA represents income (loss) before extraordinary loss, income
taxes, net interest expense, depreciation, amortization and special items.
Special items include the provisions for restructuring and other special
charges reflected in the selected historical financial data above, $8.9
million of costs related to the integration of SBCL which were included in
operating costs and expensed as incurred in 2000, a $3.0 million gain
related to the sale of an investment in 1999 and charges of $2.5 million and
$6.8 million recorded in selling, general and administrative expenses in
1998 and 1997, respectively, related to Quest Diagnostics' consolidation of
its laboratory network announced in the fourth quarter of 1997. Adjusted
EBITDA is presented and discussed because management believes that Adjusted
EBITDA is a useful adjunct to net income and other measurements under
accounting principles generally accepted in the United States since it is a
meaningful measure of a company's performance and ability to meet its future
debt service requirements, fund capital expenditures and meet working
capital requirements. Adjusted EBITDA is not a measure of financial
performance under accounting principles generally accepted in the United
States and should not be considered as an alternative to (i) net income (or
any other measure of performance under generally accepted accounting
principles) as a measure of performance or (ii) cash flows from operating,
investing or financing activities as an indicator of cash flows or as a
measure of liquidity.
22
SELECTED HISTORICAL FINANCIAL DATA FOR UNILAB
The following table summarizes selected historical financial data for
Unilab at the dates and for each of the periods presented. Unilab derived the
selected historical financial data for the years 1997 through 2001 from its
audited financial statements. Unilab derived the historical financial data for
the three months ended March 31, 2002 and 2001 from its unaudited interim
financial statements. The unaudited interim financial statements reflect all
adjustments which, in the opinion of management, are necessary for a fair
statement of the financial condition and results of operations as of and for the
periods presented. Except as otherwise disclosed in the notes to the unaudited
interim financial statements, all such adjustments are of a normal recurring
nature. The unaudited interim financial statements have been compiled without
audit and are subject to year-end adjustments. Operating results for the interim
periods are not necessarily indicative of the results that may be expected for
the full year. The selected historical financial data is only a summary and
should be read together with the financial statements and related notes, and
management's discussion and analysis of financial condition and results of
operations included in Unilab's Quarterly Report on Form 10-Q for the three
months ended March 31, 2002 and Annual Report on Form 10-K for the year ended
December 31, 2001.
QUARTER ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------------
2002(A) 2001 2001 2000 1999 1998 1997
-------- --------- --------- --------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATIONS DATA:
Net revenues......................... $103,869 $ 95,308 $ 390,205 $ 337,508 $ 285,163 $217,370 $214,001
Provisions for special charges....... -- -- 6,938(b) -- 25,767(c) -- --
Income before extraordinary loss..... 8,660 3,171(d) 3,425(e) 41,568 6,781 10,703 536
Net income (loss).................... 8,660 3,171 (2,920)(f) 41,568 (13,992)(g) 10,703 536
BASIC NET INCOME (LOSS) PER COMMON
SHARE:(h)
Income before extraordinary loss..... $ 0.26 $ 0.12 $ 0.11 $ 1.63 $ 0.17 $ 0.26 $ 0.01
Net income (loss).................... 0.26 0.12 (0.10) 1.63 (0.36) 0.26 0.01
DILUTED NET INCOME (LOSS) PER COMMON
SHARE:(h)
Income before extraordinary loss..... $ 0.25 $ 0.12 $ 0.11 $ 1.63 $ 0.17 $ 0.25 $ 0.01
Net income (loss).................... 0.25 0.12 (0.09) 1.63 (0.28) 0.25 0.01
BALANCE SHEET DATA (AT END OF
PERIOD):
Accounts receivable, net............. $ 67,297 $ 67,340 $ 62,702 $ 62,860 $ 50,281 $ 41,326 $ 36,583
Total assets......................... 271,603 239,775 266,528 235,911 193,530 142,460 118,700
Long-term debt....................... 193,776 301,108 195,799 303,318 310,941 137,170 124,285
Preferred stock...................... -- -- -- -- -- 4 4
Common stockholders' equity
(deficit).......................... 32,312 (109,140) 23,540 (112,436) (158,289) (21,367) (32,283)
OTHER DATA:
Net cash provided by (used in)
operating activities............... $ 10,511 $ 6,841 $ 40,231 $ 15,938 $ (8,410) $ 13,996 $ 3,715
Net cash used in investing
activities......................... (3,714) (1,284) (16,289) (21,901) (14,890) (3,675) (3,759)
Net cash provided by (used in)
financing activities............... (1,480) (1,620) (2,335) (4,001) 15,720 (1,836) (1,384)
Provision for doubtful accounts...... 7,354 6,931 28,342 24,524 20,572 15,662 15,663
Rent expense......................... 4,597 4,761 17,729 17,660 15,278 10,791 10,222
Capital expenditures................. 1,456 634 8,029 4,843 6,286 3,005 1,935
Adjusted EBITDA(i)................... 21,624 18,132 80,755 63,488 49,652 31,833 23,489
---------------
(a) As discussed in Unilab's Form 10-Q for the three months ended March 31,
2002, in July 2001, the FASB issued SFAS 142, which was adopted by Unilab on
January 1, 2002. Assuming the nonamortization provisions of SFAS 142 had
been effective at the beginning of fiscal 2001, net income for the three
months ended March 31, 2001 would have increased by $1.2 million,
representing the reduction in goodwill amortization, net of taxes. In
addition, as required
23
under the transitional accounting provisions of SFAS 142, Unilab is in the
process of completing both steps required to identify and measure goodwill
impairment and has not yet determined what effect, if any, the results of
these tests will have on its financial position or results of operations.
The following table presents net income and basic and diluted earnings per
common share adjusted to reflect results as if the nonamortization
provisions of SFAS 142 had been in effect for the periods presented (in
thousands, except per share data):
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
2001 2000 1999
--------- --------- ----------
NET INCOME (LOSS)
Reported net income (loss).................................. $(2,920) $41,568 $(13,922)
Add back: Amortization of goodwill, net of taxes............ 4,958 4,463 3,013
------- ------- --------
Adjusted net income (loss).................................. $ 2,038 $46,031 $(10,979)
======= ======= ========
Income (loss) before extraordinary loss, adjusted to exclude
amortization of goodwill, net of taxes.................... $ 8,383 $46,031 $ 9,794
BASIC NET INCOME (LOSS) PER COMMON SHARE
Reported net income (loss).................................. $ (0.10) $ 1.63 $ (0.36)
Amortization of goodwill.................................... 0.17 0.18 0.08
------- ------- --------
Adjusted net income (loss).................................. $ 0.07 $ 1.81 $ (0.28)
======= ======= ========
Income (loss) before extraordinary loss, adjusted to exclude
amortization of goodwill, net of taxes.................... $ 0.28 $ 1.81 $ 0.25
DILUTED NET INCOME (LOSS) PER COMMON SHARE
Reported net income (loss).................................. $ (0.09) $ 1.63 $ (0.28)
Amortization of goodwill.................................... 0.16 0.17 0.07
------- ------- --------
Adjusted net income (loss).................................. $ 0.07 $ 1.80 $ (0.21)
======= ======= ========
Income (loss) before extraordinary loss, adjusted to exclude
amortization of goodwill, net of taxes.................... $ 0.27 $ 1.80 $ 0.24
(b) The provision for special charges includes non-recurring charges of $3.0
million related to a federal investigation under the False Claims Act
relating to Unilab's billings, $2.5 million paid to Unilab's majority
stockholder for the termination of annual fees for financial advisory
services provided to Unilab, $0.9 million related to the secondary offering
of Unilab's common stock and $0.6 million of legal fees related to the
settlement of claims brought by a former employee regarding employment
benefits. See Note 5 to the financial statements included in Unilab's Form
10-K for the year ended December 31, 2001 which is incorporated by reference
into this prospectus.
(c) The provision for special charges includes a non-recurring charge of $25.2
million for merger/recapitalization expenses related primarily to financial
advisory fees, other financing fees and expenses, legal and accounting fees,
printing costs, severance costs and other miscellaneous items incurred in
connection with Unilab's merger with UC Acquisition Sub, Inc. The provision
for special charges also includes a non-recurring charge of $0.6 million
related to a settlement with a group of insurance companies regarding claims
by the insurance companies that Unilab over-billed them in the early to
mid-1990s in connection with several chemistry profile tests that were
previously the subject of a settlement agreement with the government. See
Notes 4 and 5 to the financial statements included in Unilab's Form 10-K for
the year ended December 31, 2001 which is incorporated by reference into
this prospectus.
(d) Includes $0.1 million of non-cash charges related to stock-based
compensation for options issued to non-employee consultants in 2001.
(e) Includes $23.8 million of stock-based compensation comprised of a $1.5
million non-cash charge related to service options issued to non-employee
consultants that were accelerated in 2001 and $22.3 million of non-cash
charges
24
related to performance-based stock options that met certain contingent
vesting provisions in 2001. See Note 10 to the financial statements included
in Unilab's Form 10-K for the year ended December 31, 2001 which is
incorporated by reference into this prospectus.
(f) In 2001, Unilab recorded an extraordinary loss of $10.7 million ($6.3
million, net of taxes) representing the retirement premium and the write-off
of deferred financing costs and discount related to debt which was retired
with certain of the proceeds from the company's IPO completed on June 6,
2001. See Notes 8 and 9 to the financial statements included in Unilab's
Form 10-K for the year ended December 31, 2001 which is incorporated by
reference into this prospectus.
(g) In 1999, Unilab recorded an extraordinary loss of $20.8 million representing
the retirement premium and the write-off of deferred financing costs related
to debt, which was retired in connection with the Company's recapitalization
in 1999. See Notes 4, 7 and 8 to the financial statements included in
Unilab's Form 10-K for the year ended December 31, 2001 which is
incorporated by reference into this prospectus.
(h) All periods presented were retroactively adjusted to reflect a 1 for
0.986312 reverse stock split of Unilab's common stock, effected on May 16,
2001. See Note 9 to the financial statements included in Unilab's Form 10-K
for the year ended December 31, 2001 which is incorporated by reference into
this prospectus.
(i) Adjusted EBITDA represents income (loss) before extraordinary loss, income
taxes, net interest expense, depreciation, amortization and special items.
Special items include the provision for special charges reflected in the
selected historical financial data above and $0.1 million and $23.8 million,
respectively, of stock-based compensation charges included in selling,
general and administrative expenses for the three months ended March 31,
2001 and for the year ended December 31, 2001. Adjusted EBITDA is presented
because it is a widely accepted financial indicator of a company's ability
to generate cash flow and to service or incur indebtedness. Adjusted EBITDA
should not be considered an alternative to net income as a measure of
operating results or to cash flows from operations as a measure of liquidity
or performance in accordance with GAAP. Adjusted EBITDA as presented may not
be comparable to similarly captioned measures used by other companies.
Moreover, Unilab's principal financing agreements contain covenants in which
Adjusted EBITDA is used as a measure of financial performance.
25
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following summary of unaudited pro forma combined financial data is
based on the historical financial statements of Quest Diagnostics, AML and
Unilab, adjusted to give effect to the acquisitions of AML and Unilab by Quest
Diagnostics. (See "The Companies -- Quest Diagnostics and Purchaser -- Recent
Developments at Quest Diagnostics"). The summary unaudited pro forma combined
financial data has been derived from and should be read in conjunction with the
unaudited pro forma combined financial statements and related notes under the
heading "Unaudited Pro Forma Combined Financial Statements" on page 83. The
unaudited pro forma combined financial data was prepared to illustrate the
estimated effects of the acquisitions of AML and Unilab, the repayment of
substantially all of AML's and Unilab's existing outstanding debt and the
borrowings under Quest Diagnostics' existing credit facilities and anticipated
bridge loan facility. The unaudited pro forma combined balance sheet data as of
March 31, 2002 gives effect to the AML and Unilab acquisitions, the repayment of
substantially all of AML's and Unilab's existing outstanding debt and the
borrowings under Quest Diagnostics' existing credit facilities and anticipated
bridge loan facility as if they had occurred on March 31, 2002. The unaudited
pro forma combined statements of operations and per share data assume the AML
and Unilab acquisitions, the repayment of substantially all of AML's and
Unilab's existing outstanding debt and the borrowings under Quest Diagnostics'
existing credit facilities and anticipated bridge loan facility were effected on
January 1, 2001. The unaudited pro forma combined financial data is not
necessarily indicative of the combined financial position or results of
operations that would have been realized had Quest Diagnostics, AML and Unilab
been a single entity during the periods presented. In addition, the unaudited
pro forma combined financial data is not necessarily indicative of the future
results that Quest Diagnostics will experience after the acquisitions. The
unaudited pro forma combined financial data should be read in conjunction with
the historical financial statements of Quest Diagnostics and Unilab incorporated
by reference into this document.
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, 2002 DECEMBER 31, 2001
-------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
OPERATIONS DATA:
Net revenues.............................................. $1,129,046 $4,315,623
Provisions for special charges............................ -- 12,935(a)
Income before extraordinary loss.......................... 75,268 205,558
Basic income per common share before extraordinary
loss(b)................................................... $ 0.72 $ 2.02
Diluted income per common share before extraordinary
loss(b)................................................... $ 0.70 $ 1.94
BALANCE SHEET DATA (AT THE END OF PERIOD):
Account receivables, net.................................. $ 677,717 --
Total assets.............................................. 4,821,575 --
Total debt................................................ 1,824,320 --
Common stockholders' equity............................... 2,246,690 --
OTHER DATA:
Adjusted EBITDA(c)........................................ $ 181,732 $ 672,528
---------------
(a) The provision for special charges includes $6.0 million related to the
operations of Quest Diagnostics and $6.9 million related to the operations
of Unilab. The $6.0 provision related to the operations of Quest Diagnostics
represents charges incurred in conjunction with Quest Diagnostics' debt
refinancing in the second quarter of 2001 as discussed in Note 7 to the
consolidated financial statements in Quest Diagnostics' Form 10-K for the
year ended December 31, 2001, which is incorporated by reference into this
prospectus. The $6.9 million provision related to the operations of Unilab
includes non-recurring charges of $3.0 million related to a federal
investigation under the False claims Act relating to Unilab's billings, $2.5
million paid to Unilab's majority stockholder for the termination of annual
fees for financial advisory services provided to Unilab, $0.9 million
related to the secondary offering of Unilab's common stock and $0.6 million
of legal fees related to the settlement of claims brought by a former
employee
26
regarding employment benefits. See Note 5 to the financial statements
included in Unilab's Form 10-K for the year ended December 31, 2001 which is
incorporated by reference into this prospectus.
(b) Potentially dilutive common shares primarily include stock options and
restricted common shares granted under our Employee Equity Participation
Program. Basic and diluted net income per common share on a pro forma
combined basis gives effect to the assumed 8.5 million shares of Quest
Diagnostics common stock issued to Unilab stockholders to effectuate the
acquisition of Unilab, assuming that the Unilab acquisition closed on
January 1, 2001. For purposes of the unaudited pro forma combined financial
statements, we assumed that all outstanding options to acquire shares of
Unilab common stock were exercised and that $297 million of cash was paid to
Unilab stockholders in the offer, with the remaining portion of the purchase
price paid through the issuance of approximately 8.5 million shares of
common stock of Quest Diagnostics.
(c) Adjusted EBITDA represents income (loss) before extraordinary loss, income
taxes, net interest expense, depreciation, amortization and special items.
Special items include the provisions for special charges reflected in the
summary unaudited pro forma combined financial data above and for the year
ended December 31, 2001, $23.8 million of stock-based compensation charges
for Unilab, included in selling, general and administrative expenses,
comprised of a $1.5 million non-cash charge related to service options
issued to non-employee consultants that were accelerated in June 2001 and
$22.3 million of non cash charges related to performance-based stock options
that met certain contingent vesting provisions in 2001. Adjusted EBITDA is
presented and discussed because management believes that Adjusted EBITDA is
a useful adjunct to net income and other measurements under accounting
principles generally accepted in the United States since it is a meaningful
measure of a company's performance and ability to meet its future debt
service requirements, fund capital expenditures and meet working capital
requirements. Adjusted EBITDA is not a measure of financial performance
under accounting principles generally accepted in the United States and
should not be considered as an alternative to (i) net income (or any other
measures of performance under generally accepted accounting principles) as a
measure of performance or (ii) cash flows from operating, investing or
financing activities as an indicator of cash flows or as a measure of
liquidity.
27
UNAUDITED COMPARATIVE PER SHARE DATA
We have summarized below the per share information for Quest Diagnostics
and Unilab on a historical, unaudited pro forma combined and unaudited pro forma
diluted equivalent basis for the periods and as of the dates indicated below.
The unaudited pro forma combined financial data has been derived from and should
be read in conjunction with the unaudited pro forma consolidated financial
statements and related notes under the heading "Unaudited Pro Forma Combined
Financial Statements" on page 83. The unaudited pro forma combined balance sheet
per share data as of March 31, 2002 gives effect to the AML and Unilab
acquisitions, the repayment of substantially all of AML's and Unilab's existing
outstanding debt and the borrowings under Quest Diagnostics' existing credit
facilities and anticipated bridge loan facility as if they had occurred on March
31, 2002. The unaudited pro forma combined statements of operations per share
data assume the AML and Unilab acquisitions, the repayment of substantially all
of AML's and Unilab's existing outstanding debt and the borrowings under Quest
Diagnostics' existing credit facilities and anticipated bridge loan facility
were effected on January 1, 2001. The unaudited pro forma combined financial
data is not necessarily indicative of the combined financial position or results
of operations that would have been realized had Quest Diagnostics, AML and
Unilab been a single entity during the periods presented. In addition, the
unaudited pro forma combined financial data is not necessarily indicative of the
future results that Quest Diagnostics will experience after the acquisitions.
You should read this information in conjunction with the historical financial
statements of Quest Diagnostics and Unilab incorporated by reference into this
document.
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, 2002 DECEMBER 31, 2001
-------------- -----------------
Statement of Operations Data:
Income before extraordinary loss per diluted share:
Quest Diagnostics (historical)......................... $ 0.67 $ 1.88
Unilab (historical).................................... 0.25 0.11
Quest Diagnostics pro forma............................ 0.70 1.94
Unilab pro forma merger equivalent..................... 0.23(a) 0.63(a)
Balance Sheet Data:
Net book value per diluted share:
Quest Diagnostics (historical)......................... $14.56 $13.69
Unilab (historical).................................... 0.92 0.76
Quest Diagnostics pro forma............................ 20.84 --
Unilab pro forma merger equivalent..................... 6.79(b) --
---------------
(a) Calculated as Quest Diagnostics pro forma income before extraordinary loss
per diluted share, for the respective period, multiplied by 0.3256, the
ratio of exchange for each share of Unilab common stock.
(b) Calculated as Quest Diagnostics pro forma net book value per diluted share,
at the respective date, multiplied by 0.3256, the ratio of exchange for each
share of Unilab common stock.
28
COMPARATIVE MARKET PRICE INFORMATION
The following table sets forth the last per share sale prices of Quest
Diagnostics shares and Unilab shares on the New York Stock Exchange and the
Nasdaq National Market, respectively, on April 1, 2002, the last trading day
prior to the public announcement of the proposed merger, and on May 14, 2002,
the most recent date for which prices were available prior to filing this
document. The table also sets forth the value of the fraction of the Quest
Diagnostics share that a Unilab stockholder electing to receive Quest
Diagnostics shares in the offer would have received for one Unilab share,
assuming that the merger had taken place on those dates. These numbers have been
calculated by multiplying 0.3256 of a Quest Diagnostics share by the last per
share sale price of Quest Diagnostics shares on those dates. The actual value of
the Quest Diagnostics shares that a Unilab stockholder will receive on the date
of the merger may be higher or lower than the prices set forth below.
LAST SALE PRICE OF
QUEST DIAGNOSTICS LAST SALE PRICE OF UNILAB MERGER
SHARES UNILAB SHARES EQUIVALENT
------------------ ------------------ -------------
April 1, 2002................................... $82.79 $25.00 $26.96
July 10, 2002................................... $72.00 $23.60 $23.44
29
THE COMPANIES
QUEST DIAGNOSTICS INCORPORATED AND PURCHASER
Quest Diagnostics Incorporated is a Delaware corporation. We refer to Quest
Diagnostics Incorporated and its subsidiaries as "Quest Diagnostics". Quest
Diagnostics is the successor to a New York corporation known as MetPath Inc.
that was organized in 1967. From 1982 to 1996, Quest Diagnostics was a
subsidiary of Corning Incorporated, which we refer to as "Corning". On December
31, 1996, Corning distributed all of the outstanding shares of common stock of
Quest Diagnostics to the shareholders of Corning.
Quest Diagnostics is the nation's leading provider of diagnostic testing,
information and related services for the healthcare industry with net revenues
in excess of $3.6 billion during 2001. Quest Diagnostics offers a broad range of
clinical laboratory testing services used by physicians in the detection,
diagnosis, evaluation, monitoring and treatment of diseases and other medical
conditions. Quest Diagnostics has a more extensive national network of
laboratories and patient service centers than its competitors and for the year
ended December 31, 2001, Quest Diagnostics' net revenues were sixty-five percent
greater than those of its nearest competitor. Quest Diagnostics has the leading
market share in clinical laboratory testing and esoteric testing, including
molecular diagnostics, as well as non-hospital based anatomic pathology services
and testing for drugs of abuse.
Quest Diagnostics processed over 105 million requisitions during 2001. Each
requisition form accompanies a patient specimen, indicating the tests to be
performed and the party to be billed for the tests. Quest Diagnostics' customers
include physicians, hospitals, managed care organizations, employers,
governmental institutions and other independent clinical laboratories.
Quest Diagnostics currently has a nationwide network of approximately 1,400
patient service centers, 30 principal laboratories serving major metropolitan
areas throughout the United States, including the Los Angeles, San Francisco and
San Diego metropolitan areas, and 100 smaller "rapid response" laboratories,
including, in each case, facilities operated by its joint ventures. Quest
Diagnostics also operates a leading esoteric testing laboratory and development
facility known as Nichols Institute located in San Juan Capistrano, California.
As a result of the AML acquisition, Quest Diagnostics also operates a leading
esoteric testing laboratory located in Chantilly, Virginia. In addition, Quest
Diagnostics has laboratory facilities in Mexico City, Mexico and near London,
England.
In addition to its laboratory testing business, Quest Diagnostics' clinical
trials business is one of the leading providers of testing to support clinical
trials of new pharmaceuticals worldwide. Quest Diagnostics also collects and
analyzes laboratory, pharmaceutical and other data to help pharmaceutical
companies with their marketing and disease management efforts, and to help
healthcare customers better manage the health of their patients.
The principal executive offices of Quest Diagnostics are located at One
Malcolm Avenue, Teterboro, New Jersey 07608, telephone number: (201) 393-5000.
Purchaser was incorporated as a Delaware corporation on March 20, 2002 and
is a wholly owned subsidiary of Quest Diagnostics.
Purchaser was incorporated solely for the purposes of acquiring the Unilab
shares tendered in the offer and merging with Unilab in the merger. Since its
incorporation, Purchaser has not carried on any activities, other than in
connection with the offer and the merger. Its principal offices are located at
One Malcolm Avenue, Teterboro, New Jersey 07608. The telephone number of
Purchaser is (201) 393-5000.
The name, age, citizenship, business address, principal occupation or
employment and five-year employment history for each of the directors and
executive officers of Quest Diagnostics and Purchaser are set forth in Schedule
I.
30
RECENT DEVELOPMENTS AT QUEST DIAGNOSTICS
On April 1, 2002, Quest Diagnostics completed the acquisition of all of the
outstanding voting stock of AML, and LabPortal Inc., an affiliate of AML, in an
all-cash transaction with a combined value of approximately $500 million, which
included the assumption of approximately $160 million in debt. At the close of
the AML acquisition, Quest Diagnostics used cash on-hand and borrowed $300
million under its existing secured receivables credit facility and $175 million
under its existing unsecured revolving credit facility to finance the purchase
price and to repay substantially all of AML's then outstanding debt. As part of
the transaction, Quest Diagnostics acquired all of AML's operations, including
full-service laboratories located in Chantilly, Virginia and in Las Vegas,
Nevada, as well as patient service centers, and hospital sales, service and
logistics capabilities. The acquisition of AML strengthened Quest Diagnostics'
leading position with hospitals, with its Virginia laboratory providing Quest
Diagnostics with an east coast esoteric reference laboratory to complement Quest
Diagnostics' Nichols Institute on the west coast. In addition, AML has an
anatomic pathology business served by approximately 30 board certified
specialist pathologists. The unaudited pro forma combined financial information
included in this prospectus includes financial information of AML.
The unaudited pro forma combined financial information included in this
prospectus does not include financial information regarding LabPortal, Inc.
Approximately $11 million of the combined value for the AML and LabPortal Inc.
acquisitions was attributable to LabPortal.
UNILAB
Unilab Corporation is a Delaware corporation. We refer to Unilab
Corporation and its subsidiary as "Unilab".
Unilab is the largest independent clinical laboratory testing company in
California and one of the largest in the nation. Unilab offers a broad range of
clinical laboratory testing services used by physicians in the detection,
diagnosis, evaluation, monitoring and treatment of diseases and other medical
conditions. Unilab has an extensive network of laboratories and patient service
centers in California, resulting in statewide geographic coverage and a strong
presence in the state's major population centers. Unilab operates three large,
full-service laboratories located in Los Angeles, San Jose and Sacramento, and
39 strategically located smaller "rapid response" laboratories, where Unilab
performs an abbreviated line of routine tests on an emergency or time-sensitive
basis. Unilab's network also includes approximately 386 conveniently located
patient service centers, where technicians procure specimens and route them to
the appropriate testing site.
Unilab processed approximately 14.5 million requisitions during 2001.
Unilab's customers include physicians, hospitals, managed care organizations and
other healthcare providers.
The principal executive offices of Unilab are located in leased offices at
18448 Oxnard Street, Tarzana, California 91356. Unilab's main telephone number
is (818) 996-7300.
31
REASONS FOR THE OFFER
QUEST DIAGNOSTICS' REASONS FOR THE OFFER; FACTORS CONSIDERED
In approving the merger agreement and the transactions contemplated by the
merger agreement, including the offer and the merger, the Quest Diagnostics
board of directors considered a number of factors, including the following:
1. Quest Diagnostics' Growth Strategy. The Quest Diagnostics board
of directors considered the acquisition of Unilab in view of Quest
Diagnostics' growth strategy, which includes selective acquisitions. In
particular, the Quest Diagnostics board of directors considered the
complementary nature of the companies' respective businesses and the
potential for enhancing stockholder value through a combination with
Unilab, including the fact that the acquisition of Unilab will result in
Quest Diagnostics becoming the market leader in diagnostics testing in the
State of California, currently the nation's largest market and fastest
growing state as measured in absolute terms.
2. Enhanced Service; Benefits to Customers. The Quest Diagnostics
board of directors considered the fact that the acquisition of Unilab will
enhance service for all customers in California, with expanded access
through a combined network of approximately 50 rapid response laboratories
and 500 patient service centers throughout California. In addition, the
board of directors considered that Unilab's customers will benefit from the
convenience of "one-stop" shopping for their diagnostics testing needs as a
result of having access to the innovative technologies and expanded
esoteric testing menu offered by Nichols Institute, Quest Diagnostics' west
coast esoteric laboratory. In 2001, Unilab referred approximately $18
million worth of esoteric testing to other laboratories.
3. Synergies. The Quest Diagnostics board of directors considered
management's expectation of achieving annual benefits of approximately $30
million within two years following consummation of the merger, which is
when Quest Diagnostics expects the integration of Unilab to be completed.
4. Terms of the Transaction. The Quest Diagnostics board of
directors considered the terms of the transaction as contemplated by the
merger agreement, including the representations and warranties, covenants,
termination provisions and conditions to the offer and the merger, and the
stockholders agreement, including the option to acquire the Unilab shares
owned by the Kelso stockholders.
5. Financial Considerations. The Quest Diagnostics board of
directors considered certain financial issues, including information
relating to the financial condition, results of operations, earnings and
businesses of Unilab, on both a historical and prospective basis, and Quest
Diagnostics' current expectation that the acquisition will ultimately
result in the benefits described above, as well as incremental revenues,
and provide a rate of return in excess of Quest Diagnostics' cost of
capital.
6. Unilab Management Team. The Quest Diagnostics board of directors
considered the quality and experience of the members of Unilab's existing
management team, and the terms and conditions upon which such persons have
generally agreed to remain employed by the surviving corporation following
the offer and the merger.
7. Risk Factors. The Quest Diagnostics board of directors considered
certain of the matters set forth in this prospectus under the heading,
"Risk Factors".
The foregoing discussion of the information and factors considered by the
Quest Diagnostics board of directors is not intended to be exhaustive, but
includes the material factors considered by the Quest Diagnostics board of
directors. In view of the variety of factors considered in connection with its
evaluation of the offer and the merger, the Quest Diagnostics board of directors
did not find it practicable to, and did not, quantify or otherwise assign
relative weights to the specific factors considered in reaching its
determination and recommendation. In addition, individual directors may have
given differing weights to different factors.
32
REASONS FOR THE UNILAB BOARD'S RECOMMENDATION
Unilab's board of directors, by a vote of those directors present and
voting at the meeting at which the merger agreement was considered, approved the
merger agreement and the transactions contemplated thereby, including the offer
and the merger, and determined that the transactions contemplated by the merger
agreement, including the offer and the merger, are fair to and in the best
interests of Unilab and its stockholders. The Unilab board recommends that
Unilab's stockholders accept the offer and tender their Unilab shares pursuant
to the offer.
Information about the recommendation of Unilab's board of directors is more
fully described in Unilab's Solicitation/Recommendation Statement on Schedule
14D-9, which is being mailed to Unilab's stockholders together with this
prospectus.
33
BACKGROUND OF THE OFFER
Quest Diagnostics from time to time consults with its financial advisors
and reviews various strategic alternatives, including the possibility of
acquiring or merging with other companies involved in the clinical testing
industry in the United States. In this connection, during 2000, Quest
Diagnostics began considering opportunities for expanding its operations in
California to complement its current businesses.
Similarly, Unilab, which was a privately-held company from November 23,
1999 until June 6, 2001, regularly considers a variety of strategic alternatives
as part of the continuous evaluation of its businesses and plans. In connection
with this process, Unilab's management periodically evaluated various
alternatives for expanding its clinical laboratory testing business both within
and outside the state of California, the state within which Unilab primarily
conducts its business, including through acquisitions of other laboratories.
In February 2000, Robert E. Whalen, Unilab's Chairman and Chief Executive
Officer, other members of Unilab's senior management and representatives of KEP
Investment Associates VI, L.P. and KEP VI, LLC, Unilab's significant stockholder
that we refer to as Kelso, met with Robert A. Hagemann, Quest Diagnostics' Chief
Financial Officer, other members of Quest Diagnostics' management and
representatives from Quest Diagnostics' financial advisors, Merrill Lynch & Co.
The parties discussed a potential transaction between the companies involving
the combination of the California operations of Quest Diagnostics and Unilab.
During the period from February 2000 through October 2000, there were
periodic contacts between representatives of Quest Diagnostics and Unilab,
including preliminary discussions concerning a potential business combination
transaction involving the companies.
In early January 2001, Mr. Whalen, other members of Unilab's senior
management and representatives of Kelso met with Mr. Hagemann and several
members of Quest Diagnostics' management. At the meeting, Quest Diagnostics and
Unilab executed a confidentiality agreement. Also at the meeting, Unilab
provided Quest Diagnostics with financial information and representatives of
Quest Diagnostics conducted a preliminary due diligence examination of Unilab.
Following the January meeting, in a proposal delivered to Michael B.
Goldberg and David I. Wahrhaftig, each a member of Unilab's board of directors
and a principal of Kelso, Kenneth W. Freeman, Quest Diagnostics' Chairman and
Chief Executive Officer, indicated Quest Diagnostics' interest in acquiring
Unilab. The Unilab board of directors determined that the terms of the proposal
were inadequate. Shortly thereafter, Mr. Goldberg delivered to Mr. Freeman a
counterproposal responding to Quest Diagnostics' proposal. The valuation levels
discussed by the parties at that time were, on a per share basis, lower than the
per share consideration that is payable to Unilab's stockholders in the offer
and the merger. Several weeks later, Mr. Freeman advised Mr. Goldberg that Quest
Diagnostics' earlier proposal to acquire Unilab had been withdrawn.
In May 2001, representatives of Unilab and Quest Diagnostics again met to
discuss the operations and financial performance of their respective companies.
No formal discussions between the parties concerning the terms of a potential
transaction between the companies took place at the meeting, no timetable for
future meetings was established, and there were no assurances given by either
party that any further discussions between the parties would take place.
On June 6, 2001, Unilab consummated an initial public offering of
approximately 6.7 million shares of common stock.
On October 6, 2001, Unilab consummated a secondary offering of
approximately 8.0 million shares of common stock.
Following Unilab's initial public offering of common stock, Quest
Diagnostics continued to monitor the financial performance of Unilab. In
addition, in late October 2001, Mr. Freeman and Mr. Whalen met to discuss the
operations of their respective companies and a potential transaction involving
such companies.
On November 20, 2001, Quest Diagnostics and Unilab entered into a mutual
confidentiality agreement in order to facilitate an exchange of information
between the companies. Following the execution of the
34
confidentiality agreement, Unilab provided additional financial information to
Quest Diagnostics in order to assist Quest Diagnostics in evaluating a potential
transaction between the companies. During this period, representatives of Unilab
and Quest Diagnostics held several discussions concerning the cost savings that
might be realized by a transaction between the two companies.
In late November 2001, Unilab engaged James Maher, a partner at Park Avenue
Equity Management and a member of Unilab's board of directors, to negotiate the
terms of a potential transaction with Quest Diagnostics.
In early January 2002, representatives of Quest Diagnostics met with
members of senior management of Unilab to further discuss and analyze the
financial information that Unilab had provided to Quest Diagnostics in November
and to discuss Unilab's recent financial performance.
On January 8, 2002, Mr. Freeman and Mr. Whalen met in Los Angeles. During
this meeting, Mr. Freeman advised Mr. Whalen of the strategic benefits that he
believed could be realized in the event of a business combination transaction
between Quest Diagnostics and Unilab.
Following his meeting with Mr. Whalen, at the suggestion of Mr. Whalen, Mr.
Freeman contacted Mr. Maher to request a meeting to discuss the merits of a
possible business combination transaction between Quest Diagnostics and Unilab
and the proposed valuation for such a transaction.
On January 14, 2002, Mr. Freeman and Mr. Maher met at Mr. Maher's offices
in New York City. During this meeting, Mr. Freeman and Mr. Maher discussed, on a
preliminary basis, the merits of a potential business combination transaction
between Quest Diagnostics and Unilab, and the potential benefits that could be
realized by stockholders of both companies in the event of such a transaction.
Mr. Freeman also advised Mr. Maher of Quest Diagnostics' initial proposal for a
transaction between the companies, under which Quest Diagnostics would acquire
all of the outstanding Unilab shares at a price of $26.00 per share, payable
solely in Quest Diagnostics shares. Mr. Maher informed Quest Diagnostics that
the proposal received by Unilab was not sufficient, and indicated that Unilab
was interested in a transaction with a significant cash component and a higher
per-share price.
Following this meeting, Mr. Freeman briefed members of Quest Diagnostics'
senior management team, and such persons began a more detailed review of the
potential business combination transaction.
During the period from January 16, 2002 through February 8, 2002,
representatives of Quest Diagnostics, including Mr. Freeman, engaged in various
discussions with Mr. Maher regarding the proposed business combination,
including discussions regarding the form of consideration, transaction structure
and the transaction process.
On January 28, 2002, Quest Diagnostics formally retained the investment
banking firm of Merrill Lynch to provide financial advisory services in
connection with the proposed business combination transaction.
On February 8, 2002, Kenneth Finnegan, Quest Diagnostics' Vice President,
Business Development, delivered to Mr. Maher a draft proposal setting forth the
general terms upon which Quest Diagnostics would be willing to proceed with an
acquisition of Unilab, including terms relating to value, transaction structure
and transaction protection measures. Quest Diagnostics' proposal contemplated
the acquisition of Unilab pursuant to a cash election exchange offer, with a
back-end merger for the same consideration, at a price of $26.50 per share, with
a minimum of seventy percent of the consideration to be paid in the form of
Quest Diagnostics shares. The terms of the proposal were also conditioned on
Unilab's aggregate transaction-related fees not exceeding $12 million.
In addition, also on February 8, 2002, Mr. Freeman advised Mr. Whalen of
the general terms of a proposed employment arrangement between Mr. Whalen and
Quest Diagnostics in the event of consummation of the proposed transaction.
Following a discussion of Quest Diagnostics' proposal with members of
Unilab's board of directors and management, and with Skadden, Arps, Slate,
Meagher and Flom LLP, Unilab's outside legal counsel, Mr. Maher advised Quest
Diagnostics that Unilab was unwilling to commit to an exclusivity period for a
35
transaction on the terms proposed by Quest Diagnostics, including the
requirement that Kelso be committed to the transaction.
During the period from February 8, 2002 through February 26, 2002, the
parties and their respective advisors continued to engage in discussions
regarding the terms of the proposed business combination transaction. During
this period, representatives of Quest Diagnostics advised Mr. Maher that the
price contemplated by the February 8 proposal was conditioned on an exclusive
negotiating period and that Quest Diagnostics was unwilling to engage in a
competitive bidding process for Unilab.
From late February through March 2, 2002, representatives of Quest
Diagnostics and its legal and financial advisors conducted a business, financial
and legal due diligence examination of Unilab at a data room in Woodland Hills,
California. In addition, certain representatives of Quest Diagnostics met with
members of Unilab's management team to conduct detailed business and operational
due diligence on Unilab. Representatives of Quest Diagnostics and its legal and
financial advisors continued their due diligence review of Unilab over the
course of the following few weeks.
On February 22, 2002, Shearman & Sterling, Quest Diagnostics' outside legal
advisors, delivered drafts of the merger agreement and the stockholders
agreement to Skadden, Arps for distribution to Unilab and Kelso.
On February 27, 2002, Quest Diagnostics held a regularly scheduled meeting
of its board of directors. During this meeting, Mr. Freeman informed the Quest
Diagnostics board of directors as to the status of negotiations and the status
of Quest Diagnostics' due diligence examination of Unilab. The Quest Diagnostics
board of directors discussed the business, financial and legal issues presented
by the proposed transaction and authorized Mr. Freeman to continue pursuing the
proposed transaction.
Between February 28, 2002 and March 6, 2002, representatives of Quest
Diagnostics, Unilab and their respective legal and financial advisors
participated in several telephone calls regarding the structure and terms of the
proposed business combination transaction as reflected in the draft merger
agreement and stockholders agreement. Throughout the negotiations, Quest
Diagnostics insisted that it would not proceed with the transaction if Unilab
had the ability to terminate the transaction to accept a third-party offer, and
unless Kelso was contractually committed to supporting the transaction. Quest
Diagnostics also insisted that the transaction be conditioned upon reaching
satisfactory post-transaction employment arrangements with certain key Unilab
executives.
On March 4, 2002, Mr. Freeman and Mr. Maher discussed the proposed business
combination transaction by telephone call. During this conversation, Mr. Freeman
and Mr. Maher discussed various open issues relating to the proposed
transaction, including certain issues related to value, management compensation
and transaction protections.
On March 6, 2002, representatives of Quest Diagnostics, including Mr.
Finnegan, and representatives of Shearman & Sterling and Merrill Lynch met in
the New York City offices of Shearman & Sterling with representatives of Unilab,
Kelso, including Messrs. Goldberg and Wahrhaftig, and Skadden, Arps to negotiate
the terms of the proposed transaction as reflected in the draft merger agreement
and stockholders agreement.
During the period from March 7, 2002 through April 2, 2002, representatives
of Quest Diagnostics, Unilab, and their respective legal and financial advisors
continued to negotiate the specific terms of the merger agreement and the
stockholders agreement.
On March 8, 2002, representatives of Unilab and its financial advisors met
with representatives of Quest Diagnostics, including Mr. Hagemann, and other
senior Quest Diagnostics executives, in Hasbrouck Heights, New Jersey to conduct
a financial and legal due diligence examination of Quest Diagnostics.
On March 11, 2002, representatives of Unilab and its financial advisors met
with representatives of Quest Diagnostics, including Mr. Freeman, in New York
City to conduct a further due diligence review of Quest Diagnostics.
Representatives of Unilab and its legal and financial advisors continued their
due diligence review of Quest Diagnostics over the next few weeks.
36
On March 20, 2002, Quest Diagnostics held a special telephonic meeting of
its board of directors to consider the status of the proposed transaction.
During this meeting, Mr. Freeman updated the Quest Diagnostics board of
directors as to the status of negotiations and the status of Quest Diagnostics'
due diligence examination of Unilab. Merrill Lynch made a presentation to the
board of directors concerning various financial aspects of the proposed
transaction, and Shearman & Sterling updated the board of directors regarding
the legal aspects of the proposed transaction. The Quest Diagnostics board of
directors discussed the business, financial and legal issues presented by the
proposed transaction and authorized Mr. Freeman to continue pursuing the
proposed transaction.
On March 24, 2002, representatives of Quest Diagnostics met with certain
members of the Unilab management team, including Mr. Whalen, Brian Urban,
Unilab's Executive Vice President and Chief Financial Officer, David Gee,
Unilab's Executive Vice President and General Counsel, Emmett Kane, Unilab's
Executive Vice President, Northern California, and Jeffery Lanzolatta, Unilab's
Executive Vice President, Southern California, at the offices of Quest
Diagnostics in New Jersey in order to negotiate the terms of such persons'
employment arrangements with the surviving corporation following consummation of
the proposed transaction.
On March 25, 2002, Mr. Freeman and Mr. Maher discussed the proposed
business combination transaction by telephone call. During this call, Mr.
Freeman advised Mr. Maher as to Quest Diagnostics' position in respect of the
remaining open issues.
During the week of March 25, 2002, representatives of Unilab and Quest
Diagnostics and their respective legal counsel and other advisors finalized
negotiations on the terms of the merger agreement, stockholders agreement and
other related transaction documents. The parties also finalized the terms of
post-transaction employment arrangements for the senior members of Unilab's
management team. In the course of negotiating the terms of these arrangements,
both Quest Diagnostics and Unilab insisted on certain modifications to the
existing employment arrangements with certain of Unilab's senior executives.
Quest Diagnostics also insisted on a reduction in the aggregate transaction fees
payable by Unilab to its outside advisors in connection with the transaction.
On the afternoon of April 1, 2002, Quest Diagnostics held a special
telephonic meeting of its board of directors. After discussion, which included
updates on the financial and legal aspects of the proposed transaction from
Quest Diagnostics senior management and its outside legal and financial
advisors, the Quest Diagnostics board of directors approved the transactions
contemplated by the merger agreement, including the offer and the merger, and
the stockholders agreement, and approved the form of such agreements.
On April 1, 2002, a special meeting of the Unilab board of directors was
held, at which all of Unilab's directors were present in person or by telephone.
At this meeting, the Unilab board of directors approved the merger agreement and
the stockholders agreement, and the transactions contemplated thereby, and
resolved to recommend that Unilab stockholders tender their shares into the
offer and, if necessary, vote to adopt the merger agreement.
Prior to the opening of the New York Stock Exchange and the Nasdaq National
Market on April 2, 2002, Quest Diagnostics and Unilab executed the merger
agreement and the stockholders agreement, and issued a joint press release
announcing the transaction. A joint conference call was held on the morning of
April 2, 2002 to discuss the transaction.
37
THE OFFER
BASIC TERMS
Exchange of Unilab Shares. We are offering to exchange 0.3256 of a Quest
Diagnostics share, or $26.50 in cash, without interest, for each outstanding
Unilab share that is validly tendered and not withdrawn in the offer, subject in
each case to the proration and election procedures described in this prospectus
and the related letter of election and transmittal. The ratio of 0.3256 of a
Quest Diagnostics share for each Unilab share was determined by dividing $26.50
by the average closing trading price of a Quest Diagnostics share on the New
York Stock Exchange for the five trading days ended March 28, 2002.
Election of Quest Diagnostics Shares and/or Cash. In the offer, Unilab
stockholders may elect to receive Quest Diagnostics shares, which we refer to as
the "stock consideration", or cash in exchange for each of their validly
tendered and not withdrawn Unilab shares. However, the aggregate cash
consideration that Unilab stockholders may receive in the offer is subject to a
pro rata reduction because not more than 30% of the number of Unilab shares
outstanding immediately prior to the expiration of the offer, which we refer to
as the "maximum cash election number", can be exchanged for cash.
If the number of validly tendered and not withdrawn Unilab shares properly
electing to receive the cash consideration in the offer is equal to or less than
the maximum cash election number, then each such "cash electing" Unilab share
will be exchanged for $26.50 in cash, without interest, and all validly tendered
and not withdrawn Unilab shares electing the stock consideration will be
exchanged for 0.3256 of a Quest Diagnostics share.
However, because there is a limit to the total amount of cash that will be
paid in the offer, in certain circumstances, each validly tendered Unilab share
electing to receive the cash consideration will be exchanged on a pro rata basis
for a combination of cash and a fraction of a Quest Diagnostics share. This will
occur in the event that the number of validly tendered and not withdrawn Unilab
shares, the holders of which have elected to receive the cash consideration,
exceeds the maximum cash election number. In this case, each validly tendered
and not withdrawn Unilab share will be exchanged as follows:
- each validly tendered Unilab share properly electing to receive the stock
consideration will be exchanged for 0.3256 of a Quest Diagnostics share,
and
- each validly tendered Unilab share properly electing to receive $26.50 in
cash, without interest, will be exchanged for (a) an amount of cash,
without interest, equal to the product of (x) $26.50 and (y) a fraction,
which we refer to as the cash fraction, the numerator of which will be
the maximum cash election number (that is, 30% of the number of Unilab
shares outstanding immediately prior to the expiration of the offer), and
the denominator of which will be the total number of validly tendered and
not withdrawn Unilab shares electing to receive the cash consideration,
and (b) a number of Quest Diagnostics shares equal to the product of (x)
0.3256 of a Quest Diagnostics share, and (y) a fraction equal to one
minus the cash fraction.
BECAUSE THERE IS A LIMIT ON THE NUMBER OF UNILAB SHARES THAT WILL BE
EXCHANGED FOR CASH IN THE OFFER, THERE CAN BE NO ASSURANCE THAT YOU WILL RECEIVE
100% OF THE OFFER CONSIDERATION IN THE FORM OF CASH FOR EACH OF THE UNILAB
SHARES THAT YOU PROPERLY ELECT TO EXCHANGE FOR CASH. HOWEVER, REGARDLESS OF THE
NUMBER OF UNILAB SHARES THAT ARE THE SUBJECT OF CASH ELECTIONS, EACH UNILAB
STOCKHOLDER ELECTING TO RECEIVE CASH IN EXCHANGE FOR ALL OF HIS OR HER UNILAB
SHARES WILL BE ENTITLED TO RECEIVE CASH FOR AT LEAST 30% OF HIS OR HER UNILAB
SHARES.
An election to receive Quest Diagnostics shares for all of your Unilab
shares will not be subject to proration.
You will not receive any fractional Quest Diagnostics shares. Instead, you
will receive cash in an amount equal to the market value of any fractional
shares you would otherwise have been entitled to receive.
The offer is scheduled to expire at 12:00 midnight, New York City time, on
Tuesday, July 16, 2002, unless we (subject to the terms and conditions of the
offer and the merger agreement, as described below)
38
extend the period during which the offer is open, in which case the term
"expiration date" means the latest time and date at which the offer, as so
extended, expires.
Transfer Charges. If you are the record owner of your Unilab shares and
you tender your Unilab shares directly to the offer exchange agent, you will not
be obligated to pay any charges or expenses of the offer exchange agent or any
brokerage commissions. If you own your Unilab shares through a broker or other
nominee, and your broker tenders the Unilab shares on your behalf, your broker
may charge you a fee for doing so. You should consult your broker or nominee to
determine whether any charges will apply. Except as set forth in the
instructions to the letter of election and transmittal, transfer taxes on the
exchange of Unilab shares pursuant to our offer will be paid by Unilab.
Conditions to the Offer. Our obligation to exchange Quest Diagnostics
shares or cash for Unilab shares pursuant to the offer is subject to several
conditions referred to below under "Conditions to the Offer", including the
minimum tender condition and receipt of regulatory approvals.
We are making this offer in order to acquire at least 50.1% of the
aggregate number of outstanding Unilab shares, on a fully diluted basis. We
intend, as soon as possible after completion of the offer, to have Unilab merge
with and into Purchaser or, depending on certain tax matters, to have Purchaser
merge with and into Unilab. The purpose of the merger is to acquire all Unilab
shares not tendered and exchanged pursuant to the offer. In the merger, each
then outstanding Unilab share, except for, if applicable, Unilab shares held in
Unilab's treasury or by Quest Diagnostics, Purchaser or any of their wholly
owned subsidiaries or by stockholders exercising appraisal rights, if available,
will be converted into 0.3256 of a Quest Diagnostics share. Stockholders who do
not tender their Unilab shares in the offer will not receive any cash
consideration in exchange for their Unilab shares in the merger (except for
cash, if any, payable in lieu of fractional Quest Diagnostics shares or
following the exercise of appraisal rights, if applicable).
EXTENSION, TERMINATION AND AMENDMENT
The merger agreement provides that, unless Unilab otherwise agrees, we must
or, in the case of the third bullet below, we have the option to, extend the
offer in the following circumstances for one or more periods (not in excess of
ten business days each):
- beyond the initial scheduled expiration date, up to September 30, 2002,
if, at the scheduled or extended expiration date of the offer, any of the
conditions to the offer have not been satisfied or, to the extent
permitted, waived, until all the conditions to the offer are satisfied or
waived. However, if the minimum tender condition is not satisfied at the
time such extension would otherwise be required, we will not be required
to extend the offer pursuant to this provision of the merger agreement
if:
- the applicable waiting period under the HSR Act has expired or been
terminated,
- the registration statement on Form S-4 has become effective under the
Securities Act and is not the subject of any stop order or proceeding
seeking a stop order, and
- the Quest Diagnostics shares to be issued in the offer and the merger
have been approved for listing on the NYSE,
and we have publicly announced the existence of such facts and our
intention not to extend the offer at least two business days prior to the
date that the extension would otherwise have been required,
- for any period required by any rule, regulation, interpretation or
position of the SEC or the SEC's staff applicable to the offer or any
period required by applicable law, or
- for an aggregate period of not more than ten business days beyond the
latest applicable date that would otherwise be permitted under the first
or second bullet above, if, as of the expiration date, all of the
conditions to the offer have been satisfied or waived, but the number of
Unilab shares validly tendered and not withdrawn equals more than 80%,
but less than 90%, of the outstanding Unilab shares on a fully diluted
basis. However, if we elect to extend the expiration date pursuant to
this provision of the merger agreement, we will be deemed to have
irrevocably waived all of the conditions to the offer set
39
forth in full detail under the caption "The Offer -- Conditions to the
Offer" and you will maintain your withdrawal rights during the pendency
of such extension. Except as described in this provision of the merger
agreement, we are not permitted to extend the offer without the prior
written consent of Unilab at the time that all conditions to the offer
have been satisfied or, to the extent permitted, waived.
If we decide, or are required, to extend our offer as described above, we
will make an announcement to that effect no later than 9:00 a.m., New York City
time, on the next business day after the previously scheduled expiration date.
During any such extension, all Unilab shares previously tendered and not
properly withdrawn will remain subject to the offer, subject to your right to
withdraw your Unilab shares. You should read the discussion under the caption
"Withdrawal Rights and Change of Election" for more details.
Subject to the SEC's applicable rules and regulations and the terms of the
merger agreement, we reserve the right to waive any of the conditions to the
offer and to make any change in the terms of or conditions to the offer.
However, without Unilab's consent, we cannot:
- decrease the consideration payable in the offer,
- change the form of consideration to be paid in the offer to a form other
than cash or Quest Diagnostics shares,
- decrease the aggregate amount of cash available in the offer or change
the relative amount of cash available in the offer,
- reduce the number of Unilab shares to be purchased in the offer,
- impose conditions to the offer in addition to those set forth in the
merger agreement,
- modify or waive the minimum tender condition,
- except pursuant to the merger agreement, change the expiration date, or
- make any other change that is adverse to Unilab stockholders or to
holders that have elected a particular form of consideration in the
offer.
We will make a public announcement of any extension, termination, amendment
or delay of the offer as promptly as practicable. In the case of an extension,
any announcement will be issued no later than 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date. Subject to
applicable law (including Rules 14d-4(c), 14d-6(c) and 14e-1 under the Exchange
Act, which require that any material change in the information published, sent
or given to Unilab stockholders in connection with the offer be promptly sent to
stockholders in a manner reasonably designed to inform stockholders of the
change) and without limiting the manner in which we may choose to make any
public announcement, we assume no obligation to publish, advertise or otherwise
communicate any such public announcement other than by making a release to the
Dow Jones News Service or the PR Newswire Association, Inc.
If we make a material change in the terms of our offer or the information
concerning the offer, or if we waive a material condition of the offer, we will
extend the offer to the extent required by Rule 14e-1 under the Exchange Act.
If, prior to the expiration date, subject to the terms of the merger agreement,
we change the percentage of Unilab shares being sought or the consideration we
are offering, that change will apply to all Unilab stockholders whose Unilab
shares are accepted for exchange pursuant to our offer. If, at the time notice
of that change is first published, sent or given to you, the offer is scheduled
to expire at any time earlier than the tenth business day from and including the
date that the notice is first so published, sent or given, we will extend the
offer until the expiration of that ten business day period.
For purposes of our offer, a "business day" means any day other than a
Saturday, Sunday or federal holiday and consists of the time period from 12:01
a.m. through 12:00 midnight, New York City time.
40
PROCEDURE FOR TENDERING AND ELECTING
Unilab has provided us with its stockholder list and security positions
listing, including the most recent list of names, addresses and security
positions of non-objecting record holders and beneficial owners in the
possession of Unilab, for the purpose of disseminating the offer to Unilab's
stockholders. We will mail this offer and the related letter of election and
transmittal to record holders of Unilab's shares whose names appear on this
stockholder list and we will furnish this offer and the related letter of
election and transmittal, for subsequent transmittal to beneficial owners of
Unilab shares, to brokers, dealers, commercial banks, trust companies and
similar persons whose names, or the names of whose nominees, appear on the
stockholder list or, if applicable, who are listed or are participants in a
clearing agency's security position listing.
Valid Tender. For you to validly tender Unilab shares pursuant to our
offer, you must,
- prior to the expiration of the offer, deliver to the offer exchange agent
at one of its addresses set forth on the back cover of the prospectus a
properly completed and duly executed letter of election and transmittal,
or a manually signed facsimile of that document, together with any
required signature guarantees, and any other required documents, and the
certificates representing the tendered Unilab shares,
- prior to the expiration of the offer, deliver to the offer exchange agent
at one of such addresses either (a) a properly completed and duly
executed letter of election and transmittal, or a manually signed
facsimile of that document, together with any required signature
guarantees, or (b) an agent's message, which is explained below, in each
case with any other required documents, and transfer the Unilab shares
tendered pursuant to the procedures for book-entry transfer set forth in
the section of the prospectus entitled "The Offer -- Procedure for
Tendering and Electing", or
- comply with the guaranteed delivery procedures described in "The
Offer -- Procedure for Tendering and Electing".
The term "agent's message" means a message, transmitted by The Depository
Trust Company, which we refer to as the "Book-Entry Transfer Facility", to, and
received by, the offer exchange agent and forming a part of a book-entry
confirmation, which states that the Book-Entry Transfer Facility has received an
express acknowledgment from the participant in the Book-Entry Transfer Facility
tendering the Unilab shares which are the subject of the book-entry
confirmation, that the participant has received and agrees to be bound by the
terms of the letter of election and transmittal and that we may enforce that
agreement against the participant.
Valid Election. In the offer, Unilab stockholders will have the option to
exchange each of their Unilab shares for:
- 0.3256 of a Quest Diagnostics share, or
- $26.50 in cash, without interest, except that the aggregate cash
consideration that Unilab stockholders may elect to receive in the offer
is subject to a pro rata reduction because not more than 30% of the
number of Unilab shares outstanding immediately prior to the expiration
of the offer can be exchanged for cash. See "The Offer -- Basic Terms"
for a description of the proration procedure.
Unilab stockholders may elect to receive Quest Diagnostics shares or,
subject to the proration procedure, cash in exchange for all of their Unilab
shares. However, you are not required to exchange all of your Unilab shares into
one form of consideration or the other. INSTEAD, IF YOU OWN MORE THAN ONE UNILAB
SHARE, YOU MAY ELECT TO RECEIVE THE CASH CONSIDERATION IN EXCHANGE FOR SOME OF
YOUR UNILAB SHARES, AND YOU MAY ELECT TO RECEIVE QUEST DIAGNOSTICS SHARES IN
EXCHANGE FOR OTHER OF YOUR UNILAB SHARES.
To make a valid election, you must select one of the options on the letter
of election and transmittal, or, if you hold your shares in "street name"
through a broker, you must instruct your broker as to your election. IF YOU
VALIDLY TENDER UNILAB SHARES BUT FAIL TO MAKE AN ELECTION, YOU WILL BE DEEMED TO
HAVE ELECTED TO RECEIVE QUEST DIAGNOSTICS SHARES IN EXCHANGE FOR ALL OF YOUR
TENDERED UNILAB SHARES.
Book-Entry Transfer. The offer exchange agent will establish accounts with
respect to Unilab shares at the Book-Entry Transfer Facility for purposes of the
offer within two business days after the date of this
41
prospectus, and any financial institution that is a participant in the
Book-Entry Transfer Facility may make book-entry delivery of the Unilab shares
by causing the Book-Entry Transfer Facility to transfer such Unilab shares into
the offer exchange agent's account in accordance with the Book-Entry Transfer
Facility's procedure for the transfer. However, although delivery of Unilab
shares may be effected through book-entry at the Book-Entry Transfer Facility,
you must transmit to the offer exchange agent at one of its addresses set forth
on the back cover page of this prospectus, the letter of election and
transmittal (or a manually signed facsimile thereof), with any required
signature guarantees, or an agent's message, and any other required documents,
or you must follow the guaranteed delivery procedures described below. A tender
by book-entry transfer will be completed upon receipt by the offer exchange
agent prior to the expiration date of all such documents and of a book-entry
confirmation from the Book-Entry Transfer Facility. DELIVERY OF DOCUMENTS TO THE
BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE OFFER EXCHANGE
AGENT.
Signature Guarantees. Signatures on all letters of election and
transmittal must be guaranteed by an eligible institution, except in cases in
which Unilab shares are tendered either (1) by a registered Unilab stockholder
who has not completed the box entitled "Special Payment Instructions" or
"Special Delivery Instructions" on the letter of election and transmittal, or
(2) for the account of an eligible institution.
If the certificates for Unilab shares are registered in the name of a
person other than the person who signs the letter of election and transmittal,
or if payment is to be made to, or certificates for unexchanged Unilab shares
are to be returned to, a person other than the registered holder(s), the
certificates must be endorsed or accompanied by appropriate stock powers, in
either case signed exactly as the name or names of the registered owner or
owners appear on the certificates, with the signature(s) on the certificates or
stock powers guaranteed by an eligible institution.
The method of delivery of Unilab share certificates and all other required
documents, including delivery through the Book-Entry Transfer Facility, is at
your option and risk, and the delivery will be deemed made only when actually
received by the offer exchange agent. If delivery is by mail, we recommend
registered mail with return receipt requested, properly insured. In all cases,
you should allow sufficient time to ensure timely delivery.
IN ORDER TO PREVENT UNITED STATES FEDERAL INCOME TAX BACKUP WITHHOLDING
WITH RESPECT TO CASH RECEIVED PURSUANT TO OUR OFFER, YOU MUST PROVIDE THE OFFER
EXCHANGE AGENT WITH YOUR CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY THAT
YOU ARE NOT SUBJECT TO BACKUP WITHHOLDING OF UNITED STATES FEDERAL INCOME TAX BY
COMPLETING THE SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER OF ELECTION AND
TRANSMITTAL. SOME UNILAB STOCKHOLDERS (INCLUDING, AMONG OTHERS, CORPORATIONS AND
SOME FOREIGN INDIVIDUALS) MAY BE EXEMPT FROM THESE BACKUP WITHHOLDING
REQUIREMENTS. IN ORDER FOR A FOREIGN INDIVIDUAL STOCKHOLDER TO QUALIFY AS AN
EXEMPT RECIPIENT, THE STOCKHOLDER MUST SUBMIT AN APPLICABLE INTERNAL REVENUE
SERVICE FORM W-8, SIGNED UNDER PENALTIES OF PERJURY, ATTESTING TO THAT
INDIVIDUAL'S EXEMPT STATUS.
Guaranteed Delivery. If you wish to tender Unilab shares pursuant to our
offer and your certificates are not immediately available or you cannot deliver
the certificates and all other required documents to the offer exchange agent
prior to the expiration date, or cannot complete the procedure for book-entry
transfer on a timely basis, your Unilab shares may nevertheless be tendered, so
long as all of the following conditions are satisfied:
- you make your tender by or through an eligible institution;
- a properly completed and duly executed notice of guaranteed delivery,
substantially in the form made available by us, is received by the offer
exchange agent as provided below prior to the expiration date; and
- the certificates for all tendered Unilab shares (or a confirmation of a
book-entry transfer of such shares into the offer exchange agent's
account at the Book-Entry Transfer Facility as described above), in
proper form for transfer, together with a properly completed and duly
executed letter of election and transmittal (or a manually signed
facsimile thereof), with any required signature guarantees (or, in the
case of a book-entry transfer, an agent's message) and all other
documents required by the letter of
42
election and transmittal are received by the offer exchange agent within
three New York Stock Exchange trading days after the date of execution of
such notice of guaranteed delivery.
You may deliver the notice of guaranteed delivery by hand or transmit it by
facsimile transmission or mail to the offer exchange agent and you must include
a guarantee by an eligible institution in the form set forth in that notice.
In all cases, we will exchange Unilab shares tendered and accepted for
exchange pursuant to our offer only after timely receipt by the offer exchange
agent of (a) certificate or certificates for Unilab shares (or timely
confirmation of a book-entry transfer of such shares into the offer exchange
agent's account at the Book-Entry Transfer Facility as described above), (b)
properly completed and duly executed letter or letters of election and
transmittal (or a manually signed facsimile thereof), along with any required
signature guarantees, or an agent's message in connection with a book-entry
transfer and (c) any other required documents. Accordingly, tendering
stockholders may receive their consideration at different times depending on
when share certificates or book-entry confirmations are actually received by the
offer exchange agent.
Appointment of Attorneys-In-Fact and Proxies. By executing a letter of
election and transmittal as set forth above, you irrevocably appoint our
designees as your attorneys-in-fact and proxies, each with full power of
substitution, to the full extent of your rights with respect to your Unilab
shares tendered and accepted for exchange by us and with respect to any and all
other Unilab shares and other securities issued or issuable in respect of the
Unilab shares on or after April 2, 2002. That appointment is effective, and
voting rights will be affected, when and only to the extent that we accept for
payment the Unilab shares that you have tendered with the offer exchange agent.
All such proxies will be considered coupled with an interest in the tendered
Unilab shares and therefore will not be revocable. Upon the effectiveness of
such appointment, all prior proxies that you have given will be revoked, and you
may not give any subsequent proxies (and, if given, they will not be deemed
effective). Our designees will, with respect to the Unilab shares for which the
appointment is effective, be empowered, among other things, to exercise all of
your voting and other rights as they, in their sole discretion, deem proper at
any annual, special or adjourned meeting of Unilab's stockholders or otherwise.
We reserve the right to require that, in order for Unilab shares to be deemed
validly tendered, immediately upon our exchange of those Unilab shares, we must
be able to exercise full voting rights with respect to such Unilab shares.
Determination of Validity. We will determine questions as to the validity,
form, eligibility (including time of receipt) and acceptance for exchange of any
tender of Unilab shares or election with respect to your Unilab shares, in our
sole discretion, and our determination will be final and binding. We reserve the
absolute right to reject any and all tenders of Unilab shares that we determine
are not in proper form or the acceptance or exchange for which may, in the
opinion of our counsel, be unlawful. We also reserve the right to waive any
defect or irregularity in the tender of Unilab shares, whether or not similar
defects or irregularities are waived in the case of other holders of Unilab
shares. Subject to the SEC's applicable rules and regulations and the terms of
the merger agreement, which are described in this document, we also reserve the
right to waive any of the conditions to the offer and to make any change in the
terms of or conditions to the offer. However, without Unilab's consent, we
cannot (a) decrease the consideration payable in the offer, (b) change the form
of consideration to be paid in the offer to a form other than cash or Quest
Diagnostics shares, (c) decrease the aggregate amount of cash available in the
offer or change the relative amount of cash available in the offer, (d) reduce
the number of Unilab shares to be purchased in the offer, (e) impose conditions
to the offer in addition to those set forth in the merger agreement, (f) modify
or waive the minimum tender condition, (g) except pursuant to the merger
agreement, change the date on which the offer is scheduled to expire or (h) make
any other change that is adverse to Unilab stockholders or to holders that have
elected a particular form of consideration in the offer. We will give oral or
written notice of any such delay, termination or amendment to the offer exchange
agent and by making a public announcement. No tender of Unilab shares will be
deemed to have been validly made until all defects and irregularities in the
tender of any Unilab shares have been cured or waived. Neither we, the offer
exchange agent, the information agent, the dealer manager nor any other person
will be under any duty to give notification of any defects or irregularities in
the tender of any Unilab shares or with respect to an election relating to any
tendered Unilab shares or will incur any
43
liability for failure to give any such notification. Our interpretation of the
terms and conditions of our offer (including the letter of election and
transmittal and instructions thereto) will be final and binding.
Binding Agreement. The tender of Unilab shares pursuant to any of the
procedures described above will constitute a binding agreement between us and
you upon the terms and subject to the conditions of the offer.
THE METHOD OF DELIVERY OF UNILAB SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT
YOUR OPTION AND RISK, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED BY THE OFFER EXCHANGE AGENT. IF DELIVERY IS BY MAIL, WE RECOMMEND
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED. IN ALL CASES,
YOU SHOULD ALLOW SUFFICIENT TIME TO ENSURE TIMELY DELIVERY.
WITHDRAWAL RIGHTS AND CHANGE OF ELECTION
Withdrawal Rights. Unilab shares tendered pursuant to the offer may be
withdrawn at any time prior to the expiration date, and, unless we have
previously accepted and paid for them pursuant to the offer, may also be
withdrawn at any time after July 13, 2002. Once we accept and pay for Unilab
shares pursuant to the offer, your tender is irrevocable.
For your withdrawal to be effective, the offer exchange agent must receive
from you a written, telex or facsimile transmission notice of withdrawal at one
of its addresses set forth on the back cover of this prospectus, and your notice
must include your name, address, social security number, the certificate
number(s) and the number of Unilab shares to be withdrawn, as well as the name
of the registered holder, if it is different from that of the person who
tendered those Unilab shares.
A financial institution must guarantee all signatures on the notice of
withdrawal, unless those Unilab shares have been tendered for the account of any
eligible institution. If physical certificates have been delivered or otherwise
identified to the offer exchange agent, the name of the registered holder and
the serial numbers of the particular certificates evidencing the Unilab shares
withdrawn must also be furnished to the offer exchange agent, as stated above,
prior to the physical release of the certificates. If Unilab shares have been
tendered pursuant to the procedures for book-entry transfer discussed under the
section entitled "Procedure for Tendering and Electing", any notice of
withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawn Unilab shares and must
otherwise comply with the Book-Entry Transfer Facility's procedures.
WE WILL DECIDE ALL QUESTIONS AS TO THE FORM AND VALIDITY (INCLUDING TIME OF
RECEIPT) OF ANY NOTICE OF WITHDRAWAL, IN OUR SOLE DISCRETION, AND OUR DECISION
SHALL BE FINAL AND BINDING. NEITHER WE, THE OFFER EXCHANGE AGENT, THE
INFORMATION AGENT, THE DEALER MANAGER NOR ANY OTHER PERSON WILL BE UNDER ANY
DUTY TO GIVE NOTIFICATION OF ANY DEFECTS OR IRREGULARITIES IN ANY NOTICE OF
WITHDRAWAL OR WILL INCUR ANY LIABILITY FOR FAILURE TO GIVE ANY NOTIFICATION.
Any Unilab shares properly withdrawn will be deemed not to have been
validly tendered for purposes of our offer. However, you may re-tender withdrawn
Unilab shares by following one of the procedures discussed under the caption
entitled "Procedure for Tendering and Electing" at any time prior to the
expiration date.
Revocation or Change of Election. Any election is irrevocable, except that
Unilab shares tendered may be withdrawn at any time prior to the expiration date
and, unless previously accepted and paid for pursuant to the offer, may also be
withdrawn at any time after July 13, 2002. After an effective withdrawal, you
may change your election and re-tender withdrawn Unilab shares by following one
of the procedures discussed under the caption entitled "Procedure for Tendering
and Electing" at any time prior to the expiration date.
EXCHANGE OF UNILAB SHARES; DELIVERY OF QUEST DIAGNOSTICS SHARES AND CASH
Upon the terms and subject to the conditions of our offer (including, if
the offer is extended or amended, the terms and conditions of the extension or
amendment), we will accept for exchange, all Unilab shares validly tendered, and
not properly withdrawn, prior to the expiration date, promptly after the
expiration date. Notwithstanding the immediately preceding sentence, subject to
applicable rules of the SEC and the terms of
44
the merger agreement, we may, among other things, delay acceptance for exchange,
or the exchange of, Unilab shares in order to comply with any applicable law or
obtain any government or regulatory approvals.
In all cases, exchange of Unilab shares tendered and accepted for exchange
pursuant to the offer will be made only after timely receipt by the offer
exchange agent of certificates for those Unilab shares (or a confirmation of a
book-entry transfer of those Unilab shares in the offer exchange agent's account
at the Book-Entry Transfer Facility) pursuant to the procedures set forth in the
section entitled "Procedure for Tendering and Electing", a properly completed
and duly executed letter of election and transmittal (or a manually signed
facsimile of that document), with any required signature guarantees or an
agent's message, in the case of a book-entry transfer, and any other required
documents.
For purposes of the offer, we will be deemed to have accepted for exchange,
and thereby exchanged, Unilab shares validly tendered and not properly withdrawn
as, if and when we notify the offer exchange agent of our acceptance of the
tenders of those Unilab shares pursuant to the offer. The offer exchange agent
will deliver cash and Quest Diagnostics shares in exchange for Unilab shares
pursuant to the offer and cash instead of fractional Quest Diagnostics shares
promptly after receipt of our notice. The offer exchange agent will act as agent
for tendering Unilab stockholders for the purpose of receiving Quest Diagnostics
shares and cash (including cash to be paid instead of fractional Quest
Diagnostics shares) from us and transmitting such shares and cash, if any, to
you. YOU WILL NOT RECEIVE ANY INTEREST ON ANY CASH THAT WE PAY YOU, EVEN IF
THERE IS A DELAY IN MAKING THE EXCHANGE.
If we do not accept any tendered Unilab shares for exchange for any reason
pursuant to the terms and conditions of the offer, or if certificates are
submitted for more Unilab shares than are tendered, we will return certificates
for such unexchanged Unilab shares without expense to the tendering stockholder
or, in the case of Unilab shares tendered by book-entry transfer of unexchanged
Unilab shares into the offer exchange agent's account at the Book-Entry Transfer
Facility pursuant to the procedures set forth above under the section entitled
"Procedure for Tendering and Electing", those Unilab shares will be credited to
an account maintained within the Book-Entry Transfer Facility, as soon as
practicable following expiration or termination of the offer.
We reserve the right to transfer or assign, from time to time, in whole or
in part, to one or more of our wholly owned subsidiaries, the right to purchase
all or any of the Unilab shares tendered pursuant to the offer, but any such
transfer or assignment will not relieve us of our obligations under the offer
and will not prejudice your rights to receive Quest Diagnostics shares and/or
cash in exchange for Unilab shares validly tendered and accepted for exchange
pursuant to the offer.
CASH INSTEAD OF FRACTIONAL QUEST DIAGNOSTICS SHARES
We will not issue certificates representing fractional Quest Diagnostics
shares. Instead, each tendering stockholder who would otherwise be entitled to a
fractional Quest Diagnostics share will receive cash in an amount equal to that
fraction multiplied by the then prevailing price on the New York Stock Exchange
for a Quest Diagnostics share, as determined by the price received by the offer
exchange agent for such fractional shares, after all fractional shares have been
aggregated and sold by the offer exchange agent through one or more member firms
of the New York Stock Exchange.
EXCHANGE FUND; DISTRIBUTIONS ON QUEST DIAGNOSTICS SHARES
Promptly after the date on which Purchaser accepts for payment or exchange
all Unilab shares, Parent will deposit into an exchange fund administered by the
offer exchange agent, referred to as the offer exchange fund, cash and
certificates representing Quest Diagnostics shares that will be payable in the
offer. The offer exchange agent will, pursuant to irrevocable instructions, make
cash payments and deliver the Quest Diagnostics shares contemplated to be issued
pursuant to the offer out of the offer exchange fund. Any cash and Quest
Diagnostics shares remaining in the offer exchange fund seven business days
following the date on which Purchaser accepts for payment or exchange all Unilab
shares will be returned to Quest Diagnostics, which will then be responsible to
make payments to Unilab stockholders that have validly tendered their Unilab
shares pursuant to the offer.
45
FEDERAL INCOME TAX CONSEQUENCES
Shearman & Sterling, counsel to Quest Diagnostics, and Skadden, Arps,
Slate, Meagher & Flom LLP, counsel to Unilab, have delivered opinions to Quest
Diagnostics and Unilab, respectively, confirming that, subject to the
limitations and qualifications set forth herein, the following are the material
United States federal income tax consequences to Unilab stockholders that
exchange Unilab shares for Quest Diagnostics shares and/or cash pursuant to the
offer and the merger. In addition, as further described below, Quest Diagnostics
and Unilab have each agreed to seek at or immediately prior to the effective
time of the merger another opinion of its respective counsel concerning the
treatment of the offer and the merger as a tax-free "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code.
This discussion is based on provisions of the Internal Revenue Code of
1986, as amended, Treasury regulations promulgated thereunder, and
administrative and judicial interpretations thereof, all as in effect as of the
date hereof and all of which are subject to change, possibly with retroactive
effect. This discussion does not address all aspects of United States federal
income taxation that may be applicable to Unilab stockholders in light of their
particular circumstances or to Unilab stockholders subject to special treatment
under United States federal income tax law (including, without limitation,
partnerships, certain financial institutions, insurance companies, tax-exempt
entities, dealers in securities, traders in securities that elect to apply a
mark-to-market method of accounting, certain U.S. expatriates, persons that hold
Unilab shares as part of a straddle, hedge, conversion transaction or other
integrated investment, Unilab stockholders whose functional currency is not the
United States dollar and Unilab stockholders who acquired Unilab shares through
the exercise of employee stock options or otherwise as compensation).
This discussion is limited to Unilab stockholders that hold their Unilab
shares as capital assets and does not consider the tax treatment of Unilab
stockholders that hold Unilab shares through a partnership or other pass-through
entity. In addition, this summary does not discuss any aspect of state, local or
foreign taxation.
The merger agreement permits the offer and the merger to be effected either
as a tax-free "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code or, if the transaction cannot be effected as a tax-free
"reorganization", as a fully taxable transaction to Unilab stockholders as
described below. Whether the offer and the merger will qualify as a tax-free
"reorganization" or as a fully taxable transaction will depend upon future
events that are not within the control of Quest Diagnostics or Unilab, such as
the aggregate amount of cash consideration exchanged for Unilab shares in the
offer and the fair market value of Quest Diagnostics shares issued in exchange
for Unilab shares pursuant to (and at the time of) the completion of the offer
and in the merger. As a general rule, the likelihood of tax-free treatment
declines if the value of the cash consideration increases relative to the value
of the stock consideration given in exchange for Unilab shares. Further,
assuming the aggregate market value of all Quest Diagnostics shares payable to
Unilab stockholders upon consummation of the offer and the merger, based on the
lower of the closing price of Quest Diagnostics shares on the New York Stock
Exchange Composite Tape on the date immediately prior to the effective time of
the merger or the date that Quest Diagnostics accepts Unilab shares for payment,
which we refer to as the stock value, is not less than 42% of the sum of the
stock value and all cash payable to Unilab stockholders upon consummation of the
offer and the merger, Shearman & Sterling, counsel to Quest Diagnostics, and
Skadden, Arps, Slate, Meagher & Flom LLP, counsel to Unilab, believe that it is
more likely than not that the transaction will be a tax-free "reorganization".
The possibility of a fully taxable transaction, however, should not be
dismissed. Quest Diagnostics will notify Unilab's stockholders via a press
release announcing the consummation of the merger as to how they should account
for the treatment of the consideration received in the offer and the merger for
federal income tax purposes.
The offer and the merger should be treated as a single integrated
transaction for United States federal income tax purposes. If the offer and the
merger are so treated, then the offer and such merger will qualify as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code, so long as the merger is effected as a tax-free forward merger of Unilab
with and into Purchaser or as a tax-free reverse merger of
46
Purchaser with and into Unilab. As a "reorganization", the United States federal
income tax consequences of the offer and the merger are generally as follows:
- Exchange of Unilab Shares Solely for Quest Diagnostics Shares. A Unilab
stockholder that exchanges all of his or her Unilab shares for Quest
Diagnostics shares pursuant to the offer and/or the merger will not
recognize any gain or loss except with respect to cash received in lieu
of fractional Quest Diagnostics shares.
- Exchange of Unilab Shares Solely for Cash or for Cash and Quest
Diagnostics Shares. A Unilab stockholder that exchanges all of his or
her Unilab shares for cash pursuant to the offer generally will recognize
capital gain or loss measured by the difference between the amount of
cash received and the adjusted tax basis of such Unilab shares exchanged
therefor. A Unilab stockholder that exchanges his or her Unilab shares
for Quest Diagnostics shares pursuant to the offer and/or the merger and
cash pursuant to the offer will recognize gain (but not loss) in an
amount equal to the lesser of (1) the amount of cash received pursuant to
the offer and (2) an amount equal to the excess, if any, of (a) the sum
of the amount of cash received pursuant to the offer and the fair market
value of the Quest Diagnostics shares received pursuant to the offer
and/or the merger over (b) the stockholder's adjusted tax basis in his or
her Unilab shares. The gain recognized will be capital gain unless the
receipt of cash by the stockholder has the effect of a distribution of a
dividend, in which case such gain will be treated as ordinary dividend
income to the extent of the stockholder's ratable share of accumulated
earnings and profits as calculated for United States federal income tax
purposes. The Internal Revenue Service has indicated in rulings that any
reduction in the interest of a minority stockholder that owns a small
number of shares in a publicly and widely held corporation and that
exercises no control over corporate affairs would not be treated as
having the effect of a distribution of a dividend and thus would result
in capital gains (as opposed to dividend) treatment. In determining
whether the receipt of cash has the effect of a distribution of a
dividend, certain constructive ownership rules must be taken into
account.
- Tax Basis for Quest Diagnostics Shares. A Unilab stockholder will have
an aggregate tax basis in the Quest Diagnostics shares received pursuant
to the offer and/or the merger equal to the stockholder's aggregate
adjusted tax basis in his or her Unilab shares surrendered pursuant to
the offer and/or the merger (1) reduced by (a) the portion of the
stockholder's adjusted tax basis in his or her Unilab shares surrendered
in the offer and/or the merger that is allocable to fractional Quest
Diagnostics shares for which cash is received and (b) the amount of cash,
if any, received by the stockholder pursuant to the offer and (2)
increased by the amount of gain (including any portion of such gain that
is treated as a dividend as described above), if any, recognized by the
stockholder (but not including the gain recognized upon the receipt of
cash received in lieu of fractional Quest Diagnostics shares pursuant to
the offer).
- Holding Period for Quest Diagnostics Shares. The holding period for
Quest Diagnostics shares received by a Unilab stockholder pursuant to the
offer and/or the merger will include the holding period for the Unilab
shares surrendered in the offer and/or the merger.
- Cash Received in Lieu of Fractional Quest Diagnostics Shares. If a
Unilab stockholder receives cash in lieu of fractional Quest Diagnostics
shares in the offer and/or the merger, the stockholder generally will
recognize capital gain or loss equal to the difference between the amount
of cash received in lieu of the Quest Diagnostics fractional shares and
the portion of the stockholder's adjusted tax basis in his or her Unilab
shares surrendered that is allocable to the fractional shares.
Any recognized capital gain on the exchanges described above will be
long-term capital gain if the stockholder's holding period with respect to his
or her Unilab shares exceeds one year.
Under the merger agreement, Quest Diagnostics and Unilab have each agreed
to seek at or immediately prior to the effective time of the merger an opinion
of its respective counsel, Shearman & Sterling, counsel to Quest Diagnostics,
and Skadden, Arps, Slate, Meagher & Flom LLP, counsel to Unilab, that based upon
the facts provided by Quest Diagnostics and Unilab and customary representations
and assumptions, among other things, the offer and the merger will be treated as
a tax-free "reorganization" within the meaning of
47
Section 368(a) of the Internal Revenue Code, which we refer to as the tax
opinions. Quest Diagnostics and Unilab each expect to be able to obtain its
respective tax opinion if:
- the proposed merger occurs in the ordinary course after completion of the
offer,
- Quest Diagnostics and Unilab are able to deliver to counsel customary
representations as to certain factual matters relevant to the offer and
the merger,
- there is no adverse change in the United States federal income tax law,
and
- if (A) the transaction is effected as a forward merger, immediately prior
to the effective time of the forward merger, the aggregate market value
of all Quest Diagnostics shares payable to Unilab stockholders upon
consummation of the offer and the merger, based upon the lower of the
closing price of Quest Diagnostics shares on the New York Stock Exchange
Composite Tape on the date immediately prior to the effective time of the
merger or the date that Quest Diagnostics accepts Unilab shares for
payment or exchange pursuant to the offer, which we refer to as the stock
value, is not less than 42% of the sum of the stock value and all cash
payable to Unilab stockholders upon consummation of the offer and the
merger; or (B) the transaction is effected as a reverse merger, (i) the
aggregate value of all cash payable to Unilab stockholders upon
consummation of the offer and the merger is less than 18% of the
aggregate value of the stock value and all cash payable to Unilab
stockholders upon consummation of the offer and the merger, and (ii)
Unilab stockholders constituting more than 82% of the outstanding Unilab
shares exchange such shares solely for Quest Diagnostics shares in the
offer and the merger.
Receipt of the tax opinions is not a condition to completing the offer or
the forward merger but is a condition to the completion of the tax-free reverse
merger. If Quest Diagnostics and Unilab obtain the tax opinions, then the merger
will be effected as a forward merger or as a tax-free reverse merger depending
upon which of the above conditions are satisfied. If, however, Quest Diagnostics
or Unilab is not able to obtain its respective tax opinion, then Quest
Diagnostics expects that it will exercise its discretion to change the merger in
form to a taxable reverse merger, which, as summarized below, will be a fully
taxable transaction for all holders of Unilab shares, but not for Quest
Diagnostics, Purchaser or Unilab.
If the taxable reverse merger is consummated, the tax consequences to
Unilab stockholders would differ materially from those summarized above. In
general, each Unilab stockholder will recognize capital gain or loss in the
offer and/or the taxable reverse merger in an amount equal to the difference
between (1) the sum of the amount of cash received pursuant to the offer and the
fair market value of Quest Diagnostics shares received pursuant to the offer
and/or the taxable reverse merger, and (2) the stockholder's adjusted tax basis
in his or her Unilab shares. The capital gain or loss will be long-term capital
gain or loss if the stockholder had held such Unilab shares for more than one
year.
The determination by counsel as to whether the offer and the tax-free
merger will be treated as a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code will depend upon the facts and law existing
at the effective time of the proposed merger. It is possible that Quest
Diagnostics and/or Unilab will not be able to obtain its respective tax opinion.
An opinion of counsel is not binding on the Internal Revenue Service or any
court. Thus, no assurance can be given that the merger will be a tax-free merger
as opposed to a taxable reverse merger.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY AND DOES NOT PURPORT
TO BE A COMPLETE ANALYSIS OR LISTING OF ALL POTENTIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE OFFER AND THE MERGER. UNILAB STOCKHOLDERS ARE URGED TO
CONSULT THEIR TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL, STATE, LOCAL
AND FOREIGN TAX CONSEQUENCES OF THE OFFER AND THE MERGER TO THEM.
PURPOSE OF THE OFFER
Purpose. We are making the offer to acquire at least 50.1% of the
outstanding Unilab shares on a fully diluted basis. The purpose of our offer is
for Quest Diagnostics to acquire control of, and ultimately the entire common
equity interest in, Unilab. As promptly as practicable after completion of the
offer, we intend to
48
complete a merger with Unilab in which each outstanding Unilab share that is not
exchanged in the offer (except for any Unilab shares held in Unilab's treasury
and any Unilab shares held by Quest Diagnostics, Purchaser or Unilab
stockholders who perfect their appraisal rights, if available) will be converted
into 0.3256 of a Quest Diagnostics share. If your Unilab shares are not
exchanged in the offer and the merger occurs, you will receive 0.3256 of a Quest
Diagnostics share pursuant to the merger, the receipt of which may be delayed
due to the possibility of a delay in completing the merger after completion of
the offer. NOTWITHSTANDING THE AMOUNT, IF ANY, OF CASH PAID IN THE OFFER,
STOCKHOLDERS WHO DO NOT TENDER THEIR UNILAB SHARES IN THE OFFER WILL NOT RECEIVE
ANY CASH CONSIDERATION IN EXCHANGE FOR THEIR UNILAB SHARES IN THE MERGER (EXCEPT
FOR CASH, IF ANY, THAT IS PAID IN LIEU OF FRACTIONAL QUEST DIAGNOSTICS SHARES OR
FOLLOWING THE EXERCISE OF APPRAISAL RIGHTS, IF APPLICABLE).
As of the date of this prospectus neither Quest Diagnostics nor, to our
knowledge, the directors and executive officers of Quest Diagnostics own any
Unilab shares.
THE MERGER
Approval of the Merger. Under Section 251 of the Delaware General
Corporation Law, or DGCL, the approval of the board of directors of a company
and the affirmative vote of the holders of a majority of its outstanding shares
are required to approve and adopt a merger agreement. The Unilab board of
directors has previously approved the merger. If we complete the offer and the
minimum tender condition has been satisfied, we would have a sufficient number
of Unilab shares to approve the merger without the affirmative vote of any other
holder of Unilab shares. Therefore, unless the merger is consummated in
accordance with the short-form merger provisions under the DGCL (described
below), the only remaining required corporate action of Unilab will be the
approval and adoption of the merger agreement by the affirmative vote of a
majority of the outstanding Unilab shares, which will require a longer period of
time to effect than would be the case with a short-form merger. This is referred
to as a long-form merger.
Possible Short-Form Merger. Section 253 of the DGCL would permit the
merger to occur without a vote of Unilab's stockholders in a short-form merger
if Quest Diagnostics were to acquire at least 90% of the outstanding Unilab
shares in the offer. No action by the stockholders of Unilab, other than by
Quest Diagnostics acting as the 90% stockholder, will be required to consummate
the short-form merger.
Unilab has advised Purchaser that, as of May 14, 2002, 33,573,700 Unilab
shares were issued and outstanding, 3,786,258 shares were reserved for issuance
pursuant to outstanding employee stock options, and no shares were held in
Unilab's treasury. As a result, as of such date, the minimum tender condition
would be satisfied if Purchaser acquired 18,717,339 Unilab shares in the offer.
Also, as of such date, Purchaser could cause a short-form merger to become
effective in accordance with the DGCL, without a meeting of Unilab's
stockholders, if Purchaser acquired 30,216,330 Unilab shares in the offer,
assuming no exercise of outstanding Unilab stock options.
APPRAISAL RIGHTS
Unilab stockholders do not have appraisal rights in connection with the
offer. If we complete the offer but less than 90% of the outstanding Unilab
shares are validly tendered and not withdrawn in the offer, we intend to effect
a long-form merger (as described above) as permitted under Section 251 of the
DGCL. Unilab stockholders who have not exchanged their Unilab shares in the
offer will not have appraisal rights in connection with a long-form merger.
However, if at least 90% of the outstanding Unilab shares are validly
tendered and not properly withdrawn in the offer, we intend to effect a
short-form merger pursuant to Section 253 of the DGCL, and Unilab stockholders
at the time of the short-form merger will have the right under Section 262 of
the DGCL to dissent and demand appraisal of their Unilab shares. Under Section
262 of the DGCL, dissenting stockholders who comply with the applicable
statutory procedures may be entitled to receive a judicial determination of the
fair value of their Unilab shares, exclusive of any element of value arising
from the accomplishment or expectation of the merger, and to receive payment of
this fair value in cash, together with a fair rate of interest, if any. We
cannot assure you as to the methodology a court would use to determine fair
value or how a court would select which of the elements of value are to be
included in such a determination.
49
The foregoing is not a complete statement of the law relating to appraisal
rights and is qualified in its entirety by the summary of procedures for seeking
appraisal rights, which is set out in Annex C to this prospectus and
incorporated herein by reference, and the full text of Section 262 of the DGCL,
which is reprinted in its entirety after the summary in Annex C to this
prospectus and incorporated herein by reference.
CONDITIONS TO THE OFFER
The offer is subject to a number of conditions. These conditions are
described below:
Minimum Tender Condition. There must be validly tendered and not properly
withdrawn prior to the expiration of the offer the number of Unilab shares that
will constitute at least 50.1% of the aggregate number of outstanding Unilab
shares on a fully diluted basis (as though all options exercisable for Unilab
shares had been converted, exercised or exchanged) as of the date that we accept
the Unilab shares pursuant to our offer. Based on information supplied by
Unilab, the number of Unilab shares needed to satisfy the minimum tender
condition would have been 18,717,339 as of May 14, 2002.
Antitrust Condition. All waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, or HSR Act, must have expired or
been terminated and any required consents and clearances must have been
obtained. See "Regulatory Approvals".
Registration Statement on Form S-4 Effectiveness Condition. The
registration statement on Form S-4, of which this prospectus is a part, must
have been declared effective under the Securities Act and must not be the
subject of any stop order or proceedings seeking a stop order.
New York Stock Exchange Listing Condition. The Quest Diagnostics shares
issuable to Unilab stockholders in the offer and the merger must have been
approved for listing on the New York Stock Exchange, subject to official notice
of issuance.
Other Conditions to the Offer. The offer is also subject to the condition
that, at the expiration of the offer, there will not be existing and continuing
any of the following events or circumstances:
1. there having been instituted, pending, or issued any litigation,
suit, claim, action or proceeding before any federal or state court of the
United States (other than any such action in which a motion for a temporary
restraining order, a preliminary injunction or a permanent injunction will
have been denied or will have expired, or a judicial order granting any
such temporary restraining order, preliminary injunction or permanent
injunction will have been reversed on appeal and not reinstated) by any
United States federal government or governmental authority or agency or any
of the several states of the United States or any attorney general thereof:
- challenging or seeking to make illegal or otherwise, directly or
indirectly, restrain or prohibit or make materially more costly, the
making of the offer, the acceptance for exchange or payment of any
Unilab shares by Quest Diagnostics or Purchaser, or the consummation
of the offer or the merger,
- seeking to obtain material damages or otherwise directly or indirectly
relating to the transactions contemplated by the offer, the merger or
the merger agreement,
- seeking to limit, restrain or prohibit Quest Diagnostics' or
Purchaser's ownership or operation of all or any material portion of
the business or assets of Unilab and Unilab's subsidiaries, taken as a
whole, or to compel Quest Diagnostics or any of its affiliates to
dispose of or hold separate all or any material portion of the
business or assets of Unilab and Unilab's subsidiary, taken as a
whole, or
- seeking to impose or confirm any limitation on the ability of Quest
Diagnostics or Purchaser to effectively exercise full rights of
ownership of any Unilab shares to be accepted in the offer on all
matters properly presented to Unilab's stockholders, including,
without limitation, the approval and adoption of the merger agreement
and the transactions contemplated by the merger agreement;
50
2. there having been:
- any law enacted, promulgated, amended, issued or deemed applicable to
(i) Quest Diagnostics, Unilab or any of their respective subsidiaries
or (ii) any transaction contemplated by the merger agreement, or
- any order of any kind entered, promulgated or enforced by any court or
governmental authority, which prohibits, restrains, restricts or
enjoins the consummation of the offer or has the effect of making the
offer illegal,
in each case, by any legislative body or governmental authority that would
result, directly or indirectly, in any of the consequences referred to in
paragraph (1) above;
3. there having occurred:
- a declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, or
- any limitation, whether or not mandatory, by any governmental
authority on the extension of credit by banks or other lending
institutions;
4. other than with respect to any order that is the subject of
paragraph (1) or (2) above, there having been enacted, entered, promulgated
or enforced by any court or governmental authority any order which
prohibits, restrains, restricts or enjoins the consummation of the offer or
has the effect of making the offer illegal;
5. either:
- Unilab having breached or failed to perform in any material respect
its obligations, covenants or agreements under the merger agreement,
- the representations and warranties of Unilab contained in the merger
agreement that are qualified by reference to a Unilab material adverse
effect (as defined in the merger agreement -- see "The Merger
Agreement -- Representations and Warranties") not having been true and
correct when made or as of the date when Quest Diagnostics accepts
Unilab shares for payment as if made at or at and as of such time
(other than representations and warranties which by their terms
address matters only as of another specified date, which will be true
and correct only as of such date), or
- the representations and warranties of Unilab contained in the merger
agreement that are not so qualified not having been true and correct
when made or as of the date when Quest Diagnostics accepts Unilab
shares for payment as if made at or at and as of such time (other than
representations and warranties which by their terms address matters
only as of another specified date, which will be true and correct only
as of such date), except in the case of this bullet only, for such
inaccuracies as have not resulted, or are not reasonably likely to
result, in a Unilab material adverse effect;
6. there not having occurred or exist any events, circumstances,
changes, occurrences, facts or effects that have had or would reasonably be
expected to have a Unilab material adverse effect (as defined in the merger
agreement); and
7. the merger agreement not having been terminated in accordance with
its terms,
which, in our reasonable judgment in any such case, and regardless of the
circumstances (including any action or inaction by Quest Diagnostics or any of
its affiliates) giving rise to any such condition, makes it inadvisable to
proceed with such acceptance for exchange or payment.
The conditions to the offer described above are solely for our benefit and
we may assert them regardless of the circumstances giving rise to any such
conditions. We may, in our sole discretion, waive these conditions in whole or
in part, other than the minimum tender condition. The determination as to
whether any condition has been satisfied will be in our reasonable judgment and
will be final and binding on all parties. The failure by us at any time to
exercise any of the foregoing rights will not be deemed a waiver of any such
right and each such right will be deemed an ongoing right which may be asserted
at any time and from time to time. However, if
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the offer has expired, then all of the conditions to the offer, other than those
requiring receipt of necessary government approvals, must have been satisfied or
waived at or prior to the expiration of the offer.
Conditions to Acceptance of Unilab Shares for Payment or Exchange. In
addition to the conditions to the offer described above and notwithstanding
anything else to the contrary contained in the merger agreement, among other
things, Quest Diagnostics will not (unless Unilab notifies Quest Diagnostics
otherwise) be permitted to accept for payment or exchange any Unilab shares
pursuant to the offer if, at such time,
- Quest Diagnostics has breached or failed to perform in any material
respect its obligations, covenants or agreements under the merger
agreement,
- the representations and warranties of Quest Diagnostics contained in the
merger agreement that are qualified by reference to a Quest Diagnostics
material adverse effect (as defined in the merger agreement -- see "The
Merger Agreement -- Representations and Warranties") were not true and
correct when made or as of the date when Quest Diagnostics accepts Unilab
shares for payment as if made at or at and as of such time (other than
representations and warranties which by their terms address matters only
as of another specified date, which will be true and correct only as of
such date), or
- the representations and warranties of Quest Diagnostics contained in the
merger agreement that are not so qualified were not true and correct when
made or as of the date when Quest Diagnostics accepts Unilab shares for
payment as if made at or at and as of such time (other than
representations and warranties which by their terms address matters only
as of another specified date, which will be true and correct only as of
such date), except in the case of this bullet only, for such inaccuracies
that have not resulted, or are not reasonably likely to result, in a
Quest Diagnostics material adverse effect.
REGULATORY APPROVALS
Based upon our examination of publicly available information with respect
to Unilab and review of certain information furnished by Unilab, and based upon
discussions between our representatives and representatives of Unilab during our
investigation of Unilab, see "Background of the Offer", except as set forth
herein, we are not aware of any licenses or regulatory permits that appear to be
material to the business of Unilab and its subsidiary, taken as a whole, and
that might be adversely affected by our acquisition of Unilab shares in the
offer. In addition, except as set forth herein, we are not aware of any
non-routine approvals or other consents by or from any governmental authority or
administrative or regulatory agency that would be required to consummate our
acquisition or ownership of the Unilab shares. Should any such approval or other
action be required, we expect to seek such approval or action, except as
described under "State Takeover Laws". Should any such approval or other action
be required, we cannot be certain that we would be able to obtain any such
approval or action without substantial conditions or that adverse consequences
might not result to Unilab's business, or that certain parts of Unilab's, Quest
Diagnostics' or any of their respective subsidiaries' businesses might not have
to be disposed of or held separate in order to obtain such approval or action.
In that event, we may not be required to purchase any Unilab shares in the
offer.
State Takeover Laws. Unilab is incorporated under the laws of the State of
Delaware. In general, Section 203 of the DGCL prevents an "interested
stockholder", generally a person who owns or has the right to acquire 15% or
more of a corporation's outstanding voting stock, or an affiliate or associate
thereof, from engaging in a "business combination", which includes mergers and
certain other transactions, with a Delaware corporation for a period of three
years following the date such person became an interested stockholder unless,
among other things, prior to such date the board of directors of the corporation
approved either the business combination or the transaction in which the
interested stockholder became an interested stockholder. UNILAB HAS OPTED OUT OF
SECTION 203 IN ITS CERTIFICATE OF INCORPORATION. ACCORDINGLY, SECTION 203 IS
INAPPLICABLE TO THE OFFER AND THE MERGER.
A number of states have adopted takeover laws and regulations that purport
to be applicable to attempts to acquire securities of corporations that are
incorporated in those states or that have substantial assets, shareholders,
principal executive offices or principal places of business in those states.
Except as described herein, we do not know whether any of these laws will, by
their terms, apply to the offer and the merger and we have not complied with any
such laws. To the extent that these state takeover statutes purport to apply to
the offer or the merger, we believe that there are reasonable bases for
contesting such laws.
52
In 1982, the Supreme Court of the United States, in Edgar v. Mite Corp.,
invalidated on constitutional grounds the Illinois Business Takeovers Statute,
which, as a matter of state securities law, made takeovers of corporations
meeting certain requirements more difficult. The reasoning in that decision is
likely to apply to certain other state takeover statutes. In 1987, however, in
CTS Corp. v. Dynamics Corp. of America, the Supreme Court of the United States
held that the State of Indiana could as a matter of corporate law and, in
particular, those aspects of corporate law concerning corporate governance,
constitutionally disqualify a potential acquiror from voting on the affairs of a
target corporation without the prior approval of the remaining shareholders, as
long as those laws were applicable only under certain conditions. Subsequently,
in TLX Acquisition Corp. v. Telex Corp., a federal district court in Oklahoma
ruled that the Oklahoma statutes were unconstitutional insofar as they apply to
corporations incorporated outside Oklahoma, because they would subject those
corporations to inconsistent regulations. Similarly, in Tyson Foods, Inc. v.
McReynolds, a federal district court in Tennessee ruled that four Tennessee
takeover statutes were unconstitutional as applied to corporations incorporated
outside Tennessee. This decision was affirmed by the United States Court of
Appeals for the Sixth Circuit. In December 1988, a federal district court in
Florida held, in Grand Metropolitan plc v. Butterworth, that the provisions of
the Florida Affiliated Transactions Act and Florida Control Share Acquisition
Act were unconstitutional as applied to corporations incorporated outside of
Florida. Based upon these decisions, we believe that there would be a reasonable
basis for contesting state takeover laws which may be attempted to be enforced
in connection with the offer and the merger.
Antitrust. Under the HSR Act and the rules that have been promulgated
thereunder by the Federal Trade Commission, or FTC, certain acquisition
transactions may not be consummated unless specified information has been
furnished to the Antitrust Division of the Department of Justice, referred to
herein as the Antitrust Division, and the FTC and certain waiting period
requirements have been satisfied. The exchange of Unilab shares for cash and
Quest Diagnostics shares pursuant to the offer is subject to such requirements.
Pursuant to the requirements of the HSR Act, Quest Diagnostics and Unilab
filed a Premerger Notification and Report Form with respect to the offer with
the Antitrust Division and the FTC on April 24, 2002 and April 22, 2002,
respectively.
Under the provisions of the HSR Act applicable to our offer, we may not
consummate the purchase of Unilab shares until the expiration, or earlier
termination, of a 30-calendar day waiting period following the filing by Quest
Diagnostics. Accordingly, the waiting period under the HSR Act applicable to the
purchase of Unilab shares pursuant to the offer was initially scheduled to
expire at 11:59 p.m., New York City time, on May 24, 2002.
However, on May 24, 2002, Quest Diagnostics and Unilab received a request
for additional information and documentary material, or a second request, from
the FTC with respect to the offer. As a result of the second request from the
FTC, the waiting period with respect to the offer has been extended and will now
expire at 11:59 p.m., New York City time, on the thirtieth calendar day (or the
first business day thereafter) after the date of substantial compliance by Quest
Diagnostics with such request, unless such extended waiting period is earlier
terminated by the FTC. We are currently complying with the FTC's request for
additional information and documentary material. Until the second 30-day waiting
period under the HSR Act has expired or is terminated, and unless there is no
other basis for terminating the offer, we must extend the offer in increments up
to September 30, 2002. Only one extension of the initial 30-day waiting period
pursuant to a request for additional information is authorized by the HSR Act
and the rules promulgated thereunder. The consummation of the offer and the
merger could be enjoined preliminarily or permanently by a court order on
antitrust or competition grounds, or temporarily with the consent of Quest
Diagnostics and Unilab. No additional withdrawal rights not otherwise provided
for by applicable law and described in this prospectus will result from the
second request, entry of a court injunction, or decision by Quest Diagnostics
and Unilab to postpone consummation of the offer. See "Withdrawal Rights and
Change of Election". It is a condition to the offer that the waiting period
applicable under the HSR Act to the offer expire or be terminated. See "The
Offer -- Conditions to the Offer" on page 50.
The FTC and the Antitrust Division scrutinize the legality under the
antitrust laws of transactions such as our proposed acquisition of Unilab
pursuant to the offer and merger. At any time before or after the
53
acquisition of Unilab shares pursuant to the offer by Purchaser, the FTC or the
Antitrust Division could take such action under the antitrust laws as it deems
necessary or desirable in the public interest, including seeking to enjoin the
acquisition of Unilab shares pursuant to the offer or seeking the divestiture of
Unilab shares purchased by Purchaser or the divestiture of substantial assets of
Quest Diagnostics, Unilab or their respective subsidiaries. Private parties and
state attorneys general may also bring legal action under federal or state
antitrust laws under certain circumstances. Based upon an examination of
information available to us relating to the businesses in which Quest
Diagnostics, Unilab and their respective subsidiaries are engaged, we believe
that the acquisition of Unilab shares will not violate the antitrust laws.
Nevertheless, there can be no assurance that a challenge to the offer on
antitrust grounds will not be made or, if such a challenge is made, what the
result would be. See "The Offer -- Conditions to the Offer" on page 50 for a
description of certain conditions to the offer, including conditions with
respect to litigation.
CERTAIN EFFECTS OF THE OFFER
Reduced Liquidity; Possible Delisting. The tender of Unilab shares
pursuant to the offer will reduce the number of holders of Unilab shares, and
the number of Unilab shares that might otherwise trade publicly, and could
adversely affect the liquidity and market value of the remaining Unilab shares
held by the public.
Nasdaq National Market Listing. Depending upon the number of Unilab shares
purchased in the offer, Unilab shares may no longer meet the requirements of the
National Association of Securities Dealers for continued inclusion on the Nasdaq
National Market, which requires that an issuer either:
- have at least 750,000 publicly held shares, held by at least 400 round
lot stockholders, with a market value of at least $5,000,000, have at
least two market makers, have net tangible assets of at least $4 million
(although this criteria remains effective only until November 1, 2002),
and have a minimum bid price of $1, or
- have at least 1,100,000 publicly held shares, held by at least 400 round
lot stockholders, with a market value of at least $15,000,000, have a
minimum bid price of $5, have at least 4 market makers and have either
(x) a market capitalization of at least $50,000,000 or (y) a total of at
least $50,000,000 in assets and revenues, respectively.
If the Nasdaq National Market ceased publishing quotations for Unilab
shares, it is possible that Unilab shares would continue to trade in the
over-the-counter market and that price or other quotations would be reported by
other sources. The extent of the public market for such Unilab shares and the
availability of such quotations would depend, however, upon such factors as the
number of stockholders and/or the aggregate market value of such shares
remaining at such time, the interest in maintaining a market in the Unilab
shares on the part of securities firms, the possible termination of registration
under the Exchange Act as described below, and other factors. We cannot predict
whether the reduction in the number of Unilab shares that might otherwise trade
publicly would have an adverse or beneficial effect on the market price for, or
marketability of, the Unilab shares or whether it would cause future market
prices to be greater or lesser than the price we are presently offering.
We intend to cause the delisting of Unilab shares from the Nasdaq National
Market following consummation of the offer and the merger.
Status as "Margin Securities". Unilab shares are presently "margin
securities" under the regulations of the Federal Reserve Board, which, among
other things, allows brokers to extend credit on the collateral of Unilab
shares. Depending on the factors similar to those described above with respect
to listing and market quotations, following consummation of the offer, Unilab
shares may no longer constitute "margin securities" for the purposes of the
Federal Reserve Board's margin regulations, in which event Unilab shares would
be ineligible as collateral for margin loans made by brokers.
Going Private Transactions. The SEC has adopted Rule 13e-3 under the
Exchange Act which is applicable to certain "going private" transactions and
which may under certain circumstances be applicable to the merger or another
business combination following the purchase of Unilab shares pursuant to the
offer in which we seek to acquire the remaining shares of Unilab shares not held
by us. We believe that Rule 13e-3 will not be applicable to the merger. Rule
13e-3 requires, among other things, that certain financial
54
information concerning Unilab and certain information relating to the fairness
of the proposed transaction and the consideration offered to minority
shareholders in such transaction be filed with the SEC and disclosed to
stockholders prior to consummation of the merger or other business combination.
Registration Under the Exchange Act. Unilab shares are currently
registered under the Exchange Act. Unilab can terminate that registration upon
application to the SEC if the outstanding shares are not listed on a national
securities exchange and if there are fewer than 300 holders of record of Unilab
shares. Termination of registration of Unilab shares under the Exchange Act
would reduce the information that Unilab must furnish to its stockholders and to
the SEC and would make certain provisions of the Exchange Act, such as the
short-swing profit recovery provisions of Section 16(b) and the requirement of
furnishing a proxy statement in connection with stockholders meetings pursuant
to Section 14(a) and the related requirement of furnishing an annual report to
stockholders, no longer applicable with respect to all Unilab shares. In
addition, if Unilab shares are no longer registered under the Exchange Act, the
requirements of Rule 13e-3 under the Exchange Act with respect to
"going-private" transactions would no longer be applicable to Unilab.
Furthermore, the ability of "affiliates" of Unilab and persons holding
"restricted securities" of Unilab to dispose of such securities pursuant to Rule
144 under the Securities Act may be impaired or eliminated. If registration of
the Unilab shares under the Exchange Act were terminated, they would no longer
be eligible for Nasdaq National Market listing or for continued inclusion on the
Federal Reserve Board's list of "margin securities". We currently intend to
terminate the registration of the Unilab shares under the Exchange Act as soon
after consummation of the offer as the requirements for such termination are
met.
SOURCE AND AMOUNT OF FUNDS
Assuming that 30% of the Unilab shares outstanding prior to the expiration
of the offer are exchanged for cash in the offer and that the balance of the
Unilab shares are exchanged for Quest Diagnostics shares in the offer and the
merger, the aggregate cash required by Purchaser to consummate the offer and the
merger and to pay related fees and expenses of both Purchaser and Unilab is
estimated to be approximately $316 million. Pursuant to a commitment letter,
dated March 27, 2002, Bank of America, N.A. and Merrill Lynch Capital
Corporation have agreed to lend Quest Diagnostics an aggregate amount of $550
million in the form of a syndicated bridge loan facility in connection with the
offer and the merger. Quest Diagnostics expects to use a portion of the proceeds
of the bridge financing to pay the cash consideration and the fees and expenses
of the offer and the merger. The offer is not conditioned upon the bridge
financing or any other financing being obtained.
Under the bridge loan facility, the $550 million will be available as a
term loan with an original maturity of 364 days from the date of execution of
definitive loan documentation, at which date the bridge loan facility will
terminate and all amounts outstanding will become due and payable in full. The
bridge loan facility will be available, at the option of Quest Diagnostics, in
up to three borrowings.
Quest Diagnostics may prepay the bridge loan facility, in whole or in part
at any time without penalty, and the unutilized portion of the bridge loan
facility may be irrevocably cancelled, in whole or in part, upon three days
prior written notice by Quest Diagnostics.
Quest Diagnostics, at its option, may elect that the loans comprising each
borrowing bear interest at a rate per annum equal to the ABR or the Eurodollar
Rate plus an applicable margin that is dependent on Quest Diagnostics' debt
rating. For purposes of the bridge loan facility, "ABR" means the higher of (i)
the rate of interest publicly announced by Bank of America as its prime rate in
effect at its principal office in Charlotte, NC, and (ii) the federal funds
effective rate from time to time plus 0.5%. All per annum rates will be
calculated on the basis of a year of 360 days (or 365/366 days, in the case of
ABR loans) for actual days elapsed. During the occurrence of any payment default
under the bridge loan facility, the rate of interest applicable to each
outstanding loan will be increased by 2%.
Pursuant to an agreement, dated June 21, 2002, Bank of America, N.A.,
Merrill Lynch Capital Corporation and a syndicate of banks agreed to lend Quest
Diagnostics an aggregate amount of up to $450 million in the form of an
amortizing term loan. The proceeds of the term loan are available to Quest
Diagnostics only in connection with the offer and are subject to customary
conditions. The Company expects to use the proceeds of the term loan to
refinance borrowings under the bridge loan facility, if any, and/or to directly
finance the cash consideration and the fees and expenses of the offer and the
merger as well as to refinance the majority of Unilab's existing debt. Quest
Diagnostics has the ability to reduce the size of the
55
term loan and under the term loan agreement, repayments occur quarterly in
arrears amortizing at an annual rate of 15%, 20%, 20%, 20% and 25% of the amount
borrowed. Assuming $450 million is borrowed, the first amortization payment of
$16,875,000 becomes due on December 31, 2002.
Similar to the bridge loan facility, Quest Diagnostics, at its option, may
elect that the loan comprising each borrowing under the term loan commitment
bear interest at a rate per annum equal to the Base Rate or the Eurodollar Rate
plus an applicable margin percentage that is dependent on Quest Diagnostics'
debt rating. For purposes of the term loan commitment, "Base Rate" means the
greater of (a) the federal funds effective rate in effect on such day plus 0.5%
or (b) the rate of interest established from time to time by Bank of America at
its principal office in Charlotte, NC. During the occurrence of any payment
default under the term loan, the rate of interest applicable to each outstanding
loan will be increased by 2%.
For further information with respect to the bridge loan facility and the
term loan commitment, we refer you to the commitment letter and the term loan
credit agreement respectively, which are incorporated herein by reference.
ACCOUNTING TREATMENT OF THE MERGER
The merger of Unilab with Purchaser will be accounted for as a "purchase",
as such term is used under accounting principles generally accepted in the
United States, commonly referred to as "GAAP", for accounting and financial
reporting purposes. Unilab will be treated as the acquired corporation for such
purposes. Therefore, the total merger consideration paid by Quest Diagnostics in
connection with the merger, together with the direct costs of the merger, will
be allocated to Unilab's assets and liabilities based on their estimated fair
market values, with any excess being accounted for as goodwill.
We have prepared the unaudited pro forma combined financial information
contained in this prospectus using the purchase accounting method to account for
the merger. See "Unaudited Pro Forma Combined Financial Statements" on page 83.
FEES AND EXPENSES
Quest Diagnostics has retained Merrill Lynch to provide certain financial
advisory services in connection with the offer and the merger. In addition,
Quest Diagnostics has retained Merrill Lynch to act as dealer manager for the
offer. Merrill Lynch will receive approximately $6,500,000 for providing the
financial advisory services to Quest Diagnostics. However, Merrill Lynch will
not be paid any additional compensation for acting as dealer manager for the
offer, but will be reimbursed for its reasonable out-of-pocket expenses,
including reasonable expenses of counsel, incurred in connection with performing
such function. We have agreed to indemnify Merrill Lynch and related persons
against certain liabilities and expenses they may incur in connection with
providing financial advisory services and acting as dealer manager for the
offer, including certain liabilities and expenses under the federal securities
laws. Merrill Lynch is currently engaged by Quest Diagnostics and has in the
past provided, and may in the future provide, financial advisory and financing
services to Quest Diagnostics, including in connection with Quest Diagnostics'
acquisition of AML and Unilab, and has received, and may receive, fees for
rendering these services. In the ordinary course of Merrill Lynch's business,
Merrill Lynch and its affiliates may actively trade securities of Quest
Diagnostics and Unilab for their own accounts and for the accounts of customers
and, accordingly, may at any time hold a long or short position in these
securities.
We have retained Georgeson Shareholder Communications, Inc. as information
agent in connection with the offer. The information agent may contact Unilab
stockholders by mail, telephone, telex, telegraph and personal interview and may
request brokers, dealers and other nominee stockholders to forward material
relating to the offer to beneficial owners of Unilab shares. We will pay the
information agent approximately $8,500 for these services in addition to
reimbursing the information agent for its reasonable out-of-pocket expenses. We
have agreed to indemnify the information agent against certain liabilities and
expenses in connection with the offer, including certain liabilities under the
U.S. federal securities laws.
In addition, we have retained Computershare Trust Company of New York as
the offer exchange agent. We will pay the offer exchange agent approximately
$15,000 for its services in connection with the offer, will reimburse the
exchange agent for its reasonable out-of-pocket expenses and will indemnify the
offer exchange agent against certain liabilities and expenses, including certain
liabilities under the U.S. federal securities laws.
56
Except as set forth above, we will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of Unilab shares pursuant
to the offer. We will reimburse brokers, dealers, commercial banks and trust
companies and other nominees, upon request, for customary clerical and mailing
expenses incurred by them in forwarding offering materials to their customers.
STOCK EXCHANGE LISTING
Our common stock is listed on the New York Stock Exchange under the symbol
"DGX". We will make an application to list on the New York Stock Exchange the
Quest Diagnostics shares that we will issue pursuant to the offer and the
merger.
57
THE MERGER AGREEMENT
THE FOLLOWING IS A SUMMARY DESCRIPTION OF THE MATERIAL PROVISIONS OF THE
MERGER AGREEMENT. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
COMPLETE TEXT OF THE MERGER AGREEMENT, WHICH IS ATTACHED AS ANNEX A TO THIS
PROSPECTUS AND INCORPORATED HEREIN BY REFERENCE. ALL UNILAB STOCKHOLDERS ARE
URGED TO READ THE MERGER AGREEMENT IN ITS ENTIRETY BECAUSE IT IS THE LEGAL
DOCUMENT THAT GOVERNS THE OFFER AND THE MERGER.
THE OFFER
Terms of the Offer. The merger agreement provides for the commencement by
Purchaser of the offer to exchange 0.3256 of a Quest Diagnostics share, or to
pay an amount of $26.50 in cash, for each Unilab share that is validly tendered
and not properly withdrawn in the offer, subject to the proration and election
procedures described in this prospectus and the related letter of election and
transmittal. Under the merger agreement, Unilab stockholders may elect to
receive Quest Diagnostics shares or cash in exchange for each of their Unilab
shares, except that if the number of validly tendered and not withdrawn Unilab
shares electing to receive the cash consideration in the offer exceeds 30% of
the aggregate number of Unilab shares outstanding immediately prior to the
expiration date, then:
- each validly tendered Unilab share electing to receive Quest Diagnostics
shares in the offer will be exchanged for 0.3256 of a Quest Diagnostics
share, and
- each validly tendered Unilab share electing to receive the cash
consideration will be exchanged for a pro rated combination of cash and
Quest Diagnostics shares equal to the sum of:
- an amount in cash, without interest, equal to the product of (x) $26.50
and (y) the cash fraction (as defined in "The Offer -- Basic Terms"),
and
- a number of Quest Diagnostics shares equal to the product of (x) 0.3256
of a Quest Diagnostics share and (y) a fraction equal to one minus the
cash fraction.
In the event the number of Unilab shares, the holders of which have elected
to receive the cash consideration, is equal to or less than 30% of the aggregate
number of Unilab shares outstanding immediately prior to the expiration date,
then all such Unilab shares will be exchanged for $26.50 in cash, without
interest, and all shares, the holders of which have elected to receive Quest
Diagnostics shares, will be exchanged for 0.3256 of a Quest Diagnostics share.
Conditions to the Offer. Purchaser's obligation to accept for payment and
pay for any Unilab shares tendered in the offer is subject to the satisfaction
of the minimum tender condition and the other conditions that are described in
"The Offer -- Conditions to the Offer" on page 50. In addition, Purchaser is not
permitted to accept for payment or exchange any Unilab shares in the offer
unless, at such time, it has satisfied the conditions described in "The
Offer -- Conditions to the Offer -- Conditions to Acceptance of Unilab Shares
for Payment or Exchange" on page 52.
Extension, Termination and Amendment. Purchaser has expressly reserved the
right to waive any of the conditions to the offer or to make any changes in the
terms of or conditions to the offer, except that, without the consent of Unilab,
Purchaser is prohibited from:
- decreasing the consideration payable in the offer,
- changing the form of consideration to be paid in the offer to a form
other than cash or Quest Diagnostics shares,
- decreasing the aggregate amount of cash available in the offer or
changing the relative amount of cash available in the offer,
- reducing the number of Unilab shares to be purchased in the offer,
- imposing conditions to the offer in addition to those set forth in the
merger agreement,
- modifying or waiving the minimum tender condition,
- except pursuant to the merger agreement, changing the date on which the
offer is scheduled to expire, or
58
- making any other change that is adverse to the Unilab stockholders or to
holders that have elected a particular form of consideration in the
offer.
The merger agreement provides that, unless Unilab otherwise agrees,
Purchaser must, or in the case of the third bullet below, has the option to,
extend the offer for one or more periods (not in excess of ten business days
each):
- beyond the initial scheduled expiration date, up to September 30, 2002,
if, at the scheduled or extended expiration date of the offer, any of the
conditions to the offer have not been satisfied or, to the extent
permitted, waived, until the conditions to the offer are satisfied or, to
the extent permitted, waived,
- for any period required by any rule, regulation, interpretation or
position of the SEC or the SEC's staff applicable to the offer or any
period required by applicable law, or
- for an aggregate period of not more than ten business days beyond the
latest applicable date that would otherwise be permitted under the first
or second bullet above, if, as of the expiration date, all of the
conditions to the offer have been satisfied or waived, but the number of
Unilab shares validly tendered and not withdrawn equals more than 80%,
but less than 90%, of the outstanding Unilab shares on a fully diluted
basis.
Purchaser will not be obligated to extend the offer pursuant to the first
bullet, but may elect to do so in accordance with the terms of the merger
agreement, if the minimum tender condition is not satisfied at the time such
extension would otherwise be required as long as certain other conditions to the
offer have been satisfied (which conditions are expressly set forth in the
merger agreement) and we have publicly announced such fact and our intention not
to extend the offer at least two business days prior to the date that the
extension would otherwise have been required. If Purchaser elects to extend the
expiration date pursuant to the third bullet above, we will be deemed to have
irrevocably waived all of the conditions to the offer set forth in full detail
under the caption "The Offer -- Conditions to the Offer". Except as provided in
the third bullet above, we are not permitted to extend the offer without the
prior written consent of Unilab at the time that all conditions to the offer
have been satisfied or, to the extent permitted, waived.
Prompt Payment for Unilab Shares After Closing of the Offer. Subject to
the conditions of the offer, Purchaser will accept for payment and pay for,
promptly after the expiration of the offer, all Unilab shares validly tendered
and not properly withdrawn in the offer.
For a further description of the mechanics of the offer, please refer to
the section of this prospectus entitled "The Offer", beginning on page 38.
THE MERGER
Terms of the Merger. The merger agreement provides that Unilab will be
merged with and into Purchaser as promptly as practicable after the satisfaction
or, if permissible, waiver of the conditions to the merger set forth in the
merger agreement (but in no event later than two business days after all such
conditions have been satisfied or waived), and that Purchaser will be the
surviving corporation in the merger. However, if either of the conditions set
forth in (A) below, or all of the conditions set forth in (B) below, are
satisfied, then the merger may instead be effected, at Quest Diagnostics'
discretion, as a merger of Purchaser with and into Unilab, with Unilab being the
surviving corporation of the merger:
- (A)(i) the aggregate value of all Quest Diagnostics shares payable to
Unilab stockholders upon consummation of the offer and the merger, based
upon the lower of the closing price of Quest Diagnostics shares on the
New York Stock Exchange Composite Tape on the date immediately prior to
the effective time of the merger or the date when Quest Diagnostics
accepts the Unilab shares for payment pursuant to the offer, which we
refer to as the stock value, would be less than 42% of the aggregate
value of the stock value and all cash payable to Unilab stockholders upon
consummation of the offer and the merger, or (ii) Quest Diagnostics
and/or Unilab do not obtain a tax opinion, stating that the offer and the
merger will be treated as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code; or
- (B)(i) the aggregate value of all cash payable to Unilab stockholders
upon consummation of the offer and the merger is less than 18% of the
aggregate value of the stock value and all cash payable to Unilab
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stockholders upon consummation of the offer and the merger, (ii) Unilab
stockholders holding more than 82% of the outstanding Unilab shares
exchange such stock solely for Quest Diagnostics shares in the offer and
the merger, and (iii) Quest Diagnostics and Unilab obtain tax opinions,
stating that the offer and the merger will be treated as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code.
Please be aware that the form of the merger effected may have important tax
consequences to you. See "The Offer -- Federal Income Tax Consequences" on page
46 for a discussion of the tax consequences of the transactions contemplated by
the merger agreement.
Effective Time of the Merger. The merger will become effective upon the
filing of a certificate of merger or certificate of ownership and merger with
the Secretary of State of the State of Delaware or such later time as is agreed
by Quest Diagnostics, Purchaser and Unilab and specified in the certificate of
merger or certificate of ownership and merger. The filing of the certificate of
merger or certificate of ownership and merger will take place as promptly as
practicable after satisfaction or, if permissible, waiver of the conditions
described below under "Conditions to the Merger", but in no event later than two
business days after all such conditions have been satisfied or, if permissible,
waived.
Certificate of Incorporation; By-Laws; Directors and Officers. The
certificate of incorporation of Purchaser in effect immediately prior to the
effective time of the merger will be the certificate of incorporation of the
surviving corporation until thereafter amended in accordance with the provisions
of the certificate of incorporation and as provided under the DGCL. In the event
the direction of the merger is reversed, and Purchaser is merged with and into
Unilab, the certificate of incorporation of Unilab will be the certificate of
incorporation of the surviving corporation, but, by reason of the merger, will
at the effective time of the merger be amended and restated to read in its
entirety as that of Purchaser immediately prior to the effective time of the
merger. The by-laws of Purchaser in effect immediately prior to the effective
time of the merger will be the by-laws of the surviving corporation until
thereafter amended as provided under applicable Delaware law and in accordance
with the certificate of incorporation of the surviving corporation and such
by-laws.
From and after the effective time of the merger and in each case until
their respective successors are duly elected or appointed and qualified, the
directors of Purchaser immediately prior to the effective time of the merger
will be the initial directors of the surviving corporation, and the officers of
Unilab immediately prior to the effective time of the merger will, subject to
the applicable provisions of the certificate of incorporation and the by-laws of
the surviving corporation, be the initial officers of the surviving corporation.
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
Conversion of Unilab Stock. At the effective time of the merger, by virtue
of the merger and without any action on the part of Quest Diagnostics,
Purchaser, Unilab or the holders thereof:
- each Unilab share issued and outstanding immediately prior to the
effective time (other than shares held in Unilab's treasury, Unilab
shares owned by Quest Diagnostics or Purchaser or any subsidiary of Quest
Diagnostics or Purchaser and Unilab shares held by stockholders who have
perfected their appraisal rights, if any) will be converted into the
right to receive 0.3256 of a Quest Diagnostics share;
- each share of Unilab restricted common stock issued and outstanding
immediately prior to the effective time will be converted into the right
to receive 0.3256 of a Quest Diagnostics share, which will be subject to
identical vesting and forfeiture provisions that were applicable to the
shares of Unilab restricted common stock immediately prior to the
effective time of the merger; and
- each Unilab share held in Unilab's treasury or owned by Quest
Diagnostics, Purchaser or any wholly owned subsidiary of Quest
Diagnostics or Purchaser will be cancelled and retired and will cease to
exist and no consideration will be paid in exchange for them.
As of the effective time of the merger, all Unilab shares and shares of
Unilab restricted common stock will no longer be outstanding and will
automatically be cancelled and retired and will cease to exist, and each holder
of a certificate representing any such shares will cease to have any rights with
respect thereto, except the right to receive the consideration described above.
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Exchange of Certificates. From and after the effective time of the merger,
Quest Diagnostics will deposit, or cause to be deposited, into an exchange fund
administered by Computershare Trust Company of New York or a bank or trust
company designated by Quest Diagnostics that is reasonably satisfactory to
Unilab, which we refer to as the exchange agent, certificates representing Quest
Diagnostics shares issuable to Unilab stockholders in the merger. The exchange
agent will then, pursuant to irrevocable instructions, deliver the Quest
Diagnostics shares exchangeable in the merger out of such exchange fund. In lieu
of the delivery of fractional Quest Diagnostics shares, the exchange agent will
aggregate all such fractional shares and sell them at the then-prevailing price
on the New York Stock Exchange, and shall deliver to each holder that would have
been entitled to a fractional share an amount in cash equal to such holder's
ratable portion of the cash proceeds.
Termination of the Exchange Fund. Any portion of the exchange fund that
remains undistributed to Unilab stockholders for six months after the effective
time of the merger will be delivered to Quest Diagnostics, upon demand. After
such period, any Unilab stockholders who have not by that time complied with the
exchange procedures, as set forth in the merger agreement, must look solely to
Quest Diagnostics for Quest Diagnostics shares, any cash in lieu of fractional
Quest Diagnostics shares and any dividends or other distributions with respect
to the Quest Diagnostics shares to which they are entitled pursuant to the
merger agreement.
UNILAB BOARD OF DIRECTORS
Upon the acceptance for payment or exchange of Unilab shares pursuant to
the offer, Quest Diagnostics will be entitled to designate a number of directors
to Unilab's board of directors, rounded up to the next whole number, that equals
the product of (1) the total number of directors on the Unilab board of
directors, giving effect to the election of any additional directors pursuant to
the merger agreement and (2) the percentage that the number of Unilab shares
beneficially owned by Quest Diagnostics and/or Purchaser, including Unilab
shares accepted for payment or exchange in the offer, bears to the total number
of Unilab shares outstanding. Unilab will take all action necessary to cause
Quest Diagnostics' designees to be elected or appointed to the Unilab board of
directors, including by increasing the number of directors and seeking and
accepting resignations of incumbent directors. Unilab will also use its best
efforts to cause individuals designated by Quest Diagnostics to constitute the
number of members, rounded up to the next whole number, on (i) each committee of
Unilab's board of directors and (ii) each board of directors of each subsidiary
of Unilab identified by Quest Diagnostics (and each committee thereof) that
represents the same percentage as such individuals represent on Unilab's board
of directors, in each case, only to the extent permitted by applicable law.
Notwithstanding anything in the merger agreement to the contrary, Quest
Diagnostics and Unilab will use their respective best efforts, including by
reducing the number of directors that Quest Diagnostics may designate to
Unilab's board as described above, but in no event to less than a majority of
the directors on Unilab's board of directors, to ensure that at least two of the
members of Unilab's board of directors will, at all times prior to the effective
time of the merger, be directors of Unilab who were directors of Unilab prior to
the consummation of the offer, whom we refer to as "continuing directors".
The merger agreement provides that Unilab's obligation to appoint Quest
Diagnostics' designees to Unilab's board of directors is subject to Section
14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. Unilab will
promptly take all actions, and will include in the Solicitation/Recommendation
Statement on Schedule 14D-9, such information with respect to Unilab and its
officers and directors as Section 14(f) and Rule 14f-1 require. This information
is reflected in Unilab's Solicitation/Recommendation Statement on Schedule
14D-9, which is being mailed to you with this prospectus.
Following the election or appointment of Quest Diagnostics' designees and
until the effective time of the merger, the approval of a majority of the
continuing directors then in office will be required to authorize any
termination of the merger agreement by Unilab, any amendment of the merger
agreement requiring action by the Unilab board of directors, any extension of
time for performance of any obligation or action under the merger agreement by
Quest Diagnostics or Purchaser, any waiver of compliance with any of the
agreements or conditions contained in the merger agreement for the benefit of
Unilab, any amendment of the certificate of incorporation or by-laws of Unilab,
and any other action of Unilab under the merger agreement which adversely
affects the holders of Unilab shares, other than Quest Diagnostics or Purchaser.
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TREATMENT OF UNILAB STOCK OPTIONS
All stock options outstanding at the effective time of the merger under the
Unilab 2001 Stock Option Plan and the Unilab Amended and Restated 2000 Executive
Stock Option Plan (other than those Unilab stock options that will be cancelled
pursuant to employment agreements entered into with certain Unilab executives)
will be assumed by Quest Diagnostics and will be exercisable on the same terms
and conditions as under the applicable Unilab stock option plan, except that:
- each assumed Unilab stock option will be exercisable for and represent
the right to acquire that whole number of Quest Diagnostics shares,
rounded to the nearest whole share, equal to (a) the number of Unilab
shares subject to such Unilab stock option multiplied by (b) 0.3256;
- the option exercise price per Quest Diagnostics share will be an amount
equal to (a) the option exercise price per Unilab share subject to such
Unilab stock option in effect immediately prior to the effective time of
the merger divided by (b) 0.3256, rounded down to the nearest whole cent;
and
- the vesting price targets applicable to each unvested performance based
Unilab stock option will be equal to (a) the vesting price targets
applicable to such unvested performance based Unilab stock option
immediately prior to the effective time of the merger divided by (b)
0.3256.
The merger agreement provides for certain procedures under which each
holder of a vested Unilab stock option may elect to exercise the vested Unilab
stock option effective as of the date on which Purchaser accepts for payment or
exchange all Unilab shares pursuant to the offer for the purpose of tendering
into the offer all of the Unilab shares issuable to such person upon the
exercise of the vested Unilab stock option.
Under the terms of the merger agreement, the Quest Diagnostics shares
subject to the Unilab stock options that have been assumed by Quest Diagnostics
will be covered by an effective statement on Form S-8 or another appropriate
form for so long as such stock options remain outstanding.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains a number of customary representations and
warranties relating to each of the parties and their ability to consummate the
offer and the merger. Among others, Unilab made representations and warranties
to Quest Diagnostics and Purchaser regarding:
- organization and qualification to do business,
- subsidiaries,
- capitalization,
- corporate authority to enter into the merger agreement,
- absence of a breach of the articles of incorporation, by-laws, law or
other agreements as a result of the transactions contemplated by the
merger agreement,
- governmental consents, approvals, orders and authorizations required in
connection with the transactions contemplated by the merger agreement,
- compliance with laws,
- SEC filings and financial statements;,
- information provided for inclusion in the Schedule 14D-9 and this
prospectus,
- absence of certain changes and events since December 31, 2001,
- absence of litigation,
- employee benefit plans,
- labor and employment matters,
- property and leases,
- intellectual property,
- taxes,
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- environmental matters,
- material contracts,
- insurance,
- board approval and the required Unilab stockholder vote,
- related party transactions,
- guarantees by Unilab's subsidiaries,
- customers,
- receivables, and
- brokers.
Among others, Quest Diagnostics and Purchaser made representations and
warranties to Unilab regarding:
- corporate organization,
- capitalization,
- corporate authority to enter into the merger agreement,
- the absence of a breach of the articles of incorporation, by-laws, law or
other agreements as a result of the transactions contemplated by the
merger agreement,
- SEC filings and financial statements,
- information provided for inclusion in the Schedule 14D-9 and this
prospectus,
- no vote required to consummate the transactions contemplated by the
merger agreement,
- operations of Purchaser,
- tax matters,
- brokers,
- employee benefit plans,
- absence of a material adverse effect on Quest Diagnostics since December
31, 2001,
- litigation,
- governmental consents, approvals, orders and authorizations required in
connection with the transactions contemplated by the merger agreement,
- compliance with laws, and
- financing.
The representations and warranties contained in the merger agreement do not
survive the effective time of the merger.
Certain of the representations and warranties of the parties are qualified
by a material adverse effect standard. A material adverse effect with respect to
Unilab or Quest Diagnostics, as applicable, is any event, circumstance, change,
occurrence, fact or effect that, individually or in the aggregate with all other
events, circumstances, changes, occurrences, facts and/or effects, is or is
reasonably likely to be materially adverse to the business, condition (financial
or otherwise), assets, liabilities or results of operations of Unilab and its
subsidiaries or Quest Diagnostics and its subsidiaries, as the case may be,
taken as a whole, except that the foregoing does not include any event,
circumstance, change, occurrence, fact or effect resulting from or relating to:
- changes in general United States economic conditions, changes in United
States financial markets in general or changes in the general economic
conditions in the California markets in which Unilab and its subsidiaries
or Quest Diagnostics and its subsidiaries, as the case may be, operate,
in any case,
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provided that Unilab and its subsidiaries or Quest Diagnostics and its
subsidiaries, as the case may be, are not disproportionately affected by
such changes relative to other companies in such markets,
- changes in the industry in which Unilab and its subsidiaries or Quest
Diagnostics and its subsidiaries, as the case may be, operate or changes
in the industry in the California markets in which Unilab and its
subsidiaries or Quest Diagnostics and its subsidiaries, as the case may
be, operate, in either case, provided that Unilab and its subsidiaries or
Quest Diagnostics and its subsidiaries, as the case may be, are not
disproportionately affected by such changes relative to other companies
in these markets,
- changes in any applicable laws, or
- the public announcement of the merger agreement or the transactions
contemplated thereby.
CONDUCT OF BUSINESS PENDING THE MERGER
Conduct of Business by Unilab Pending the Merger. Unilab has agreed that,
from the date of the merger agreement to the effective time of the merger,
except as expressly contemplated by any other provision of the merger agreement,
as set forth in Unilab's disclosure schedule or as required by a governmental
authority of competent jurisdiction, unless Quest Diagnostics otherwise consents
in writing:
- the businesses of Unilab and its subsidiary will be conducted in all
material respects only in, and Unilab and its subsidiary will not take
any material action except in, the ordinary course of business and in a
manner consistent with past practice; and
- Unilab will use its reasonable best efforts to preserve substantially
intact the business organization of Unilab and its subsidiary, to keep
available the services of the current officers, employees and consultants
of Unilab and its subsidiary and to preserve the current relationships of
Unilab and its subsidiary with customers, suppliers and other persons
with which Unilab or any subsidiary has significant business relations.
Except as expressly contemplated by any other provision of the merger
agreement or as set forth in Unilab's disclosure schedule, neither Unilab nor
its subsidiary will, from the date of the merger agreement to the effective time
of the merger, directly or indirectly, do, or propose to do, any of the
following without the prior written consent of Quest Diagnostics:
- amend or otherwise change its certificate of incorporation or by-laws or
equivalent organizational documents;
- issue, sell, pledge, dispose of, grant or encumber, or authorize the
issuance, sale, pledge, disposition, grant or encumbrance of, any shares
of any class of capital stock of Unilab or any subsidiary, or any
options, warrants, convertible securities or other rights of any kind to
acquire any shares of such capital stock, or any other ownership interest
(including, without limitation, any phantom interest), of Unilab or any
subsidiary (except for the issuance of up to a maximum of 3,822,307
Unilab shares which were issuable pursuant to Unilab stock options
outstanding on the date of the merger agreement) or any assets of Unilab
or any subsidiary, except in the ordinary course of business and in a
manner consistent with past practice;
- except as expressly permitted by the merger agreement, waive any stock
repurchase rights, accelerate, amend or change the period of
exercisability of options or restricted stock, reprice options granted
under any Unilab stock option plan or authorize cash payments in exchange
for any options granted under any of such plans;
- declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to any of its
capital stock, except for dividends payable by a subsidiary of Unilab to
Unilab or any other subsidiary;
- reclassify, combine, split, subdivide or redeem, or purchase or otherwise
acquire, directly or indirectly, any of its capital stock or other
securities;
- acquire any corporation, partnership, other business organization or any
division thereof or any material amount of assets, incur any indebtedness
for borrowed money or issue any debt securities or assume, guarantee or
endorse, or otherwise become responsible for, the obligations of any
person, or make any
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loans or advances, or grant any security interest in any of its assets
except in the ordinary course of business and consistent with past
practice (which is deemed to include borrowings under its senior credit
facility), enter into any contract or agreement other than in the
ordinary course of business and consistent with past practice, authorize,
or make any commitment with respect to, any single capital expenditure
which is in excess of $500,000 or capital expenditures which are, in the
aggregate, in excess of $500,000 per month, which we refer to as the
monthly capital expenditure amount, from April 2, 2002 until the earlier
of (a) the date on which Purchaser accepts all Unilab shares pursuant to
the offer or (b) the termination of the merger agreement in accordance
with its terms (with an understanding that any unused portion of the
monthly capital expenditure amount may be rolled forward and utilized in
any subsequent month), or enter into or amend any contract, agreement,
commitment or arrangement with respect to any matter described in this
provision;
- sell, lease, license, mortgage, pledge, encumber or dispose of in any
manner any properties or assets which are material, individually or in
the aggregate, to Unilab;
- increase the compensation payable or to become payable or the benefits
provided to its directors, officers or employees, except for increases in
the ordinary course of business and consistent with past practice in
salaries or wages of employees of Unilab or any subsidiary who are not
directors or officers of Unilab or any subsidiary, or grant any severance
or termination pay to, or enter into any employment or severance
agreement with, any director, officer or other employee of Unilab or of
any subsidiary, or establish, adopt, enter into or amend any bonus,
profit-sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or arrangement
for the benefit of any director, officer or employee;
- change any of the accounting principles used by it, other than as
required by U.S. generally accepted accounting principles;
- make or rescind any tax election, settle or compromise any liability for
taxes or change or revoke any of its methods of tax accounting, or take
any action with respect to the computation of taxes or the preparation of
tax returns that is inconsistent with past practice without the consent
of Quest Diagnostics, which consent will not unreasonably be withheld;
- pay, discharge or satisfy any claim, liability or obligation, whether
absolute, accrued, asserted or unasserted, contingent or otherwise, other
than in the ordinary course of business and consistent with past practice
or claims, liabilities or obligations not exceeding $500,000 in the
aggregate;
- amend, modify or consent to the termination of any material contract, or
amend, waive, modify or consent to the termination of Unilab's or any
subsidiary's rights under such contract, or enter into any contract or
agreement that would be considered a restrictive agreement or a related
party agreement under the merger agreement;
- except with respect to trademarks in the ordinary course of business and
consistent with past practice, grant any license in respect of any
material intellectual property of Unilab or any subsidiary; develop any
intellectual property jointly with any third party; or disclose any
confidential intellectual property or other confidential information of
Unilab or any subsidiary, unless such disclosure is made in the ordinary
course of business consistent with past practice or would not reasonably
be expected to have a material adverse effect on Unilab;
- commence or settle any material litigation, suit, claim, action,
proceeding or investigation; or
- announce an intention, enter into any formal or informal agreement or
otherwise make a commitment to do any of the foregoing or take any action
that would materially delay the consummation of the offer and the merger.
Conduct of Business of Quest Diagnostics Pending Consummation of the
Merger. Quest Diagnostics has agreed that, from the date of the merger
agreement to the effective time of the merger, except as expressly
65
contemplated by any other provision of the merger agreement or as set forth in
Quest Diagnostics' disclosure schedule, unless Unilab otherwise consents in
writing, it will not:
- amend or otherwise change its certificate of incorporation or by-laws in
a manner adverse to Unilab stockholders as opposed to any other holders
of Quest Diagnostics shares;
- issue, sell, or grant, or authorize the issuance, sale or grant of, any
shares of capital stock of Quest Diagnostics except at the market price
or upon the exercise of options, warrants, convertible securities or
other rights of any kind to acquire any shares of such capital stock
which were issued with an exercise or conversion price of not less than
the market price at the time of issuance; provided that the merger
agreement does not prohibit issuances of capital stock, options or rights
as part of normal employee compensation in the ordinary course of
business or the issuance of capital stock, options, warrants, convertible
securities or other rights in connection with the acquisition of another
entity or business if such acquisition is otherwise permitted by the
merger agreement;
- declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to any of its
capital stock, except for dividends payable by a subsidiary of Quest
Diagnostics to Quest Diagnostics or any other subsidiary;
- reclassify, combine, split or subdivide its capital stock without
appropriate adjustment being made to the amount of Quest Diagnostics
shares payable to the Unilab stockholders in the offer or the merger;
- acquire any corporation, partnership, other business organization or any
division thereof or any material amount of assets, unless such
acquisition or the entering into of a definitive agreement relating to
the consummation of such transaction would not, in the reasonable
judgment of Quest Diagnostics at the time of such determination, impose
any material delay in the obtaining of, or materially increase the risk
of not obtaining, any authorizations, consents, orders, declarations or
approvals of any governmental authority necessary to consummate the offer
or the merger or the expiration or termination of any applicable waiting
period under any antitrust or competition law, or materially increase the
risk of any governmental authority entering an order prohibiting the
consummation of the offer or the merger or commencing any action seeking
to achieve certain effects described in of the merger agreement,
including actions seeking to challenge or make illegal the merger or the
transactions contemplated by the merger agreement; or
- announce an intention, enter into any formal or informal agreement or
otherwise make a commitment to do any of the foregoing or take any action
that would materially delay the consummation of the offer and the merger.
ADDITIONAL AGREEMENTS
Unilab and Quest Diagnostics have agreed to certain additional matters in
the merger agreement. The following summarizes the more significant of these
agreements:
Unilab Stockholder Meeting. If required by applicable law, Unilab, acting
through the Unilab board of directors, will, in accordance with applicable law,
duly call, convene and hold a special meeting of the Unilab stockholders as soon
as reasonably practicable after the acceptance for payment or exchange of Unilab
shares pursuant to the offer, for the purpose of voting upon the merger
agreement and the merger, and Unilab has agreed that the merger agreement will
be submitted at such meeting. Subject to the terms of the merger agreement,
Unilab will take all action necessary to secure the required votes of Unilab
stockholders to obtain approval for the merger agreement.
Preparation of Registration Statement On Form S-4 Relating To The Merger
and Proxy Statement/ Prospectus. If required by applicable law, promptly after
the acceptance for exchange or payment of Unilab shares pursuant to the Offer,
Quest Diagnostics and Unilab will prepare, and Quest Diagnostics will file with
the SEC, a registration statement on Form S-4 relating to the merger, in which a
proxy statement/prospectus will be included as Quest Diagnostics' prospectus.
The parties will cooperate in the preparation of the registration statement on
Form S-4 relating to the merger and proxy statement/prospectus. If required by
applicable law, Unilab will use its reasonable best efforts to mail the proxy
statement/prospectus to its stockholders as promptly as practicable after the
registration statement on Form S-4 relating to the merger is
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declared effective under the Securities Act and, if necessary, after the proxy
statement/prospectus will have been so mailed, promptly circulate amended,
supplemental or supplemented proxy material, and, if required in connection
therewith, resolicit proxies. Quest Diagnostics will take any action reasonably
required to be taken under applicable state securities or blue sky laws in
connection with the issuance of Quest Diagnostics shares in the offer and the
merger. No amendment or supplement to the registration statement on Form S-4
relating to the merger or proxy statement/prospectus will be made by Quest
Diagnostics or Unilab without the approval of the other party, which approval
will not be unreasonably withheld or delayed. Each party will advise the other
party promptly, after it receives notice thereof, of the time when the
registration statement on Form S-4 relating to the merger is declared effective
or any supplement or amendment thereto has been filed, of the issuance of any
stop order, of the suspension or qualification of Quest Diagnostics shares
issued in connection with the merger for offering or sale in any jurisdiction,
or of any request by the SEC for amendment of the proxy statement/prospectus or
comments thereon and responses thereto or requests by the SEC for additional
information. If at any time prior to the effective time of the merger, Unilab or
Quest Diagnostics discovers any information relating to either party, or any of
their respective affiliates, officers or directors, that should be set forth in
an amendment to the proxy statement/prospectus, so that such document would not
contain any misstatement of material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, the party that discovers that information shall promptly notify the
other party and an appropriate amendment or supplement describing such
information shall be promptly filed with the SEC and, to the extent required by
law or regulation, disseminated to Unilab stockholders.
Notwithstanding the foregoing, if Quest Diagnostics or Purchaser acquire at
least 90% of the outstanding Unilab shares pursuant to the offer or otherwise,
the parties have agreed, subject to the satisfaction or, to the extent permitted
under the merger agreement, waiver of all conditions to the merger, to take, or
cause to be taken, all necessary and appropriate action to cause the merger to
be effective as soon as practicable after the acceptance for payment or exchange
of Unilab shares pursuant to the offer without the Unilab stockholder meeting.
Access to Information; Confidentiality. Except as otherwise prohibited by
applicable law or the terms of any contract or agreement (provided that Unilab
will use all reasonable efforts to promptly obtain any consent required under
any such contract or agreement in order that it may comply with the terms of the
covenant described in this paragraph), from the date of the merger agreement
until the effective time of the merger, Unilab will, and will cause its
subsidiary to:
- provide to Quest Diagnostics and Quest Diagnostics' officers, directors,
employees, accountants, consultants, legal counsel, agents and other
representatives access at reasonable times during normal business hours
upon prior notice to the officers, employees, agents, properties, offices
and other facilities of Unilab and its subsidiary and to the books and
records thereof, and
- furnish promptly to Quest Diagnostics such information concerning the
business, properties, contracts, assets, liabilities, personnel and other
aspects of Unilab and its subsidiary as Quest Diagnostics or its
representatives may reasonably request.
All information obtained by the parties pursuant to this provision of the
merger agreement will be kept confidential in accordance with the
confidentiality agreement, dated November 20, 2001, between Quest Diagnostics
and Unilab.
No Solicitation of Transactions. The merger agreement provides that Unilab
will, and will cause its subsidiary, and its and their respective officers,
directors, employees, subsidiaries, agents or advisors or other representatives
(including, without limitation, any investment banker, attorney or accountant
retained by it) to, immediately cease and cause to be terminated any discussions
or negotiations with third parties with respect to a competing transaction (as
defined in the merger agreement and as described below). In addition, Unilab has
agreed not to, directly or indirectly, and has agreed to instruct its
representatives not to, directly or indirectly:
- solicit, initiate or, except as and only to the extent permitted by the
merger agreement, encourage (including by way of furnishing nonpublic
information), or take any other action to facilitate, any
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inquiries or the making of any proposal or offer (including, without
limitation, any proposal or offer to its stockholders) that constitutes,
or may reasonably be expected to lead to, any competing transaction,
- except as and only to the extent permitted by the merger agreement, enter
into or maintain or continue discussions or negotiate with any person or
entity in furtherance of such inquiries or to obtain a competing
transaction, or agree to or endorse any competing transaction, or
authorize or permit any representative of Unilab or any of its
subsidiaries to take any such action, or
- release any third party from, or waive any provision of, any
confidentiality or standstill agreement to which it is a party.
A "competing transaction" is defined in the merger agreement as any of the
following (other than the transaction contemplated by the merger agreement):
- any merger, consolidation, share exchange, business combination,
recapitalization, liquidation, dissolution or other similar transaction
involving Unilab or any of its subsidiaries,
- any sale, lease, exchange, transfer or other disposition of all or a
substantial part of the assets of Unilab or of any of its subsidiaries,
- any sale, exchange, transfer or other disposition of 15% or more of any
class of equity securities of Unilab or of any of its subsidiaries or of
15% or more of the assets of Unilab or of any of its subsidiaries, or
- any tender offer or exchange offer that, if consummated, would result in
any person beneficially owning 15% or more of any class of equity
securities of Unilab or of any of its subsidiaries.
Notwithstanding anything to the contrary described above, the merger
agreement provides that Unilab's board of directors may furnish information to,
and enter into discussions with, a person who has made an unsolicited bona fide
written proposal or offer regarding a competing transaction (that did not result
from a breach of the merger agreement), and with respect to which Unilab's board
of directors has:
- determined, in its good faith judgment (after having consulted with a
financial advisor of internationally recognized reputation), that such
proposal or offer constitutes or is reasonably likely to result in or
lead to a superior proposal (as defined in the merger agreement and as
described below),
- determined, in its good faith judgment after consultation with outside
legal counsel, that, in light of such superior proposal, the failure to
furnish such information or to enter into such discussions would result
in a breach of its fiduciary obligations under applicable law,
- provided written notice to Quest Diagnostics of its intent to furnish
information or enter into discussions with such person at least two
business days prior to taking any such action, and
- obtained from such person an executed confidentiality agreement on terms
no less favorable to Unilab than those contained in the confidentiality
agreement, dated November 20, 2001, between Quest Diagnostics and Unilab.
Unilab has agreed that, promptly following receipt thereof, it will advise
Quest Diagnostics in writing of any request for information or any competing
transaction, or any inquiry, discussions or negotiations with respect to any
competing transaction and the terms and conditions of such request for
information, competing transaction, inquiry, discussions or negotiations, and
Unilab will promptly provide to Quest Diagnostics copies of any written
materials received by Unilab in connection with any of the foregoing, and the
identity of the person or group making any such request for information,
competing transaction or inquiry or with whom any discussions or negotiations
may be taking place. Unilab has agreed that it will keep Quest Diagnostics
informed of the status and material details (including amendments or proposed
amendments) of any such request for information, competing transaction or
inquiry and keep Quest Diagnostics informed as to the material details of any
information requested of or provided by Unilab, and as to the status and
material terms of all substantive discussions or negotiations with respect to
any such request, competing transaction or inquiry. Unilab has also agreed that
it will simultaneously provide to Quest Diagnostics any non-public information
concerning Unilab that may be provided to any other person or group in
connection with any competing transaction that was not previously provided to
Quest Diagnostics.
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Except as otherwise set forth in the merger agreement, Unilab's board of
directors will not withdraw, qualify, modify or amend, or propose to withdraw,
qualify, modify or amend, in any manner adverse to Quest Diagnostics or
Purchaser, its recommendation, or take any action, or make any statement, filing
or release inconsistent with such recommendation. However, if, prior to
consummation of the offer, Unilab's board of directors reasonably determines in
good faith, after consultation with outside legal counsel, that the failure to
withdraw, qualify, modify or amend its recommendation would be a breach of its
fiduciary duties under applicable law, then Unilab's board of directors will be
permitted to withdraw, qualify, modify or amend, in a manner adverse to Quest
Diagnostics or Purchaser, its recommendation. Unilab's board of directors will
promptly deliver to Quest Diagnostics written notice advising Quest Diagnostics:
- that it has withdrawn, qualified, modified or amended, in a manner
adverse to Quest Diagnostics or Purchaser, its recommendation, and
- if applicable, the material terms and conditions of the superior proposal
received by Unilab prior to such withdrawal, qualification, modification
or amendment and the identity of the person or persons making such
superior proposal.
Nothing contained in the merger agreement will prohibit Unilab or Unilab's
board of directors from taking and disclosing to its stockholders a position
with respect to a tender or exchange offer by a third party pursuant to Rules
14d-9 and 14e-2(a) promulgated under the Exchange Act, or from making any
disclosure required by applicable law (provided that any withdrawal,
qualification, modification or amendment of the recommendation of Unilab's board
of directors will be made as and only to the extent permitted by the merger
agreement).
A "superior proposal" means an unsolicited bona fide written offer made by
a third party to consummate any of the following transactions:
- a merger, consolidation, share exchange, business combination,
recapitalization or other similar transaction involving Unilab pursuant
to which the stockholders of Unilab immediately preceding such
transaction would hold less than 50% of the equity interest in the
surviving or resulting entity of such transaction,
- the sale, lease, exchange, transfer or other disposition of at least 50%
of the assets of Unilab and its subsidiary, taken as a whole, in a single
or related series of transactions, or
- the acquisition by any person or group (including by means of a tender
offer or an exchange offer or a two-step transaction involving a tender
offer followed with reasonable promptness by a merger involving Unilab),
directly or indirectly, of ownership of at least 50% of the then
outstanding Unilab shares, in each case, on terms (including conditions
to consummation of the contemplated transaction) that Unilab's board of
directors determines, in its good faith judgment (after having consulted
with a financial advisor of nationally recognized reputation), to be more
favorable to Unilab stockholders than the offer and the merger, is
reasonably capable of being consummated and for which financing, to the
extent required, is reasonably likely, in the good faith judgment of the
board of directors (after having consulted with a financial advisor of
nationally recognized reputation), to be obtained on a timely basis.
Employee Benefits Matters. From and after the effective time of the
merger, Quest Diagnostics will cause the surviving corporation and its
subsidiaries to honor in accordance with their terms, all plans, programs and
arrangements of Unilab and its subsidiary as in effect immediately prior to the
effective time of the merger that are applicable to any current or former
employees or directors of Unilab or its subsidiary (except that changes may be
made in accordance with the terms of such plans, programs and arrangements).
Employees of Unilab or its subsidiary will receive full credit for purposes of
eligibility to participate and vesting (but not for benefit accruals) under any
employee benefit plan, program or arrangement established or maintained by the
surviving corporation or its subsidiary for service accrued or deemed accrued
prior to the effective time of the merger with Unilab or its subsidiary except
that the crediting of service will not operate to duplicate any benefit or the
funding of any such benefit. In addition, Quest Diagnostics will waive, or cause
to be waived, any limitations on benefits relating to any pre-existing
conditions to the same extent such limitations are waived under any comparable
plan of Quest Diagnostics or its subsidiaries, and recognize, for purposes of
annual deductible and out-of-pocket limits under its medical and dental plans,
deductible and out-of-pocket expenses
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paid by employees of Unilab and its subsidiary in the calendar year during which
the effective time of the merger occurs.
Except as contemplated by the employment agreements entered into with
certain key employees of Unilab, which are described in "Interests of Certain
Persons -- Employment Agreements" beginning on page 77, following the effective
time of the merger, Quest Diagnostics will continue to provide to individuals
who are employed by the surviving corporation and its subsidiaries as of the
effective time of the merger and who remain employed with Quest Diagnostics or
any subsidiary of Quest Diagnostics for so long as such employees remain
employed by Quest Diagnostics or any subsidiary of Quest Diagnostics, employee
benefits (other than salary or incentive compensation) that, in the aggregate,
are no less favorable than those provided to employees of Quest Diagnostics or
its subsidiaries in reasonably comparable positions.
Directors' and Officers' Indemnification and Insurance. See "Interests of
Certain Persons -- Indemnification of Directors and Officers" beginning on page
81.
Further Action; Reasonable Best Efforts. Upon the terms and subject to the
conditions of the merger agreement, each of Quest Diagnostics, Purchaser and
Unilab has agreed to, promptly after the date of the merger agreement:
- make its respective filings, and thereafter make any other required
submissions, under the HSR Act with respect to the transaction, and
- use its reasonable best efforts to take, or cause to be taken, all
appropriate action, and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws or otherwise to consummate and
make effective the transaction, including, without limitation, using its
reasonable best efforts to obtain all permits, consents, approvals,
authorizations, qualifications and orders of governmental authorities and
parties to contracts with Unilab and its subsidiary as are necessary for
the consummation of the transaction and to fulfill the conditions to the
offer and the merger.
However, neither Purchaser nor Quest Diagnostics will be required to take
any action, including entering into any consent decree, hold separate orders or
other arrangements, that:
- requires the divestiture of any assets of any of Purchaser, Quest
Diagnostics, Unilab or any of their respective subsidiaries, or
- limits Quest Diagnostics' freedom of action with respect to, or its
ability to retain, Unilab and its subsidiary or any portion thereof or
any of Quest Diagnostics' or its affiliates' other assets or businesses.
Each of the parties to the merger agreement has also agreed to use its
reasonable best efforts to cause its respective officers, employees, agents,
auditors and representatives to cooperate with each other, prior to the
effective time of the merger, to ensure the orderly combination of Unilab and
its subsidiary with Quest Diagnostics and its subsidiaries following the
effective time of the merger and to minimize any disruption to the respective
businesses of Quest Diagnostics and its subsidiaries and Unilab and its
subsidiary that might result from the transaction.
Unilab will cooperate with Quest Diagnostics, and will use its reasonable
best efforts to cause Unilab's accountants to provide to Quest Diagnostics, at
Quest Diagnostics' expense, the requisite consents required to enable Quest
Diagnostics to fulfill any requirements imposed on it by the Exchange Act or the
Securities Act, and Unilab will cooperate with Quest Diagnostics in its efforts
to obtain extended reporting coverage for certain liability insurance policies
maintained by Unilab and its subsidiary as contemplated by the merger agreement.
Plan of Reorganization. The merger agreement is intended to constitute a
"plan of reorganization" within the meaning of section 1.368-2(g) of the income
tax regulations promulgated under the Internal Revenue Code. From and after the
date of the merger agreement and until the effective time of the merger, each
party to the merger agreement will use its reasonable best efforts to cause the
offer and the merger to qualify, and will not knowingly take any action, cause
any action to be taken, fail to take any action or cause any action to fail to
be taken which action or failure to act could prevent the offer and the merger
from qualifying as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code, except that Quest Diagnostics may effect a taxable
reverse merger as provided in the merger agreement. Following the
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effective time of the merger, neither the surviving corporation, Quest
Diagnostics nor any of their affiliates knowingly will take any action, cause
any action to be taken, fail to take any action or cause any action to fail to
be taken, which action or failure to act could cause the offer and the merger to
fail to qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code.
Transaction Fees and Expenses. Notwithstanding anything to the contrary
contained in the merger agreement, Unilab will not incur, or cause to be
incurred, aggregate transaction fees (as such term is defined in the merger
agreement and as described below) in excess of $10,000,000. The term
"transaction fees" is defined in the merger agreement to mean the fees and
disbursements of Unilab's legal counsel and financial advisors that are incurred
in connection with the preparation, negotiation, execution, delivery and
performance of the merger agreement and the consummation of the transactions
contemplated thereby, except that any legal costs and expenses incurred solely
in connection with compliance with the HSR Act (including, without limitation,
compliance with any "second request" thereunder) will be excluded from the
calculation of such costs and expenses.
Restrictions on Acquisition of Unilab Shares. From and after the date of
the merger agreement and until the earlier to occur of (x) two years following
the purchase of any Unilab shares pursuant to the exercise of the options
granted to Quest Diagnostics under the stockholders agreement and (y) in the
event Quest Diagnostics does not exercise such option and purchase any shares
pursuant thereto, the termination of the option exercise period, neither Quest
Diagnostics, nor any of its subsidiaries or controlled affiliates will, and
Quest Diagnostics will use its reasonable efforts to cause its affiliates not
to, directly or indirectly, acquire, announce an intention to acquire, offer to
acquire, or enter into any agreement, arrangement or undertaking of any kind the
purpose of which is to acquire, by purchase, exchange or otherwise, any Unilab
shares or options or rights to acquire Unilab shares, except pursuant to:
- the offer,
- the merger,
- the exercise of the options granted pursuant to the stockholders
agreement, or
- a transaction made available to all Unilab stockholders which is approved
by a majority of the Unilab directors who are not, at the time of such
determination, directors, officers, employees or affiliates of Quest
Diagnostics or officers or employees of Unilab.
CONDITIONS TO THE MERGER
The obligations of Quest Diagnostics, Purchaser and Unilab to consummate
the merger are subject to the satisfaction or waiver (where permissible) of the
following conditions:
- if required, the registration statement on Form S-4 relating to the
merger will have been declared effective by the SEC and no stop order
suspending its effectiveness will have been issued by the SEC and no
proceeding for that purpose will have been initiated by the SEC that has
not been concluded or withdrawn;
- to the extent required by the DGCL, the merger agreement will have been
approved and adopted by the Unilab stockholders;
- no governmental authority will have enacted, issued, promulgated,
enforced or entered any law, rule, regulation, judgment, decree,
executive order or award that will make the merger illegal or prohibit
the consummation of the merger;
- the Quest Diagnostics shares to be issued in the merger will have been
authorized for listing on the New York Stock Exchange, subject to
official notice of issuance; and
- Purchaser will have purchased Unilab shares in the offer.
TERMINATION OF THE MERGER AGREEMENT
Termination by Mutual Agreement. The merger agreement may be terminated at
any time prior to the effective time of the merger by mutual written consent of
Quest Diagnostics and Unilab.
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Termination by either Quest Diagnostics or Unilab. The merger agreement
may be terminated at any time prior to the effective time of the merger by Quest
Diagnostics or by Unilab if:
- the offer has not been consummated on or before September 30, 2002,
except that the right to terminate the merger agreement under this
provision of the merger agreement is not available to any party whose
willful or intentional failure to fulfill any obligation of the merger
agreement or other willful or intentional breach of the merger agreement
has resulted in the failure of any condition to the offer or the merger
not to be satisfied prior to such date;
- the offer has expired or been terminated in accordance with the terms of
the merger agreement without Quest Diagnostics or Purchaser having
accepted for exchange any Unilab shares pursuant to the offer; or
- a permanent injunction exists prohibiting consummation of the merger.
Termination by Quest Diagnostics. Quest Diagnostics may terminate the
merger agreement at any time prior to the purchase of Unilab shares pursuant to
the offer if:
- Unilab has breached or failed to perform in any material respect any
representation, warranty, covenant or other agreement contained in the
merger agreement, and such breach cannot be or has not been cured prior
to September 30, 2002; or
- Unilab's board of directors has (x) withdrawn or adversely changed its
recommendation of the transaction or (y) approved or recommended, or
proposed to approve or recommend, a competing transaction.
Termination by Unilab. Unilab may terminate the merger agreement at any
time prior to the purchase of shares pursuant to the offer if Quest Diagnostics
has breached or failed to perform in any material respect any representation,
warranty, covenant or other agreement contained in the merger agreement, and
such breach cannot be or has not been cured prior to September 30, 2002.
TERMINATION FEES AND EXPENSES
Termination Fees Payable by Unilab to Quest Diagnostics. Unilab must pay a
termination fee of $35 million plus all of Quest Diagnostics' expenses up to $4
million if Quest Diagnostics terminates the merger agreement because Unilab's
board of directors has withdrawn or changed its recommendation of the
transaction, or recommended a competing transaction. However, Unilab will not be
required to pay the termination fee or reimburse Quest Diagnostics for its
expenses if, at the time of the event giving rise to the termination of the
merger agreement, there has occurred and is continuing a "parent share price
decrease" with respect to Quest Diagnostics' common stock. A "parent share price
decrease" means a significant decline in the market value of Quest Diagnostics'
common stock, as more fully described under the heading "The Stockholders
Agreement -- The Option -- Exercisability" on page 75.
Unilab is also required to pay Quest Diagnostics the termination fee of $35
million if the merger agreement is terminated under circumstances in which all
of the following conditions are satisfied:
- the merger agreement is terminated by either Quest Diagnostics or Unilab
by reason of:
- Unilab having breached or failed to perform in any material respect any
representation, warranty, covenant or other agreement contained in the
merger agreement, and such breach cannot be or has not been cured prior
to September 30, 2002;
- the offer not having been consummated on or before September 30, 2002;
or
- the offer having expired or having been terminated in accordance with
the terms of the merger agreement without Quest Diagnostics having
purchased any Unilab shares; and
- prior to such termination, a proposal for a competing transaction
(replacing references to 15% in the definition thereof with 50%) has been
made and communicated to Unilab's stockholders and such proposal:
- had not been withdrawn at the time of termination;
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- provided for more favorable consideration from a financial point of view
than the consideration being offered in the offer and the merger;
- was reasonably capable of being consummated; and
- within eighteen months of such termination, a "third party acquisition
event" occurs. A "third party acquisition event" means the earlier of
(a) the consummation of a competing transaction involving the purchase
of a majority of either the equity securities of Unilab or of the
consolidated assets of Unilab and its subsidiary, taken as a whole, or
any such transaction that, if it is proposed prior to the termination of
the merger agreement, will constitute a "competing transaction" pursuant
to the terms of the merger agreement or (b) the entering into by Unilab
or any of its subsidiary of a definitive agreement with respect to any
such transaction.
Notwithstanding the foregoing, Unilab is not required to pay the
termination fee if:
- the merger agreement is terminated by reason of the offer not having been
consummated by September 30, 2002 or the offer having expired on such
date without the purchase by Quest Diagnostics of Unilab shares pursuant
thereto if, at the time of such termination, the waiting period under the
HSR Act had not expired or been terminated, there shall have been issued
any injunction permanently prohibiting the consummation of the offer and
the merger, or any governmental authority has filed suit seeking such an
order on antitrust grounds; or
- at the time of termination of the merger agreement, Unilab is entitled to
terminate the merger agreement as a consequence of Quest Diagnostics
having breached or failed to perform in any material respect any
representation, warranty, covenant or other agreement contained in the
merger agreement.
Expenses Payable by Unilab. If the merger agreement is terminated by Quest
Diagnostics by reason of Unilab having breached or failed to perform in any
material respect any representation, warranty, covenant or other agreement
contained in the merger agreement, then Unilab is required to pay Quest
Diagnostics, within five business days after submission of statements therefor,
all of Quest Diagnostics' expenses incurred in connection with the merger
agreement up to a maximum of $5 million.
Expenses Payable by Quest Diagnostics. If the merger agreement is
terminated by Unilab by reason of Quest Diagnostics having breached or failed to
perform in any material respect any representation, warranty, covenant or other
agreement contained in the merger agreement, then Quest Diagnostics is required
to pay Unilab, within five business days after submission of statements
therefor, all of Unilab's expenses incurred in connection with the merger
agreement up to a maximum of $5 million.
AMENDMENTS AND WAIVER
The parties may amend, modify or waive the merger agreement prior to the
effective time of the merger, by action taken by or authorized by their
respective board of directors, if, and only if, such amendment or waiver is in
writing and signed, in the case of an amendment, by Unilab and Quest Diagnostics
or, in the case of a waiver, by the party against whom the waiver is to be
effective.
Following the appointment of any directors selected by Quest Diagnostics
and prior to the effective time of the merger, approval by Unilab of any
amendment or waiver of the merger agreement will be subject to the provisions
set forth under the caption entitled "The Merger Agreement -- Unilab Board of
Directors" beginning on page 61.
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THE STOCKHOLDERS AGREEMENT
THE FOLLOWING IS A SUMMARY DESCRIPTION OF THE MATERIAL PROVISIONS OF THE
STOCKHOLDERS AGREEMENT. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE COMPLETE TEXT OF THE STOCKHOLDERS AGREEMENT, WHICH IS INCORPORATED HEREIN
BY REFERENCE, AND A COPY OF WHICH IS ATTACHED AS ANNEX B TO THIS PROSPECTUS. ALL
UNILAB STOCKHOLDERS ARE URGED TO READ THE STOCKHOLDERS AGREEMENT IN ITS
ENTIRETY.
Concurrently with entering into the merger agreement, we entered into a
stockholders agreement with Kelso Investment Associates VI, L.P. and KEP VI,
LLC, both stockholders of Unilab which we refer to as Kelso. On April 2, 2002,
the date of execution of the merger agreement and the stockholders agreement,
the Kelso stockholders collectively owned either beneficially or of record
13,841,178 Unilab shares, constituting approximately 37.0% of the Unilab shares
outstanding at such time on a fully diluted basis and 41.2% of the Unilab shares
outstanding at such time on a non-fully diluted basis.
TENDER OF SHARES OF UNILAB COMMON STOCK
The stockholders agreement provides that the Kelso stockholders will
promptly (and, in any event, not later than June 17, 2002) tender all of the
Unilab shares held by them and will not withdraw such shares from the offer,
except following termination of the offer in accordance with its terms.
Notwithstanding anything to the contrary contained in the stockholders
agreement, the Kelso stockholders are permitted to withdraw the Unilab shares
held by them that have been previously tendered for the sole purpose of changing
their election, provided that the Kelso stockholders immediately retender such
Unilab shares.
VOTING AGREEMENT AND PROXY
The stockholders agreement provides that during the time the stockholders
agreement is in effect, the Kelso stockholders will vote (or cause to be voted)
or consent (or cause to be consented) all of their Unilab shares:
- in favor of adoption of the merger agreement, the merger and all the
transactions contemplated by the merger agreement and the stockholders
agreement and otherwise in such manner as may be necessary to consummate
the merger,
- against any action, proposal, agreement or transaction that would result
in a breach of any covenant, obligation, agreement, representation or
warranty of Unilab under the merger agreement or of such stockholder
contained in the stockholders agreement, and
- against any action, agreement, transaction (other than the merger
agreement or the transactions contemplated thereby) or proposal,
including any proposal relating to a competing transaction, that could
reasonably be expected to result in any of the conditions to Unilab's
obligations under the merger agreement not being fulfilled or that is
intended, or could reasonably be expected, to impede, interfere, delay,
discourage or adversely affect the merger agreement, the offer, the
merger or the stockholders agreement.
Any vote by the stockholders that is not in accordance with the foregoing
will be considered null and void and the provisions set forth in the following
paragraph will take immediate effect.
Pursuant to the stockholders agreement, if the Kelso stockholders fail to
comply with their obligations to vote their Unilab shares as set forth above,
Quest Diagnostics will automatically be granted an irrevocable proxy with
respect to their Unilab shares to vote and otherwise act with respect to all of
their shares at any meeting of Unilab stockholders (whether annual or special
and whether or not an adjourned or postponed meeting), and in any action by
written consent of the Unilab stockholders, on the matters and in the manner
specified in the above paragraph.
THE OPTION
Pursuant to the stockholders agreement, the Kelso stockholders granted
Quest Diagnostics an irrevocable option to purchase all of such stockholders'
shares at a purchase price per share of $26.50, which is exercisable under
certain circumstances described below.
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The $26.50 per share is payable by Quest Diagnostics, at the option of
Quest Diagnostics, either in cash or in a combination of cash and Quest
Diagnostics shares in the same proportion as though such shares and any other
Unilab shares tendered for cash had been acquired pursuant to and in accordance
with the terms of the offer, taking into account for this purpose the aggregate
number of Unilab shares tendered for cash in the offer, including the number of
the Kelso stockholders' shares that were tendered for cash in the offer.
Exercisability. The options granted by the Kelso stockholders are
exercisable during the ten-business day period following termination of the
merger agreement:
- by mutual written consent of Quest Diagnostics and Unilab,
- by Quest Diagnostics, by reason of a material breach by Unilab of its
representations, warranties or covenants, or by reason of the Unilab
board having withdrawn or modified its recommendation of the offer and
the merger or having recommended a competing transaction,
- by either Quest Diagnostics or Unilab, by reason of the offer not having
been consummated before September 30, 2002, or
- by either Quest Diagnostics or Unilab, by reason of the offer having
expired or been terminated in accordance with the terms of the merger
agreement without Quest Diagnostics or Purchaser having accepted for
exchange any Unilab shares pursuant to the offer.
Notwithstanding the foregoing, the options will not be exercisable by Quest
Diagnostics if, at the time of termination of the merger agreement:
- there has been a "parent share price decrease", as described below, with
respect to Quest Diagnostics' shares;
- Quest Diagnostics has breached any of its representations, warranties and
covenants under the merger agreement, or if its representations and
warranties fail to be true in all material respects as of such time; or
- in the case of a termination by reason of the offer not having been
consummated by September 30, 2002, or by reason of the offer having
expired or been terminated without Quest Diagnostics or the Purchaser
having accepted for exchange any Unilab shares,
- there has been declared a general banking moratorium in the United
States;
- an order prohibiting consummation of the offer has been issued, or there
is pending any litigation brought by a governmental authority seeking
such an order on antitrust grounds; or
- the antitrust, SEC or the New York Stock Exchange approvals required for
consummation of the offer is not obtained.
For purposes of the stockholders agreement, a "parent share price decrease"
will be deemed to occur if (A) during the five trading days ending on the second
trading day prior to the then scheduled expiration date of the offer, the
average closing trading price for a Quest Diagnostics share is less than 50% of
the average closing trading price for a Quest Diagnostics share for the five
trading days immediately preceding the signing date of the stockholders
agreement, (B) at the time of such determination, such percentage decrease in
the trading price of Quest Diagnostics shares is 25% greater than the percentage
decrease in the weighted average trading prices of shares of common stock of a
similarly situated company (measured over the same time period) and (C) at the
time of such determination, all of the conditions to the offer, other than the
minimum tender condition, have been satisfied or, to the extent permitted,
waived by Quest Diagnostics.
The option is exercisable in whole but not in part, and in no event is
Quest Diagnostics able to exercise an option with respect to a stockholder's
shares unless Quest Diagnostics concurrently exercises all options to purchase
all the shares of both Kelso stockholders. Notwithstanding anything to the
contrary in the stockholders agreement, in no event will any of the Kelso
stockholders' shares be purchased after the close of business on the 45th day
following the termination of the merger agreement.
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REPRESENTATIONS AND WARRANTIES
In the stockholders agreement, the stockholders made customary
representations and warranties to Quest Diagnostics, including representations
and warranties relating to:
- authority to enter into the stockholders agreement,
- no conflict and required filings and consents,
- ownership of shares,
- absence of litigation; and
- absence of brokers entitled to fees in connection with the transactions
contemplated by the stockholders agreement.
In the stockholders agreement, Quest Diagnostics and Purchaser made
customary representations and warranties to the stockholders, including
representations and warranties relating to:
- authority to enter into the stockholders agreement, and
- no conflict and required filings and consents.
COVENANTS
The stockholders agreement provides, among other things, that the Kelso
stockholders, subject to the terms of the stockholders agreement, will not:
- sell, transfer, tender (except into the offer), pledge, assign,
contribute to the capital of any entity, hypothecate, give or otherwise
dispose of, grant a proxy or power of attorney with respect to (other
than the irrevocable proxy to Quest Diagnostics), deposit into any voting
trust, enter into any voting agreement, or create or permit to exist any
liens of any nature whatsoever (other than pursuant to the stockholders
agreement) with respect to, any of such stockholder's Unilab shares (or
agree or consent to, or offer to do, any of the foregoing), or take any
action that would make any representation or warranty of such stockholder
in the stockholders agreement untrue or incorrect in any material respect
or have the effect of preventing or disabling such stockholder from
performing such stockholder's obligations under the stockholders
agreement; and
- directly or indirectly solicit, initiate, endorse, accept or encourage
the submission of any competing transaction, or participate in any
discussions or negotiations regarding, or furnish to any person any
information with respect to, or otherwise cooperate in any way with
respect to, or participate in, assist, facilitate, endorse or encourage
any proposal that constitutes, or may reasonably be expected to lead to,
a competing transaction.
The stockholders agreement also provides, among other things, that, subject
to the conditions of the stockholders agreement, Quest Diagnostics, Purchaser
and each stockholder will use their reasonable best efforts to take, or cause to
be taken, all appropriate action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the stockholders agreement.
REGISTRATION RIGHTS
The stockholders agreement provides that as promptly as practicable, and in
any event within five business days, after the date Quest Diagnostics has
accepted shares for payment or exchange pursuant to the offer or, if applicable,
the date on which Quest Diagnostics has exercised its option pursuant to the
stockholders agreement, Quest Diagnostics will file a shelf registration
statement on Form S-3 (pursuant to Rule 415 promulgated under the Securities
Act) in respect of the Quest Diagnostics shares that are received by the Kelso
stockholders in the offer. Quest Diagnostics has agreed, subject to customary
terms and conditions (including, without limitation, blackout periods), to use
its reasonable efforts to keep the shelf registration statement continuously
effective from the date that such shelf registration statement on Form S-3 is
declared effective until the first anniversary of such effective date.
76
The stockholders agreement contains customary indemnification provisions
with respect to matters arising in connection with the registration rights
granted pursuant thereto.
TERMINATION
The obligations of the stockholders under the stockholders agreement
terminate upon (1) the occurrence of a parent share price decrease, as such term
is defined above under the heading "The Stockholders Agreement -- The
Option -- Exercisability" on page 75 and, with certain exceptions set forth in
the stockholders agreement, (2) the earlier to occur of (i) the effective time
of the merger and (ii) the termination of the merger agreement.
INTERESTS OF CERTAIN PERSONS
Some directors and executive officers of Unilab may have interests in the
offer and the merger that are different from or in addition to your interests.
Information about these interests is more fully set forth in Unilab's
Solicitation/Recommendation Statement on Schedule 14D-9, including the
Information Statement attached as Annex A to the Schedule 14D-9, which is being
mailed to Unilab stockholders with this prospectus. Each material agreement,
arrangement or understanding and any actual or potential conflict of interest
between Unilab or its affiliates and Unilab, its executive officers, directors
or affiliates, or between Unilab or its affiliates and Quest Diagnostics or
Purchaser or their respective executive officers, directors or affiliates, is
set forth in Unilab's Solicitation/Recommendation Statement on Schedule 14D-9 or
set forth below.
Except as outlined in this prospectus, neither we nor, to the best of our
knowledge, any of our directors, executive officers or other affiliates has any
contract, arrangement, understanding or relationship with any other person with
respect to any securities of Unilab, including, but not limited to, any
contract, arrangement, understanding or relationship concerning the transfer or
the voting of any such securities, joint ventures, loan or option arrangements,
puts or calls, guaranties of loans, guaranties against loss or the giving or
withholding of proxies. Except as described in this prospectus, there have been
no negotiations, transactions or material contacts since May 1, 2000 between us
or, to the best of our knowledge, any of our directors, executive officers or
other affiliates on the one hand, and Unilab or its affiliates, on the other
hand, concerning a merger, consolidation or acquisition, a tender offer or other
acquisition of securities, an election of directors, or a sale or other transfer
of a material amount of assets. Neither we nor, to the best of our knowledge,
any of our directors, executive officers or other affiliates has, since May 1,
2000, had any transaction with Unilab or any of its executive officers,
directors or affiliates that would require disclosure under the rules and
regulations of the SEC applicable to the offer.
Except as described in this prospectus, neither we nor, to the best of our
knowledge, any of our directors, executive officers or other affiliates
beneficially owns or has any right to acquire, directly or indirectly, any
Unilab shares and neither we nor, to the best of our knowledge, any of our
directors, executive officers or other affiliates, has effected any transaction
in the Unilab shares during the past 60 days.
EMPLOYMENT AGREEMENTS
On April 2, 2002, Messrs. Whalen, Urban, Kane and Gee entered into new
employment agreements that will become operative and supersede their current
employment agreements on the date Quest Diagnostics purchases Unilab shares that
have been tendered into the offer. The new employment agreements provide that
neither the offer nor any other transaction contemplated by the merger agreement
will constitute a change of control under their current employment agreements.
If the merger agreement with Quest Diagnostics is terminated, the new employment
agreements will be void and their current employment agreements will continue in
effect.
MR. WHALEN
The term of Mr. Whalen's new employment agreement will commence on the date
Quest Diagnostics purchases Unilab shares that have been tendered into the offer
and will terminate on February 28, 2005, unless
77
terminated earlier as described below. The new employment agreement provides for
Mr. Whalen to serve as Quest Diagnostics' Regional Vice President, California
and entitles him to receive:
- an annual salary of $400,000;
- an annual incentive bonus with a target payout equal to 50% of his annual
salary if certain performance targets are achieved;
- a stock option grant at an exercise price equal to the fair market value
of Quest Diagnostics shares on the date of grant under the Quest
Diagnostics Employee Equity Participation Plan; and
- such other benefits and perquisites as are provided to similarly
positioned Quest Diagnostics executives.
Mr. Whalen will also be eligible to participate in an integration bonus
arrangement that will entitle him to a bonus equal to $2,766,000 if target
integration results are achieved, up to a bonus equal to $8,298,000 if
exceptional integration results are achieved. The integration bonus is payable
following the closing of the financial statements for fiscal year 2004, however
Quest Diagnostics may, in its sole discretion, pay a portion of the integration
bonus following the closing of Quest Diagnostics' financial statements for
fiscal year 2003. Generally, no integration bonus is payable to Mr. Whalen if he
is not continuously employed by Quest Diagnostics through the expiration of the
agreement, unless his employment terminates due to his death or disability.
Mr. Whalen's new employment agreement provides that 40% of his outstanding,
unvested Unilab Class C3 stock options will immediately vest and convert into
options to acquire Quest Diagnostics shares and the remaining 60% will be
cancelled. All of Mr. Whalen's unvested Unilab Class A stock options will vest
and become immediately exercisable on the date Quest Diagnostics purchases
Unilab shares that have been tendered into the offer.
If Mr. Whalen's employment is terminated by Quest Diagnostics without
cause, or if Mr. Whalen terminates his employment for "good reason" (as defined
in his new employment agreement), provided he signs a general release, he will
be entitled to receive:
- continued payment of his salary for 36 months;
- continued medical benefits coverage for 36 months; and
- an amount equal to the integration bonus that would be paid to him if he
had achieved the target integration results, offset by any amounts that
may have been previously paid to him in respect of the integration bonus.
The new employment agreement contains confidentiality obligations that
survive indefinitely and nonsolicitation and noncompetition obligations that end
on the later of four years from the effective date of the new employment
agreement and the second anniversary of the date his employment has ceased.
If any of the payments to be received by Mr. Whalen will be subject to the
excise tax imposed under Section 4999 of the Internal Revenue Code, which we
refer to as the Code, such payments will be reduced by an amount sufficient to
avoid the imposition of the excise tax. It is not expected that any of the
payments to be received by Mr. Whalen will be subject to the excise tax imposed
under Section 4999 of the Code.
MR. KANE
The term of Mr. Kane's new employment agreement will commence on the date
Quest Diagnostics purchases Unilab shares that have been tendered into the offer
and will terminate on February 28, 2005, unless terminated earlier as described
below. The new employment agreement provides for Mr. Kane to perform such duties
and have such responsibilities as are assigned to him by the Regional Vice
President, California, who is expected to be Mr. Whalen. The new employment
agreement entitles him to receive:
- an annual salary of $225,000;
- an annual incentive bonus with a target payout equal to 40% of his annual
salary if certain performance targets are achieved;
78
- a stock option grant at an exercise price equal to the fair market value
of Quest Diagnostics shares on the date of grant under the Quest
Diagnostics Employee Equity Participation Plan; and
- such other benefits and perquisites as are provided to similarly
positioned Quest Diagnostics executives.
The new employment agreement also provides for an interim integration bonus
of $415,000 to be paid to Mr. Kane if he is employed by Quest Diagnostics
through the first anniversary of the date Quest Diagnostics purchases Unilab
shares that have been tendered into the offer, and an additional integration
bonus of up to $415,000 payable based upon the operating results of the areas
Mr. Kane is responsible for during the integration period commencing with the
date Quest Diagnostics purchases Unilab shares that have been tendered into the
offer and ending with Quest Diagnostics' 2004 fiscal year. No integration bonus
will be paid if the operating results do not exceed target results and a maximum
of $415,000 will be payable if stretch results are achieved. Results that fall
between target and stretch results will entitle Mr. Kane to a pro rated
integration bonus payment. Generally, no integration bonus is payable to Mr.
Kane if he is not continuously employed by Quest Diagnostics through the
expiration of the new employment agreement unless his employment terminates due
to his death or disability.
Mr. Kane's new employment agreement provides that 40% of his outstanding,
unvested Unilab Class C3 stock options will immediately vest and convert into
options to acquire Quest Diagnostics shares and the remaining 60% will be
cancelled. All of Mr. Kane's unvested Unilab Class A stock options will vest and
become immediately exercisable on the date Quest Diagnostics purchases Unilab
shares that have been tendered into the offer.
If Mr. Kane's employment is terminated by Quest Diagnostics without cause
or, if Mr. Kane terminates his employment for "good reason" (as defined in his
new employment agreement), provided he signs a general release, he will be
entitled to receive:
- continued payment of his salary for 24 months;
- continued medical benefits coverage for 24 months; and
- an amount equal to the interim integration bonus if Mr. Kane did not
receive the interim integration bonus.
If any of the payments to be received by Mr. Kane will be subject to the
excise tax imposed under Section 4999 of the Code, such payments will be reduced
by an amount sufficient to avoid the imposition of the excise tax. It is not
expected that any of the payments to be received by Mr. Kane will be subject to
the excise tax imposed under Section 4999 of the Code. Mr. Kane's new employment
agreement also contains noncompetition and nonsolicitation provisions that apply
for two years from the date his employment terminates.
MESSRS. URBAN AND GEE
The term of each of their new employment agreements will commence on the
date Quest Diagnostics purchases Unilab shares that have been tendered into the
offer and will terminate on the first anniversary date of the date Quest
Diagnostics purchases Unilab shares that have been tendered into the offer,
unless earlier terminated as described below. Mr. Urban will perform such duties
and have such responsibilities as are assigned to him by the Regional Vice
President, California, and/or the Chief Financial Officer of Quest Diagnostics,
and Mr. Gee will perform such duties and have such responsibilities as are
assigned to him by the Regional Vice President, California, and/or the General
Counsel of Quest Diagnostics. The new employment agreements entitle each of them
to receive:
- an annual salary of $225,000;
- an annual incentive bonus with a target payout equal to a percentage of
their annual salaries if certain performance targets are achieved (40%
for Mr. Urban and 30% for Mr. Gee); and
- such other benefits and perquisites as are provided to similarly
positioned Quest Diagnostics executives.
79
Mr. Gee will also receive a stock option grant at an exercise price equal
to the fair market value of Quest Diagnostics shares on the date of grant under
the Quest Diagnostics Employee Equity Participation Plan. The stock option will
vest in full on the second anniversary of the date of grant.
Messrs. Urban's and Gee's new employment agreements provide that all of
their unvested Unilab Class C3 and Class A stock options will become immediately
vested and exercisable on the date Quest Diagnostics purchases Unilab shares
that have been tendered into the offer.
If Messrs. Urban or Gee are terminated by Quest Diagnostics without cause,
or if they terminate their employment for "good reason" (as defined in their new
employment agreements), provided they sign a general release, they will be
entitled to receive:
- continued payment of salary for 24 months;
- continued medical benefits coverage for 24 months; and
- an amount equal to $375,000 for Mr. Urban and $250,000 for Mr. Gee.
In the event that Messrs. Urban or Gee resign their employment for any
reason during the ten-day period following the expiration of their new
employment agreements, they will be entitled to receive payment of their salary
for 24 months and an amount equal to $375,000 for Mr. Urban and $250,000 for Mr.
Gee, subject to their execution of a general release.
If any of the payments to be received under these new employment agreements
will be subject to the excise tax imposed under Section 4999 of the Code, such
payments will be reduced by an amount sufficient to avoid the imposition of the
excise tax. It is not expected that any of the payments to be received by either
Mr. Urban or Mr. Gee will be subject to the excise tax imposed under Section
4999 of the Code. These new employment agreements also contain noncompetition
and nonsolicitation provisions that apply for two years from the date their
employment terminates.
MESSRS. HANBURY AND WERTLAKE
Mr. Hanbury is a party to an employment arrangement with Unilab outlined in
a letter dated March 16, 1998. Mr. Hanbury's current annual base salary is
$190,000 and he is also eligible for bonuses if performance targets are
achieved. In 2001, he received bonuses totaling $16,250. If Mr. Hanbury's
employment is terminated without cause he is entitled to continued payment of
his salary for twelve months. Dr. Wertlake is currently a party to an employment
agreement dated as of October 23, 1995. Mr. Wertlake's current annual base
salary is $240,196 and in 2001 he received a bonus of $31,250. The term of the
employment agreement is automatically extended on each October 23rd by one year
and in the event of a change of control will automatically extend for two years.
The consummation of the offer will constitute a change of control for purposes
of Dr. Wertlake's employment agreement. If Dr. Wertlake's employment is
terminated without cause following a change of control, he is entitled to
continued payment of his salary for 24 months.
UNILAB STOCK OPTIONS
As of May 14, 2002, approximately 3,786,258 Unilab shares were subject to
stock options granted under Unilab's equity based compensation plans. Generally,
all outstanding unvested service stock options and most outstanding unvested
performance stock options to purchase Unilab shares will become vested on the
effective time of the merger and will become stock options to purchase Quest
Diagnostics shares, with appropriate adjustments to be made to the number of
shares and the exercise price under such options based on the exchange ratio.
The other terms of each Unilab stock option will continue to apply in accordance
with the applicable Unilab stock option plans that have been amended to provide
that upon the date that Quest Diagnostics purchases Unilab shares that have been
tendered into the offer, restrictions relating to transferability under certain
stock option plans will cease.
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INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to the merger agreement, the certificate of incorporation of the
surviving corporation will contain provisions no less favorable with respect to
indemnification for matters occurring prior to the effective time of the merger
than are set forth in Unilab's certificate of incorporation and by-laws on the
date of the merger agreement. These provisions will not be amended, repealed or
otherwise modified for a period of six years from the effective time of the
merger in any manner that would affect adversely the rights of individuals who,
at or prior to the effective time of the merger, were directors, officers,
employees or agents of Unilab, unless such modification is required by law. The
merger agreement also provides that the certificate of incorporation of the
surviving corporation will also contain provisions no less favorable with
respect to indemnification for matters occurring from and after the effective
time of the merger than are set forth in Quest Diagnostics' certificate of
incorporation in effect on the date of the merger agreement.
The merger agreement also provides that the surviving corporation will
maintain in effect for six years from the effective time of the merger,
directors' and officers' liability insurance covering those persons who were
covered on the date of the merger agreement by the directors' and officers'
liability insurance policies maintained by Unilab (provided that the surviving
corporation or Quest Diagnostics may substitute in lieu of such policies,
policies of at least the same dollar limit coverage containing terms and
conditions that are not, in the aggregate, less favorable) with respect to
matters occurring prior to the effective time of the merger. However, in no
event will the surviving corporation or Quest Diagnostics be required to expend
more than an agreed-upon percentage of the current annual premium paid by Unilab
for its directors' and officers' liability insurance policies now in effect. In
the event the amount of the premiums necessary to maintain or procure such
insurance coverage exceeds such maximum amount, the surviving corporation will
maintain or procure, for such six-year period, the most advantageous policies of
directors' and officers' insurance obtainable for a premium equal to that
maximum amount.
In addition, for six years from and after the effective time of the merger,
the surviving corporation will, to the fullest extent permitted by the DGCL on
the date of the merger agreement, indemnify and hold harmless (and release from
any liability to the surviving corporation or any of their respective
subsidiaries) the persons who, at or prior to the effective time of the merger,
were officers or directors of Unilab or served on behalf of Unilab as an officer
or director of any of Unilab's current or former subsidiaries against all
expenses (including attorneys' fees), losses, claims, damages, judgments, fines
and amounts paid in settlement that are actually and reasonably incurred by the
person in connection with any threatened, pending or completed action, suit or
proceeding, whether criminal, civil, administrative or investigative, that
related to an event, act or omission which occurred prior to the effective time
of the merger by reason of the fact that such person was at or prior to the
effective time of the merger a director or officer of Unilab or any of its
current or former subsidiaries, provided that the surviving corporation will not
be responsible for any amounts paid in settlement of any such claim without the
prior written consent of Quest Diagnostics or the surviving corporation. In the
event any such claim is asserted or made within such six-year period, all rights
to indemnification will continue until such claim is disposed of or all
judgments, orders, decrees or other rulings in connection with such claim are
fully satisfied.
The merger agreement provides that all contracts, agreements, arrangements
or understandings between Unilab and any persons who, at prior to the effective
time of the merger, were officers or directors of Unilab or who served on behalf
of Unilab as an officer or director of any of Unilab's current or former
subsidiaries, as in effect on the date of the merger agreement, will survive the
merger and continue in full force and effect in accordance with their terms.
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COMPARATIVE STOCK PRICES AND DIVIDEND INFORMATION
Quest Diagnostics shares are listed and traded on the New York Stock
Exchange under the symbol "DGX". Unilab shares are listed and traded on the
Nasdaq National Market under the symbol "ULAB".
The following tables outline, for the periods indicated, the high and low
sales prices per Quest Diagnostics share, as reported on the New York Stock
Exchange Composite Transaction Tape, and per Unilab share, as reported on the
Nasdaq National Market.
QUEST
DIAGNOSTICS UNILAB
------------- -------------
FISCAL YEAR HIGH LOW HIGH LOW
----------- ----- ----- ----- -----
2000
Quarter ended March 31, 2000........................... 20.19 14.57 n/a n/a
Quarter ended June 30, 2000............................ 37.73 18.50 n/a n/a
Quarter ended September 29, 2000....................... 70.50 36.63 n/a n/a
Quarter ended December 29, 2000........................ 73.13 41.37 n/a n/a
2001
Quarter ended March 30, 2001........................... 70.47 36.60 n/a n/a
Quarter ended June 29, 2001............................ 75.75 42.15 27.00 20.33
Quarter ended September 28, 2001....................... 75.50 48.10 29.81 20.35
Quarter ended December 31, 2001........................ 72.27 55.02 27.15 18.75
2002
Quarter ended March 29, 2002........................... 84.10 66.00 25.09 18.00
Quarter ended June 28, 2002............................ 96.14 79.25 31.19 24.11
On April 1, 2002 the last trading day prior to the announcement of the
execution of the merger agreement, the closing price of Unilab shares was $25.00
per share and the closing price of Quest Diagnostics shares was $82.79 per
share, as reported by the Dow Jones News Service. On July 10, 2002, the last
full trading day prior to the filing of this prospectus, the closing price of
Unilab shares was $23.60 per share and the closing price of Quest Diagnostics
shares was $72.00 per share.
The market prices of Unilab shares and Quest Diagnostics shares are subject
to fluctuation. As a result, Unilab and Quest Diagnostics stockholders are urged
to obtain current market quotations.
On May 14, 2002, there were approximately 33,573,700 Unilab shares
outstanding and 19 holders of record of Unilab common stock, and on April 30,
2002, there were approximately 97,005,940 Quest Diagnostics shares outstanding
and 6,300 holders of record of Quest Diagnostics common stock.
QUEST DIAGNOSTICS DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock and do
not anticipate paying dividends on our common stock in the foreseeable future.
We currently intend to retain all available funds and any future earnings to
fund the growth of our business. For a more detailed description of our dividend
policy, see "Description Of Quest Diagnostics Capital Stock" beginning on page
96.
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UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
On April 1, 2002, Quest Diagnostics completed its previously announced
acquisition of all of the outstanding voting stock of American Medical
Laboratories, Incorporated, or AML. The all cash purchase price of approximately
$335 million and related transaction costs, together with the repayment of
approximately $150 million of principal and related accrued interest
representing substantially all of AML's then existing outstanding debt as of the
closing of the AML acquisition, was financed by Quest Diagnostics with cash
on-hand, $300 million of borrowings under its existing secured receivables
credit facility and $175 million of borrowings under its existing unsecured
revolving credit facility. The acquisition of AML will be accounted for under
the purchase method of accounting.
Because the AML acquisition was completed on April 1, 2002, only subsequent
event-type information regarding AML and the related borrowings is included in
Quest Diagnostics' latest quarterly report on Form 10-Q filed with the SEC on
May 13, 2002. Although not required by the applicable SEC rules, we believe it
would be beneficial to Unilab stockholders to reflect the AML acquisition and
the related borrowings in the following unaudited pro forma combined financial
statements to assist them in understanding the combined financial position and
results of operations of Quest Diagnostics after giving effect to both the AML
and Unilab acquisitions and the related borrowings.
The following unaudited pro forma combined financial statements of Quest
Diagnostics have been prepared to illustrate the effects of the following
transactions:
- Quest Diagnostics' purchase of all of AML's outstanding stock, its
financing of the all cash purchase price and related transaction costs
associated with the AML acquisition, and the repayment of substantially
all of AML's outstanding debt and related accrued interest with cash
on-hand and borrowings under its secured receivables credit facility and
unsecured revolving credit facility.
- Quest Diagnostics' purchase of all of Unilab's outstanding common stock,
the financing of the cash portion of the purchase price and related
transaction costs associated with the Unilab acquisition, and the
repayment of substantially all of Unilab's $200 million of outstanding
debt with cash on-hand and borrowings under a new $550 million one-year
bridge loan facility. Quest Diagnostics expects to re-finance the bridge
loan facility with permanent financing in the bank and possibly public
debt markets. These unaudited pro forma combined financial statements
assume that the bridge loan facility is outstanding for the entire
one-year term. The notes to the unaudited pro forma combined financial
statements disclose the potential impact associated with the refinancing
of the bridge loan facility on net interest expense. See "Description of
the Transaction -- Financing of the Transaction".
- For purposes of these unaudited pro forma combined financial statements,
we have assumed that all outstanding options to acquire Unilab shares are
exercised and that $297 million of cash is paid to Unilab stockholders in
the offer, with the remaining portion of the purchase price paid through
the issuance of approximately 8.5 million Quest Diagnostics shares
(valued at approximately $801 million, or $94.08 per share, based on the
average closing stock price of Quest Diagnostics shares for the five
trading days ended May 10, 2002).
The unaudited pro forma combined financial statements are subject to change
due to the final determination of the purchase price based on Unilab
stockholders' elections to receive cash or Quest Diagnostics shares in exchange
for their Unilab shares. As such, the final number of Quest Diagnostics shares
and the value assigned to such shares is subject to change. The following table
summarizes the potential range of the purchase price depending on the percentage
of Unilab shares tendered for cash in the offer and the
83
impact on the total purchase price of each $1 per share change in the value
attributed to the Quest Diagnostics shares, based on the trading price of those
shares issued in the offer or the merger (in millions):
NUMBER OF SHARES OF VALUE OF QUEST
CASH PORTION OF QUEST DIAGNOSTICS DIAGNOSTICS SHARES TOTAL PURCHASE CHANGE IN
CASH ELECTION %(A) PURCHASE PRICE(B) ISSUED(C) ISSUED(D) PRICE(E) PURCHASE PRICE(F)
------------------ ------------------ ------------------- ------------------ -------------- -----------------
30% $297.0 8.5 $ 801.1 $1,098.1 $ 8.5
0% -- 12.2 1,144.4 1,144.4 12.2
---------------
(a) Represents the maximum and minimum percentage of Unilab shares that can be
tendered for $26.50 in cash.
(b) Represents the product of (i) the approximately 37.4 million shares of
Unilab outstanding as of March 31, 2002 on a fully diluted basis, (ii) the
cash election percentage specified in column (a) above and (iii) the cash
consideration per share of $26.50.
(c) Represents the number of Quest Diagnostics shares issued to Unilab
stockholders in exchange for the Unilab shares not tendered for cash. The
number of Quest Diagnostics shares is equal to the product of (i) the
approximately 37.4 million shares of Unilab outstanding as of March 31,
2002 on a fully diluted basis, (ii) the percentage of Unilab shares not
tendered for cash and (iii) the exchange ratio of 0.3256.
(d) Represents the total value of Quest Diagnostics shares to be issued in
column (c) above. The value is equal to the product of (i) the number of
Quest Diagnostics shares in column (c) above and (ii) $94.08 per share
(representing the average closing stock price of Quest Diagnostics shares
for the five trading days ended May 10, 2002).
(e) Represents the total purchase price based on the assumptions in columns (a)
through (d) above. The total purchase price is equal to the sum of (i) the
cash portion of the purchase price in column (b) above and (ii) the value
of the Quest Diagnostics shares in column (d) above. The total purchase
price does not include the approximately $200 million of Unilab debt
assumed in connection with the transaction.
(f) Represents the change in the total purchase price for every $1 change in
the per share price of the Quest Diagnostics shares in column (c) above.
The AML acquisition and Unilab acquisition are collectively referred to by
us as the Acquisitions. The borrowings under Quest Diagnostics' existing credit
facilities and anticipated bridge loan facility are collectively referred to by
us as the Borrowings.
The unaudited pro forma combined balance sheet as of March 31, 2002 gives
effect to the Acquisitions, the repayment of substantially all of AML's and
Unilab's existing outstanding debt and the Borrowings as if they had occurred on
March 31, 2002. The unaudited pro forma combined statements of operations assume
the Acquisitions, the repayment of substantially all of AML's and Unilab's
existing outstanding debt and the Borrowings were effected on January 1, 2001.
The Acquisitions will be accounted for under the purchase method. As such, the
cost to acquire AML and Unilab will be allocated to the respective assets and
liabilities acquired based on their estimated fair values at the closings of the
AML and Unilab acquisitions. Separate allocations of the costs to acquire AML
and Unilab have been made to the assets and liabilities of AML and Unilab in the
accompanying unaudited pro forma combined financial statements based on
estimates, which in the case of AML are preliminary, and in the case of Unilab
are estimated. The final allocations may be different from the amounts reflected
in the accompanying unaudited pro forma combined financial statements.
The estimated costs associated with severance and other integration-related
activities for 2002 and 2003, including the elimination of duplicate facilities
and excess capacity, operational realignment and related workforce reductions
are not included in the unaudited pro forma combined balance sheet as of March
31, 2002. We estimate that Quest Diagnostics will incur up to $20 million of
costs to integrate Quest Diagnostics and AML, and up to $20 million of
additional costs to integrate Quest Diagnostics and Unilab. A significant
portion of these costs is expected to require cash outlays. To the extent that
the costs relate to actions that impact the employees and operations of the
acquired companies, such costs will be accounted for as a cost of the
acquisitions. To the extent that the costs relate to actions that impact Quest
Diagnostics' employees and operations, such costs will be accounted for as a
charge to earnings in the periods that the integration plans are approved and
communicated. These estimates are preliminary and will be subject to revisions
as integration
84
plans are developed and finalized. Quest Diagnostics expects to finalize and
record these costs during the second or third quarter of 2002.
The unaudited pro forma combined statements of operations do not include
the costs of integrating the Acquisitions, nor do they include the estimated $45
million in annual synergies expected to be realized upon completion of the
integration of the Acquisitions.
The pro forma adjustments, and the assumptions on which they are based, are
described in the accompanying notes to the unaudited pro forma combined
financial statements.
The unaudited pro forma combined financial statements are presented for
illustrative purposes only to aid you in your analysis of the impact to Quest
Diagnostics of the Acquisitions and the Borrowings. The unaudited pro forma
combined financial statements are not necessarily indicative of the combined
financial position or results of operations that would have been realized had
Quest Diagnostics, AML and Unilab been a single entity during the periods
presented. In addition, the unaudited pro forma combined financial statements
are not necessarily indicative of the future results that Quest Diagnostics will
experience after the Acquisitions. The unaudited pro forma combined financial
statements and related notes should be read in conjunction with the historical
financial statements of Quest Diagnostics and Unilab incorporated by reference
into this document.
85
QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 2002
(IN THOUSANDS)
HISTORICAL PRO FORMA
---------------------- PRO FORMA HISTORICAL COMBINED
QUEST COMBINED ---------- WITH AML
DIAGNOSTICS AML ADJUSTMENTS WITH AML UNILAB ADJUSTMENTS AND UNILAB
----------- -------- ----------- ---------- ---------- ----------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash
equivalents............. $ 149,427 $ 5,018 $ 475,000(b)
(331,389)(d)
(10,343)(e)
(155,381)(f) $ 132,332 $ 29,517 $ 524,206(g)
(276,531)(i)
(11,287)(j)
(233,547)(k) $ 164,690
Accounts receivable, net
of allowance............ 548,400 62,020 610,420 67,297 677,717
Notes receivable from
employees............... -- 210 (210)(d)(1) -- -- --
Inventories............... 51,533 7,731 59,264 4,736 64,000
Deferred income taxes..... 152,981 669 153,650 17,702 171,352
Prepaid expenses and other
current assets.......... 47,526 1,394 48,920 2,642 51,562
---------- -------- --------- ---------- -------- ---------- ----------
Total current assets.... 949,867 77,042 (22,323) 1,004,586 121,894 2,841 1,129,321
PROPERTY, PLANT AND
EQUIPMENT, NET.......... 519,944 34,450 554,394 12,928 567,322
GOODWILL, NET............. 1,352,398 36,236 381,066(d)(7) 1,769,700 92,858 1,040,008(i)(6) 2,902,566
INTANGIBLE ASSETS, NET.... 26,164 49,369 (49,369)(d)(3) 26,164 433 (433)(i)(2) 26,164
NOTES RECEIVABLE.......... -- 2,610 (1,530)(c)
(1,080)(d)(1) -- -- --
DEFERRED INCOME TAXES..... 52,473 (2,004) 50,469 37,506 87,975
OTHER ASSETS.............. 104,870 4,701 (958)(c)
(351)(d)(1)
(2,814)(d)(4) 105,448 5,984 794(g)
(3,999)(i)(3) 108,227
---------- -------- --------- ---------- -------- ---------- ----------
TOTAL ASSETS.............. $3,005,716 $202,404 $ 302,641 $3,510,761 $271,603 $1,039,211 $4,821,575
========== ======== ========= ========== ======== ========== ==========
LIABILITIES &
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and
accrued expenses........ $ 622,282 $ 38,428 $ 7,920(c)
(5,979)(d)(6)
(10,343)(e)
(5,109)(f) $ 647,199 $ 32,860 $ (387)(h)
(36,994)(i)(5)
(11,287)(j)
(6,525)(k) $ 624,866
Short-term borrowings and
current portion of
long-term debt.......... 1,405 11,834 300,000(b)
(11,507)(f) 301,732 7,298 525,000(g)
(6,702)(k) 827,328
---------- -------- --------- ---------- -------- ---------- ----------
Total current
liabilities........... 623,687 50,262 274,982 948,931 40,158 463,105 1,452,194
LONG-TERM DEBT............ 820,190 136,396 175,000(b)
3,069(d)(5)
(138,765)(f) 995,890 193,776 27,646(i)(4)
(220,320)(k) 996,992
OTHER LIABILITIES......... 116,241 4,101 120,342 5,357 125,699
---------- -------- --------- ---------- -------- ---------- ----------
Total liabilities....... 1,560,118 190,759 314,286 2,065,163 239,291 270,431 2,574,885
PREFERRED STOCK........... -- 2,087 (2,087)(d) -- -- --
COMMON STOCKHOLDERS'
EQUITY.................. 1,445,598 9,558(a) (10,408)(c)
850(d) 1,445,598 32,312 387(h)
768,393(i)(6) 2,246,690
---------- -------- --------- ---------- -------- ---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY.... $3,005,716 $202,404 $ 302,641 $3,510,761 $271,603 $1,039,211 $4,821,575
========== ======== ========= ========== ======== ========== ==========
See the accompanying notes to the unaudited pro forma combined financial
statements.
86
QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2002
(IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL
HISTORICAL ----------------------- PRO FORMA
--------------------- PRO FORMA COMBINED
QUEST COMBINED WITH AML
DIAGNOSTICS AML ADJUSTMENTS WITH AML UNILAB ADJUSTMENTS AND UNILAB
----------- ------- ----------- ---------- ---------- ----------- ----------
NET REVENUES................. $946,762 $78,415 $ -- $1,025,177 $103,869 $ -- $1,129,046
COSTS AND EXPENSES
Cost of service.............. 557,738 52,680 1,728(l)(2)
1,130(l)(3) 613,276 68,582 938(r) 682,796
Selling, general and
administrative............. 258,403 21,169 129(l)(2)
(1,130)(l)(3) 278,571 13,663 938(r) 293,172
Interest, net................ 12,675 3,537 368(l)(1)
(689)(m) 15,891 4,669 (395)(s) 20,165
Amortization of intangible
assets..................... 2,155 913 (368)(l)(1)
(545)(n) 2,155 148 (148)(t) 2,155
Depreciation................. -- 1,857 (1,857)(l)(2) -- 1,876 (1,876)(r) --
Minority share of income..... 3,882 -- -- 3,882 -- -- 3,882
Other, net................... (614) (34) -- (648) -- -- (648)
-------- ------- ------- ---------- -------- ------- ----------
Total...................... 834,239 80,122 (1,234) 913,127 88,938 (543) 1,001,522
-------- ------- ------- ---------- -------- ------- ----------
INCOME (LOSS) BEFORE TAXES
AND EXTRAORDINARY LOSS..... 112,523 (1,707) 1,234 112,050 14,931 543 127,524
INCOME TAX EXPENSE
(BENEFIT).................. 45,834 (364) 294(o) 45,764 6,271 221(u) 52,256
-------- ------- ------- ---------- -------- ------- ----------
INCOME (LOSS) BEFORE
EXTRAORDINARY LOSS......... $ 66,689 $(1,343) $ 940 $ 66,286 $ 8,660 $ 322 $ 75,268
======== ======= ======= ========== ======== ======= ==========
BASIC EARNINGS PER COMMON
SHARE:
Income before extraordinary
loss....................... $ 0.70 $ 0.69 $ 0.72
DILUTED EARNINGS PER COMMON
SHARE:
Income before extraordinary
loss....................... $ 0.67 $ 0.67 $ 0.70
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic........................ 95,422 95,422 8,515(v) 103,937
Diluted...................... 99,307 99,307 8,515(v) 107,822
See the accompanying notes to the unaudited pro forma combined financial
statements.
87
QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
(IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL
HISTORICAL ----------------------- PRO FORMA
---------------------- PRO FORMA COMBINED
QUEST COMBINED WITH AML
DIAGNOSTICS AML ADJUSTMENTS WITH AML UNILAB ADJUSTMENTS AND UNILAB
----------- -------- ----------- ---------- ---------- ----------- ----------
NET REVENUES.............. $3,627,771 $297,647 $ -- $3,925,418 $390,205 $ -- $4,315,623
COSTS AND EXPENSES
Cost of service........... 2,151,594 201,184 6,278(l)(2)
8,719(l)(3) 2,367,775 259,491 3,564(r) 2,630,830
Selling, general and
administrative.......... 1,018,680 61,566 469(l)(2)
(8,719)(l)(3) 1,071,996 73,745(p) 3,563(r) 1,149,304
Interest, net............. 70,523 15,422 1,392(l)(1)
(3,950)(m) 83,387 27,452 (6,916)(s) 103,923
Amortization of goodwill
and intangible assets... 46,107 8,109 (1,392)(l)(1)
(6,717)(n) 46,107 8,205 (8,205)(t) 46,107(w)
Depreciation.............. -- 6,747 (6,747)(l)(2) -- 7,127 (7,127)(r) --
Provisions for
restructuring and other
special charges......... 5,997 -- -- 5,997 6,938(q) -- 12,935
Minority share of
income.................. 9,953 -- -- 9,953 -- -- 9,953
Other, net................ (7,687) (25) -- (7,712) -- -- (7,712)
---------- -------- -------- ---------- -------- -------- ----------
Total..................... 3,295,167 293,003 (10,667) 3,577,503 382,958 (15,121) 3,945,340
---------- -------- -------- ---------- -------- -------- ----------
INCOME BEFORE TAXES AND
EXTRAORDINARY LOSS...... 332,604 4,644 10,667 347,915 7,247 15,121 370,283
INCOME TAX EXPENSE........ 148,692 4,208 2,060(o) 154,960 3,822 5,943(u) 164,725
---------- -------- -------- ---------- -------- -------- ----------
INCOME BEFORE
EXTRAORDINARY LOSS...... $ 183,912 $ 436 $ 8,607 $ 192,955 $ 3,425 $ 9,178 $ 205,558
========== ======== ======== ========== ======== ======== ==========
BASIC EARNINGS PER COMMON
SHARE:
Income before
extraordinary loss...... $ 1.98 $ 2.07 $ 2.02
DILUTED EARNINGS PER
COMMON SHARE:
Income before
extraordinary loss...... $ 1.88 $ 1.98 $ 1.94
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic..................... 93,053 93,053 8,515(v) 101,568
Diluted................... 97,610 97,610 8,515(v) 106,125
See the accompanying notes to the unaudited pro forma combined financial
statements.
88
QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BALANCE SHEET ADJUSTMENTS
RELATING TO THE AML ACQUISITION
(a) Includes $0.5 million of loans due from stockholders of AML as of March 31,
2002, which serves to reduce AML's historical common stockholders' equity.
(b) Reflects the cash proceeds of $475 million in borrowings under Quest
Diagnostics' existing secured receivables credit facility and unsecured
revolving credit facility to finance the purchase price and related
transaction costs associated with the acquisition of AML and to repay
substantially all of AML's then existing outstanding debt. At the close of
the transaction on April 1, 2002, Quest Diagnostics borrowed $300 million
under its secured receivables credit facility and $175 million under its
unsecured revolving credit facility. Through June 19, 2002, Quest
Diagnostics has repaid $175 million of the amount outstanding under its
unsecured revolving credit facility. These repayments are not reflected in
the accompanying unaudited pro forma combined financial statements.
(c) Reflects merger costs and expenses incurred by AML in conjunction with the
AML acquisition. Approximately $2.5 million represents the write-off of
costs capitalized in AML's historical balance sheet as of March 31, 2002.
The costs written off include $1.5 million of notes receivable which were
forgiven in conjunction with the closing of the AML acquisition. The
remaining $1.0 million, included in other assets, primarily represents the
write-off of costs capitalized in connection with AML's original initial
public offering which was canceled as a result of the AML acquisition.
In addition to the non-cash charges above, AML incurred approximately $10.3
million of merger related expenses, primarily comprised of investment
banking and legal fees, which has been reflected as an increase in accounts
payable and accrued expenses. Partially offsetting this increase in
accounts payable and accrued expenses is the estimated tax benefit
associated with the merger costs and expenses of $2.4 million, resulting in
a net increase in accounts payable and accrued expenses of $7.9 million.
The $10.4 million reduction in common stockholders' equity reflects the
total merger costs and expenses incurred by AML in conjunction with the AML
acquisition of $12.8 million, net of the $2.4 million tax benefit disclosed
above.
(d) Reflects the purchase of all the outstanding common stock of AML, net of
amounts owed by AML stockholders to AML, and the payment of transaction
costs associated with the acquisition of AML as follows (in millions):
COMPONENTS OF ACQUISITION COST
Purchase price to acquire all of AML's outstanding common
and preferred stock....................................... $335.2
Transaction costs incurred by Quest Diagnostics, consisting
primarily of fees and expenses of investment bankers,
attorneys and accountants................................. 4.9
------
TOTAL ACQUISITION COST.................................... 340.1
Less deduction for:
Shareholder loans classified as a reduction in AML's
historical common stockholders' equity (see note (a)
above).................................................... (0.5)(d)(1)
Notes receivable due from employees......................... (0.2)(d)(1)
Notes receivable............................................ (1.1)(d)(1)
Accrued interest receivable related to outstanding notes and
loans, included in other assets within AML's historical
balance sheet............................................. (0.4)(d)(1)
Proceeds from options exercised to acquire AML common
stock..................................................... (6.5)
------
NET CASH PAID TO FUND PURCHASE OF AML AND RELATED
TRANSACTION COSTS...................................... $331.4
======
89
The preliminary allocation of acquisition cost to the AML assets and
liabilities acquired under the purchase method of accounting is as follows
(in millions):
PRELIMINARY PURCHASE PRICE ALLOCATION
Net assets of AML per historical balance sheet as of March
31, 2002.................................................. $ 11.6
Increase (decrease) in net assets due to:
Shareholder loans classified as a reduction in AML's
historical common stockholders' equity (see note (a)
above).................................................... 0.5
Proceeds from options exercised to acquire AML common
stock..................................................... 6.5
Merger costs and expenses incurred by AML in conjunction
with the closing of the AML acquisition, net of taxes (see
note (c) above)........................................... (10.4)
------
Adjusted historical net assets of AML....................... 8.2(d)(2)
Adjustments to record net assets acquired based on estimated
fair values:
Intangible assets........................................... (49.4)(d)(3)
Other assets................................................ (2.8)(d)(4)
Long-term debt.............................................. (3.0)(d)(5)
Accounts payable and accrued expenses....................... 6.0(d)(6)
Incremental goodwill recorded............................... 381.1(d)(7)
------
TOTAL ACQUISITION COST.................................... $340.1
======
--------------------
(d)(1) Pursuant to the AML merger agreements, AML stockholders and option
holders received their cash consideration in exchange for their
outstanding shares net of amounts owed to AML by the stockholders
and employee option holders, in the form of notes, including accrued
interest on such notes.
(d)(2) Includes $36.2 million of goodwill recorded in AML's historical
balance sheet as of March 31, 2002.
(d)(3) Represents the adjustment to reduce AML's historical net book value
of intangible assets to estimated fair value. Based on the nature
and operations of the businesses of Quest Diagnostics and AML and
Quest Diagnostics' strategic justification for pursuing the AML
acquisition, Quest Diagnostics management determined, in
consultation with third party valuation specialists, that none of
the potential AML intangible assets qualify for inclusion as
intangible assets under Statement of Financial Accounting Standards
No. 141, "Business Combinations" ("SFAS 141").
(d)(4) Represents the reduction in unamortized deferred financing costs of
$1.2 million related to AML's outstanding debt that was repaid at
the closing of the AML acquisition with the remainder representing a
reduction in the carrying value associated with an affiliated
company.
(d)(5) Represents the increase in the carrying value of AML's outstanding
debt as of March 31, 2002 to its estimated fair value based on the
net present value of the remaining cash flows associated with the
debt which was repaid at the closing of the AML acquisition.
(d)(6) Primarily represents the tax benefit associated with the tax
deductible employee compensation related to the exercise of AML's
outstanding options at the closing of the AML acquisition.
(d)(7) Based on the preliminary allocation of the acquisition cost of AML
and the amount of goodwill recorded in AML's historical balance
sheet as of March 31, 2002 (as noted in (d)(2) above), a pro forma
adjustment of $381.1 million, representing incremental goodwill
acquired, was reflected in the unaudited pro forma combined balance
sheet at March 31, 2002.
The increase in common stockholders' equity of $0.8 million represents the
elimination of AML's historical net equity of $9.6 million, offset by the
impact of the net charge to equity of $10.4 million related to the AML
merger costs and expenses.
90
(e) Reflects the payment of the cash portion of the AML merger costs and
expenses accrued for in (c) above.
(f) Reflects the repayment of substantially all of AML's outstanding debt of
$150.3 million, plus accrued interest payable of $3.4 million as of March
31, 2002, and $1.7 million paid to terminate AML's then existing interest
rate swap agreement. The accrued interest payable and the liability
representing the fair value associated with AML's interest rate swap
agreement were included in accounts payable and accrued expenses in AML's
historical balance sheet as of March 31, 2002. The portion of AML's
outstanding debt not repaid is principally associated with obligations
under capital leases totaling $1 million as of March 31, 2002.
RELATING TO THE UNILAB ACQUISITION
(g) Reflects the gross cash proceeds of $525 million in borrowings under Quest
Diagnostics' new $550 million one-year bridge loan facility to finance the
cash portion of the purchase price and related transaction costs associated
with the acquisition of Unilab and to repay substantially all of Unilab's
existing outstanding debt. The gross proceeds have been reduced for debt
financing costs of $0.8 million which will be capitalized. Quest
Diagnostics expects to refinance the bridge loan facility with permanent
financing in the bank and possibly public debt markets. See note(s) below
regarding the potential impact associated with the refinancing of the
bridge loan facility on net interest expense included in the unaudited pro
forma combined statement of operations.
(h) Reflects special charges expected to be incurred by Unilab in conjunction
with the Unilab acquisition. Approximately $27.9 million represents
non-cash expenses related to stock based compensation due to the
accelerated vesting of outstanding Unilab stock options. The stock based
compensation for the options would be recorded as a charge to earnings with
an offsetting increase in additional paid-in-capital. In the accompanying
unaudited pro forma combined balance sheet, this non-recurring charge
incurred in conjunction with the acquisition of Unilab, is reflected as a
reduction in retained earnings within common stockholders' equity.
In addition to the non-cash charges above, Unilab is expected to incur
approximately $11.3 million of merger related expenses, primarily comprised
of investment banking and legal fees, which has been reflected as an
increase in accounts payable and accrued expenses. Offsetting this increase
in accounts payable and accrued expenses is the estimated tax benefit,
associated with the stock based compensation and merger related expenses
outlined above, of $11.7 million, resulting in a net decrease in accounts
payable and accrued expenses of $0.4 million.
The $0.4 million increase in common stockholders' equity reflects the
increase in additional paid in capital, associated with the non-cash stock
based compensation related to the accelerated vesting of the Unilab stock
options, of $27.9 million, partially offset by a reduction in retained
earnings resulting from the after-tax impact of the special charges of
$27.5 million ($39.2 million of total special charges, including the stock
based compensation and merger related expenses, offset by the $11.7 million
tax benefit disclosed above).
(i) Reflects the purchase of all the outstanding Unilab shares and the payment
of transaction costs associated with the acquisition of Unilab. For
purposes of the unaudited pro forma combined financial statements, Quest
Diagnostics assumed that all outstanding options to acquire shares of
Unilab common stock are exercised and that approximately $297 million of
cash is paid to Unilab stockholders in the offer, with the remaining
portion of the purchase price paid through the issuance of approximately
8.5 million shares of common stock of Quest Diagnostics (valued at
approximately $801.1 million, or
91
$94.08 per share, based on the average closing stock price of Quest
Diagnostics shares for the five trading days ended May 10, 2002). The
components of acquisition cost are estimated as follows (in millions):
COMPONENTS OF ACQUISITION COST
Purchase price to acquire all of Unilab's outstanding common
stock..................................................... $1,098.1
Transaction costs incurred by Quest Diagnostics, consisting
primarily of fees and expenses of investment bankers,
attorneys and accountants................................. 7.8
--------
TOTAL ACQUISITION COST.................................... 1,105.9
Value of Quest Diagnostics shares issued.................... (801.1)
Proceeds from options exercised to acquire Unilab common
stock..................................................... (28.3)
--------
NET CASH PAID TO FUND CASH PORTION OF UNILAB PURCHASE
PRICE AND RELATED TRANSACTION COSTS.................... $ 276.5
========
The preliminary allocation of acquisition cost to the Unilab assets and
liabilities acquired under the purchase method of accounting is as follows
(in millions):
PRELIMINARY PURCHASE PRICE ALLOCATION
Net assets of Unilab per historical balance sheet as of
March 31, 2002............................................ $ 32.3
Increase (decrease) in net assets due to:
Proceeds from options exercised to acquire Unilab common
stock..................................................... 28.3
Special charges incurred by Unilab in conjunction with the
Unilab acquisition, net of taxes and the increase in
additional paid-in-capital related to the vesting of
outstanding Unilab stock options (see note (h) above)..... 0.4
--------
Adjusted historical net assets of Unilab.................... 61.0(i)(1)
Adjustments to record net assets acquired based on estimated
fair values:
Intangible assets........................................... (0.4)(i)(2)
Other assets................................................ (4.0)(i)(3)
Long-term debt.............................................. (27.7)(i)(4)
Accounts payable and accrued expenses....................... 37.0(i)(5)
Incremental goodwill recorded............................... 1,040.0(i)(6)
--------
TOTAL ACQUISITION COST...................................... $1,105.9
========
-------------------------
(i)(1) Includes $92.9 million of goodwill recorded in Unilab's historical
balance sheet as of March 31, 2002.
(i)(2) Represents the adjustment to reduce Unilab's historical net book value of
intangible assets to estimated fair value. Based on the nature and
operations of the businesses of Quest Diagnostics and Unilab, and Quest
Diagnostics' strategic justification for pursuing the Unilab acquisition,
Quest Diagnostics management determined, in consultation with third party
valuation specialists, that none of the potential Unilab intangible
assets qualify for inclusion as intangible assets under SFAS 141.
(i)(3) Represents the reduction in unamortized deferred financing costs of $4.0
million related to Unilab's outstanding debt expected to be repaid at the
closing of the Unilab acquisition.
(i)(4) Represents the increase in the carrying value of Unilab's outstanding
debt as of March 31, 2002 to its estimated fair value, based on the net
present value of the estimated remaining cash flows, reflecting the
estimated premium to refinance Unilab's 12 3/4% senior subordinated
debentures of approximately $25 million.
(i)(5) Primarily represents the tax benefit associated with the tax deductible
employee compensation related to the exercise of Unilab's outstanding
options at the closing of the Unilab acquisition and the tax benefit
associated with the estimated premium to refinance Unilab's 12 3/4%
senior subordinated debentures.
(i)(6) Based on the estimated allocation of the acquisition cost of Unilab and
the amount of goodwill recorded in Unilab's historical balance sheet as
of March 31, 2002, a pro forma adjustment of
92
$1.0 billion, representing incremental goodwill acquired, was reflected
in the unaudited pro forma combined balance sheet at March 31, 2002.
The increase in common stockholders' equity of $768.4 million primarily
represents the elimination of Unilab's historical net equity of $32.3
million, offset by the value of the 8.5 million Quest Diagnostics shares
assumed to be issued in conjunction with the Unilab acquisition of $801.1
million.
(j) Reflects the payment of the cash portion of Unilab's accrued merger costs
and expenses accrued for in (h) above.
(k) Reflects the repayment of substantially all of Unilab's outstanding debt of
$227.0 million (including the impact of the preliminary purchase price
allocation adjustments above of $27.7 million), plus accrued interest
payable of $6.5 million as of March 31, 2002. The portion of Unilab's
outstanding debt not repaid is principally associated with obligations
under capital leases totaling $1.7 million as of March 31, 2002.
STATEMENT OF OPERATIONS ADJUSTMENTS
RELATING TO THE AML ACQUISITION
(l) In order to provide more meaningful comparisons, Quest Diagnostics recorded
this pro forma adjustment to reclassify certain costs and expenses in the
historical financial statements of AML on a basis consistent with that of
Quest Diagnostics. These adjustments are associated with the
reclassification of:
(1) Amortization of deferred financing costs,
(2) Depreciation expense, and
(3) Information technology costs in support of laboratory operations,
occupancy costs and the costs related to professional liability
insurance programs.
(m) The pro forma adjustment to net interest expense represents the difference
between AML's historical interest expense and the assumed interest expense
associated with the borrowings under Quest Diagnostics' existing credit
facilities to finance the acquisition of AML and related transaction costs,
and repayment of substantially all of AML's existing outstanding debt. For
purposes of calculating the pro forma net interest expense adjustment, the
borrowings consist of $300 million under Quest Diagnostics' secured
receivables credit facility and $175 million under Quest Diagnostics'
unsecured revolving credit facility. Both the secured receivables credit
facility and unsecured revolving credit facility bear interest at variable
rates. The assumed interest rates on the borrowings under the secured
receivables credit facility and unsecured revolving credit facility were
2.42% and 3.2%, respectively. If the assumed interest rates fluctuate by
1/8%, interest expense fluctuates by approximately $0.6 million annually.
Depending upon interest rates and the rate at which Quest Diagnostics is
able to repay debt, amounts borrowed under Quest Diagnostics' existing
credit facilities and ultimately net interest expense may vary from that
indicated above.
(n) Reflects the pro forma impact on the amortization of goodwill and
intangible assets to eliminate AML's historical amortization of goodwill
and intangible assets, assuming that the nonamortization provisions of
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangibles" ("SFAS 142"), were in effect as of January 1, 2001, related to
the goodwill acquired in the AML acquisition. Based on our preliminary
allocation of purchase price and in consultation with third party valuation
specialists, no intangibles assets, meeting the criteria under SFAS 141
were identified for AML.
(o) The pro forma adjustment to income tax expense represents the estimated
income tax impact of the pro forma adjustments at an incremental tax rate
of approximately 40%. The effective tax rate related to the pro forma
adjustments is impacted by the pro forma adjustment to AML's historical
amortization of goodwill and intangible assets, the majority of which is
not deductible for tax purposes.
93
RELATING TO THE UNILAB ACQUISITION
(p) Includes $23.8 million of stock based compensation comprised of a $1.5
million non-cash charge related to service options issued to non-employee
consultants that were accelerated in 2001 and $22.3 million of non-cash
charges related to performance-based stock options that met certain
contingent vesting provisions in 2001.
(q) The provision for special charges includes non-recurring charges of $3.0
million related to a federal investigation under the False Claims Act
relating to Unilab's billings, $2.5 million paid to Unilab's majority
shareholder for the termination of annual fees for financial advisory
services provided to Unilab, $0.9 million related to the secondary offering
of Unilab's common stock and $0.6 million of legal fees related to the
settlement of claims brought by a former employee regarding employment
benefits.
(r) In order to provide more meaningful comparisons, Quest Diagnostics recorded
this pro forma adjustment to reclassify depreciation expense in the
historical financial statements of Unilab on a basis consistent with that
of Quest Diagnostics.
(s) The pro forma adjustment to net interest expense represents the difference
between Unilab's historical interest expense and the assumed interest
expense associated with the assumed borrowings under the new bridge loan
facility to finance the acquisition of Unilab and related transaction
costs, and repayment of substantially all of Unilab's existing outstanding
debt. For purposes of calculating the pro forma net interest expense
adjustment, the borrowings were assumed to consist of $525 million under
Quest Diagnostics' new $550 million one-year bridge loan facility. The
assumed interest rate on the borrowings under the new bridge loan facility,
including amortization of deferred financing costs of approximately $0.8
million on an annual basis, was 3.8%. If the assumed interest rate
fluctuates by 1/8%, interest expense fluctuates by approximately $0.7
million annually. Depending upon interest rates and the rate at which Quest
Diagnostics is able to repay debt, amounts borrowed under the new bridge
loan facility and ultimately net interest expense may vary from that
indicated above.
Additionally, Quest Diagnostics expects to refinance the amounts
outstanding under the new bridge loan facility with permanent financing in
the bank and possibly public debt markets. These unaudited pro forma
combined financial statements assume that the bridge loan facility is
outstanding for the entire one-year term. The interest rates associated
with the expected refinancing of the bridge loan facility on a long-term
permanent basis would be significantly higher than the assumed interest
rate associated with the bridge loan facility if such refinancing was
through the public debt markets. The permanent financing may consist of
both variable and fixed interest rate indebtedness. For every 1%
fluctuation in interest rates from the bridge loan facility rate of 3.8%,
interest expense will fluctuate by approximately $5.3 million annually.
Depending upon interest rates and the rate at which Quest Diagnostics is
able to repay debt, amounts borrowed and ultimately net interest expense
may vary from that indicated above.
(t) Reflects the pro forma impact on the amortization of goodwill and
intangible assets to eliminate Unilab's historical amortization of goodwill
and intangible assets, assuming that the nonamortization provisions of SFAS
142 were in effect as of January 1, 2001, related to the goodwill acquired
in the Unilab acquisition. Based on our preliminary allocation of purchase
price and in consultation with third party valuation specialists, no
intangibles assets, meeting the criteria under SFAS 141, were identified
for Unilab.
(u) The pro forma adjustment to income tax expense represents the estimated
income tax impact of the pro forma adjustments at an incremental tax rate
of approximately 40%.
(v) Basic net income per common share is calculated by dividing net income,
less preferred stock dividends (approximately $118 for 2001), by the
weighted average number of common shares outstanding. Diluted net income
per common share is calculated by dividing net income, less preferred stock
dividends, by the weighted average number of common shares outstanding,
after giving effect to all potentially dilutive common shares outstanding
during the period. Potentially dilutive common shares primarily include
stock options and restricted common shares granted under Quest Diagnostics'
Employee Equity Participation Program. Basic and diluted net income per
common share on a pro forma combined basis gives effect to the assumed 8.5
million of Quest Diagnostics common stock issued to Unilab stockholders
94
to effectuate the acquisition of Unilab, assuming that the Unilab
acquisition closed on January 1, 2001. For purposes of the unaudited pro
forma combined financial statements, we assumed that all outstanding
options to acquire shares of Unilab common stock are exercised and that
$297 million of cash was paid to Unilab stockholders in the offer, with the
remaining portion of the purchase price paid through the issuance of
approximately 8.5 million shares of common stock of Quest Diagnostics.
(w) Quest Diagnostics adopted SFAS 142 on January 1, 2002. Assuming the
nonamortization provisions of SFAS 142 had been effective at the beginning
of fiscal 2001, pro forma net income for the year ended December 31, 2001
would have increased by $36.0 million, representing the reduction in Quest
Diagnostics' historical goodwill amortization, net of taxes.
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DESCRIPTION OF QUEST DIAGNOSTICS CAPITAL STOCK
COMMON STOCK
Quest Diagnostics' certificate of incorporation permits it to issue up to
300,000,000 shares of common stock, par value $0.01 per share. As of April 30,
2002, there were 97,005,940 shares of Quest Diagnostics' common stock
outstanding held of record by approximately 6,300 stockholders. The following
description of Quest Diagnostics' common stock and provisions of its certificate
of incorporation and by-laws is only a summary, and Quest Diagnostics encourages
you to review complete copies of Quest Diagnostics' certificate of incorporation
and by-laws, which Quest Diagnostics has previously filed with the SEC.
Holders of Quest Diagnostics' common stock are entitled to receive, as,
when and if declared by its board of directors, dividends and other
distributions in cash, stock or property from its assets or funds legally
available for those purposes subject to any dividend preferences that may be
attributable to preferred stock. Holders of common stock are entitled to one
vote for each share held of record on all matters on which stockholders may
vote. Holders of common stock are not entitled to cumulative voting for the
election of directors. There are no preemptive, conversion, redemption or
sinking fund provisions applicable to Quest Diagnostics' common stock. All
outstanding shares of Quest Diagnostics' common stock are fully paid and
non-assessable. In the event of Quest Diagnostics' liquidation, dissolution or
winding up, holders of common stock are entitled to share ratably in the assets
available for distribution, subject to any prior rights of any holders of
preferred stock then outstanding.
Quest Diagnostics' common stock is traded on the New York Stock Exchange
under the symbol "DGX".
PREFERRED STOCK
Quest Diagnostics' certificate of incorporation permits it to issue,
without prior permission from its stockholders, up to 10,000,000 shares of
preferred stock. As of December 31, 2001, Quest Diagnostics had previously
authorized:
- 1,000 shares of voting cumulative preferred stock, par value $1.00 per
share, all of which were repurchased on December 31, 2001; and
- 1,300,000 shares of series A preferred stock par value $1.00 per share,
none of which are expected to be issued nor are any outstanding. The
series A preferred stock will be issued pursuant to Quest Diagnostics'
rights agreement as described below under "Rights Agreement".
DELAWARE LAW AND QUEST DIAGNOSTICS' CERTIFICATE OF INCORPORATION AND BY-LAW
PROVISIONS MAY HAVE AN ANTI-TAKEOVER EFFECT
Provisions in Quest Diagnostics' certificate of incorporation, by-laws and
Delaware law could make it harder for someone to acquire Quest Diagnostics
through a tender offer, proxy contest or otherwise. Quest Diagnostics is
governed by the provisions of Section 203 of the DGCL, which provides that a
person who owns (or within three years, did own) 15% or more of a company's
voting stock is an "interested stockholder". Section 203 prohibits a public
Delaware corporation from engaging in a business combination with an interested
stockholder for a period commencing three years from the date in which the
person became an interested stockholder unless:
- the board of directors approved the transaction that resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation (excluding shares owned
by officers, directors, or certain employee stock purchase plans); or
- at or subsequent to the time the transaction is approved by the board of
directors, there is an affirmative vote of at least 66.67% of the
outstanding voting stock.
96
Section 203 could prohibit or delay mergers or other takeover attempts
against Quest Diagnostics and, accordingly, may discourage attempts to acquire
it through tender offer, proxy contest or otherwise.
Quest Diagnostics' certificate of incorporation and by-laws include certain
restrictions on who may call a special meeting of stockholders and prohibit
certain actions by written consent of the holders of common stock. These
provisions could delay, deter or prevent a future takeover or acquisition of
Quest Diagnostics unless such takeover or acquisition is approved by the board
of directors. Quest Diagnostics has a staggered board of directors, so that it
would take three successive annual meetings to replace all directors. Quest
Diagnostics' certificate of incorporation also requires the approval of holders
of at least 80% of the voting power of the outstanding capital stock of Quest
Diagnostics entitled to vote generally in the election of directors as a
condition for mergers and certain other business combinations with any
beneficial owner of more than 10% of such voting power or an interested
stockholder, unless (1) the transaction is approved by at least a majority of
directors that are not affiliated or associated with the interested stockholder
with whom Quest Diagnostics is seeking a business combination or (2) certain
minimum price, form of consideration and procedural requirements are met.
RIGHTS AGREEMENT
On December 31, 1996, Quest Diagnostics adopted a shareholder rights
agreement. As with most shareholder rights agreements, the terms of Quest
Diagnostics' rights agreement are complex and not easily summarized. This
summary may not contain all of the information that is important to you.
Accordingly, you should carefully read Quest Diagnostics' rights agreement, as
amended, that is incorporated by reference as an exhibit to this S-4
registration statement of which this prospectus is a part.
Quest Diagnostics' rights agreement provides that each share of Quest
Diagnostics' common stock will have the right to purchase a unit consisting of
one-hundredth of its series A preferred stock at a purchase price of $250. Each
share of series A preferred stock is entitled to 100 votes per share and votes
together with Quest Diagnostics' common stock as a single class. The series A
preferred stock is not redeemable. Holders of rights will have no rights as
Quest Diagnostics' stockholders, including the right to vote or receive
dividends, simply by virtue of holding the rights.
Initially, the rights under Quest Diagnostics' rights agreement are
attached to outstanding certificates representing Quest Diagnostics' common
stock and no separate certificates representing the rights will be distributed.
The rights will separate from the shares of Quest Diagnostics' common stock and
be represented by separate certificates approximately 10 days after someone
acquires or commences a tender or exchange offer for 20% of Quest Diagnostics'
outstanding common stock except in the case of SmithKline Beecham and its
affiliates, who may acquire up to 29.5% of Quest Diagnostics' outstanding common
stock without triggering the separation of the rights from Quest Diagnostics'
common stock.
After the rights separate from the shares of Quest Diagnostics' common
stock, certificates representing the rights will be mailed to record holders of
the shares of Quest Diagnostics' common stock. Once distributed, the rights
certificates alone will represent the rights. All of the shares of Quest
Diagnostics' common stock issued prior to the date the rights separate from the
common stock will be issued with the rights attached. The rights are not
exercisable until the date the rights separate from the shares of the common
stock. The rights will expire on December 31, 2006 unless earlier redeemed or
exchanged by Quest Diagnostics.
If a person or group obtains or has the right to obtain 20% or more of the
shares of Quest Diagnostics' common stock, then each holder of a right shall be
entitled to receive common stock in lieu of the series A preferred stock upon
exercise of the right and payment of the purchase price. The number of shares of
common stock the holder of the right shall be entitled to receive shall have a
value equal to two times the purchase price paid by such holder upon exercise of
the right, unless Quest Diagnostics' board of directors exercises its option
pursuant to the rights agreement to exchange all or part of the outstanding
rights for common stock at an exchange ratio of one common stock per right prior
to a person or group beneficially owning 50% or more of the shares of Quest
Diagnostics' common stock. If Quest Diagnostics is acquired in a merger,
consolidation or other business combination or more than 50% of Quest
Diagnostics' assets are sold or
97
transferred, each right will thereafter entitle the holder thereof to receive,
upon the exercise of such right, common stock of the acquiring corporation
having a value equal to two times the purchase price of such right.
Quest Diagnostics' rights agreement may have anti-takeover effects. The
rights may cause substantial dilution to a person or group that attempts to
acquire Quest Diagnostics. Accordingly, the existence of the rights may deter
acquirors from making takeover proposals or tender offers. However, the rights
are not intended to prevent a takeover but rather are designed to enhance the
ability of Quest Diagnostics' board to negotiate with an acquiror on behalf of
all the stockholders. In addition, the rights should not interfere with a proxy
contest.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Quest Diagnostics' certificate of incorporation limits the liability of
directors to the fullest extent permitted by Delaware law. Delaware law provides
that directors of a corporation will not be personally liable for monetary
damages for breach of their fiduciary duties as directors, including, without
limitation, directors serving on committees of Quest Diagnostics' board of
directors. Directors remain liable for:
- any breach of the director's duty of loyalty to Quest Diagnostics or its
stockholders;
- any act or omission not in good faith or which involves intentional
misconduct or a knowing violation of the law;
- any violation of Section 174 of the DGCL, which proscribes the payment of
dividends and stock purchases or redemptions under certain circumstances;
and
- any transaction from which the directors derive an improper personal
benefit.
This provision, however, has no effect on the availability of equitable
remedies such as an injunction or rescission. In addition, this provision will
not limit liability under state or federal securities laws.
The certificate of incorporation provides that Quest Diagnostics shall
indemnify its officers and directors to the fullest extent permitted by such
law. Quest Diagnostics believes that these provisions will assist it in
attracting and retaining qualified individuals to serve as directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Quest Diagnostics' common stock is
Computershare Investor Services LLC, 2 North LaSalle Street, Chicago, Illinois
60602, and its telephone number at this location is (312) 588-4991.
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COMPARISON OF STOCKHOLDER RIGHTS
Quest Diagnostics and Unilab are both incorporated under the laws of the
State of Delaware. If the offer is completed, Unilab stockholders exchanging
their shares in the offer, whose rights are currently governed by the laws of
the state of Delaware and the third amended and restated certificate of
incorporation and by-laws of Unilab, will, upon completion of the offer, become
stockholders of Quest Diagnostics, and their rights as such will be governed by
Delaware law and the certificate of incorporation and by-laws of Quest
Diagnostics. The material differences between the rights of holders of Unilab
shares and the rights of holders of Quest Diagnostics shares, resulting from the
differences in their governing documents, are summarized below.
The following summary does not purport to be a complete statement of the
rights of the holders of Quest Diagnostics shares under the applicable
provisions of Delaware law and the certificate of incorporation and by-laws of
Quest Diagnostics or the rights of the holders of Unilab shares under the
applicable provisions of the laws of the state of Delaware and the third amended
and restated certificate of incorporation and by-laws of Unilab, or a complete
description of the specific provisions referred to herein. This summary contains
a list of the material differences but is not meant to be relied upon as an
exhaustive list or a detailed description of the provisions discussed, and is
qualified in its entirety by reference to the Delaware law and the governing
documents of Quest Diagnostics and Unilab, to which the Unilab stockholders are
referred. Copies of such governing corporate instruments of Quest Diagnostics
and Unilab are available, without charge, to any person, including any
beneficial owner to whom this prospectus is delivered, by following the
instructions listed under "Where You Can Find More Information about Quest
Diagnostics and Unilab".
SUMMARY OF MATERIAL DIFFERENCES BETWEEN THE RIGHTS OF UNILAB STOCKHOLDERS
AND THE RIGHTS OF QUEST DIAGNOSTICS STOCKHOLDERS
UNILAB STOCKHOLDER RIGHTS QUEST DIAGNOSTICS STOCKHOLDER RIGHTS
------------------------- ------------------------------------
Authorized Capital The authorized capital stock of The authorized capital stock of Quest
Stock: Unilab consists of 60,000,000 shares Diagnostics consists of 300,000,000
of common stock, $.01 par value per shares of common stock, $.01 par
share, of which 33,573,700 shares value per share, of which 97,005,940
were outstanding as of May 14, 2002, shares were outstanding as of April
and 15,000,000 shares of preferred 30, 2002, and 10,000,000 shares of
stock, $0.01 par value per share, preferred stock, $1.00 par value per
none of which was outstanding as of share, of which, as of April 30,
May 14, 2002. 2002, 1,000 shares have been
classified as voting cumulative
preferred stock, none of which are
issued nor are any outstanding, and
1,300,000 shares of series A
preferred stock, none of which are
issued nor are any outstanding.
Voting Rights: The holders of Unilab shares are The holders of Quest Diagnostics
entitled to one vote per share of shares are entitled to one vote per
common stock. share of common stock.
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UNILAB STOCKHOLDER RIGHTS QUEST DIAGNOSTICS STOCKHOLDER RIGHTS
------------------------- ------------------------------------
Dividends: Under section 170(a) of the DGCL, Under section 170(a) of the DGCL,
Unilab may declare and pay dividends, Quest Diagnostics may declare and pay
subject to limitations in its dividends, subject to limitations in
certificate of incorporation, either its certificate of incorporation,
out of its surplus or if there is no either out of its surplus or if there
surplus, out of its net profits for is no surplus, out of its net profits
the fiscal year in which the dividend for the fiscal year in which the
is declared and/or the preceding dividend is declared and/or the
year. If the capital of Unilab has preceding year. If the capital of
been diminished to an amount less Quest Diagnostics has been diminished
than the aggregate amount of the to an amount less than the aggregate
capital represented by the issued and amount of the capital represented by
outstanding stock of all classes the issued and outstanding stock of
having a preference upon the all classes having a preference upon
distribution of assets, the directors the distribution of assets, the
may not declare and pay any dividend directors may not declare and pay any
out of net profits until the dividend out of net profits until the
deficiency in Unilab's capital as to deficiency in Quest Diagnostics'
classes of stock having a preference capital as to classes of stock having
upon distribution of assets has been a preference upon distribution of
repaid. assets has been repaid.
Subject to the prior and superior
rights of the preferred stock or any
similar stock ranking prior and
superior, the holders of the common
stock shall be entitled to receive,
to the extent permitted by law, such
dividends as may be declared by the
board of directors at any regular or
special meeting. Such declaration may
be continuing or limited to a
specific payment or distribution.
Dividends may be paid in cash, in
property, or in shares of stock,
subject to the provisions of the
certificate of incorporation.
Number of Delaware Law requires that a board of Delaware Law requires that a board of
Directors: directors consist of one or more directors consist of one or more
members, with the number fixed by or members, with the number fixed by or
in the manner provided in the in the manner provided in the
by-laws, unless the certificate of by-laws, unless the certificate of
incorporation fixes the number of incorporation fixes the number of
directors. Unilab's by-laws provide directors. Quest Diagnostics'
that the board shall be composed of certificate of incorporation provides
not less than three (3) nor more than that the board shall be composed of
seven (7) directors and that the not less than three (3) nor more than
specific number of directors will be twelve (12) directors and that the
determined by the board of directors specific number of directors will be
or the stockholders. The Unilab board determined by the board of directors.
of directors currently consists of Such exact number shall be six (6)
five (5) directors, with each unless otherwise determined by a
director elected until his or her resolution so adopted by a majority
respective successors are duly of the board of directors. Quest
elected and qualified or until his or Diagnostics' board is divided into
her earlier death, resignation or three classes, each of which will be
removal. as nearly equal in number as
possible. The Quest Diagnostics'
board of directors currently consists
of ten (10) directors, divided into
three classes with three-year terms.
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UNILAB STOCKHOLDER RIGHTS QUEST DIAGNOSTICS STOCKHOLDER RIGHTS
------------------------- ------------------------------------
Removal of Unilab directors may be removed, with Subject to the rights of the holders
Directors: or without cause, by the holders of a of any series of preferred stock or
majority of the shares then entitled any other class of capital stock
to vote at an election of directors. other than the common stock then
outstanding, the Quest Diagnostics'
directors may be removed, only for
cause:
(1) by the holders of record of a
majority of the shares then entitled
to vote at an election of
directors, and
(2) by the affirmative vote of a
majority of the entire board, at any
time prior to the expiration of
his or her term of office.
Vacancies: If any vacancies occur on Unilab's Subject to the rights of the holders
board, they may be filled by a of any series of preferred stock or
majority vote of the directors then any other class of capital stock
in office, although less than a other than the common stock then
quorum of the board. Each director so outstanding, vacancies in any class
chosen shall hold office for the of directors shall be filled only by
unexpired term of his or her the affirmative vote of a majority of
predecessor in office. the remaining directors of the board,
although less than a quorum, or by
the sole remaining director. Each
director so chosen shall hold office
until the next election of the class
for which such directors shall have
been chosen and until his or her
successor is elected and qualified.
Advance Notice Unilab has not adopted advance notice Nominations of persons for election
By-law Provisions by-law provisions. to the board and the proposal of
Relating to business to be considered by the
Nominations of stockholders may be made at an annual
Directors: meeting of stockholders (i) pursuant
to the corporation's notice of
meeting, (ii) by or at the direction
of the board of directors, or (iii)
by any stockholder of the corporation
who was a stockholder of record at
the time of giving of notice, who is
entitled to vote at the meeting and
who complied with the notice
procedures set forth in the by-laws.
Only such persons who are nominated
in accordance with the procedures set
forth in the by-laws shall be
eligible to serve as directors.
Annual Meeting: The annual meeting of Unilab's The annual meeting of Quest
stockholders will be held at such Diagnostics' stockholders will be
date and time as shall be designated held at such date and time as shall,
by the board and stated in the notice from time to time, be designated by
of the meeting. the board and stated in the notice of
the meeting.
101
UNILAB STOCKHOLDER RIGHTS QUEST DIAGNOSTICS STOCKHOLDER RIGHTS
------------------------- ------------------------------------
Calling a Special Special meetings of Unilab's Special meetings of Quest
Meeting of stockholders may be called for any Diagnostics' stockholders may be
Stockholders: purpose, by Unilab's President, its called only by the board of
board of directors, or the holders of directors.
not less than one-tenth (1/10th) of
all outstanding shares of capital
stock entitled to vote at the
meeting.
Shareholder Quorum A majority of the shares entitled to Except as at the time otherwise
and Voting vote, represented in person or by required by statute or by the
Requirements: proxy, shall constitute a quorum at a certificate of incorporation, the
meeting of stockholders. Except as presence at any stockholders meeting,
otherwise provided by the certificate in person or by proxy, of the holders
of incorporation, if a quorum is of record of shares of stock (of any
present, the affirmative vote of a class) entitled to vote at the
majority of the shares represented in meeting, aggregating a majority of
person or by proxy at the meeting and the total number of shares of stock
entitled to vote on the subject of all classes then issued and
matter shall be the act of the outstanding and entitled to vote at
stockholders. the meeting, shall be necessary and
sufficient to constitute a quorum for
the transaction of business.
Stockholder Action Unilab's stockholders may take action Quest Diagnostics' stockholders may
by Written Consent: without a meeting by written consent, take action which may be taken at any
setting forth the action so taken, annual or special meeting of
with the number of votes necessary to stockholders without a meeting if
authorize the action at a meeting at consent in writing, setting forth the
which all shares entitled to vote action so taken, is signed by the
thereon were present and voted. holders of all outstanding stock
entitled to vote and no action by
non-unanimous written consent shall
be permitted.
Stockholder Rights Unilab has not adopted a stockholder On December 31, 1996, Quest
Plan: rights plan. Diagnostics adopted a stockholder
rights plan.
Amendment of Under the DGCL, Unilab's board must Under the DGCL, Quest Diagnostics'
Charter: declare the advisability of an board must declare the advisability
amendment to the certificate of of an amendment to the certificate of
incorporation and the amendment must incorporation and the amendment must
be approved by the holders of a be approved by the holders of a
majority of the outstanding stock majority of the outstanding stock
entitled to vote upon the proposed entitled to vote upon the proposed
amendment, unless a higher vote is amendment, unless a higher vote is
required by Unilab's certificate of required by Quest Diagnostics'
incorporation. At any time prior to certificate of incorporation. The
the filing of such amendment with the affirmative vote of the holders of
Delaware Secretary of State, record of outstanding shares
notwithstanding authorization of the representing at least eighty percent
proposed amendment by the (80%) of the voting power of all the
stockholders, the board of directors outstanding voting stock shall be
may abandon such proposed amendment required to amend, alter or repeal,
without further action by the or adopt any provision or provisions
stockholders. of the certificate of incorporation
inconsistent
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UNILAB STOCKHOLDER RIGHTS QUEST DIAGNOSTICS STOCKHOLDER RIGHTS
------------------------- ------------------------------------
with any provision of paragraph 5
(Directors), 6 (Business
Combination), 7 (Special Stockholder
Meetings), 8 (Action by Unanimous
Written Consent), and 12 (Amendment
or Repeal). However, paragraph 12
shall not apply to, and such eighty
percent (80%) vote shall not be
required for, any amendment,
alteration, repeal or adoption of any
inconsistent provision or provisions
declared advisable by the board by
the affirmative vote of two-thirds of
the entire board and a majority of
the continuing directors.
Amendment of Under Section 109 of the DGCL, Unilab Under Section 109 of the DGCL, Quest
By-laws: stockholders have the power to amend Diagnostics' stockholders have the
or repeal by-laws, even though the power to amend or repeal by-laws,
board may also be delegated the even though the board may also be
power. delegated the power.
Unilab's by-laws may be altered, Quest Diagnostics' by-laws may be
amended or repealed and new by-laws altered, amended or repealed and new
may be adopted by a majority vote of by-laws may be adopted by resolution
the board at any regular or special of the board of directors or of the
meeting of the board, subject to the stockholders.
power of the stockholders to make,
amend or repeal such by-laws by the
affirmative vote of the holders of a
majority of the outstanding shares
entitled to vote at an annual meeting
or at a special meeting called for
that purpose or by written consent.
103
UNILAB STOCKHOLDER RIGHTS QUEST DIAGNOSTICS STOCKHOLDER RIGHTS
------------------------- ------------------------------------
Limitation of Section 102(b)(7) of the DGCL Section 102(b)(7) of the DGCL
Personal Liability provides that a corporation may provides that a corporation may
of Directors and include in its certificate of include in its certificate of
Officers: incorporation a provision limiting or incorporation a provision limiting or
eliminating the liability of its eliminating the liability of its
directors to the corporation and its directors to the corporation and its
stockholders for monetary damages stockholders for monetary damages
arising from a breach of fiduciary arising from a breach of fiduciary
duty, except for: duty, except for:
(1) a breach of the duty of loyalty (1) a breach of the duty of loyalty
to the corporation or its to the corporation or its
stockholders; stockholders;
(2) acts or omissions not in good (2) acts or omissions not in good
faith or which involve intentional faith or which involve intentional
misconduct or a knowing misconduct or a knowing
violation of law; violation of law;
(3) payment of a dividend or the (3) payment of a dividend or the
repurchase or redemption of repurchase or redemption of
stock in violation of Delaware stock in violation of Delaware
law; or law; or
(4) any transaction from which the (4) any transaction from which the
director derived an improper personal director derived an improper personal
benefit. benefit.
Unilab's certificate of incorporation Quest Diagnostics' certificate of
limits the personal liability of its incorporation limits the personal
directors and officers to the full liability of its directors and
extent allowed under Delaware law. officers to the full extent allowed
under Delaware law.
Indemnification of Under Section 145 of the DGCL, a Under Section 145 of the DGCL, a
Directors and corporation may indemnify directors corporation may indemnify directors
Officers: and officers (1) for actions taken in and officers (1) for actions taken in
good faith and in a manner they good faith and in a manner they
reasonably believed to be in, or not reasonably believed to be in, or not
opposed to, the best interest of the opposed to, the best interest of the
corporation; and (2) with respect to corporation; and (2) with respect to
any criminal proceeding where they any criminal proceeding where they
had no reasonable cause to believe had no reasonable cause to believe
that their conduct was unlawful. that their conduct was unlawful.
In addition, Section 145 of the DGCL In addition, Section 145 of the DGCL
provides that a corporation may provides that a corporation may
advance to a director or officer advance to a director or officer
expenses incurred in defending any expenses incurred in defending any
action upon receipt of an undertaking action upon receipt of an undertaking
by the director or officer to repay by the director or officer to repay
the amount advanced if it is the amount advanced if it is
ultimately determined that he or she ultimately determined that he or she
is not entitled to indemnification. is not entitled to indemnification.
Unilab's by-laws provide for Quest Diagnostics' by-laws provide
indemnification of its directors and for indemnification of its directors
officers to the full extent permitted and officers to the full extent
by the DGCL. permitted by the DGCL.
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UNILAB STOCKHOLDER RIGHTS QUEST DIAGNOSTICS STOCKHOLDER RIGHTS
------------------------- ------------------------------------
Super-Majority Unilab does not have any The affirmative vote of the holders
Voting Requirement: super-majority requirements. of record of outstanding shares
representing at least eighty percent
(80%) of the voting power of all the
outstanding voting stock shall be
required to:
(1) approve any business
combination, except if the business
combination has been approved
by the affirmative vote of a
majority of the directors and
the conditions set forth in the
certificate of incorporation
concerning the form of
consideration, price and
procedure requirements are met,
and
(2) amend, alter or repeal, or
adopt certain provisions of the
certificate of incorporation.
The certificate of incorporation of
Quest Diagnostics shall not be
amended in any manner which would
materially alter or change the
powers, preferences or special rights
of the series A preferred stock so as
to affect such series adversely
without the affirmative vote of the
holders of at least two-thirds of the
outstanding shares of series A
preferred stock, voting together as a
single series.
Preferred Stock: Unilab's board of directors is The Quest Diagnostics' board of
expressly authorized to provide for directors is expressly authorized to
the issuance of shares of preferred provide for the issuance of shares of
stock in one or more classes or preferred stock in one or more
series, and to fix for each such classes or series, and to fix for
class or series any rights, each such class or series any rights,
restrictions or qualifications as may restrictions or qualifications as
be permitted by the DGCL. provided in the certificate of
incorporation and as may be permitted
by the DGCL.
Business Under Section 203 of the DGCL, the Under Section 203 of the DGCL, the
Combinations: business combination statute of the business combination statute of the
DGCL, a corporation is prohibited DGCL, a corporation is prohibited
from engaging in any business from engaging in any business
combination with an interested combination with an interested
stockholder who, together with stockholder who, together with
affiliates or associates, owns, or affiliates or associates, owns, or
who became an affiliate or associate who became an affiliate or associate
of the corporation and within a of the corporation and within a
three-year period did own, 15% or three-year period did own, 15% or
more of the corporation's voting more of the corporation's voting
stock for a three-year period stock for a three-year period
following the time the stockholder following the time the stockholder
became an interested stockholder, became an interested stockholder,
except under specified circumstances. except under specified circumstances.
105
UNILAB STOCKHOLDER RIGHTS QUEST DIAGNOSTICS STOCKHOLDER RIGHTS
------------------------- ------------------------------------
The provisions of Section 203 of the The provisions of Section 203 of the
DGCL do not apply to a corporation DGCL do not apply to a corporation
if, subject to specified if, subject to specified
requirements, the certificate of requirements, the certificate of
incorporation or by-laws of the incorporation or by-laws of the
corporation contain a provision corporation contain a provision
expressly electing not to be governed expressly electing not to be governed
by the provisions of the statute or by the provisions of the statute or
the corporation does not have voting the corporation does not have voting
stock listed on a national securities stock listed on a national securities
exchange, authorized for quotation on exchange, authorized for quotation on
an inter-dealer quotation system of a an inter-dealer quotation system of a
registered national securities registered national securities
association or held of record by more association or held of record by more
than 2,000 stockholders. than 2,000 stockholders.
Unilab has expressly elected not to Quest Diagnostics has not expressly
be governed by Section 203 of the opted out of this Delaware law
DGCL. provision in its certificate of
incorporation or by-laws. Pursuant to
Quest Diagnostics' certificate of
incorporation, "Interested
Stockholder" shall mean any person
who is, or was at any time within the
two-year period immediately prior to
the date in question, the beneficial
owner of 10% or more of the voting
power of the outstanding voting
stock, or is an assignee of, or has
otherwise succeeded to, any shares of
voting stock of which an interested
stockholder was the beneficial owner
at any time within the two-year
period immediately prior to the date
in question, if such assignment or
succession shall have occurred in the
course of a transaction, or
transactions, not involving a public
offering within the meaning of the
Securities Act of 1933, as amended.
Appraisal Rights: Section 262 of the DGCL provides for Section 262 of the DGCL provides for
appraisal rights under certain appraisal rights under certain
circumstances, as outlined in Annex C circumstances, as outlined in Annex C
of this prospectus. of this prospectus.
106
LEGAL MATTERS
The validity of the Quest Diagnostics shares offered hereby will be passed
upon for Quest Diagnostics by Leo C. Farrenkopf, Jr., the Deputy General
Counsel, Vice President and Secretary of Quest Diagnostics. Shearman & Sterling,
counsel to Quest Diagnostics, and Skadden, Arps, Slate, Meagher and Flom LLP,
counsel to Unilab, each will deliver an opinion concerning the United States
federal income tax consequences of the offer and the merger.
EXPERTS
The financial statements incorporated in this prospectus by reference to
the Annual Report on Form 10-K of Quest Diagnostics Incorporated for the year
ended December 31, 2001 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements and the related financial statement schedule of
Unilab Corporation as of December 31, 2001 and 2000 and for the years then ended
incorporated in this prospectus by reference from Unilab Corporation's Annual
Report on Form 10-K for the year ended December 31, 2001 have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports, which
are incorporated herein by reference, and have been so incorporated in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
The statements of operations, shareholders' deficit and cash flows of
Unilab Corporation for the year ended December 31, 1999 incorporated in this
prospectus by reference from Unilab Corporation's Annual Report on Form 10-K for
the year ended December 31, 2001 have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto. We have included the statements of operations, shareholders' deficit
and cash flows of Unilab Corporation in this prospectus and elsewhere in the
registration statement in reliance on Arthur Andersen LLP's report. After
reasonable efforts, we have not been able to obtain the written consent of
Arthur Andersen LLP to our naming it in this prospectus. This may limit your
ability to recover from Arthur Andersen LLP for any claims that you may assert
as a result of the work performed by Arthur Andersen LLP. In addition, your
ability to recover from Arthur Andersen LLP may be limited by the amount of
assets of Arthur Andersen LLP that may be available for claims in the future.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Some statements and disclosures in this prospectus, including the documents
incorporated by reference, are forward-looking statements. Forward-looking
statements include all statements that do not relate solely to historical or
current facts and can often be identified by the use of words such as "may",
"believe", "will", "expect", "project", "estimate", "anticipate", "plan" or
"continue". These forward-looking statements are based on Quest Diagnostics'
current plans and expectations and are subject to a number of risks and
uncertainties that could significantly cause Quest Diagnostics' plans and
expectations, including actual results, to differ materially from the
forward-looking statements.
Investors are cautioned not to unduly rely on such forward-looking
statements when evaluating the information presented in these documents. The
following list of important factors could cause Quest Diagnostics' actual
financial results to differ materially from those projected, forecasted or
estimated by Quest Diagnostics in forward-looking statements.
(a) Heightened competition, including increased pricing pressure and
competition from hospitals for testing for non-patients and competition
from physicians. See "Business -- Competition" in Quest Diagnostics' Form
10-K for the year ended December 31, 2001, which is incorporated by
reference into this prospectus.
(b) Impact of changes in payer mix, including any shift from
traditional, fee-for-service medicine to capitated managed-cost healthcare.
See "Business -- Payers and Customers -- Customers -- Managed
107
Care Organizations" in Quest Diagnostics' Form 10-K for the year ended
December 31, 2001, which is incorporated by reference into this prospectus.
(c) Adverse actions by government or other third-party payers,
including unilateral reduction of fee schedules payable to Quest
Diagnostics and an increase in the practice of negotiating for exclusive
contracts that involve aggressively priced capitated payments by managed
care organizations. See "Business -- Regulation of Reimbursement for
Clinical Laboratory Services" and "Business -- Payers and
Customers -- Customers -- Managed Care Organizations" in Quest Diagnostics'
Form 10-K for the year ended December 31, 2001, which is incorporated by
reference into this prospectus.
(d) The impact on Quest Diagnostics' volume and collected revenue or
general or administrative expenses resulting from its compliance with
Medicare and Medicaid administrative policies and requirements of
third-party payers. These include:
- the requirements of Medicare carriers to provide diagnosis codes for
many commonly ordered tests and the likelihood that third-party payers
will increasingly adopt similar requirements;
- the policy of CMS to limit Medicare reimbursement for tests contained
in automated chemistry panels to the amount that would have been paid
if only the covered tests, determined on the basis of demonstrable
"medical necessity", had been ordered;
- continued inconsistent practices among the different local carriers
administering Medicare; and
- proposed changes by CMS to the ABN form.
See "Business -- Regulation of Reimbursement for Clinical Laboratory
Services" and "Business -- Billing" in Quest Diagnostics' Form 10-K for the year
ended December 31, 2001, which is incorporated by reference into this
prospectus.
(e) Adverse results from pending or future government investigations
or private actions. These include, in particular:
- significant monetary damages and/or exclusion from the Medicare and
Medicaid programs and/or other significant litigation matters;
- the absence of indemnification from SmithKline Beecham for:
(a) governmental claims against SBCL that arise after August 16,
1999, and
(b) private claims unrelated to the indemnified government claims
or investigations; and
- the absence of indemnification for consequential damages from
SmithKline Beecham.
(f) Failure to obtain new customers at profitable pricing or failure
to retain existing customers, and reduction in tests ordered or specimens
submitted by existing customers.
(g) Failure to efficiently integrate acquired clinical laboratory
businesses or to efficiently integrate clinical laboratory businesses from
joint ventures and alliances with hospitals, and the costs related to any
such integration, or to retain key technical and management personnel.
(h) Inability to obtain professional liability insurance coverage or a
material increase in premiums for such coverage. See
"Business -- Insurance" in Quest Diagnostics' Form 10-K for the year ended
December 31, 2001, which is incorporated by reference into this prospectus.
(i) Denial of CLIA certification or any other license to any of Quest
Diagnostics' clinical laboratories under the CLIA standards, by CMS for
Medicare and Medicaid programs or other federal, state and local agencies.
See "Business -- Regulation of Clinical Laboratory Operations" in Quest
Diagnostics' Form 10-K for the year ended December 31, 2001, which is
incorporated by reference into this prospectus.
(j) Increased federal regulation of independent clinical laboratories,
including regulation by the FDA.
108
(k) Adverse publicity and news coverage about Quest Diagnostics or the
clinical laboratory industry.
(l) Computer or other system failures that affect Quest Diagnostics'
ability to perform tests, report test results or properly bill customers,
including potential failures resulting from systems conversions, including
from the integration of the systems of Quest Diagnostics and SBCL,
telecommunications failures, malicious human acts (such as electronic
break-ins or computer viruses) or natural disasters. See
"Business -- Information Systems" and "Business -- Billing" in Quest
Diagnostics' Form 10-K for the year ended December 31, 2001, which is
incorporated by reference into this prospectus.
(m) Development of technologies that substantially alter the practice
of laboratory medicine, including technology changes that lead to the
development of more cost-effective tests such as (1) point-of-care tests
that can be performed by physicians in their offices, and (2) home testing
that can be carried out without requiring the services of clinical
laboratories. See "Competition" and "Regulation of Clinical Laboratory
Operations" in Quest Diagnostics' Form 10-K for the year ended December 31,
2001, which is incorporated by reference into this prospectus.
(n) Issuance of patents or other property rights to Quest Diagnostics'
competitors or others that could prevent, limit or interfere with the
ability of Quest Diagnostics to develop, perform or sell its tests or
operate its business. See "Business -- The United States Clinical
Laboratory Testing Market" in Quest Diagnostics' Form 10-K for the year
ended December 31, 2001, which is incorporated by reference into this
prospectus.
(o) Development of tests by Quest Diagnostics' competitors or others
that Quest Diagnostics may not be able to license, or usage of its
technology or similar technologies or its trade secrets by its competitors,
any of which could negatively affect its competitive position.
(p) Development of an Internet based electronic commerce business
model that does not require an extensive logistics and laboratory network.
(q) The impact of the privacy and security regulations issued under
HIPAA on Quest Diagnostics' operations (including its medical information
services) as well as the cost to comply with the regulations. See "Risk
Factors" and see "Business -- Confidentiality of Health Information" in
Quest Diagnostics' Form 10-K for the year ended December 31, 2001, which is
incorporated by reference into this prospectus.
(r) Changes in interest rates causing a substantial increase in Quest
Diagnostics' effective borrowing rate.
(s) Inability to hire and retain qualified personnel or the loss of
the services of one or more of Quest Diagnostics' key senior management
personnel.
(t) Terrorist and other criminal activities, which could affect Quest
Diagnostics' customers, transportation or power systems, or its facilities.
Many of these risks are described in greater detail under "Risk Factors" in
this prospectus, and you should review the forward-looking statements in light
of the disclosure contained under "Risk Factors".
109
WHERE YOU CAN FIND MORE INFORMATION
ABOUT QUEST DIAGNOSTICS AND UNILAB
Quest Diagnostics and Unilab file annual, quarterly and special reports,
proxy statements and other information with the SEC. You may read and copy any
reports, statements or other information Quest Diagnostics and Unilab filed with
the SEC at its public reference rooms at 450 Fifth Street, N.W., Washington,
D.C. 20549 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Quest Diagnostics' and Unilab's filings are also available to
the public on the Internet, through a database maintained by the SEC at
http://www.sec.gov.
In addition, you can inspect and copy Quest Diagnostics' reports, proxy
statements and other information at the offices of the New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005.
Quest Diagnostics filed a registration statement on Form S-4 to register
with the SEC the securities described in this prospectus. This prospectus is
part of that registration statement. As permitted by SEC rules, this prospectus
does not contain all the information contained in the registration statement or
the exhibits to the registration statement. In addition, Quest Diagnostics also
filed with the SEC a statement on Schedule TO pursuant to Rule 14d-3 under the
Exchange Act to furnish certain information about the offer. You may obtain
copies of the Form S-4 and the Schedule TO (and any amendments to those
documents) in the manner described above.
The SEC allows Quest Diagnostics to incorporate by reference into this
prospectus. This means that Quest Diagnostics can disclose important business,
financial and other information to you by referring you to other documents
separately filed with the SEC. All information incorporated by reference is part
of this document, unless and until that information is updated and superseded by
the information contained in this document or any information incorporated
later. This prospectus incorporates by reference the documents set forth below
that Quest Diagnostics and Unilab have previously filed with the SEC. These
documents contain important information about Quest Diagnostics and Unilab and
their financial condition.
Quest Diagnostics incorporates by reference the documents listed below:
1. Quest Diagnostics' Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 2002 filed with the Commission on May 13, 2002;
2. Quest Diagnostics' Current Report on Form 8-K filed with the
Commission on April 12, 2002;
3. Quest Diagnostics' Current Report on Form 8-K filed with the
Commission on April 2, 2002;
4. Quest Diagnostics' Definitive Proxy Statement filed with the
Commission on March 19, 2002;
5. Quest Diagnostics' Annual Report on Form 10-K for the fiscal year
ended December 31, 2001, as filed with the Commission on March 4, 2002;
6. The description of Quest Diagnostics' common stock contained in
Quest Diagnostics' Registration Statement on Form 10, filed with the
Commission on September 23, 1996, pursuant to Section 12(b) of the
Securities Exchange Act of 1934 on September 23, 1996, and as amended by
Amendment No. 1 on Form 10/A, filed with the Commission on November 6,
1996, Amendment No. 2 on Form 10/A, filed with the Commission on November
19, 1996, Amendment No. 3 on Form 10/A filed with the Commission on
November 25, 1996 and Amendment No. 4 on Form 10/A filed with the
Commission on November 26, 1996;
7. Unilab's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 2002 filed with the Commission on May 6, 2002;
8. Unilab's Definitive Proxy Statement filed with the Commission on
April 30, 2002;
9. Unilab's Current Report on Form 8-K filed with the Commission on
April 2, 2002;
110
10. Unilab's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001, filed with the Commission on March 29, 2002.
11. The description of Unilab's common stock contained in Unilab's
Registration Statement on Form 8-A, filed with the Commission on June 5,
2001, pursuant to Section 12 of the Securities Exchange Act of 1934,
including any amendment or report filed with the Commission for the purpose
of updating any such description.
All documents filed by Quest Diagnostics and Unilab pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 from the date
of this prospectus to the date that shares are accepted for exchange pursuant to
our offer (or the date that our offer is terminated) will also be deemed to be
incorporated herein by reference.
Documents incorporated by reference are available from Quest Diagnostics
without charge upon request to the information agent, Georgeson Shareholder
Communications Inc., 17 State Street, 10th Floor, New York, New York 10004, call
collect at (212) 440-9800 or toll-free at 1-866-318-0509. In order to ensure
timely delivery, any request should be submitted no later than June 12, 2002. If
you request any incorporated documents from us, we will mail them to you by
first class mail, or another equally prompt means, within one business day after
we receive your request.
You should rely only on the information contained or incorporated by
reference in this prospectus and any prospectus supplement. Quest Diagnostics
has not authorized any other person to provide you with different or additional
information. If anyone provides you with such information you should not rely on
it. Quest Diagnostics is not making an offer to exchange these securities in any
jurisdiction where the offer and exchange is not permitted. You should assume
that the information appearing in this prospectus and information incorporated
by reference into this prospectus, is accurate only as of the date of the
documents containing the information. Quest Diagnostics' business, financial
condition, results of operation and prospects may have changed since that date.
111
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF QUEST DIAGNOSTICS INCORPORATED
The following table sets forth the name, age, current business address,
citizenship and current principal occupation or employment, and material
occupations, positions, offices or employments and business addresses thereof
for the past five years of each director and executive officer of Quest
Diagnostics. Unless otherwise indicated, the current business address of each
person is Quest Diagnostics Incorporated, One Malcolm Avenue, Teterboro, NJ
07608. Unless otherwise indicated, each such person is a citizen of the United
States of America and each occupation set forth opposite an individual's name
refers to employment with Quest Diagnostics.
During the last five years, no director or executive officer of Quest
Diagnostics has been convicted in any criminal proceeding.
During the last five years, no director or executive officer of Quest
Diagnostics has been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction, as a result of which proceeding
such person is or was subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject to, federal
or state securities laws or finding any violation with respect to such laws.
QUEST DIAGNOSTICS DIRECTORS AND EXECUTIVE OFFICERS
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP AND MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
CURRENT BUSINESS ADDRESS AGE AND BUSINESS ADDRESSES THERETO
------------------------ --- --------------------------------------------------
Kenneth D. Brody.............. 58 Mr. Brody is the founding partner of Winslow
Partners LLC, a Washington, D.C. private investment
firm with an address at 1300 Connecticut Avenue,
N.W., 8th Floor, Washington, D.C. 20036. He is also
the co-founder and principal of Taconic Capital
Advisors, an investment adviser firm. From 1993 to
early 1996, he was the chairman and president of
the Export-Import Bank of the United States, a
position to which he was appointed by President
Clinton. From 1971 to 1991, Mr. Brody was with
Goldman, Sachs & Co., where he was a partner and
member of the management committee. Mr. Brody is a
director of Federal Realty Investment Trust. Mr.
Brody has been a director of Quest Diagnostics
since January 1997.
William F. Buehler............ 62 Mr. Buehler recently retired as vice chairman of
Xerox Corporation, which he joined in 1991. Prior
to joining Xerox, Mr. Buehler spent 27 years with
AT&T, primarily in sales, marketing and general
management positions. Mr. Buehler is a director of
A.O. Smith. Mr. Buehler has been a director of
Quest Diagnostics since July 1998.
Van C. Campbell............... 63 Mr. Campbell retired in 1999 as vice chairman of
Corning Incorporated, which he joined in 1965. He
was elected treasurer in 1972, a vice president in
1973, financial vice president in 1975 and senior
vice president for finance in 1980. He became
general manager of the Consumer Products Division
in 1981. Mr. Campbell was elected vice chairman and
a director in 1983 and during 1995 was appointed to
the additional position of chairman of Corning Life
Sciences Inc. He is a director of Armstrong World
Industries, Inc. Mr. Campbell has been a director
of Quest Diagnostics since January 1991.
S-1
QUEST DIAGNOSTICS DIRECTORS AND EXECUTIVE OFFICERS
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP AND MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
CURRENT BUSINESS ADDRESS AGE AND BUSINESS ADDRESSES THERETO
------------------------ --- --------------------------------------------------
Mary A. Cirillo............... 54 Ms. Cirillo is chairperson and chief executive
officer of OPCENTER, which provides help desk and
network operations services. OPCENTER's address is
660 Madison Avenue, 14th Floor, New York, New York
10021. She was chief executive officer of Global
Institutional Services of Deutsche Bank from July
1999 until February 2000. Previously, she served as
executive vice president and managing director of
Bankers Trust Company (which was acquired by
Deutsche Bank), which she joined in 1997. From 1977
to 1997, she was with Citibank, N.A., most recently
serving as senior vice president. Ms. Cirillo is on
the advisory board of Cisco Systems, Inc. and is a
director of Digital Island Inc. Ms. Cirillo has
been a director of Quest Diagnostics since April
1997.
William R. Grant.............. 77 Mr. Grant has been chairman of Galen Associates, a
New York investment firm, since 1989. Galen
Associates' address is 610 Fifth Avenue, New York,
New York 10020. From 1987 to 1989 he was chairman
of New York Life International and from 1979 to
1987 of MacKay-Shields Financial Corp. He is also a
former director and vice-chairman of SmithKline
Beecham plc, and is currently a director of
Allergan, Inc., Massey Energy Co., MiniMed, Inc.,
Ocular Sciences and Vasogen Inc. He has been a
director of Quest Diagnostics since August 1999.
Rosanne Haggerty.............. 41 Ms. Haggerty is the founder and executive director
of Common Ground, a not-for-profit housing
development and management organization with an
address at 14 East 28th Street, New York, New York
10016. Prior to founding Common Ground, she was the
coordinator of housing development at Brooklyn
Catholic Charities. Ms. Haggerty is a 2001
MacArthur Foundation Fellow. Ms. Haggerty has been
a director of Quest Diagnostics since February
2002.
Dan C. Stanzione.............. 56 Dr. Stanzione is president emeritus of Bell
Laboratories at Lucent Technologies Incorporated,
3008 Southview Drive, Stuart, Florida 34996. Dr.
Stanzione began his career in 1972 with Bell Labs,
where he led the teams working on the first
microprocessors and digital signal processors. He
was appointed president of Network Systems,
Lucent's largest business unit, in 1996 and was
appointed chief operating officer of Lucent in
1997. Dr. Stanzione is a director of Avaya Inc. Dr.
Stanzione has been a director of Quest Diagnostics
since January 1997.
S-2
QUEST DIAGNOSTICS DIRECTORS AND EXECUTIVE OFFICERS
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP AND MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
CURRENT BUSINESS ADDRESS AGE AND BUSINESS ADDRESSES THERETO
------------------------ --- --------------------------------------------------
Gail R. Wilensky.............. 58 Ms. Wilensky is the John M. Olin Senior Fellow at
Project HOPE, an international non-profit health
foundation, which she joined in 1993. The address
of Project Hope is Suite 600, 7500 Old Georgetown
Road, Bethesda, Maryland 20814. She is currently
the chair of the Medicare Payment Advisory
Commission, which advises Congress on all issues
relating to Medicare. From 1995 to 1997 she chaired
the Physician Payment Review Commission, which
advised Congress on physician payment and other
Medicare issues. In 1992 and 1993, Dr. Wilensky
served as a deputy assistant to the President for
policy development relating to health and welfare
issues. From 1990 to 1992, she was the
administrator of the Health Care Financing
Administration where she directed the Medicare and
Medicaid programs. Dr. Wilensky is a director of
Advanced Tissue Sciences Inc., Gentiva Health
Services, Inc., Manor Care Inc., Syncor Corporation
and United Healthcare Corporation. Dr. Wilensky has
been a director of Quest Diagnostics since January
1997.
John B. Ziegler............... 56 Mr. Ziegler is the president, Worldwide Consumer
Healthcare, of GlaxoSmithKline (the parent of
SmithKline Beecham plc), One Franklin Plaza,
Philadelphia, Pennsylvania 19102. Mr. Ziegler
joined SmithKline Beecham in 1991 as the head of SB
Consumer Healthcare-North American Division. He
became executive vice president of SmithKline
Beecham in 1996 and assumed his current
responsibilities in 1998. He has been a director of
Quest Diagnostics since May 2000.
Kenneth W. Freeman............ 51 Mr. Freeman is chairman of the board and chief
executive officer of Quest Diagnostics. Mr. Freeman
joined Quest Diagnostics in May 1995 as president
and chief executive officer, was elected a director
in July 1995 and was elected chairman of the board
in December 1996. Prior to 1995, he served in a
variety of financial and managerial positions at
Corning Incorporated, which he joined in 1972. He
was elected controller and a vice president of
Corning in 1985, senior vice president in 1987,
general manager of the Science Products Division in
1989 and executive vice president in 1993. He was
appointed president and chief executive officer of
Corning Asahi Video Products Company in 1990.
Surya N. Mohapatra, Ph.D. .... 52 Mr. Mohapatra is president and chief operating
officer. Prior to joining Quest Diagnostics in
February 1999 as senior vice president and chief
operating officer, he was senior vice president of
Picker International, a worldwide leader in
advanced medical imaging technologies, where he
served in various executive positions during his
18-year tenure.
S-3
QUEST DIAGNOSTICS DIRECTORS AND EXECUTIVE OFFICERS
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP AND MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
CURRENT BUSINESS ADDRESS AGE AND BUSINESS ADDRESSES THERETO
------------------------ --- --------------------------------------------------
Lucia L. Quinn................ 48 Ms. Quinn is senior vice president for Advanced
Diagnostics. Ms. Quinn has overall responsibility
for Science and Innovation, Business Development,
Pharmaceutical Services and Consumer Health. Ms.
Quinn joined Quest Diagnostics in April 2001 as
vice president, Developing Businesses. From 1999
through April 2001, she was with Allied
Signal/Honeywell, serving most recently as vice
president -- Strategic Marketing. From 1989 through
1999, Ms. Quinn was employed by Digital Equipment
Corporation/Compaq, most recently serving as vice
president -- Corporate Strategy. She assumed her
current responsibilities in October 2001.
Richard L. Bevan.............. 43 Mr. Bevan is corporate vice president for Human
Resources. From 1982 until August 1999, Mr. Bevan
served in a variety of human resources positions
for SmithKline Beecham's pharmaceutical and
clinical laboratory businesses, most recently
serving as vice president and director of Human
Resources -- Operations for SBCL. Mr. Bevan was
appointed corporate vice president for Human
Resource Strategy and Development in August 1999,
and to his present position in January 2001.
Catherine Doherty............. 39 Ms. Doherty is vice president for Communications
and Public Affairs. Ms. Doherty has overall
responsibility for internal and external
communications and government affairs. Ms. Doherty
has been employed by Quest Diagnostics since 1990.
She served as chief accounting officer from 1996
until July 2000, when she became vice
president -- Investor Relations. Ms. Doherty
assumed her current responsibilities in November
2001.
Robert A. Hagemann............ 45 Mr. Hagemann is vice president and chief financial
officer. He joined Corning Life Sciences, Inc., in
1992, where he held a variety of senior financial
positions before being named vice president and
corporate controller of Quest Diagnostics in 1996.
Prior to joining Quest Diagnostics, Mr. Hagemann
was employed by Prime Hospitality, Inc. and
Crompton & Knowles, Inc. in senior financial
positions. He was also previously associated with
Ernst & Young. Mr. Hagemann assumed his present
responsibilities in August 1998.
Gerald C. Marrone............. 59 Mr. Marrone is senior vice president,
Administration and chief information officer. Prior
to joining Quest Diagnostics in November 1997 as
chief information officer, Mr. Marrone was with
Citibank, N.A. for 12 years. During his tenure he
was most recently vice president, Division
Executive for Citibank's Global Production Support
Division. While at Citibank, he was also the chief
information officer of Citibank's Global Cash
Management business. Prior to joining Citibank, he
was the chief information officer for Memorial
Sloan-Kettering Cancer Center in New York for five
years.
S-4
QUEST DIAGNOSTICS DIRECTORS AND EXECUTIVE OFFICERS
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP AND MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
CURRENT BUSINESS ADDRESS AGE AND BUSINESS ADDRESSES THERETO
------------------------ --- --------------------------------------------------
Michael E. Prevoznik.......... 41 Mr. Prevoznik is vice president for Legal and
Compliance and general counsel. Prior to joining
SBCL in 1994 as its chief legal compliance officer,
Mr. Prevoznik was with Dechert Price & Rhodes. In
1996, he became vice president and chief legal
compliance officer for SmithKline Beecham
Healthcare Services. In 1998, he was appointed vice
president, Compliance for SmithKline Beecham,
assuming additional responsibilities for
coordinating all compliance activities within
SmithKline Beecham worldwide. Mr. Prevoznik assumed
his current responsibilities with Quest Diagnostics
in August 1999.
S-5
DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER
The following table sets forth the name, age, current business address,
citizenship and present principal occupation or employment, and material
occupations, positions and offices or employments for the past five years of
each director and executive officer of Purchaser. Unless otherwise indicated,
the current business address of each person is One Malcolm Avenue, Teterboro,
New Jersey, 07608. Unless otherwise indicated, each such person is a citizen of
the United States of America, and each occupation set forth opposite an
individual's name refers to employment with Purchaser.
During the last five years, no director or executive officer of Purchaser
has been convicted in any criminal proceeding.
During the last five years, no director or executive officer of Purchaser
has been a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction, as a result of which proceeding such person is or was
subject to a judgment, decree or final order enjoining future violations of, or
prohibiting or mandating activities subject to, federal or state securities laws
or finding any violation with respect to such laws.
PURCHASER DIRECTORS AND EXECUTIVE OFFICERS
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP AND MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
CURRENT BUSINESS ADDRESS AGE AND BUSINESS ADDRESS THERETO
------------------------ --- --------------------------------------------------
Kenneth W. Freeman............ 51 Mr. Freeman is chief executive officer of
Purchaser. Mr. Freeman joined Quest Diagnostics in
May 1995 as president and chief executive officer,
was elected a director in July 1995 and was elected
chairman of the board in December 1996. Prior to
1995, he served in a variety of financial and
managerial positions at Corning Incorporated, which
he joined in 1972. He was elected controller and a
vice president of Corning in 1985, senior vice
president in 1987, general manager of the Science
Products Division in 1989 and executive vice
president in 1993. He was appointed president and
chief executive officer of Corning Asahi Video
Products Company in 1990.
Surya N. Mohapatra, Ph.D. .... 52 Mr. Mohapatra is a director of Purchaser, as well
as president and chief operating officer of
Purchaser. Prior to joining Quest Diagnostics in
February 1999 as senior vice president and chief
operating officer, he was senior vice president of
Picker International, a worldwide leader in
advanced medical imaging technologies, where he
served in various executive positions during his
18-year tenure.
Robert A. Hagemann............ 45 Mr. Hagemann is a director of Purchaser, as well as
vice president and chief financial officer of
Purchaser. He joined Corning Life Sciences, Inc.,
in 1992, where he held a variety of senior
financial positions before being named vice
president and corporate controller of Quest
Diagnostics in 1996. Prior to joining Quest
Diagnostics, Mr. Hagemann was employed by Prime
Hospitality, Inc. and Crompton & Knowles, Inc. in
senior financial positions. He was also previously
associated with Ernst & Young. Mr. Hagemann assumed
his present responsibilities in August 1998.
S-6
ANNEX A
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
among
QUEST DIAGNOSTICS INCORPORATED,
QUEST DIAGNOSTICS NEWCO INCORPORATED
and
UNILAB CORPORATION
Dated as of April 2, 2002
--------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
----
ARTICLE I
DEFINITIONS
SECTION 1.01 Definitions................................... 1
ARTICLE II
THE OFFER
SECTION 2.01 The Offer..................................... 7
SECTION 2.02 Company Action................................ 9
SECTION 2.03 Directors..................................... 10
SECTION 2.04 Exchange Fund; Distributions on Shares of
Parent Common Stock....................................... 11
ARTICLE III
THE MERGER
SECTION 3.01 The Merger.................................... 11
SECTION 3.02 Effective Time; Closing....................... 12
SECTION 3.03 Effect of the Merger.......................... 12
SECTION 3.04 Certificate of Incorporation; By-Laws......... 12
SECTION 3.05 Directors and Officers........................ 12
ARTICLE IV
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 4.01 Conversion of Securities...................... 13
SECTION 4.02 Exchange of Certificates...................... 13
SECTION 4.03 Stock Transfer Books.......................... 15
SECTION 4.04 Company Stock Options......................... 15
SECTION 4.05 Appraisal Rights.............................. 17
SECTION 4.06 Affiliates.................................... 17
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 5.01 Organization and Qualification;
Subsidiaries.............................................. 17
SECTION 5.02 Certificate of Incorporation and By-Laws...... 18
SECTION 5.03 Capitalization................................ 18
SECTION 5.04 Authority Relative to This Agreement.......... 19
SECTION 5.05 No Conflict; Required Filings and Consents.... 19
SECTION 5.06 Permits; Compliance........................... 19
SECTION 5.07 SEC Filings; Financial Statements............. 21
SECTION 5.08 Information to Be Supplied.................... 22
SECTION 5.09 Absence of Certain Changes or Events.......... 22
SECTION 5.10 Absence of Litigation......................... 22
SECTION 5.11 Employee Benefit Plans........................ 23
SECTION 5.12 Labor and Employment Matters.................. 24
SECTION 5.13 Property and Leases........................... 24
SECTION 5.14 Intellectual Property......................... 25
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PAGE
----
SECTION 5.15 Taxes......................................... 26
SECTION 5.16 Environmental Matters......................... 26
SECTION 5.17 Material Contracts............................ 27
SECTION 5.18 Insurance..................................... 28
SECTION 5.19 Board Approval; Vote Required................. 28
SECTION 5.20 Related Party Transactions.................... 29
SECTION 5.21 Guarantee by Subsidiaries..................... 29
SECTION 5.22 Customers..................................... 29
SECTION 5.23 Receivables................................... 29
SECTION 5.24 Brokers....................................... 29
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
SECTION 6.01 Corporate Organization........................ 30
SECTION 6.02 Certificate of Incorporation and By-Laws...... 30
SECTION 6.03 Capitalization................................ 30
SECTION 6.04 Authority Relative to this Agreement.......... 31
SECTION 6.05 No Conflict; Required Filings and Consents.... 31
SECTION 6.06 SEC Filings; Financial Statements............. 31
SECTION 6.07 Information to Be Supplied.................... 32
SECTION 6.08 No Vote Required.............................. 32
SECTION 6.09 Operations of Merger Sub...................... 33
SECTION 6.10 Tax Matters................................... 33
SECTION 6.11 Brokers....................................... 33
SECTION 6.12 Employee Benefit Plans........................ 33
SECTION 6.13 Absence of Parent Material Adverse Effect..... 33
SECTION 6.14 Litigation.................................... 33
SECTION 6.15 Permits; Compliance........................... 34
SECTION 6.16 Financing..................................... 35
SECTION 6.17 Ownership of Company Common Stock............. 35
ARTICLE VII
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 7.01 Conduct of Business by the Company Pending the
Merger.................................................... 35
SECTION 7.02 Conduct of Business by Parent Pending
Consummation of the Merger................................ 37
ARTICLE VIII
ADDITIONAL AGREEMENTS
SECTION 8.01 Company Stockholder Meeting................... 38
SECTION 8.02 Preparation of Merger Registration Statement
and Proxy Statement/Prospectus............................ 38
SECTION 8.03 Access to Information; Confidentiality........ 39
SECTION 8.04 No Solicitation of Transactions............... 39
SECTION 8.05 Employee Benefits Matters..................... 41
SECTION 8.06 Directors' and Officers' Indemnification and
Insurance................................................. 41
SECTION 8.07 Notification of Certain Matters............... 42
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PAGE
----
SECTION 8.08 Company Affiliates............................ 43
SECTION 8.09 Further Action; Reasonable Best Efforts....... 43
SECTION 8.10 Plan of Reorganization........................ 43
SECTION 8.11 Merger Sub.................................... 44
SECTION 8.12 Letters of Accountants........................ 44
SECTION 8.13 NYSE Listing.................................. 45
SECTION 8.14 Public Announcements.......................... 45
SECTION 8.15 Transfer Tax.................................. 45
SECTION 8.16 Transaction Fees and Expenses................. 45
SECTION 8.17 Restrictions on Acquisition of Company Common
Stock..................................................... 45
ARTICLE IX
CONDITIONS TO THE MERGER
SECTION 9.01 Conditions to the Obligations of Each Party... 46
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.01 Termination.................................. 46
SECTION 10.02 Effect of Termination........................ 47
SECTION 10.03 Payment of Certain Fees; Expenses............ 47
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.01 Non-Survival of Representations and
Warranties................................................ 48
SECTION 11.02 Amendments, Modification and Waiver.......... 48
SECTION 11.03 Notices...................................... 49
SECTION 11.04 Severability................................. 49
SECTION 11.05 Entire Agreement; Assignment................. 49
SECTION 11.06 Parties in Interest.......................... 50
SECTION 11.07 Interpretation............................... 50
SECTION 11.08 Specific Performance......................... 50
SECTION 11.09 Governing Law................................ 50
SECTION 11.10 Waiver of Jury Trial......................... 50
SECTION 11.11 Headings..................................... 50
SECTION 11.12 Counterparts................................. 50
Annex I -- Conditions of the Offer
Exhibit A -- Form of Affiliate Letter
Exhibit 8.10(b) -- Form of Quest Diagnostics Incorporated
Tax Representation Letter
Exhibit 8.10(c) -- Form of Unilab Corporation Tax
Representation Letter
A-iii
AGREEMENT AND PLAN OF MERGER, dated as of April 2, 2002 (this "Agreement"),
among QUEST DIAGNOSTICS INCORPORATED, a Delaware corporation ("Parent"), QUEST
DIAGNOSTICS NEWCO INCORPORATED, a Delaware corporation and a direct wholly owned
subsidiary of Parent ("Merger Sub"), and UNILAB CORPORATION, a Delaware
corporation (the "Company").
WHEREAS, upon the terms and subject to the conditions of this Agreement and
in accordance with the General Corporation Law of the State of Delaware (the
"DGCL"), Parent, Merger Sub and the Company will enter into a business
combination transaction pursuant to which the Company will merge with and into
Merger Sub (the "Merger");
WHEREAS, in furtherance of such transaction, it is proposed that Merger Sub
shall make an offer (as such offer may be amended from time to time, the
"Offer") to acquire each issued and outstanding share of Company Common Stock
(as defined below) in exchange for, at the election of the holder thereof, cash
or shares of Parent Common Stock (as defined below) or a combination of cash and
shares of Parent Common Stock, all in accordance with the terms and conditions
set forth in this Agreement;
WHEREAS, the Board of Directors of the Company (the "Company Board") has
(i) determined that each of the Offer and the Merger is fair to, and in the best
interests of, the Company and its stockholders and has approved this Agreement
and declared its advisability and approved the Offer and the Merger and the
other transactions contemplated by this Agreement, and (ii) resolved to
recommend acceptance of the Offer and adoption of this Agreement by the
Company's stockholders;
WHEREAS, as a condition and as an inducement to Parent's willingness to
enter into this Agreement, Parent, Merger Sub and certain stockholders of the
Company (the "Stockholders") have entered into a Stockholders Agreement, dated
as of the date hereof (the "Stockholders Agreement"), pursuant to which, among
other things, the Stockholders have agreed to validly tender and not withdraw
pursuant to the Offer all shares of Company Common Stock beneficially owned by
them, and, under certain circumstances, to sell the shares of Company Common
Stock beneficially owned by them to Parent;
WHEREAS, prior to the date hereof, Parent and certain key employees of the
Company have entered into employment agreements (the "Employment Agreements")
that are subject to, and effective upon, consummation of the Offer;
WHEREAS, for federal income tax purposes, the Offer and the Merger are
intended to qualify as a reorganization under the provisions of Section 368(a)
of the United States Internal Revenue Code of 1986, as amended (the "Code"), and
that this Agreement shall constitute a plan of reorganization;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Merger Sub and the Company hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 Definitions. (a) For purposes of this Agreement:
"Acceptance Date" means the date on which Merger Sub accepts for payment or
exchange all shares of Company Common Stock validly tendered and not withdrawn
pursuant to the Offer.
"affiliate" of a specified person means a person who, directly or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, such specified person.
"beneficial owner", with respect to any Company Common Stock, has the
meaning ascribed to such term under Rule 13d-3 of the Exchange Act.
"business day" means any day on which the principal offices of the SEC in
Washington, D.C. are open to accept filings, or, in the case of determining a
date when any payment is due, any day on which banks are not required or
authorized to close in The City of New York.
A-1
"Certificate" means a certificate or certificates representing shares of
Company Common Stock or Restricted Stock.
"Company Common Stock" means the Company's common stock, par value $.01 per
share.
"Company Material Adverse Effect" means any event, circumstance, change,
occurrence, fact or effect that, individually or in the aggregate with all other
events, circumstances, changes, occurrences, facts and/or effects, is or is
reasonably likely to be materially adverse to the business, condition (financial
or otherwise), assets, liabilities or results of operations of the Company and
the Subsidiaries, taken as a whole; provided, however, that the foregoing shall
not include any event, circumstance, change, occurrence, fact or effect
resulting from or relating to (w) changes in general United States economic
conditions, changes in United States financial markets in general or changes in
the general economic conditions in the California markets in which the Company
operates, in any case, provided that the Company and its Subsidiaries are not
disproportionately affected by such changes relative to other companies in such
markets, (x) changes in the industry in which the Company and its Subsidiaries
operate or changes in the industry in the California markets in which the
Company and its Subsidiaries operate, in either case, provided that the Company
and its Subsidiaries are not disproportionately affected by such changes
relative to other companies in such markets, (y) changes in any applicable Laws,
or (z) the public announcement of this Agreement or the transactions
contemplated hereby.
"Company Stockholder Approval" means the adoption of this Agreement at the
Company Stockholder Meeting by a majority of all votes entitled to be cast at
the Company Stockholder Meeting in accordance with the DGCL and the Company's
Third Amended and Restated Certificate of Incorporation.
"Company Stock Options" means the options, whether or not exercisable and
whether or not vested, outstanding under the Company Stock Option Plans.
"Company Stock Option Plans" means each of the Company's 2001 Stock Option
Plan and the Company's Amended and Restated 2000 Executive Stock Option Plan, as
amended to date and as they may be further amended from time to time as
expressly permitted by this Agreement.
"control" (including the terms "controlled by" and "under common control
with") means the possession, directly or indirectly, or as trustee or executor,
of the power to direct or cause the direction of the management and policies of
a person, whether through the ownership of voting securities, as trustee or
executor, by contract or credit arrangement or otherwise.
"Environmental Laws" means any United States federal, state, local or
non-United States law, regulation, ordinance, rule, code, order or other
requirement or rule of law now or hereafter in effect and as amended, relating
to (i) releases or threatened releases of Hazardous Substances or materials
containing Hazardous Substances; (ii) the manufacture, handling, transport, use,
treatment, storage or disposal of Hazardous Substances or materials containing
Hazardous Substances; or (iii) pollution or protection of the environment, human
health or safety as a result of exposure to Hazardous Substances.
"Hazardous Substances" means (i) those substances defined in or regulated
under the following United States federal statutes and their state counterparts,
and all regulations thereunder: the Hazardous Materials Transportation Act, the
Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act, the Clean Water Act, the Safe Drinking
Water Act, the Atomic Energy Act, the Federal Insecticide, Fungicide, and
Rodenticide Act and the Clean Air Act; (ii) petroleum and petroleum products,
including crude oil and any fractions thereof; (iii) natural gas, synthetic gas,
and any mixtures thereof; (iv) polychlorinated biphenyls, asbestos and radon;
and (v) any substance, material or waste defined or regulated as toxic or
hazardous, a pollutant or a contaminant pursuant to any Environmental Law.
"Intellectual Property" means (i) United States, non-United States, and
international patents, patent applications and statutory invention
registrations, (ii) trademarks, service marks, trade dress, logos, trade names,
corporate names and other source identifiers, and registrations and applications
for registration thereof, (iii) copyrightable works, copyrights, and
registrations and applications for registration thereof, and (iv) confidential
and proprietary information, including trade secrets and know-how.
A-2
"LLC" means KEP VI, LLC.
"LP" means Kelso Investment Associates VI, L.P.
"NYSE" means the New York Stock Exchange.
"Parent Common Stock" means Parent's common stock, par value $.01 per
share.
"Parent Material Adverse Effect" means any event, circumstance, change,
occurrence, fact or effect that, individually or in the aggregate with all other
events, circumstances, changes, occurrences, facts and/or effects, is or is
reasonably likely to be materially adverse to the business, condition (financial
or otherwise), assets, liabilities or results of operations of Parent and its
subsidiaries, taken as a whole; provided, however, that the foregoing shall not
include any event, circumstance, change, occurrence, fact or effect resulting
from or relating to (w) changes in general United States economic conditions,
changes in United States financial markets in general or changes in the general
economic conditions in the California markets in which Parent and its
subsidiaries operate, in any case, provided that Parent and its subsidiaries are
not disproportionately affected by such changes relative to other companies in
such markets, (x) changes in the industry in which Parent and its subsidiaries
operate or changes in the industry in the California markets in which Parent and
its subsidiaries operate, in either case, provided that Parent and its
subsidiaries are not disproportionately affected by such changes relative to
other companies in such markets, (y) changes in any applicable Laws, or (z) the
public announcement of this Agreement or the transactions contemplated hereby.
All references to Parent Material Adverse Effect contained in this Agreement
shall be deemed to refer solely to the business, condition (financial or
otherwise), assets, liabilities or results of operations of Parent and its
subsidiaries, taken as a whole, without including its ownership of the Company
and its Subsidiaries after giving effect to the Merger.
"Parent Plans" means (i) all employee benefit plans (as defined in Section
3(3) of ERISA) and all bonus, stock option, stock purchase, restricted stock,
incentive, deferred compensation, retiree medical or life insurance,
supplemental retirement, severance or other benefit plans, programs or
arrangements, and all employment, termination, severance or other contracts or
agreements to which Parent or any of its subsidiaries is a party, with respect
to which Parent or any such subsidiary has any obligation or which are
maintained, contributed to or sponsored by Parent or any such subsidiary for the
benefit of any current or former employee, officer or director of Parent or any
such subsidiary, (ii) each employee benefit plan for which Parent or any of its
subsidiaries could incur liability under Section 4069 of ERISA in the event such
plan has been or were to be terminated, and (iii) any plan in respect of which
Parent or any of its subsidiaries could incur liability under Section 4212(c) of
ERISA.
"Performance Based Company Stock Options" means each outstanding Company
Stock Option that is not a Service Based Company Stock Option.
"person" means an individual, corporation, partnership, limited
partnership, limited liability company, syndicate, person (including, without
limitation, a "person" as defined in Section 13(d)(3) of the Exchange Act),
trust, association or entity or government, political subdivision, agency or
instrumentality of a government.
"Proxy Statement/Prospectus" means the proxy or information
statement/prospectus included in the Merger Registration Statement relating to
the Company Stockholder Meeting.
"Receivables" means any and all accounts receivable, notes and other
amounts receivable by the Company or any Subsidiary from third parties,
including, without limitation, customers, arising from the conduct of the
business of the Company and the Subsidiaries, whether or not in the ordinary
course, together with all unpaid financing charges accrued thereon.
"Restricted Stock" means the 50,000 shares of restricted Company Common
Stock that were issued by the Company to FNA Clinics of America, Inc. (and which
shares were subsequently assigned to Ronald D. Ferguson, Jr. and Laura
Noack-Ferguson) pursuant to a letter agreement, dated January 2, 2002, among
Ronald D. Ferguson, Jr., Laura Noack-Ferguson, FNA Clinics of America, Inc. and
Unilab Acquisition Corporation, a wholly owned subsidiary of the Company.
A-3
"Service Based Company Stock Options" means all outstanding Class A options
granted pursuant to the Company's Amended and Restated 2000 Executive Stock
Option Plan, all outstanding options that were assumed under the Company's
Amended and Restated 2000 Executive Stock Option Plan and all outstanding
options granted pursuant to the Company's 2001 Stock Option Plan.
"Stark Law" means Section 1877 of the Social Security Act (42 U.S.C. 1395
nn).
"subsidiary" or "subsidiaries" of the Company, the Surviving Corporation,
Parent or any other person means any corporation or other legal entity of which
such person owns, directly or indirectly, 50% or more of the outstanding common
stock or other equity interests, the holders of which are entitled to vote for
the election of the board of directors or other governing body of such
corporation or other legal entity.
"Taxes" means any and all taxes, fees, levies, duties, tariffs, imposts and
other charges of any kind (together with any and all interest, penalties,
additions to tax and additional amounts imposed with respect thereto) imposed by
any Governmental Authority or taxing authority, including, without limitation:
taxes or other charges on or with respect to income, franchise, windfall or
other profits, gross receipts, property, sales, use, capital stock, payroll,
employment, social security, workers' compensation, unemployment compensation or
net worth; taxes or other charges in the nature of excise, withholding, ad
valorem, stamp, transfer, value-added or gains taxes; license, registration and
documentation fees; and customers' duties, tariffs and similar charges.
"Tendered Cash Election Shares" means all shares of Company Common Stock
validly tendered and not withdrawn pursuant to the Offer, the holders of which
have elected to receive the Cash Consideration in the Offer.
"Tendered Stock Election Shares" means all shares of Company Common Stock
validly tendered and not withdrawn pursuant to the Offer, the holders of which
have elected to receive the Stock Consideration in the Offer.
"Trading Day" means any day on which securities are traded on the NASDAQ
National Market or the NYSE.
"Transaction" means the transactions contemplated by this Agreement,
including the Offer and the Merger.
"Vested Company Stock Option" means each outstanding Service Based Company
Stock Option and each outstanding Performance Based Company Stock Option, except
for the Company Stock Options identified on Section 1.01 of the Company
Disclosure Schedule.
(b) The following terms have the meanings set forth in the Sections set
forth below:
DEFINED TERM LOCATION OF DEFINITION
------------ ----------------------
Action...................................................... sec. 5.10
Acceptance Notice........................................... sec. 2.01(b)
Advisors.................................................... sec. 2.02(a)
Affected Employees.......................................... sec. 8.05(b)
Agreement................................................... Preamble
Blue Sky Laws............................................... sec. 5.05(b)
Cash Consideration.......................................... sec. 2.01(a)
Cash Fraction............................................... sec. 2.01(a)
Certificate of Merger....................................... sec. 3.02
CLIA........................................................ sec. 5.06(d)
Closing..................................................... sec. 3.02
Code........................................................ Recitals
Company..................................................... Preamble
Company Affiliate........................................... sec. 8.08
A-4
DEFINED TERM LOCATION OF DEFINITION
------------ ----------------------
Company Board............................................... Recitals
Company Disclosure Schedule................................. Article V
Company Licensed Intellectual Property...................... sec. 5.14(a)
Company Owned Intellectual Property......................... sec. 5.14(a)
Company Permits............................................. sec. 5.06(a)
Company Preferred Stock..................................... sec. 5.03(a)
Company SEC Reports......................................... sec. 5.07(a)
Company Stockholder Meeting................................. sec. 8.01(a)
Competing Transaction....................................... sec. 8.04(e)
Confidentiality Agreement................................... sec. 8.03(b)
Continuing Directors........................................ sec. 2.03(a)
Customers................................................... sec. 5.22
DGCL........................................................ Recitals
Effective Time.............................................. sec. 3.02
Employment Agreements....................................... Recitals
Environmental Permits....................................... sec. 5.16
ERISA....................................................... sec. 5.11(a)
Excess Amount............................................... sec. 4.04(c)
Exchange Act................................................ sec. 5.07(a)
Exchange Agent.............................................. sec. 4.02(a)
Exchange Fund............................................... sec. 4.02(a)
Expenses.................................................... sec. 10.03(e)
Exercise Price.............................................. sec. 4.04(c)
Exercise Taxes.............................................. sec. 4.04(c)
GAAP........................................................ sec. 5.07(b)
Governmental Authority...................................... sec. 5.05(b)
HSR Act..................................................... sec. 5.05(b)
Indemnitees................................................. sec. 8.06(c)
Indemnifiable Claim......................................... sec. 8.06(c)
Independent Directors....................................... sec. 8.17
IRS......................................................... sec. 5.11(a)
Law......................................................... sec. 5.05(a)
Leases...................................................... sec. 5.13(d)
Liens....................................................... sec. 5.13(b)
Management Letters.......................................... sec. 5.07(d)
Material Contracts.......................................... sec. 5.17(a)
Maximum Cash Election Number................................ sec. 2.01(a)
Merger...................................................... Recitals
Merger Registration Statement............................... sec. 6.07(a)
Merger Sub.................................................. Preamble
Merger Sub Common Stock..................................... sec. 4.01(c)
Minimum Condition........................................... sec. 2.01(b)
Monthly CapEx Amount........................................ sec. 7.01(b)
Multiemployer Plan.......................................... sec. 5.11(b)
Multiple Employer Plan...................................... sec. 5.11(b)
Offer....................................................... Recitals
Offer Consideration......................................... sec. 2.01(a)
Offer Documents............................................. sec. 2.01(d)
A-5
DEFINED TERM LOCATION OF DEFINITION
------------ ----------------------
Offer Exchange Agent........................................ sec. 2.04(a)
Offer Exchange Fund......................................... sec. 2.04(a)
Offer Registration Statement................................ sec. 2.01(d)
Option Holder............................................... sec. 4.04(b)
Option Shares............................................... sec. 4.04(b)
Order....................................................... sec. 9.01(c)
Parent...................................................... Preamble
Parent Disclosure Schedule.................................. Article VI
Parent Option............................................... sec. 4.04(a)
Parent Permits.............................................. sec. 6.15(a)
Parent Preferred Stock...................................... sec. 6.03(a)
Parent SEC Reports.......................................... sec. 6.06(a)
Parent Stock Option Plans................................... sec. 6.03(a)
Park Avenue................................................. sec. 5.24
Permitted Liens............................................. sec. 5.13(b)
Plans....................................................... sec. 5.11(a)
Recommendation.............................................. sec. 2.02(a)
Related Party Agreement..................................... sec. 5.17(a)(viii)
Representation Letters...................................... sec. 8.10(b)
Representatives............................................. sec. 8.04(a)
Restrictive Agreement....................................... sec. 5.17(a)(vii)
Reverse Merger.............................................. sec. 3.01
Schedule 14D-9.............................................. sec. 2.02(b)
Schedule TO................................................. sec. 2.01(d)
SEC......................................................... sec. 5.07(a)
Securities Act.............................................. sec. 5.07(a)
Standstill Period........................................... sec. 8.17
Stock Consideration......................................... sec. 2.01(a)
Stock Value................................................. sec. 3.01
Stockholders................................................ Recitals
Stockholders Agreement...................................... Recitals
Subsidiary.................................................. sec. 5.01(a)
Superior Proposal........................................... sec. 8.04(f)
Surviving Corporation....................................... sec. 3.01
Tax Opinions................................................ sec. 8.10(b)
Termination Date............................................ sec. 10.01(d)
Termination Fee............................................. sec. 10.03(a)
Third Party Acquisition Event............................... sec. 10.03(d)
Transaction Fees............................................ sec. 8.16
Transfer Taxes.............................................. sec. 8.15
A-6
ARTICLE II
THE OFFER
SECTION 2.01 The Offer. (a) Provided that this Agreement shall not have
been terminated in accordance with Article X and provided that none of the
events set forth in Annex I hereto shall have occurred and be continuing (and
shall not have been waived by Parent), unless otherwise agreed by Parent and the
Company, as promptly as reasonably practicable after the public announcement of
the execution of this Agreement, Parent shall cause Merger Sub to commence (as
defined in Rule 14d-2 promulgated under the Exchange Act) the Offer to purchase
each issued and outstanding share of Company Common Stock in exchange for, at
the election of the holder thereof, either: a net amount of $26.50 in cash (the
"Cash Consideration"), or 0.3256 of a share of Parent Common Stock (the "Stock
Consideration" and, together with the Cash Consideration, the "Offer
Consideration"); provided, however, that if the number of Tendered Cash Election
Shares exceeds 30% of the aggregate number of shares of Company Common Stock
issued and outstanding immediately prior to the Acceptance Date (the "Maximum
Cash Election Number"), then each Tendered Stock Election Share shall be
exchanged for the Stock Consideration and each Tendered Cash Election Share
shall be exchanged for (1) an amount in cash, without interest, equal to the
product of (x) the Cash Consideration and (y) a fraction (the "Cash Fraction"),
the numerator of which shall be the Maximum Cash Election Number and the
denominator of which shall be the total number of Tendered Cash Election Shares,
and (2) a number of shares of Parent Common Stock equal to the product of (x)
the Stock Consideration and (y) a fraction equal to one minus the Cash Fraction.
In the event the number of Tendered Cash Election Shares is equal to or less
than the Maximum Cash Election Number, all Tendered Cash Election Shares shall
be exchanged for the Cash Consideration and all Tendered Stock Election Shares
shall be exchanged for the Stock Consideration. Subject to the foregoing
provisions of this Section 2.01(a), stockholders of the Company shall be
permitted to elect to receive the Cash Consideration for a portion of their
shares of Company Common Stock and the Stock Consideration for another portion
of their shares of Company Common Stock. Stockholders who validly tender shares
of Company Common Stock but fail to make any election shall be deemed to have
elected to receive the Stock Consideration for all shares of Company Common
Stock validly tendered.
(b) The Offer shall be subject only to (1) the condition that there shall
be validly tendered in accordance with the terms of the Offer, prior to the
expiration of the Offer, and not withdrawn, a number of shares of Company Common
Stock that, together with the shares of Company Common Stock owned by Parent and
Merger Sub, represents at least 50.1% of the shares of Company Common Stock
outstanding on a fully diluted basis (the "Minimum Condition") and (2) the other
conditions set forth in Annex I hereto. Upon termination of the Merger
Agreement, the Offer shall immediately expire and terminate without any shares
of Company Common Stock being purchased thereunder. Merger Sub expressly
reserves the right to waive any of the conditions to the Offer and to make any
change in the terms of or conditions to the Offer; provided, however, that,
without the prior written consent of the Company, no change may be made by
Merger Sub that (i) decreases the consideration payable in the Offer; (ii)
changes the form of consideration payable in the Offer to a form other than cash
or shares of Parent Common Stock; (iii) decreases the aggregate amount of Cash
Consideration available in the Offer or changes the relative amount of Cash
Consideration available in the Offer; (iv) reduces the number of shares of
Company Common Stock sought in the Offer; (v) imposes conditions to the Offer in
addition to those set forth in Annex I; (vi) modifies or waives the Minimum
Condition; (vii) except as provided below, changes the date on which the Offer
is scheduled to expire; or (viii) makes any other change that is adverse to the
holders of Company Common Stock or to holders that have elected a particular
form of Offer Consideration. Notwithstanding the foregoing, unless the Company
otherwise consents prior thereto, Merger Sub shall (or, in the case of clause
(iii) below, shall at its option have the right to) extend the Offer for one or
more periods (not in excess of ten business days each) (i) beyond the scheduled
expiration date, which shall initially be 25 business days following the
commencement of the Offer, up to the Termination Date, if, at the scheduled or
extended expiration date of the Offer, any of the conditions to the Offer shall
not have been satisfied or, to the extent permitted, waived, until such
conditions are satisfied or, to the extent permitted, waived, (ii) for any
period required by any rule, regulation, interpretation or position of the SEC
or the staff thereof applicable to the Offer or any period required by
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applicable Law, or (iii) for an aggregate period of not more than 10 business
days beyond the latest applicable date that would otherwise be permitted under
clause (i) or (ii) of this sentence, if, as of such date, all of the conditions
to the Offer have been satisfied or waived, but the number of shares of Company
Common Stock validly tendered and not withdrawn pursuant to the Offer equals
more than 80%, but less than 90% of the outstanding shares of Company Common
Stock on a fully diluted basis; provided, however, that (x) Parent and Merger
Sub shall not be obligated to extend the Offer pursuant to clause (i) of this
sentence (but may elect to do so in accordance with this Section 2.01(b),
provided that no such extension or series of extensions of more than 10 business
days in the aggregate may be made without the prior written consent of the
Company) if the Minimum Condition is not satisfied at the time such extension
would otherwise be required, so long as the conditions set forth in clauses
(ii), (iii) and (iv) of Annex I have been satisfied, and Parent has publicly
announced such fact and its intention not to extend the Offer at least two
business days prior to the date such extension would, but for this proviso,
otherwise have been required and (y) in the event Parent or Merger Sub elects to
extend the expiration date pursuant to clause (iii), Parent and Merger Sub shall
be deemed to have irrevocably waived all of the conditions to the Offer set
forth in paragraphs (a) through (g) of Annex I. Except as provided in clause
(iii) of the previous sentence, Parent and Merger Sub shall not be permitted to
extend the Offer without the prior written consent of the Company at the time
that all conditions to the Offer have been satisfied or, to the extent
permitted, waived. Parent and Merger Sub shall deliver written notice to the
Company (the "Acceptance Notice") of its intention to accept for payment shares
of Company Common Stock pursuant to the Offer one business day in advance of the
proposed Acceptance Date. Subject to the foregoing and clause (c) below, and
upon the terms and subject to the conditions of the Offer, Parent shall cause
Merger Sub to accept for payment or exchange, as promptly as practicable after
the expiration of the Offer, all shares of Company Common Stock validly tendered
and not withdrawn pursuant to the Offer. Notwithstanding anything to the
contrary contained in this Article II, no certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of shares of Company Common Stock pursuant to the Offer, and such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a stockholder of Parent. In lieu of any such fractional shares, the
Offer Exchange Agent shall, as soon as practicable after the Acceptance Date,
aggregate all such fractional shares and such fractional shares shall be sold by
the Offer Exchange Agent as agent for the holders of such fractional shares, at
the then prevailing price on the NYSE, all in the manner provided hereinafter.
Until the net proceeds of such sale or sales have been distributed to the
holders of fractional shares, the Offer Exchange Agent shall retain such
proceeds in trust for the benefit of such holders as part of the Offer Exchange
Fund. The sale of the fractional shares by the Offer Exchange Agent shall be
executed on the NYSE or through one or more member firms of the NYSE and will be
executed in round lots to the extent practicable. The Offer Exchange Agent will
determine the portion, if any, of the net proceeds of such sale to which each
holder of fractional shares is entitled by multiplying the amount of the
aggregate net proceeds of the sale of the fractional shares by a fraction the
numerator of which is the amount of fractional shares to which such holder is
entitled and the denominator of which is the aggregate amount of fractional
shares to which all holders of fractional shares are entitled. The Company shall
pay all commissions, transfer taxes and other out-of-pocket transaction costs,
including the expenses and compensation of the Offer Exchange Agent, incurred in
connection with such sale of shares of Parent Common Stock.
(c) Notwithstanding anything else to the contrary contained in this
Agreement, and notwithstanding the satisfaction of the conditions set forth on
Annex I, Parent shall not (unless the Company notifies Parent otherwise) be
permitted to accept for payment or exchange any shares of Company Common Stock
pursuant to the Offer if, at such time, (i) Parent shall have breached or failed
to perform in any material respect its obligations, covenants or agreements
under the Agreement, (ii) the representations and warranties of Parent or Merger
Sub contained in the Agreement that are qualified by reference to a Parent
Material Adverse Effect shall not have been true and correct when made or as of
the Acceptance Date as if made at or at and as of such time (other than such
representations and warranties which by their terms address matters only as of
another specified date, which shall be true and correct only as of such date),
(iii) the representations and warranties of Parent or Merger Sub contained in
the Agreement that are not so qualified shall not have been true and correct
when made or as of the Acceptance Date as if made at or at and as of such time
(other than representations and warranties which by their terms address matters
only as of another specified date, which
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shall be true and correct only as of such date), except, in the case of this
clause (iii) only, for such inaccuracies as have not resulted, or are not
reasonably likely to result, in a Parent Material Adverse Effect, or (iv) Parent
shall have failed to deliver a certificate signed by an executive officer of
Parent, dated the Acceptance Date, to the effect that, to such officer's
knowledge, the conditions set forth in clauses (i) through (iii) of this
subsection (c) have been satisfied.
(d) As soon as reasonably practicable on the date of commencement of the
Offer, Parent shall, and Parent shall cause Merger Sub to, (i) file with the SEC
a Tender Offer Statement on Schedule TO relating to the Offer, which shall
include an offer to purchase and letter of transmittal/election form and such
other ancillary documents as shall be required by applicable Law (together with
any amendments or supplements thereto, the "Schedule TO"; and, together with the
Offer Registration Statement (as defined below) and such other documents
pursuant to which the Offer will be made, the "Offer Documents"), (ii) file with
the SEC a registration statement on Form S-4 to register the offer and sale of
Parent Common Stock pursuant to the Offer (the "Offer Registration Statement")
and (iii) disseminate the Offer Documents to holders of Company Common Stock.
Each of the Company and Parent shall use their reasonable efforts to have the
Offer Registration Statement declared effective under the Securities Act as
promptly as practicable after the filing thereof with the SEC and to keep the
Offer Registration Statement effective as long as necessary to complete the
Offer. Each of Parent, Merger Sub and the Company agree promptly to correct any
information provided by it for use in the Offer Documents if and to the extent
that such information shall have become false or misleading in any material
respect. Parent shall, and Parent shall cause Merger Sub to, take all steps
necessary to cause the Schedule TO and the Offer Registration Statement as so
corrected to be filed with the SEC and the other Offer Documents as so corrected
to be, at such time as reasonably agreed by Parent and the Company, disseminated
to holders of shares of Company Common Stock, in each case as and to the extent
required by applicable federal securities Laws. The Company and its counsel
shall be given an opportunity to review and comment on the Offer Documents prior
to their being filed with the SEC or disseminated to the holders of shares of
Company Common Stock. Parent shall, and Parent shall cause Merger Sub to,
provide the Company and its counsel with any comments Parent and Merger Sub or
their counsel may receive from the SEC or its staff with respect to the Offer
Documents promptly after the receipt of such comments and shall provide the
Company and its counsel an opportunity to participate in the response of Parent
or Merger Sub to such comments.
SECTION 2.02 Company Action. (a) The Company hereby approves of and
consents to the Offer and represents that the Company Board, at a meeting duly
called and held, has (i) determined that this Agreement and the transactions
contemplated hereby, including the Offer and the Merger, are fair to and in the
best interests of the Company and its stockholders, (ii) approved and declared
advisable this Agreement and the transactions contemplated hereby, including the
Offer and the Merger, in accordance with the DGCL, and (iii) resolved to
recommend acceptance of the Offer and, as applicable, adoption of this Agreement
by the Company's stockholders (the "Recommendation"); provided, however, that
the Company Board may withdraw, qualify, modify or amend the Recommendation as
and only to the extent permitted by Section 8.04. The Company further represents
that the Company Board has received the opinion of each of Salomon Smith Barney
Inc. and Credit Suisse First Boston Corporation (the "Advisors") to the effect
that, as of the date of this Agreement, the consideration to be received by the
holders of Company Common Stock (other than Parent, the Stockholders and their
respective affiliates) in the Offer and the Merger is, taken together, fair from
a financial point of view to such holders, and a copy of such opinions, promptly
upon receipt thereof, will be delivered to Parent. The Company hereby consents
to the inclusion in the Offer Documents of the Recommendation of the Company
Board and the Company shall not withdraw, qualify, modify or amend the
Recommendation in any manner adverse to Parent or Merger Sub except as and only
to the extent permitted by Section 8.04(d). The Company has been advised by its
directors and officers that they intend to tender all shares of Company Common
Stock beneficially owned by them into the Offer.
(b) The Company hereby agrees to file with the SEC contemporaneously with
the commencement of the Offer and disseminate to holders of shares of Company
Common Stock a Solicitation/Recommendation Statement on Schedule 14D-9 (together
with any amendments or supplements thereto, the "Schedule 14D-9") that, subject
to Section 8.04, shall reflect the Recommendation of the Company Board referred
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to in Section 2.02(a) above. Parent and its counsel shall be given an
opportunity to review and comment on the Schedule 14D-9 prior to its being filed
with the SEC or disseminated to holders of shares of Company Common Stock. The
Company agrees to provide Parent and its counsel with any comments that the
Company or its counsel may receive from the SEC or its staff with respect to the
Schedule 14D-9 promptly after the receipt of such comments and shall provide
Parent and its counsel with an opportunity to participate in the response of the
Company to such comments. Each of the Company and Parent agrees promptly to
correct any information provided by it for use in the Schedule 14D-9 if and to
the extent that it shall have become false or misleading in any material
respect. The Company agrees to take all steps necessary to cause the Schedule
14D-9 as so corrected to be filed with the SEC and to be, at such time as
reasonably agreed by Parent and the Company, disseminated to holders of shares
of Company Common Stock, in each case as and to the extent required by
applicable federal securities Laws.
(c) The Company shall promptly furnish Parent with mailing labels
containing the names and addresses of all record holders of shares of Company
Common Stock and with security position listings of shares of Company Common
Stock held in stock depositories, each as of a recent date, together with all
other available listings and computer files containing names, addresses and
security position listings of record holders and beneficial owners of shares of
Company Common Stock. The Company shall promptly furnish Parent with such
additional information, including, without limitation, updated listings and
computer files of stockholders, mailing labels and security position listings,
and such other assistance in disseminating the Offer Documents to holders of
shares of Company Common Stock as Parent may reasonably request. Subject to the
requirements of applicable Law, and except for such steps as are necessary to
disseminate the Offer Documents and any other documents necessary to consummate
the Offer or the Merger, Parent and Merger Sub shall hold in confidence the
information contained in such labels, listings and files, shall use such
information only in connection with the Transaction, and, if this Agreement
shall be terminated in accordance with Section 10.01, shall deliver to the
Company all copies of such information then in their possession.
SECTION 2.03 Directors. (a) Effective upon the acceptance for payment or
exchange of any shares of Company Common Stock pursuant to the Offer, Parent
shall be entitled to designate the number of directors, rounded up to the next
whole number, on the Company Board that equals the product of the (i) total
number of directors on the Company Board (giving effect to the election of any
additional directors pursuant to this Section 2.03) and (ii) the percentage that
the number of shares of Company Common Stock beneficially owned by Parent and/or
Merger Sub (including shares of Company Common Stock accepted for payment or
exchange) bears to the total number of shares of Company Common Stock
outstanding, and the Company shall take all action necessary to cause Parent's
designees to be elected or appointed to the Company Board, including increasing
the number of directors, and seeking and accepting resignations of incumbent
directors. At such time, the Company will also use its best efforts to cause
individuals designated by Parent to constitute the number of members, rounded up
to the next whole number, on (i) each committee of the Company Board and (ii)
each board of directors of each Subsidiary of the Company identified by Parent
(and each committee thereof) that represents the same percentage as such
individuals represent on the Company Board, in each case only to the extent
permitted by applicable Law. Notwithstanding the provisions of this Section
2.03, the parties hereto shall use their respective best efforts (including by
reducing the number of directors that Parent may designate pursuant to the first
sentence of this paragraph (a), but in no event to less than a majority of the
directors on the Company Board) to ensure that at least two of the members of
the Company Board shall, at all times prior to the Effective Time, be directors
of the Company who were directors of the Company on the date hereof (the
"Continuing Directors"); provided that if there shall be in office fewer than
two Continuing Directors for any reason, the Company Board shall cause a person
designated by the remaining Continuing Director to fill such vacancy who shall
be deemed to be a Continuing Director for all purposes of this Agreement, or if
no Continuing Directors then remain, the other directors of the Company then in
office shall designate two persons to fill such vacancies who will not be
officers or employees or affiliates of the Company, Parent or Merger Sub or any
of their respective subsidiaries and such persons shall be deemed to be
Continuing Directors for all purposes of this Agreement.
(b) The Company's obligations to appoint Parent's designees to the Company
Board shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder. The Company shall promptly
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take all actions, and shall include in the Schedule 14D-9 such information with
respect to the Company and its officers and directors, as Section 14(f) and Rule
14f-1 require in order to fulfill its obligations under this Section, so long as
Parent shall have provided to the Company on a timely basis in writing and be
solely responsible for any information with respect to itself, Merger Sub and
their respective nominees, officers, directors and affiliates required by
Section 14(f) and Rule 14f-1.
(c) Following the election or appointment of Parent's designees pursuant to
Section 2.03(a) and until the Effective Time, the approval of a majority of the
Continuing Directors shall be required to authorize any termination of this
Agreement by the Company, any amendment of this Agreement requiring action by
the Company Board, any extension of time for performance of any obligation or
action hereunder by Parent or Merger Sub, any waiver of compliance with any of
the agreements or conditions contained herein for the benefit of the Company,
any amendment of the certificate of incorporation or by-laws of the Company, and
any other action of the Company hereunder which adversely affects the holders of
shares of Company Common Stock (other than Parent or Merger Sub).
SECTION 2.04 Exchange Fund; Distributions on Shares of Parent Common
Stock. (a) Prior to the Acceptance Date, Parent shall deposit, or shall cause
to be deposited, with Computershare Investor Services, LLC or a bank or trust
company that may be designated by Parent and is reasonably satisfactory to the
Company (the "Offer Exchange Agent"), for the benefit of the holders of Company
Common Stock, for exchange in accordance with the terms of the Offer set forth
in Article II, (a) cash representing the Cash Consideration payable pursuant to
Section 2.01 and (b) certificates representing the shares of Parent Common Stock
issuable to holders of Company Common Stock in the Offer pursuant to Section
2.01 (such cash and certificates for shares of Parent Common Stock, together
with any dividends or distributions with respect thereto, being hereinafter
referred to as, the "Offer Exchange Fund"). The Offer Exchange Agent shall,
pursuant to irrevocable instructions, make cash payments and deliver the shares
of Parent Common Stock contemplated to be issued pursuant to Section 2.01 out of
the Offer Exchange Fund. Any cash and shares of Parent Common Stock remaining in
the Offer Exchange Fund seven business days following the Acceptance Date shall
be returned to Parent, which shall thereafter be responsible to make payments to
holders of Company Common Stock that have validly tendered their shares of
Company Common Stock pursuant to the Offer.
(b) For purposes of determining entitlement to dividends or other
distributions declared on shares of Parent Common Stock, holders of Company
Common Stock who have validly tendered and not withdrawn such shares pursuant to
the Offer shall be deemed to be record holders of Parent Common Stock as of the
Acceptance Date, notwithstanding the fact that certificates representing such
shares have not yet been issued or delivered to tendering stockholders (or, if
applicable, appropriate book-entries have not yet been made).
ARTICLE III
THE MERGER
SECTION 3.01 The Merger. At the Effective Time, upon the terms and
subject to the conditions of this Agreement and in accordance with the DGCL, the
Company shall be merged with and into Merger Sub. As a result of the Merger, the
separate corporate existence of the Company shall cease and Merger Sub shall
continue as the surviving corporation of the Merger; provided, however, that if
(i) the aggregate market value of all shares of Parent Common Stock payable to
holders of Company Common Stock upon consummation of the Offer and the Merger,
based upon the lower of the closing price of shares of Parent Common Stock on
the NYSE Composite Tape on the date immediately prior to the Effective Time or
the Acceptance Date (the "Stock Value"), would be less than 42% of the aggregate
market value of all such shares of Parent Common Stock and all cash (including
the Cash Consideration and cash in lieu of fractional shares) payable to holders
of Company Common Stock upon consummation of the Offer and the Merger, or (ii)
Parent and/or the Company do not obtain the Tax Opinions referred to at Section
8.10(b) and Section 8.10(c), then, at Parent's discretion, the Merger may not be
effected as described herein and may instead be effected as a merger of Merger
Sub with and into the Company in accordance with the DGCL (the "Reverse
Merger"). If the Reverse Merger is effected, then the separate existence of
Merger Sub shall cease and the Company shall
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become the surviving corporation and shall continue its existence under the laws
of the State of Delaware as a wholly owned subsidiary of Parent. The surviving
corporation of the Merger or the Reverse Merger, as the case may be, shall be
herein referred to as the "Surviving Corporation". In the event Parent elects to
effect the Reverse Merger, all references to the "Merger" in this Agreement and
all other ancillary or related agreements, documents and instruments, except
where such references relate to the qualification of the transaction as a
tax-free reorganization under Section 368(a) of the Code, shall be deemed to be
references to the "Reverse Merger", and this Agreement and such other ancillary
agreements, documents and instruments shall be construed and interpreted
accordingly.
SECTION 3.02 Effective Time; Closing. As promptly as practicable after
the satisfaction or, if permissible, waiver of the conditions set forth in
Article IX, but in no event later than two business days after all such
conditions have been satisfied or waived, the parties hereto shall cause the
Merger to be consummated by filing a certificate of merger or certificate of
ownership and merger (the "Certificate of Merger") with the Secretary of State
of the State of Delaware in such form as is required by, and executed in
accordance with, the relevant provisions of the DGCL (the date and time of such
filing of the Certificate of Merger (or such later time as may be agreed by each
of the parties hereto and specified in the Certificate of Merger) being, the
"Effective Time"). Immediately prior to such filing of the Certificate of
Merger, a closing of the Merger (the "Closing") shall be held at the offices of
Shearman & Sterling, 599 Lexington Avenue, New York, New York 10022, or such
other place as the parties shall agree, for the purpose of confirming the
satisfaction or waiver, as the case may be, of the conditions set forth in
Article IX.
SECTION 3.03 Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of the DGCL.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all of the property, rights, privileges, powers and franchises
of the Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities, obligations, restrictions, disabilities and duties of each
of the Company and Merger Sub shall become the debts, liabilities, obligations,
restrictions, disabilities and duties of the Surviving Corporation.
SECTION 3.04 Certificate of Incorporation; By-Laws. At the Effective Time
and subject to Section 8.06(a) and Section 8.10 hereof, the Certificate of
Incorporation of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation of the Surviving Corporation
(but in the event the Reverse Merger is effected, then the Certificate of
Incorporation of the Company shall be the Certificate of Incorporation of the
Surviving Corporation, but, by reason of the Merger, shall at the Effective Time
be amended and restated to read in its entirety as that of Merger Sub
immediately prior to the Effective Time), in either case until thereafter
amended as provided by Law and such Certificate of Incorporation.
(b) Unless otherwise determined by Parent prior to the Effective Time, and
subject to Section 8.06(a) and Section 8.10 hereof, at the Effective Time, the
By-Laws of Merger Sub, as in effect immediately prior to the Effective Time,
shall be the By-Laws of the Surviving Corporation until thereafter amended as
provided by Law, the Certificate of Incorporation of the Surviving Corporation
and such By-Laws.
SECTION 3.05 Directors and Officers. At the Effective Time, the directors
of Merger Sub immediately prior to the Effective Time shall be the initial
directors of the Surviving Corporation, each such director to hold office in
accordance with the DGCL, the Certificate of Incorporation and By-Laws of the
Surviving Corporation, and the officers of the Company immediately prior to the
Effective Time shall, subject to the applicable provisions of the Certificate of
Incorporation and By-Laws of the Surviving Corporation, be the initial officers
of the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
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ARTICLE IV
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 4.01 Conversion of Securities. (a) Conversion of Company Common
Stock. At the Effective Time, by virtue of the Merger and without any action on
the part of Parent, Merger Sub, the Company or the holders of Company Common
Stock, each share of Company Common Stock issued and outstanding immediately
prior to the Effective Time (other than shares to be cancelled in accordance
with Section 4.01(b) and dissenting shares, if any) shall be converted into the
Stock Consideration. As of the Effective Time, all such shares of Company Common
Stock shall no longer be outstanding and shall automatically be cancelled and
retired and shall cease to exist, and each holder of a certificate or
certificates representing any such shares of Company Common Stock shall cease to
have any rights with respect thereto, except the right to receive the Stock
Consideration.
(b) Cancellation of Treasury Stock and Company Common Stock Owned by Parent
and Merger Sub. At the Effective Time, by virtue of the Merger and without any
action on the part of Parent, Merger Sub, the Company or the holders of Company
Common Stock, all shares of Company Common Stock owned by the Company as
treasury stock and any shares of Company Common Stock owned by Parent, Merger
Sub or any direct or indirect wholly owned subsidiary of Parent or Merger Sub
immediately prior to the Effective Time shall, by virtue of the Merger, and
without any action on the part of the holder thereof, automatically be canceled
and retired and shall cease to exist and no consideration shall be delivered in
exchange therefor.
(c) Capital Stock of Merger Sub. At the Effective Time, by virtue of the
Merger and without any action on the part of Parent, Merger Sub, the Company or
the holders of Company Common Stock, each share of common stock, no par value,
of Merger Sub ("Merger Sub Common Stock") outstanding immediately prior to the
Effective Time shall remain outstanding and be (or, in the case of the Reverse
Merger, shall become) one duly authorized, validly issued, fully paid and
nonassessable share of common stock of the Surviving Corporation.
(d) Conversion of Restricted Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of Parent, Merger Sub, the Company
or the holders of Restricted Stock, each share of Restricted Stock issued and
outstanding immediately prior to the Effective Time shall be converted into the
right to receive the Stock Consideration, subject to the identical vesting and
forfeiture provisions that were applicable to such share of Restricted Stock
immediately prior to the Effective Time. As of the Effective Time, all such
shares of Restricted Stock shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each holder
of a Certificate representing any such shares of Restricted Stock shall cease to
have any rights with respect thereto, except the right to receive the Stock
Consideration subject to such vesting and forfeiture provisions.
SECTION 4.02 Exchange of Certificates. (a) Exchange Agent. From and
after the Effective Time, Parent shall deposit, or shall cause to be deposited,
with Computershare Investor Services, LLC or a bank or trust company that may be
designated by Parent and is reasonably satisfactory to the Company (the
"Exchange Agent"), for the benefit of the holders of Company Common Stock (other
than dissenting shares), for exchange in accordance with this Article IV through
the Exchange Agent, certificates representing the shares of Parent Common Stock
issuable to holders of Company Common Stock in the Merger pursuant to Section
4.01 (such certificates for shares of Parent Common Stock, together with any
dividends or distributions with respect thereto, being hereinafter referred to
as, the "Exchange Fund"). The Exchange Agent shall, pursuant to irrevocable
instructions, deliver the shares of Parent Common Stock contemplated to be
issued pursuant to Section 4.01 out of the Exchange Fund. Except as contemplated
by Section 4.02(f) hereof, the Exchange Fund shall not be used for any other
purpose.
(b) Exchange Procedures. As promptly as practicable after the Effective
Time, Parent shall instruct the Exchange Agent to mail to each holder of a
Certificate which immediately prior to the Effective Time represented
outstanding shares of Company Common Stock: (i) a letter of transmittal (which
shall be in customary form and shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon proper
delivery of the Certificates to the Exchange Agent) and (ii) instructions for
use in
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effecting the surrender of the Certificates pursuant to such letter of
transmittal. Upon surrender to the Exchange Agent of a Certificate for
cancellation, together with such letter of transmittal, duly completed and
validly executed in accordance with the instructions thereto, and such other
documents as may be required pursuant to such instructions, the holder of such
Certificate shall be entitled to receive in exchange therefor (A) a certificate
representing that number of whole shares of Parent Common Stock which such
holder has the right to receive, if any, in respect of the Company Common Stock
formerly represented by such Certificate (after taking into account all Company
Common Stock then held by such holder), (B) cash in lieu of any fractional
shares of Parent Common Stock to which such holder is entitled pursuant to
Section 4.02(e) and (C) any dividends or other distributions to which such
holder is entitled pursuant to Section 4.02(c), and the Certificate so
surrendered shall forthwith be cancelled. In the event of a transfer of
ownership of Company Common Stock that is not registered in the transfer records
of the Company, a certificate representing the proper number of shares of Parent
Common Stock, cash in lieu of any fractional shares of Parent Common Stock to
which such holder is entitled pursuant to Section 4.02(e) and any dividends or
other distributions to which such holder is entitled pursuant to Section 4.02(c)
may be issued to a transferee if the Certificate representing such Company
Common Stock is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 4.02, each Certificate shall be deemed at all times
after the Effective Time to represent only the right to receive upon such
surrender the certificate representing shares of Parent Common Stock, cash in
lieu of any fractional shares of Parent Common Stock to which such holder is
entitled pursuant to Section 4.02(e) and any dividends or other distributions to
which such holder is entitled pursuant to Section 4.02(c).
(c) Distributions with Respect to Unexchanged Shares of Parent Common
Stock. No dividends or other distributions declared or made after the Effective
Time with respect to the Parent Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of Parent Common Stock represented thereby, and no cash
payment in lieu of any fractional shares shall be paid to any such holder
pursuant to Section 4.02(e), until the holder of such Certificate shall
surrender such Certificate. Subject to the effect of escheat, tax or other
applicable Laws, following surrender of any such Certificate, there shall be
paid to the holder of the certificates representing whole shares of Parent
Common Stock issued in exchange therefor, without interest, (i) the amount of
any cash payable with respect to a fractional share of Parent Common Stock to
which such holder is entitled pursuant to Section 4.02(e) and the amount of
dividends or other distributions with a record date after the Effective Time and
theretofore paid with respect to such whole shares of Parent Common Stock, and
(ii) at the appropriate payment date, the amount of dividends or other
distributions, with a record date after the Effective Time but prior to
surrender and a payment date occurring after surrender, payable with respect to
such whole shares of Parent Common Stock.
(d) No Further Rights in Company Common Stock. All shares of Parent Common
Stock issued upon the surrender for exchange of Certificates in accordance with
the terms hereof (including any cash paid pursuant to Section 4.02(c) or (e))
shall be deemed to have been issued at the Effective Time in full satisfaction
of all rights pertaining to such Company Common Stock.
(e) No Fractional Shares. No certificates or scrip representing fractional
shares of Parent Common Stock shall be issued upon the surrender for exchange of
Certificates pursuant to Section 4.01, and such fractional share interests will
not entitle the owner thereof to vote or to any rights of a stockholder of
Parent. In lieu of any such fractional shares, the Exchange Agent shall, as soon
as practicable after the Effective Time, aggregate all such fractional shares
and such fractional shares shall be sold by the Exchange Agent as agent for the
holders of such fractional shares, at the then prevailing price on the NYSE, all
in the manner provided hereinafter. Until the net proceeds of such sale or sales
have been distributed to the holders of fractional shares, the Exchange Agent
shall retain such proceeds in trust for the benefit of such holders as part of
the Exchange Fund. The sale of the fractional shares by the Exchange Agent shall
be executed on the NYSE or through one or more member firms of the NYSE and will
be executed in round lots to the extent practicable. The Exchange Agent will
determine the portion, if any, of the net proceeds of such sale to which each
holder of fractional shares is entitled by multiplying the amount of the
aggregate net proceeds of the sale of the
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fractional shares by a fraction the numerator of which is the amount of
fractional shares to which such holder is entitled and the denominator of which
is the aggregate amount of fractional shares to which all holders of fractional
shares are entitled. The Company shall pay all commissions, transfer taxes and
other out-of-pocket transaction costs, including the expenses and compensation
of the Exchange Agent, incurred in connection with such sale of shares of Parent
Common Stock.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund that
remains undistributed to the holders of the Company Common Stock for six months
after the Effective Time shall be delivered to Parent, upon demand, and any
holders of Company Common Stock who have not theretofore complied with this
Article IV shall thereafter look only to Parent for the shares of Parent Common
Stock, any cash in lieu of fractional shares of Parent Common Stock to which
they are entitled pursuant to Section 4.02(e) and any dividends or other
distributions with respect to the Parent Common Stock to which they are entitled
pursuant to Section 4.02(c). Any portion of the Exchange Fund remaining
unclaimed by holders of Company Common Stock five years after the Effective Time
(or such earlier date which is immediately prior to such time as such amounts
would otherwise escheat to or become property of any Governmental Authority)
shall, to the extent permitted by applicable Law, become the property of Parent
free and clear of any claims or interest of any person previously entitled
thereto.
(g) No Liability. Neither Parent nor the Surviving Corporation shall be
liable to any holder of Company Common Stock for any such Parent Common Stock
(or dividends or distributions with respect thereto) or cash delivered to a
public official pursuant to any abandoned property, escheat or similar Law.
(h) Withholding Rights. Each of the Surviving Corporation and Parent shall
be entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of Company Common Stock such amounts as
it is required to deduct and withhold with respect to the making of such payment
under the Code, or any provision of state, local or foreign Tax Law. To the
extent that amounts are so withheld by the Surviving Corporation or Parent, as
the case may be, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the Company Common Stock in
respect of which such deduction and withholding was made by the Surviving
Corporation or Parent, as the case may be.
(i) Lost, Stolen or Destroyed Certificates. If any Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming such Certificate to be lost, stolen or destroyed and, if
required by Parent or the Surviving Corporation, the posting by such person of a
bond, in such reasonable amount as Parent or the Surviving Corporation may
direct, as indemnity against any claim that may be made against it with respect
to such Certificate, the Exchange Agent will issue in exchange for such lost,
stolen or destroyed Certificate the whole number of shares of Parent Common
Stock, any cash in lieu of fractional shares of Parent Common Stock to which the
holders thereof are entitled pursuant to Section 4.02(e) and any dividends or
other distributions to which the holders thereof are entitled pursuant to
Section 4.02(c).
SECTION 4.03 Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of shares of Company Common Stock thereafter on the
records of the Company. From and after the Effective Time, the holders of
Certificates representing Company Common Stock or Restricted Stock outstanding
immediately prior to the Effective Time shall cease to have any rights with
respect to such Company Common Stock or Restricted Stock, as the case may be,
except as otherwise provided in this Agreement or by Law. On or after the
Effective Time, any Certificates properly presented to the Exchange Agent or
Parent for any reason shall be cancelled and converted in accordance with the
terms of this Article IV.
SECTION 4.04 Company Stock Options. (a) At or immediately prior to the
Effective Time, each Company Stock Option that is not exercised prior to the
Effective Time (other than any Company Stock Option that will be cancelled
pursuant to the Employment Agreements) shall, by virtue of the Merger and
without any further action on the part of any holder thereof, be assumed by
Parent and deemed to constitute an option (each, a "Parent Option") to acquire,
on the same terms and conditions as were applicable under such Company Stock
Option (subject to Section 4.04(h)), the same number of shares of Parent Common
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Stock as the holder of such Company Stock Option would have been entitled to
receive pursuant to Section 4.01 of this Agreement had such holder exercised
such Company Stock Option in full immediately prior to the Effective Time
(rounded to the nearest whole number), at a price per share (rounded down to the
nearest whole cent) equal to (x) the aggregate exercise price for the shares of
Company Common Stock otherwise purchasable pursuant to such Company Stock Option
divided by (y) the number of shares, or fraction thereof, of Parent Common Stock
purchasable pursuant to the Parent Option in accordance with the foregoing. The
other terms of each such Company Stock Option shall continue to apply in
accordance with their terms, except that the vesting price targets applicable to
each unvested Performance Based Company Stock Option that is outstanding
immediately prior to the Effective Time shall be equal to (i) the vesting price
targets applicable to such unvested Performance Based Company Stock Option
immediately prior to the Effective Time divided by (ii) the Stock Consideration.
(b) Subject to Sections 4.04(c) and 4.04(d) below, each holder (an "Option
Holder") of a Vested Company Stock Option may elect to exercise such Vested
Company Stock Option prior to the Acceptance Date (subject to consummation of
the Offer) for the purpose of tendering into the Offer all of the shares of
Company Common Stock (the "Option Shares") issuable to such person upon exercise
of the Vested Company Stock Option.
(c) An Option Holder that exercises a Vested Company Stock Option between
the date hereof and the Acceptance Date shall not be required to deliver payment
of the exercise price (the "Exercise Price") thereof to the Company
simultaneously upon exercise of such option if the Option Holder (1) notifies
the Company that such person intends to tender into the Offer in accordance with
its terms all of the Option Shares issuable upon such exercise, (2) instructs
the Company to deliver the Option Shares to the Offer Exchange Agent, and (3)
elects to receive the Cash Consideration in exchange for all, but not less than
all, of such tendered Option Shares. If an Option Holder has satisfied clauses
(1), (2) and (3) of this Section 4.04(c), the Company shall cooperate with the
Offer Exchange Agent in determining the aggregate amount of withholding/payroll
taxes (the "Exercise Taxes") that such Option Holder has incurred or will incur
in connection with the exercise of the Vested Company Stock Option, and the
Offer Exchange Agent shall deduct the sum of the Exercise Price and the Exercise
Taxes from the aggregate Offer Consideration otherwise payable to the Option
Holder in connection with the tender of such person's Option Shares into the
Offer. If the sum of the Exercise Price and the Exercise Taxes exceeds the Cash
Consideration that is payable to the Option Holder (the "Excess Amount"), then
the Offer Exchange Agent shall promptly notify the Option Holder of the Excess
Amount and, if applicable, shall not deliver any Stock Consideration otherwise
payable to such person until the Offer Exchange Agent, on behalf of the Company,
has received payment in full of the Excess Amount from the Option Holder. Parent
shall cause the Offer Exchange Agent to promptly deliver to the Company any
amounts received in connection with the payment by an Option Holder of the
Exercise Price and the Exercise Taxes.
(d) If an Option Holder (x) wishes to exercise a Vested Company Stock
Option for the purpose of tendering into the Offer all of the Option Shares
received thereby, and (y) does not wish to receive the Cash Consideration in
exchange for all, but not less than all, of such Option Shares, then (A)
simultaneously upon delivery of notice of exercise of such option, the Option
Holder must (1) notify the Company that such person intends to tender into the
Offer in accordance with its terms all of the Option Shares issuable upon
exercise of the Vested Company Stock Option, (2) instruct the Company to deliver
the Option Shares to the Offer Exchange Agent, and (3) notify the Company that
it will, prior to the Acceptance Date, deliver to the Offer Exchange Agent, on
behalf of the Company, payment of the Exercise Price in cash or by check
(provided that, if the Option Holder does not deliver the Exercise Price in full
to the Offer Exchange Agent prior to the Acceptance Date, then such person shall
be deemed not to have exercised the Vested Company Stock Option and not to have
tendered any Option Shares into the Offer); and (B) promptly following the
Acceptance Date, deliver to the Offer Exchange Agent, on behalf of the Company,
payment of the aggregate Exercise Taxes in cash or by certified check. The Offer
Exchange Agent shall not deliver to any such Option Holder any portion of the
Offer Consideration otherwise payable to such person in exchange for tendered
Option Shares until the Exercise Price and all Exercise Taxes have been paid in
full.
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(e) If an Option Holder wishes to exercise a Vested Company Stock Option
between the date hereof and the Acceptance Date other than in accordance with
Section 4.04(c) or Section 4.04(d) hereof, the Option Holder may exercise such
Vested Company Stock Option only in accordance with the terms of such option,
including with respect to the timing of payment of the exercise price thereof.
(f) Subject to the parenthetical contained in Section 4.04(d)(A)(3) above,
all Option Shares that are issued prior to the Acceptance Date in connection
with the exercise of any Vested Company Stock Options shall constitute issued
and outstanding shares of Company Common Stock for purposes of Section 2.01,
including, without limitation, for purposes of determining the Maximum Cash
Election Number.
(g) Prior to the commencement of the Offer, the Company shall be permitted
to amend each outstanding Company Stock Option Plan and each outstanding Company
Stock Option in accordance with Section 4.04(g) of the Company Disclosure
Schedule.
(h) At or prior to the Effective Time, Parent shall take all corporate
action necessary to reserve for issuance a sufficient number of shares of Parent
Common Stock for delivery upon exercise of the Parent Options.
(i) At or prior to the Effective Time, Parent shall file with the SEC a
registration statement on Form S-8 (or any successor or other appropriate form)
with respect to the shares of Parent Common Stock subject to Parent Options.
Parent shall use reasonable best efforts to maintain the effectiveness of such
registration statement for as long as any Parent Options remain outstanding. At
or prior to the Effective Time, Parent shall take all corporate action necessary
to reserve for issuance a sufficient number of shares of Parent Common Stock for
delivery upon exercise of Parent Options.
(j) Both Parent and the Company shall take such steps as may be required to
cause, to the extent possible, the transactions contemplated by this Section
4.04 and any other dispositions of Company equity securities and/or acquisitions
of Parent equity securities (including, in each case, derivative securities) in
connection with this Agreement or the transactions contemplated hereby by any
individual who is a director or officer of the Company, to be exempt under Rule
16b-3 promulgated under the Exchange Act, such steps to be taken in accordance
with the interpretative letter, dated January 12, 1999, issued by the SEC to
Skadden, Arps, Slate, Meagher & Flom LLP.
SECTION 4.05 Appraisal Rights. In accordance with Section 262 of the
DGCL, no appraisal rights shall be available to holders of shares of Company
Common Stock in connection with the Offer or, other than pursuant to Section
262(b)(3) of the DGCL, the Merger.
SECTION 4.06 Affiliates. Notwithstanding anything to the contrary herein,
no Parent Common Stock shall be delivered to a person who may be deemed an
"affiliate" of the Company in accordance with Section 8.08 hereof for purposes
of Rule 145 under the Securities Act until such person has executed and
delivered to Parent an executed copy of the affiliate letter contemplated in
Section 8.08 hereof.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As an inducement to Parent and Merger Sub to enter into this Agreement, the
Company, except as disclosed in the Company's disclosure schedule delivered
concurrently with the delivery of this Agreement (the "Company Disclosure
Schedule"), hereby represents and warrants to Parent and Merger Sub as follows:
SECTION 5.01 Organization and Qualification; Subsidiaries. (a) Each of
the Company and each subsidiary of the Company (each, a "Subsidiary") is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has the requisite corporate power
and authority and all necessary governmental approvals to own, lease and operate
its properties and to carry on its business as it is now being conducted, except
where the failure to be so organized, existing or in good standing or to have
such power, authority and governmental approvals would not prevent or materially
delay consummation of the Merger or the Transaction or otherwise prevent or
materially delay the Company from
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performing its obligations under this Agreement and would not reasonably be
expected to have a Company Material Adverse Effect. The Company and each
Subsidiary is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for such failures to be
so qualified or licensed and in good standing that would not prevent or
materially delay consummation of the Merger or otherwise prevent or materially
delay the Company from performing its obligations under this Agreement and would
not reasonably be expected to have a Company Material Adverse Effect.
(b) A true and complete list of all the Subsidiaries, together with the
jurisdiction of organization of each Subsidiary and the percentage of the
outstanding capital stock or other equity interests of each Subsidiary owned by
the Company and each other Subsidiary, is set forth in Section 5.01(b) of the
Company Disclosure Schedule. Except as disclosed in Section 5.01(b) of the
Company Disclosure Schedule, the Company does not directly or indirectly own any
equity or similar interest in, or any interest convertible into or exchangeable
or exercisable for any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity.
SECTION 5.02 Certificate of Incorporation and By-Laws. The Company has
heretofore furnished to Parent a complete and correct copy of the certificate of
incorporation and the by-laws or equivalent organizational documents, each as
amended to date, of the Company and each Subsidiary. Such certificates of
incorporation, by-laws or equivalent organizational documents, as amended to
date, are in full force and effect. Neither the Company nor any Subsidiary is in
material violation of any of the provisions of its certificate of incorporation,
by-laws or equivalent organizational documents.
SECTION 5.03 Capitalization. (a) The authorized capital stock of the
Company consists of (i) 60,000,000 shares of Company Common Stock and (ii)
15,000,000 shares of preferred stock, par value $.01 per share ("Company
Preferred Stock"). As of the close of business on March 25, 2002, (i) 33,487,650
shares of Company Common Stock were issued and outstanding, all of which are
duly authorized, validly issued, fully paid and nonassessable, (ii) 50,000
shares of Restricted Stock were issued and outstanding, (iii) no shares of
Company Common Stock were held in the treasury of the Company, (iv) no shares of
Company Common Stock were held by the Subsidiaries, (v) 3,822,307 shares of
Company Common Stock were reserved for future issuance pursuant to outstanding
employee stock options granted pursuant to the Company Stock Option Plans and
(vi) no shares of Company Preferred Stock were issued and outstanding. Except as
set forth above or in Section 5.03 of the Company Disclosure Schedule, there are
no options, warrants or other rights, agreements, arrangements or commitments of
any character relating to the issued or unissued capital stock of the Company or
any Subsidiary or obligating the Company or any Subsidiary to issue or sell any
shares of capital stock of, or other equity interests in, the Company or any
Subsidiary. Section 5.03(a) of the Company Disclosure Schedule sets forth the
following information with respect to each Company Stock Option outstanding as
of the date of this Agreement: (i) the name and address of the optionee; (ii)
the number of shares of Company Common Stock subject to such Company Stock
Option; (iii) the exercise price of such Company Stock Option; (iv) the date on
which such Company Stock Option was granted; (v) the applicable vesting
schedule; and (vi) the date on which such Company Stock Option expires. All
shares of Company Common Stock subject to issuance as aforesaid, upon issuance
on the terms and conditions specified in the instruments pursuant to which they
are issuable, will be duly authorized, validly issued, fully paid and
nonassessable. There are no outstanding contractual obligations of the Company
or any Subsidiary to repurchase, redeem or otherwise acquire any shares of
Company Common Stock or any capital stock of any Subsidiary or to provide funds
to, or make any investment (in the form of a loan, capital contribution or
otherwise) in, any Subsidiary or any other person.
(b) Each outstanding share of capital stock of each Subsidiary is duly
authorized, validly issued, fully paid and nonassessable, and each such share is
owned by the Company or another Subsidiary free and clear of all security
interests, liens, claims, pledges, options, rights of first refusal, agreements,
limitations on the Company's or any Subsidiary's voting rights, charges and
other encumbrances, except for limitations on transfer imposed by federal or
state securities Laws.
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SECTION 5.04 Authority Relative to This Agreement. The Company has all
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and, subject, if applicable, to obtaining
the Company Stockholder Approval with respect to the Merger, to consummate the
Transaction. The execution and delivery of this Agreement by the Company and the
consummation by the Company of the Transaction have been duly and validly
authorized by all necessary corporate action, and no other corporate proceedings
on the part of the Company are necessary to authorize this Agreement or to
consummate the Transaction (other than, with respect to the Merger, obtaining
the Company Stockholder Approval if and to the extent required by applicable
Law, and the filing and recordation of appropriate merger documents as required
by the DGCL). This Agreement has been duly and validly executed and delivered by
the Company and, assuming the due authorization, execution and delivery by each
of the other parties hereto, constitutes a legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms,
except to the extent that its enforceability may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar Laws affecting
the enforcement of creditors' rights generally and by general equitable
principles. The Company Board has approved this Agreement and the transactions
contemplated hereby. To the knowledge of the Company, no state takeover statute
is applicable to the Merger or the Transaction.
SECTION 5.05 No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by the Company do not, and the
performance of this Agreement by the Company will not, (i) conflict with or
violate the certificate of incorporation or by-laws or any equivalent
organizational documents, each as amended to date, of the Company or any
Subsidiary, (ii) assuming that all consents, approvals, authorizations and other
actions described in Section 5.05(b) have been made, conflict with or violate
any United States or non-United States statute, law, ordinance, regulation,
rule, code, executive order, injunction, judgment, decree or other order ("Law")
applicable to the Company or any Subsidiary or by which any property or asset of
the Company or any Subsidiary is bound or affected, or (iii) result in any
breach of or constitute a default (or an event which, with notice or lapse of
time or both, would become a default) under, or give to others any right of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of the Company
or any Subsidiary pursuant to, or result in any payment under, any Material
Contract (as defined in Section 5.17), Company Permit (as defined in Section
5.06) or franchise, except, with respect to clauses (ii) and (iii), for any such
conflicts, violations, breaches, defaults or other occurrences which would not
prevent or materially delay consummation of the Merger or otherwise prevent or
materially delay the Company from performing its obligations under this
Agreement and would not reasonably be expected to have a Company Material
Adverse Effect.
(b) The execution and delivery of this Agreement by the Company do not, and
the performance of this Agreement by the Company will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
United States federal, state, county, local or non-United States government,
governmental, regulatory or administrative authority, agency, instrumentality or
commission or any court, tribunal, judicial or arbitral body or supranational
authority (a "Governmental Authority"), except (i) for applicable requirements,
if any, of the Securities Act, the Exchange Act, state securities or "blue sky"
laws ("Blue Sky Laws") and state takeover laws, the pre-merger notification
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and filing and recordation of appropriate merger
documents as required by the DGCL, and (ii) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or materially delay consummation of the Merger,
or otherwise prevent or materially delay the Company from performing its
obligations under this Agreement, and would not reasonably be expected to have a
Company Material Adverse Effect.
SECTION 5.06 Permits; Compliance. (a) Each of the Company and the
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, certifications, permits, easements, variances, exceptions, consents,
certificates, approvals and orders of any Governmental Authority necessary for
each of the Company or the Subsidiaries to own, lease and operate its properties
or to carry on its business as it is now being conducted (the "Company
Permits"), except where the failure to have, or the suspension or cancellation
of,
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any of the Company Permits would not prevent or materially delay consummation of
the Merger or otherwise prevent or materially delay the Company from performing
its obligations under this Agreement and would not reasonably be expected to
have a Company Material Adverse Effect. As of the date of this Agreement, no
suspension or cancellation of any of the Company Permits is pending or, to the
knowledge of the Company, threatened. Neither the Company nor any Subsidiary is
in conflict with, or in default, breach or violation of, (i) any Law applicable
to the Company or any Subsidiary or by which any property or asset of the
Company or any Subsidiary is bound or affected, or (ii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, Company Permit,
franchise or other instrument or obligation to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary or any property
or asset of the Company or any Subsidiary is bound, except in either case for
any such conflicts, defaults, breaches or violations that would not prevent or
materially delay the consummation of the Merger or otherwise prevent or
materially delay the Company from performing its obligations under this
Agreement and would not reasonably be expected to have a Company Material
Adverse Effect.
(b) None of the Company or any Subsidiary or any individual who is
currently an executive officer, director or, to the knowledge of the Company,
employee of the Company or any Subsidiary (i) has been convicted of, charged
with or, to the knowledge of the Company, investigated for a Medicare, Medicaid
or state health program-related offense, (ii) since January 1, 1999, has been
convicted of, charged with or, to the knowledge of the Company, investigated for
a violation of Law related to fraud, theft, embezzlement, financial misconduct
or obstruction of an investigation, (iii) has been excluded or suspended from
participation in Medicare, Medicaid or any federal or state health program, or
(iv) since January 1, 1999, has been subject to any Order or any criminal or
civil fine or penalty imposed by, any Governmental Authority with respect to any
such Medicare, Medicaid or any other federal or state health care program.
(c) Except as disclosed in Section 5.06(c) of the Company Disclosure
Schedule, since January 1, 1999, there have been no written notices, citations
or decisions by any Governmental Authority that the Company or any Subsidiary
fails to meet any applicable standards promulgated by such Governmental
Authority for which a plan of correction has not been accepted, and the Company
does not know of any such failure or facts upon which such a failure could be
alleged except, in either case, as would not reasonably be expected to have a
Company Material Adverse Effect. Except as set forth in Section 5.06(c) of the
Company Disclosure Schedule, none of the Company or any Subsidiary has received
any notice of any potential deficiency in or violation of any applicable Law or
Order relating to the Company or any Subsidiary for which a plan of correction
has not been accepted except as would not reasonably be expected to have a
Company Material Adverse Effect. Except as disclosed in Section 5.06(c) of the
Company Disclosure Schedule, and except as would not reasonably be expected to
have a Company Material Adverse Effect, since January 1, 1996, the Company and
the Subsidiaries have complied in all material respects with all applicable Laws
with respect to the services provided and business operated by the Company and
the Subsidiaries.
(d) The Company has made available to Parent prior to the date of this
Agreement true and complete copies of (i) all material surveys, reports,
notices, inquiries, subpoenas and other correspondence related to any
certification, licensure or other inspections, and summaries of all proficiency
test results relating to the business of the Company and the Subsidiaries for
the period from January 1, 1999 (or, in the case of a Subsidiary, from the date
such entity became a Subsidiary) through the date hereof; (ii) all material
written inquiries, notices, requests for records, subpoenas and correspondence
received by the Company or any Subsidiary related to utilization, reimbursement
or other audits or investigations relating to the business of the Company and
the Subsidiaries for the period from January 1, 1999 (or, in the case of a
Subsidiary, from the date such entity became a Subsidiary) through the date
hereof; and (iii) all current licenses or certifications of the Company or any
Subsidiary under the Clinical Laboratory Improvement Act of 1988 and the
regulations promulgated thereunder ("CLIA").
(e) Except as disclosed in Section 5.06(e) of the Company Disclosure
Schedule, and except as would not reasonably be expected to have a Company
Material Adverse Effect, (i) none of the Company nor any Subsidiary has engaged
in any activities that are prohibited under or would violate Medicare and
Medicaid statutes, 42 U.S.C. Sections 1320a-7a and 7b, or the regulations
promulgated pursuant to such statutes, or comparable state or local Law or rules
of professional conduct; (ii) the Company and the Subsidiaries have
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timely and accurately filed in all material respects all requisite claims and
other reports required to be filed in connection with all applicable state and
federal Medicare and Medicaid programs due on or before the date of this
Agreement; (iii) there is no arrangement providing for any rebates, kickbacks or
other forms of compensation that is unlawful to be paid to any person or entity
in return for the referral of business or for the arrangement for recommendation
of such referrals; and (iv) none of the Company nor any Subsidiary has any
financial arrangement which render any of its billings unlawful pursuant to the
Stark Law or comparable state Law.
(f) To the knowledge of the Company, all agreements of the Company and the
Subsidiaries with third-party payors were entered into by the Company or a
Subsidiary, as the case may be, in the ordinary course of business. The Company
and the Subsidiaries are in compliance with each of their respective third-party
payor agreements, and the Company and the Subsidiaries have properly charged and
billed in accordance with the terms of their respective third-party payor
agreements, including, where applicable, billing and collection of all
deductibles and co-payments, except for any such violations that would not
reasonably be expected to have a Company Material Adverse Effect.
(g) Except as disclosed in Section 5.06(g) of the Company Disclosure
Schedule, (i) no right of the Company or any Subsidiary to receive
reimbursements pursuant to any government program or private program has ever
been terminated or suspended as a result of any investigation or action whether
by any Governmental Authority or other third party, (ii) none of the Company nor
any Subsidiary has since January 1, 1999 received notice from any Governmental
Authority that it has been the subject of any inspection, investigation, survey,
audit, monitoring or other form of review by any Governmental Authority,
professional review organization, accrediting organization or certifying agency
for the purpose of any alleged improper activity on the part of such entity,
other than routine audits or inquiries and other than those which would not
reasonably be expected to have a Company Material Adverse Effect, (iii) none of
the Company nor any Subsidiary has received any written notice of deficiency
from a Governmental Authority in connection with its operations for which a plan
of correction has not been accepted, and (iv) none of the Company nor any
Subsidiary has received any written notice of any claim, requirement or demand
of any licensing, accrediting or certifying agency to rework or redesign their
operations or any part thereof.
SECTION 5.07 SEC Filings; Financial Statements. (a) The Company has filed
all forms, reports, statements, schedules and other documents required to be
filed by it with the Securities and Exchange Commission (the "SEC") since June
6, 2001 (such forms, reports, statements, schedules and other documents being,
collectively, the "Company SEC Reports"). The Company SEC Reports (i) at the
time they were filed or, if amended, as of the date of such amendment, complied
in all material respects with all applicable requirements of the Securities Act
of 1933, as amended (the "Securities Act"), or the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as the case may be, and the rules and
regulations promulgated thereunder, and (ii) did not, at the time they were
filed, or, if amended, as of the date of such amendment, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. The
Company is eligible to use Form S-3 in connection with the registration of
securities under the Securities Act. No Subsidiary is required to file any form,
report or other document with the SEC. Except as set forth in Section 5.07 of
the Company Disclosure Schedule, the Company has not received any non-routine
inquires or interrogatories, whether in writing or otherwise, from the SEC, the
NASDAQ National Market or any other Governmental Authority, or, to the knowledge
of the Company, been the subject of any investigation, audit, review or hearing
by or in front of such persons, in each case with respect to any of the Company
SEC Reports or any of the information contained therein. True and complete
copies of any such written inquires or interrogatories have been furnished to
Parent, and Parent has otherwise been made aware of any such oral inquiries or
interrogatories, investigations, audits, reviews or hearings.
(b) Each of the consolidated financial statements (including, in each case,
any notes thereto) contained in the Company SEC Reports was prepared in
accordance with United States generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods indicated (except as may be
indicated in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC)
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and each fairly presents, in all material respects, the consolidated financial
position, results of operations and cash flows of the Company and its
consolidated Subsidiaries as at the respective dates thereof and for the
respective periods indicated therein (subject, in the case of unaudited
statements, to normal and recurring year-end adjustments).
(c) Except as and to the extent set forth in Section 5.07(c) of the Company
Disclosure Schedule, neither the Company nor any Subsidiary has any liability or
obligation of any nature (whether accrued, absolute, contingent or otherwise),
in each case that is required by GAAP to be set forth on a consolidated balance
sheet of the Company or in the notes thereto, except for liabilities and
obligations incurred in the ordinary course of business consistent with past
practice since December 31, 2001, and liabilities and obligations which would
not prevent or materially delay consummation of the Transaction or otherwise be
reasonably likely to prevent or materially delay the Company from performing its
obligations under this Agreement and would not reasonably be expected to have a
Company Material Adverse Effect.
(d) Section 5.07(d) of the Company Disclosure Schedule lists all
"management letters" and other similar letters relating to the Company's or any
of its Subsidiaries internal controls and accounting practices that have been
received by the Company from its independent accountants since December 31, 1999
(the "Management Letters"). True and complete copies of all Management Letters
have been furnished to Parent.
SECTION 5.08 Information to Be Supplied. Each of the Schedule 14D-9 and
the other documents required to be filed by the Company with the SEC in
connection with the Offer, the Merger and the other transactions contemplated
hereby will comply as to form in all material respects with the requirements of
the Exchange Act and the Securities Act, as the case may be. Each of the
Schedule 14D-9 and the other documents required to be filed by the Company with
the SEC in connection with the Offer, the Merger and the other transactions
contemplated hereby and any of the information supplied or to be supplied by the
Company or its Subsidiaries or their representatives for inclusion or
incorporation by reference in the Merger Registration Statement and the Offer
Documents will not, on the date of its filing or mailing or, in the case of the
Proxy Statement/Prospectus, at the time of the Company Stockholder Meeting or,
in the case of the Offer Documents, at the time the Offer is commenced or at the
Acceptance Date, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading.
(b) Notwithstanding the foregoing provisions of this Section 5.08, no
representation or warranty is made by the Company with respect to statements
made or incorporated by reference in the Offer Documents, Merger Registration
Statement, the Proxy Statement/Prospectus or the Schedule 14D-9 based on
information supplied by or on behalf of Parent or Merger Sub for inclusion or
incorporation by reference therein or based on information which is not made in
or incorporated by reference in such documents but which should have been
disclosed pursuant to Section 6.07.
SECTION 5.09 Absence of Certain Changes or Events. Since December 31,
2001, except (a) as set forth in Section 5.09 of the Company Disclosure
Schedule, or (b) as expressly contemplated by this Agreement: (i) the Company
and the Subsidiaries have conducted their businesses only in the ordinary course
and in a manner consistent with past practice, (ii) there has not been any
Company Material Adverse Effect, and (iii) none of the Company or any Subsidiary
has taken any action that, if taken after the date of this Agreement, would
constitute a breach of any of the covenants set forth in Section 7.01.
SECTION 5.10 Absence of Litigation. Except as set forth in Section 5.10
of the Company Disclosure Schedule, there is no litigation, suit, claim, action,
proceeding or, to the knowledge of the Company, investigation (an "Action")
pending or, to the knowledge of the Company, threatened against the Company or
any Subsidiary, or any property or asset of the Company or any Subsidiary,
before any Governmental Authority that (a) has had or would reasonably be
expected to have a Company Material Adverse Effect or (b) seeks to materially
delay or prevent the consummation of the Transaction. Neither the Company nor
any Subsidiary nor any property or asset of the Company or any Subsidiary is
subject to any continuing order of, consent decree, settlement agreement or
other similar written agreement with, or, to the knowledge of the Company,
continuing investigation by, any Governmental Authority, or any order, writ,
judgment, injunction, decree, determination or award of any Governmental
Authority that would prevent or materially delay
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consummation of the Transaction or otherwise prevent or materially delay the
Company from performing its obligations under this Agreement or would reasonably
be expected to have a Company Material Adverse Effect.
SECTION 5.11 Employee Benefit Plans. (a) Section 5.11(a) of the Company
Disclosure Schedule lists (i) all employee benefit plans (as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) and all bonus, stock option, stock purchase, restricted stock,
incentive, deferred compensation, retiree medical or life insurance,
supplemental retirement, severance or other benefit plans, programs or
arrangements, and all employment, termination, severance or other contracts or
agreements to which the Company or any Subsidiary is a party, with respect to
which the Company or any Subsidiary has any obligation or which are maintained,
contributed to or sponsored by the Company or any Subsidiary for the benefit of
any current or former employee, officer or director of the Company or any
Subsidiary, (ii) each employee benefit plan for which the Company or any
Subsidiary could incur liability under Section 4069 of ERISA in the event such
plan has been or were to be terminated, (iii) any plan in respect of which the
Company or any Subsidiary could incur liability under Section 4212(c) of ERISA,
and (iv) any contracts, arrangements or understandings between the Company or
any Subsidiary and any employee of the Company or any Subsidiary including,
without limitation, any contracts, arrangements or understandings relating in
any way to a sale of the Company or any Subsidiary (collectively, the "Plans").
Each Plan is in writing and the Company has made available to Parent a true and
complete copy of each Plan and has made available to Parent a true and complete
copy of each material document, if any, prepared in connection with each such
Plan, including, without limitation, (i) a copy of each trust or other funding
arrangement, (ii) each summary plan description and summary of material
modifications, (iii) the most recently filed Internal Revenue Service ("IRS")
Form 5500, (iv) the most recently received IRS determination letter for each
such Plan, and (v) the most recently prepared actuarial report and financial
statement in connection with each such Plan. Neither the Company nor any
Subsidiary has any express or implied commitment (i) to create, incur liability
with respect to or cause to exist any other employee benefit plan, program or
arrangement, (ii) to enter into any contract or agreement to provide
compensation or benefits to any individual, or (iii) to modify, change or
terminate any Plan, other than with respect to a modification, change or
termination required by ERISA or the Code or as contemplated by this Agreement.
(b) None of the Plans is a multiemployer plan (within the meaning of
Section 3(37) or 4001(a)(3) of ERISA) (a "Multiemployer Plan") or a single
employer pension plan (within the meaning of Section 4001(a)(15) of ERISA) for
which the Company or any Subsidiary could incur liability under Section 4063 or
4064 of ERISA (a "Multiple Employer Plan"). None of the Plans (i) provides for
the payment of separation, severance, termination or similar-type benefits to
any person, or (ii) obligates the Company or any Subsidiary to pay separation,
severance, termination or similar-type benefits or any other amounts or benefits
to any person solely or partially as a result of any transaction contemplated by
this Agreement. Each of the Plans is subject only to the Laws of the United
States or a political subdivision thereof.
(c) Each Plan has been operated in all material respects in accordance with
its terms and the requirements of all applicable Laws including, without
limitation, ERISA and the Code. The Company and the Subsidiaries have performed
all obligations required to be performed by them under, are not in any respect
in default under or in violation of, and have no knowledge of any default or
violation by any party to, any Plan. No Action is pending or, to the knowledge
of the Company, threatened in writing with respect to any Plan (other than
claims for benefits in the ordinary course) and no fact or event exists that
could reasonably be expected to give rise to any such Action.
(d) Each Plan that is intended to be qualified under Section 401(a) of the
Code or Section 401(k) of the Code has timely received a favorable determination
letter from the IRS covering all of the provisions applicable to the Plan for
which determination letters are currently available that the Plan is so
qualified and each trust established in connection with any Plan which is
intended to be exempt from federal income taxation under Section 501(a) of the
Code has received a determination letter from the IRS that it is so exempt, and,
to the knowledge of the Company, no fact or event has occurred since the date of
such
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determination letter or letters from the IRS to adversely affect the qualified
status of any such Plan or the exempt status of any such trust.
(e) To the knowledge of the Company, there has not been any prohibited
transaction (within the meaning of Section 406 of ERISA or Section 4975 of the
Code) with respect to any Plan. Neither the Company nor any Subsidiary has any
liability under, arising out of or by operation of Title IV of ERISA (other than
liability for premiums to the Pension Benefit Guaranty Corporation arising in
the ordinary course), including, without limitation, any liability in connection
with (i) the termination or reorganization of any employee benefit plan subject
to Title IV of ERISA, or (ii) the withdrawal from any Multiemployer Plan or
Multiple Employer Plan, and no fact or event exists which could reasonably be
expected to give rise to any such liability.
(f) All contributions, premiums or payments required to be made with
respect to any Plan have been made on or before their due dates. To the
knowledge of the Company, all such contributions have been fully deducted for
income tax purposes and no such deduction has been challenged or disallowed by
any Governmental Authority and no fact or event exists which could reasonably be
expected to give rise to any such challenge or disallowance.
(g) No Plan provides benefits, including death or medical benefits (whether
or not insured), with respect to current or former employees of the Company or
any Subsidiary beyond their retirement or other termination of service, other
than (i) coverage mandated by applicable Law, (ii) death benefits or retirement
benefits under any "employee pension benefit plan" (as such term is defined in
Section 3(2) of ERISA), (iii) deferred compensation benefits accrued as
liabilities on the books of the Company or (iv) benefits the full cost of which
is borne by the current or former employee (or his beneficiary).
(h) None of the Company nor any Subsidiary has any non-U.S. employees.
(i) Except as set forth on Section 5.11(i) of the Company Disclosure
Schedule, none of the employees of the Company or any Subsidiaries is currently
on short or long-term leave or temporary or permanent disability leave.
(j) As of the date hereof, the Company has no knowledge or no reasonable
basis to believe that any of the key employees of the Company or any Subsidiary
will terminate their contractual arrangements with the Company or any Subsidiary
as a result of the consummation of the transactions contemplated hereby.
SECTION 5.12 Labor and Employment Matters. There are no controversies
pending or, to the knowledge of the Company, threatened between the Company or
any Subsidiary and any of their respective employees, which controversies would
prevent or materially delay consummation of the Merger or otherwise prevent or
materially delay the Company from performing its obligations under this
Agreement or would reasonably be expected to have a Company Material Adverse
Effect. Neither the Company nor any Subsidiary is a party to any collective
bargaining agreement or other labor union contract applicable to persons
employed by the Company or any Subsidiary, nor, to the knowledge of the Company,
are there any activities or proceedings of any labor union to organize any such
employees. There are no unfair labor practice complaints pending against the
Company or any Subsidiary before the National Labor Relations Board or any
current union representation questions involving employees of the Company or any
Subsidiary. There is no strike, slowdown, work stoppage or lockout, or, to the
knowledge of the Company, threat thereof, by or with respect to any employees of
the Company or any Subsidiary.
SECTION 5.13 Property and Leases. (a) The Company and the Subsidiaries
have good, valid and marketable title to or, in the case of leased properties
and assets, valid leasehold interest in, all their properties and assets to
conduct their respective businesses as currently conducted or as currently
contemplated by the Company to be conducted, with only Permitted Liens or such
exceptions as would not reasonably be expected to have a Company Material
Adverse Effect.
(b) Each parcel of real property owned or leased by the Company or any
Subsidiary (i) is owned or leased free and clear of all mortgages, pledges,
liens, security interests, conditional and installment sale agreements,
encumbrances, charges or other claims of third parties of any kind, including,
without limitation,
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any easement, right of way or other encumbrance to title, or any option, right
of first refusal, or right of first offer (collectively, "Liens"), other than
(A) Liens for current Taxes and assessments not yet due or for Taxes being
contested in good faith and for which a reserve has been established by the
Company on its books, and (B) mechanics', materialmen's, workmen's, repairmen's,
warehousemen's and carriers' Liens arising in the ordinary course of business of
the Company or such Subsidiary consistent with past practice (collectively,
"Permitted Liens"), and (ii) to the knowledge of the Company, is neither subject
to any governmental decree or order to be sold nor is being condemned,
expropriated or otherwise taken by any public authority with or without payment
of compensation therefor, nor has any such condemnation, expropriation or taking
been proposed.
(c) All Leases are in full force and effect and have not been modified or
amended, and there exists no default under any such lease by the Company or any
Subsidiary, nor any event which, with notice or lapse of time or both, would
constitute a default thereunder by the Company or any Subsidiary.
(d) Section 5.13(d) of the Company Disclosure Schedule discloses a full and
complete list of all leases of real property by or for the benefit of the
Company and the Subsidiaries and all amendments and modifications thereto (the
"Leases") and the lessors thereof, including whether, to the knowledge of the
Company, as of the date of this Agreement, any such lessor is a physician or a
family member of a physician. The Company has made available to Parent prior to
the date of this Agreement complete and accurate copies of each of the Leases,
and none of the Leases has been modified in any material respect.
SECTION 5.14 Intellectual Property. (a) Except as disclosed in Section
5.14(a) of the Company Disclosure Schedule and except as would not reasonably be
expected to have a Company Material Adverse Effect, (i) the conduct of the
business of the Company and the Subsidiaries as currently conducted does not
infringe upon or misappropriate the Intellectual Property rights of any third
party, and no claim has been asserted to the Company that the conduct of the
business of the Company and the Subsidiaries as currently conducted infringes
upon or may infringe upon or misappropriates the Intellectual Property rights of
any third party; (ii) with respect to each item of Intellectual Property owned
by the Company or a Subsidiary and material to the business, financial condition
or results of operations of the Company and the Subsidiaries, taken as a whole
("Company Owned Intellectual Property"), the Company or a Subsidiary is the
owner of the entire right, title and interest in and to such Company Owned
Intellectual Property and is entitled to use such Company Owned Intellectual
Property in the continued operation of its respective business; (iii) with
respect to each item of Intellectual Property licensed to the Company or a
Subsidiary that is material to the business of the Company and the Subsidiaries
as currently conducted ("Company Licensed Intellectual Property"), the Company
or a Subsidiary has (assuming the licensor has the right to license such
property) the right to use such Company Licensed Intellectual Property in the
continued operation of its respective business in accordance with the terms of
the license agreement governing such Company Licensed Intellectual Property;
(iv) to the knowledge of the Company, the Company Owned Intellectual Property is
valid and enforceable, and has not been adjudged invalid or unenforceable in
whole or in part; (v) to the knowledge of the Company, no person is engaging in
any activity that infringes upon the Company Owned Intellectual Property; (vi)
to the knowledge of the Company, each license of the Company Licensed
Intellectual Property is valid and enforceable, is binding on all parties to
such license, and is in full force and effect; and (vii) to the knowledge of the
Company, no party to any license of the Company Licensed Intellectual Property
is in breach thereof or default thereunder.
(b) Section 5.14(b) of the Company Disclosure Schedule sets forth a true
and complete list of all (i) patents and patent applications, registered
trademarks and trademark applications, registered copyrights and copyright
applications and software included in the Company Owned Intellectual Property
and (ii) licenses that are material to the Company's business, except "shrink
wrap", "click wrap" or similar licenses for commercially available software.
(c) The Company has taken reasonable steps in accordance with normal
industry practice to maintain the confidentiality of its trade secrets and other
confidential Intellectual Property. Except as disclosed in Section 5.14(c) of
the Company Disclosure Schedule, and except as would not reasonably be expected
to have a Company Material Adverse Effect, (i) there has been no
misappropriation of any trade secrets or other
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Intellectual Property of the Company or any Subsidiary by any person, (ii) no
employee, independent contractor or agent of the Company or any Subsidiary has
misappropriated any trade secrets of any other person in the course of such
performance as an employee, independent contractor or agent, and (iii) no
employee, independent contractor or agent of the Company or any Subsidiary is in
default or breach of any term of any employment agreement, non-disclosure
agreement, assignment of invention agreement or similar agreement or contract
relating in any way to the protection, ownership, development, use or transfer
of Intellectual Property.
SECTION 5.15 Taxes. The Company and each of its Subsidiaries have timely
filed (or have had filed on their behalf) all Tax returns and reports required
to be filed by each of them and each has, within the time and in the manner
prescribed by Law, paid and discharged all Taxes that have become due and
payable, other than such payments as are being contested in good faith by
appropriate proceedings and for which adequate reserves have been taken. All
such Tax returns and reports are true, accurate and complete in all material
respects. Neither the IRS nor any other United States or non-United States
taxing authority or agency has asserted in writing or, to the knowledge of the
Company, has threatened to assert against the Company or any Subsidiary any
deficiency or claim for any Taxes or interest thereon or penalties in connection
therewith. Neither the Company nor any Subsidiary has granted any waiver of any
statute of limitations with respect to, or any extension of a period for the
assessment of, any Tax. Neither the Company nor any Subsidiary has made an
election under Section 341(f) of the Code. There are no Tax Liens upon any
property or assets of the Company or any of the Subsidiaries except Liens for
current Taxes not yet due. Neither the Company nor any of the Subsidiaries is a
party to any agreement, understanding, or arrangement (with any person other
than the Company and/or any of the Subsidiaries) relating to allocating or
sharing of any amount of Taxes that would reasonably be expected to have a
Company Material Adverse Effect. Neither the Company nor any of the Subsidiaries
has any liability for any amount of Taxes of any person other than the Company
or any of its Subsidiaries under Treasury Regulation Section 1.1502-6 (or any
similar provision of state, local or foreign Law), as a transferee or successor,
or by contract that would reasonably be expected to have a Company Material
Adverse Effect. Neither the Company nor any of the Subsidiaries has been
required to include in income any adjustment pursuant to Section 481 of the Code
by reason of a voluntary change in accounting method initiated by the Company or
any of the Subsidiaries, and the IRS has not initiated or proposed any such
adjustment or change in accounting method, in either case which adjustment or
change would reasonably be expected to have a Company Material Adverse Effect.
Neither the Company nor any Subsidiary has any income reportable for a period
ending after the Acceptance Date that is attributable to any activity or a
transaction occurring in, or a change in accounting method made for, a period
ending on or prior to the Acceptance Date that resulted in a deferred reporting
of income from such transaction or from such change of accounting method, in
either case which deferral would reasonably be expected to have a Company
Material Adverse Effect or is inconsistent with the past practice of the
Company. Neither the Company nor any Subsidiary has been a "distributing
corporation" or a "controlled corporation" in a distribution intended to qualify
under Section 355(e) of the Code within the past five years. To the knowledge of
the Company, neither the Company nor any of its affiliates has taken or agreed
to take any action that would prevent the Offer and the Merger from qualifying
as a reorganization within the meaning of Section 368(a) of the Code. The
Company is not aware of any agreement, plan or other circumstance, except for a
possible future change in the Stock Value, that would prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the Code.
SECTION 5.16 Environmental Matters. Except as described in Section 5.16
of the Company Disclosure Schedule or as would not prevent or materially delay
consummation of the Merger or otherwise prevent or materially delay the Company
from performing its obligations under this Agreement and would not reasonably be
expected to have a Company Material Adverse Effect, (a) neither the Company nor
any Subsidiary is in violation of any Environmental Law or has received any
written notice, demand, letter, claim, request for information or other written
communication alleging that the Company or such Subsidiary may be in violation
of any Environmental Law; (b) none of the properties currently or formerly
owned, leased or operated by the Company or any Subsidiary (including, without
limitation, soils and surface and ground waters) are contaminated with any
Hazardous Substance in a quantity that is reasonably likely to lead to cleanup
or remediation of Hazardous Substances; (c) neither the Company nor any
Subsidiary has received
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any written notice, demand, claim or request for information or other written
communications alleging that the Company or any Subsidiary is actually,
potentially or allegedly liable under any Environmental Law (including, without
limitation, pending or threatened Liens) for cleanup or remediation of Hazardous
Substances; (d) the Company or a Subsidiary has all permits, licenses and other
authorizations required under any Environmental Law ("Environmental Permits")
and the Company and such Subsidiaries are in compliance with the Environmental
Permits; (e) none of the properties owned or leased by the Company or any
Subsidiary is listed or, to the knowledge of the Company and the Subsidiaries,
proposed for listing on the "National Priorities List" or the Comprehensive
Environmental Response, Compensation and Liability Information System under the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, or any similar state or foreign list of sites requiring investigation
or cleanup; (f) during the past three years, neither the Company nor any
Subsidiary has entered into or agreed to any consent decree or order and neither
the Company nor any Subsidiary is subject to any judgment, decree or judicial
order relating to compliance with Environmental Laws or the investigation,
sampling, monitoring, treatment, remediation, removal or cleanup of Hazardous
Substances and, to the knowledge of the Company and the Subsidiaries, no
investigation, litigation or other proceeding is pending or threatened with
respect thereto; (g) neither the Company nor any Subsidiary is an indemnitor in
connection with any claim asserted in writing to the Company or a Subsidiary by
any third-party indemnitee for any liability under any Environmental Law or
relating to any Hazardous Substances; and (h) neither the execution of this
Agreement nor the consummation of the Transaction will require any investigation
or remediation of any Hazardous Substances.
SECTION 5.17 Material Contracts. Subsections (i) through (xii) of Section
5.17(a) of the Company Disclosure Schedule contain a complete list of the
following contracts and agreements, whether written or oral, to which the
Company or any Subsidiary is a party (such contracts and agreements, together
with the Plans, the Leases and the Company Permits, being "Material Contracts"):
(i) each contract, agreement or account involving aggregate annual
consideration payable to the Company for services of more than $1,000,000,
or aggregate annual payments by the Company of more than $1,000,000;
(ii) all contracts and agreements under which the Company or any
Subsidiary provides services other than routine or reference testing
services, such as laboratory management, laboratory directorship,
consulting or information technology;
(iii) all broker, distributor, dealer, manufacturer's representative,
franchise, agency, sales promotion, market research, marketing consulting
and advertising contracts and agreements to which the Company or any
Subsidiary is a party;
(iv) all contracts and agreements relating to indebtedness with a
principal amount in excess of $500,000 or any pledge of any asset of the
Company or any Subsidiary (other than capitalized leases involving less
than $500,000 in principal amount and other than the Company's senior
credit facility);
(v) all management contracts (excluding contracts for employment) and
contracts with other consultants, including any contracts involving the
payment of royalties or other amounts calculated based upon the revenues or
income of the Company or any Subsidiary or income or revenues related to
any product of the Company or any Subsidiary to which the Company or any
Subsidiary is a party;
(vi) all contracts and agreements with any Governmental Authority
other than agreements related to the provision of clinical laboratory
services to a Governmental Authority, provider agreements and agreements
related to licensing of any facility entered into in the ordinary course of
business;
(vii) all contracts and agreements that (A) limit or purport to limit
the ability of the Company or any Subsidiary or, to the Company's
knowledge, any key executives of the Company or any Subsidiary, to compete
in any line of business or with any person or in any geographic area or
during any period of time, (B) require the Company or any Subsidiary to use
any supplier or third party for all or substantially all of the Company's
or the Subsidiaries' requirements or needs, (C) limit or purport to limit
in any material respect the ability of the Company or any Subsidiary to
solicit any customers or clients of the other parties thereto, (D) require
the Company or any Subsidiary to provide to the other parties thereto "most
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favored nations" pricing, or (E) require the Company or any Subsidiary to
market or co-market any clinical laboratory services or anatomic pathology
services or other products or services of a third party (each of (A)
through (E), a "Restrictive Agreement");
(viii) all contracts, agreements and arrangements between the Company
or any of its Subsidiaries, on the one hand, and LP, LLC or any of their
respective officers, directors or principals, on the other hand (each such
contract, a "Related Party Agreement");
(ix) all joint venture contracts, partnership arrangements or other
agreements outside the ordinary course of business involving a sharing of
profits, losses, costs or liabilities by the Company or any Subsidiary with
any third party;
(x) all licenses under CLIA or issued by any other Governmental
Authority including, without limitation, the identity of the respective
licensees thereunder;
(xi) all contracts, agreements and arrangements entered into since
November 1993 between the Company or any of its Subsidiaries and any other
party providing for the acquisition by the Company or such Subsidiary
(including, without limitation, by merger, consolidation, acquisition of
stock or assets or any other business combination) of any corporation,
partnership, other business organization or division thereof or any
material amount of assets, in each case, for an aggregate purchase price in
excess of $100,000 (provided that Section 5.17(a)(xi) of the Company
Disclosure Schedule shall also identify the amounts, if any, that are
payable or potentially payable to any other party under such contracts,
agreements and arrangements pursuant to any post-closing adjustment to the
purchase price (including without limitation under any "earn-out" or other
similar provision)); and
(xii) all other contracts and agreements, whether or not made in the
ordinary course of business, which are material to the Company or any
Subsidiary, the conduct of their respective businesses, or the absence of
which would prevent or materially delay consummation of the Merger or
otherwise prevent or materially delay the Company from performing its
obligations under this Agreement and would reasonably be expected to have a
Company Material Adverse Effect.
(b) Except as would not prevent or materially delay consummation of the
Offer or the Merger or otherwise prevent or materially delay the Company from
performing its obligations under this Agreement and would not reasonably be
expected to have a Company Material Adverse Effect, (i) each Material Contract
is valid and binding on the Company or a Subsidiary, as the case may be, and, to
the knowledge of the Company, the other parties thereto, and is in full force
and effect against the Company or a Subsidiary except to the extent it has
expired in accordance with its terms and represents the entire agreement between
or among the parties thereto with respect to the subject matter thereof and (ii)
upon consummation of the transactions contemplated by this Agreement, shall
continue in full force and effect without penalty or other adverse consequence.
Except as disclosed in Section 5.17(b) of the Disclosure Schedule, none of the
Company or any Subsidiary or, to the knowledge of the Company, as of the date of
this Agreement, any other party thereto, is in breach of, or default under, any
Material Contract.
(c) The Company has made available to Parent a true, complete and correct
copy of all written Material Contracts, together with all material amendments,
waivers or other changes thereto, and has been given a written description of
all oral contracts included in the Material Contracts.
SECTION 5.18 Insurance. True and complete copies of all material fire and
casualty, general liability, business interruption and workers' compensation
insurance policies maintained by the Company or any Subsidiary have been made
available to Parent, and such policies are in full force and effect as of the
date of this Agreement. The Company or the relevant Subsidiary has paid all
premiums under such policies and none of the Company or any Subsidiary is in
default with respect to its obligations thereunder.
SECTION 5.19 Board Approval; Vote Required. (a) The Company Board, by
resolutions duly adopted by vote of those voting at a meeting duly called and
held, has duly (i) determined that this Agreement and the transactions
contemplated hereby and thereby, including the Offer and the Merger, are fair to
and in the best interests of the Company and its stockholders, (ii) approved and
declared advisable this Agreement and the
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transactions contemplated hereby and thereby, including the Offer and the
Merger, and in accordance with the DGCL, and (iii) resolved to recommend
acceptance of the Offer and the adoption of this Agreement by the Company's
stockholders at the Company Stockholder Meeting.
(b) The only vote of the holders of any class or series of capital stock
of the Company that may be necessary to adopt this Agreement and the
Transaction, including the Merger, is the affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock in favor of the
adoption of this Agreement.
SECTION 5.20 Related Party Transactions. Except as set forth in Section
5.20 of the Company Disclosure Schedule and except as expressly contemplated by
this Agreement, no executive officer, director or affiliate of the Company or
any Subsidiary nor any immediate family member or affiliate of such executive
officer or director is a party to any agreement, contract, commitment,
arrangement or transaction with the Company or any Subsidiary or is entitled to
any payment or transfer of any assets from the Company or any Subsidiary or has
any material interest in any material property used by the Company or any
Subsidiary or has an interest in any customer or supplier of the Company or any
Subsidiary or provider of any services to the Company or any Subsidiary, except
in each case (i) employment, management or consulting arrangements listed in
Section 5.11 or Section 5.17 of the Company Disclosure Schedule and benefit
programs and (ii) the ownership of less than 3% of the outstanding stock of any
publicly traded company.
SECTION 5.21 Guarantee by Subsidiaries. Except as set forth in Section
5.21 of the Company Disclosure Schedule, and except as provided pursuant to the
terms of the Company's senior credit facility and issued and outstanding senior
subordinated notes, none of the Subsidiaries is prevented or prohibited by its
certificate of incorporation, by-laws or other equivalent organizational
documents, or by any contract, agreement or other instrument or obligation, from
guaranteeing all or any part of any indebtedness of Parent or any subsidiary of
Parent after the Effective Time.
SECTION 5.22 Customers. Section 5.22 of the Company Disclosure Schedule
lists the 20 largest customers of the Company and the Subsidiaries by revenue
during the 12-month period ended December 31, 2001 (the "Customers") and the
amount of gross revenue (net of setoffs, chargebacks and credits) received by
the Company and the Subsidiaries as a result of orders by each of the Customers
during such period. Since January 1, 2001 through the date hereof, none of the
Company, any Subsidiary or any officer, director, affiliate or agent of the
Company or a Subsidiary has received any written notice from any Customer to the
effect that any such Customer intends to cease or materially reduce the amount
of services requested of, or size of orders placed with, the Company or any
Subsidiary or otherwise reduce the amount of business conducted with the Company
or any Subsidiary.
SECTION 5.23 Receivables. All Receivables that arose since December 31,
2001 arose from, and the Receivables existing on the Acceptance Date will have
arisen from, the sale of inventory or services to persons not affiliated with
the Company or any Subsidiary and in the ordinary course of business consistent
with past practice.
SECTION 5.24 Brokers. Except for Park Avenue Equity Management, LLC
("Park Avenue"), no broker, finder or investment banker (other than the
Advisors) is entitled to any brokerage, finder's or other fee or commission in
connection with the Transaction based upon arrangements made by or on behalf of
the Company. The Company has heretofore furnished to Parent a complete and
correct copy of all agreements between the Company and each of Park Avenue and
the Advisors pursuant to which such firms would be entitled to any payment
related to the Transaction.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
As an inducement to the Company to enter into this Agreement, Parent and
Merger Sub, except as disclosed in Parent's disclosure schedule delivered
concurrently with the delivery of this Agreement (the
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"Parent Disclosure Schedule"), hereby, jointly and severally, represent and
warrant to the Company as follows:
SECTION 6.01 Corporate Organization. Each of Parent, Merger Sub and each
significant subsidiary (as defined in Rule 1-02 of Regulation S-X promulgated by
the SEC) of Parent is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the requisite corporate
power and authority and all necessary governmental approvals to own, lease and
operate its properties and to carry on its business as it is now being
conducted, except where the failure to be so organized, existing or in good
standing or to have such power, authority and governmental approvals would not
prevent or materially delay consummation of the Merger, or otherwise prevent or
materially delay Parent or Merger Sub from performing its obligations under this
Agreement and would not reasonably be expected to have a Parent Material Adverse
Effect. Each of Parent, Merger Sub and each significant subsidiary of Parent is
duly qualified or licensed as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except for such failures to be so qualified or licensed
and in good standing that would not prevent or materially delay consummation of
the Merger, or otherwise prevent or materially delay Parent or Merger Sub from
performing its obligations under this Agreement and would not reasonably be
expected to have a Parent Material Adverse Effect.
SECTION 6.02 Certificate of Incorporation and By-Laws. Parent has
heretofore furnished to the Company a complete and correct copy of the
certificate of incorporation and the by-laws of Parent and the certificate of
incorporation and by-laws of Merger Sub, each as amended to date. Such
certificates of incorporation and by-laws are in full force and effect. Neither
Parent nor Merger Sub is in violation of any of the provisions of its
certificate of incorporation or by-laws.
SECTION 6.03 Capitalization. The authorized capital stock of Parent
consists of (i) 300,000,000 shares of Parent Common Stock and (ii) 10,000,000
shares of preferred stock, par value $0.01 per share ("Parent Preferred Stock").
As of March 20, 2002, 96,685,069 shares of Parent Common Stock and no shares of
Parent Preferred Stock were issued and outstanding, all of which are duly
authorized, validly issued, fully paid and nonassessable, and 8,123,736 shares
of Parent Common Stock were reserved for future issuance pursuant to outstanding
stock options that have been granted prior to the date hereof. Except as set
forth in this Section 6.03 and except for stock options granted pursuant to the
stock option plans of Parent (the "Parent Stock Option Plans"), there are no
options, warrants or other rights, agreements, arrangements or commitments of
any character relating to the issued or unissued capital stock of Parent or
Merger Sub or obligating Parent or Merger Sub to issue or sell any shares of
capital stock of, or other equity interests in, Parent or Merger Sub. All shares
of Parent Common Stock subject to issuance as aforesaid, upon issuance on the
terms and conditions specified in the instruments pursuant to which they are
issuable, will be duly authorized, validly issued, fully paid and nonassessable.
There are no outstanding contractual obligations of Parent or Merger Sub to
repurchase, redeem or otherwise acquire any shares of Parent Common Stock or any
capital stock of Merger Sub.
(b) The authorized capital stock of Merger Sub consists of 1000 shares of
Merger Sub Common Stock, all of which are duly authorized, validly issued, fully
paid and nonassessable and free of any preemptive rights in respect thereof and
all of which are owned by Parent. Each outstanding share of capital stock of
Merger Sub is duly authorized, validly issued, fully paid and nonassessable and
each such share is owned by Parent or Merger Sub free and clear of all security
interests, liens, claims, pledges, options, rights of first refusal, agreements,
limitations on Parent's or Merger Sub's voting rights, charges and other
encumbrances of any nature whatsoever, except where failure to own such shares
free and clear would not reasonably be expected to have a Parent Material
Adverse Effect.
(c) The shares of Parent Common Stock to be issued pursuant to the Offer
and the Merger in accordance with Section 2.01 and Section 4.01 (i) will be duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights created by statute, Parent's certificate of incorporation or
by-laws or any agreement to which Parent is a party or is bound and (ii) will,
when issued, be registered under
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the Securities Act and the Exchange Act and registered or exempt from
registration under applicable Blue Sky Laws.
SECTION 6.04 Authority Relative to this Agreement. Each of Parent and
Merger Sub has all necessary corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the Transaction. The execution and delivery of this Agreement by Parent and
Merger Sub and the consummation by Parent and Merger Sub of the Transaction have
been duly and validly authorized by all necessary corporate action, and no other
corporate proceedings on the part of Parent or Merger Sub are necessary to
authorize this Agreement or to consummate the Transaction (other than, with
respect to the Merger, the filing and recordation of appropriate merger
documents as required by the DGCL). This Agreement has been duly and validly
executed and delivered by each of Parent and Merger Sub and, assuming due
authorization, execution and delivery by each of the other parties thereto,
constitutes a legal, valid and binding obligation of each of Parent and Merger
Sub, enforceable against each of Parent and Merger Sub in accordance with its
terms, except to the extent that its enforceability may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar Laws affecting
the enforcement of creditors' rights generally and by general equitable
principles.
SECTION 6.05 No Conflict; Required Filings and Consents. The execution
and delivery of this Agreement by each of Parent and Merger Sub do not, and the
performance of this Agreement by each of Parent and Merger Sub will not, (i)
conflict with or violate the certificate of incorporation or by-laws of either
Parent or Merger Sub in effect on the date of this Agreement, (ii) assuming that
all consents, approvals, authorizations and other actions described in Section
6.05(b) have been obtained and all filings and obligations described in Section
6.05(b) have been made, conflict with or violate any Law applicable to Parent or
Merger Sub or by which any property or asset of either of them is bound or
affected, or (iii) result in any breach of, or constitute a default (or an event
which, with notice or lapse of time or both, would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a Lien or other encumbrance on any
property or asset of Parent, Merger Sub or any significant subsidiary of Parent
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Parent or
Merger Sub is a party or by which Parent or Merger Sub or any property or asset
of either of them is bound or affected, except, with respect to clauses (ii) and
(iii), for any such conflicts, violations, breaches, defaults or other
occurrences which would not prevent or materially delay consummation of the
Merger or the Offer or otherwise prevent or materially delay Parent and Merger
Sub from performing their obligations under this Agreement and would not
reasonably be expected to have a Parent Material Adverse Effect.
(b) The execution and delivery of this Agreement by each of Parent and
Merger Sub do not, and the performance of this Agreement by each of Parent and
Merger Sub will not, require any consent, approval, authorization or permit of,
or filing with or notification to, any Governmental Authority, except (i) for
applicable requirements, if any, of the Securities Act, the Exchange Act, Blue
Sky Laws and state takeover laws, the HSR Act, and filing and recordation of
appropriate merger documents as required by the DGCL and (ii) where the failure
to obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not prevent or materially delay consummation of
the Merger or the Offer or otherwise prevent Parent or Merger Sub from
performing its material obligations under this Agreement and would not
reasonably be expected to have a Parent Material Adverse Effect.
SECTION 6.06 SEC Filings; Financial Statements. (a) Parent has filed all
forms, reports, statements, schedules and other documents required to be filed
by it with the SEC since December 31, 1999 (such forms, reports, statements,
schedules and other documents being, collectively, the "Parent SEC Reports").
The Parent SEC Reports (i) at the time they were filed or, if amended, as of the
date of such amendment, complied in all material respects with all applicable
requirements of the Securities Act or the Exchange Act, as the case may be, and
the rules and regulations promulgated thereunder, and (ii) did not, at the time
they were filed, or, if amended, as of the date of such amendment, contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements made therein, in
the light of the circumstances under which they were made, not misleading. No
subsidiary of Parent is required to file any form, report or other document with
the SEC. Except as set forth in Section 6.06
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of the Parent Disclosure Schedule, Parent has not received any non-routine
inquires or interrogatories, whether in writing or otherwise, from the SEC, the
NYSE or any other Governmental Authority or, to the knowledge of Parent, been
the subject of any investigation, audit, review or hearing by or in front of
such persons, in each case with respect to any of the Parent SEC Reports or any
of the information contained therein. True and complete copies of any such
written inquires or interrogatories have been furnished to the Company, and the
Company has otherwise been made aware of any such oral inquiries or
interrogatories, investigations, audits, reviews or hearings.
(b) Each of the consolidated financial statements (including, in each case,
any notes thereto) contained in the Parent SEC Reports was prepared in
accordance with GAAP applied on a consistent basis throughout the periods
indicated (except as may be indicated in the notes thereto or, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC) and each fairly
presents, in all material respects, the consolidated financial position, results
of operations and cash flows of Parent and its consolidated subsidiaries as at
the respective dates thereof and for the respective periods indicated therein,
except as otherwise noted therein (subject, in the case of unaudited statements,
to normal and recurring year-end adjustments).
(c) Except as and to the extent set forth in Section 6.06(c) of the Parent
Disclosure Schedule, none of Parent nor any of its subsidiaries has any
liability or obligation of any nature (whether accrued, absolute, contingent or
otherwise), in each case that is required by GAAP to be set forth on a
consolidated balance sheet of Parent or in the notes thereto, except for
liabilities and obligations incurred in the ordinary course of business
consistent with past practice since December 31, 2001, and liabilities and
obligations which would not prevent or materially delay consummation of the
Transaction or otherwise be reasonably likely to prevent or materially delay
either Parent or Purchaser from performing its obligations under this Agreement
and would not reasonably be expected to have a Parent Material Adverse Effect.
(d) Section 6.06(d) of the Parent Disclosure Schedule lists all "management
letters" and other similar letters relating to Parent's or any of its
subsidiaries' internal controls and accounting practices that have been received
by Parent from its independent accountants since December 31, 1999. True and
complete copies of all such management letters have been furnished to the
Company.
SECTION 6.07 Information to Be Supplied. Each of the registration
statement on Form S-4 to be filed with the SEC by Parent in connection with the
issuance of Parent Common Stock in the Merger, as amended or supplemented from
time to time (as so amended and supplemented, the "Merger Registration
Statement"), the Offer Documents and the other documents required to be filed by
Parent with the SEC in connection with the Offer, the Merger and the Transaction
will comply as to form, in all material respects, with the requirements of the
Exchange Act and the Securities Act, as the case may be. Each of the Merger
Registration Statement, the Offer Documents and the other documents required to
be filed by the Company with the SEC in connection with the Offer, the Merger
and the Transaction and any information supplied or to be supplied by Parent or
its subsidiaries or representatives for inclusion or incorporation by reference
in the Schedule 14D-9 or the Proxy Statement/Prospectus will not, on the date of
its filing or mailing or at the time they become effective under the Securities
Act or, in the case of the Offer Registration Statement, on the dates the Offer
Registration Statement is mailed to stockholders of the Company and on the
Acceptance Date and, in the case of the Merger Registration Statement, at the
time of the Company Stockholder Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
(b) Notwithstanding the foregoing provisions of this Section 6.07, no
representation or warranty is made by Parent with respect to statements made or
incorporated by reference in the Merger Registration Statement or the Offer
Documents based on information supplied by or on behalf of the Company and its
Subsidiaries for inclusion or incorporation by reference therein or based on
information which is not made in or incorporated by reference in such documents
but which should have been disclosed pursuant to Section 5.08.
SECTION 6.08 No Vote Required. No vote of the stockholders of Parent is
required by Law, Parent's certificate of incorporation or by-laws or otherwise
in order for Parent and Merger Sub to consummate the Transactions.
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SECTION 6.09 Operations of Merger Sub. Merger Sub is a direct, wholly
owned subsidiary of Parent, was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement, has engaged in no other business
activities and has conducted its operations only as contemplated by this
Agreement.
SECTION 6.10 Tax Matters. To the knowledge of Parent, neither Parent nor
any of its affiliates has taken or agreed to take any action that would prevent
the Offer and the Merger from qualifying as a reorganization within the meaning
of Section 368(a) of the Code. Parent is not aware of any agreement, plan or
other circumstance, except for a possible future change in the Stock Value, that
would prevent the Merger from qualifying as a reorganization within the meaning
of Section 368(a) of the Code.
SECTION 6.11 Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
Transaction that will not be paid by or on behalf of Parent or Merger Sub.
SECTION 6.12 Employee Benefit Plans. (a) None of the Parent Plans is a
Multiemployer Plan or a Multiple Employer Plan.
(b) Each Parent Plan has been operated in all material respects in
accordance with its terms and the requirements of all applicable Laws including,
without limitation, ERISA and the Code. Parent and the Subsidiaries have
performed all material obligations required to be performed by them under, are
not in any default under or in violation of, and have no knowledge of any
default or violation by any party to, any Parent Plan. Except as would not have
a Parent Material Adverse Effect, no Action is pending or threatened in writing
with respect to any Parent Plan (other than claims for benefits in the ordinary
course) and, to the knowledge of Parent, no fact or event exists that could
reasonably be expected to give rise to any such Action.
(c) Each Parent Plan that is intended to be qualified under Section 401(a)
of the Code or Section 401(k) of the Code has timely received a favorable
determination letter from the IRS covering all of the provisions applicable to
the Parent Plan for which determination letters are currently available that the
Parent Plan is so qualified and each trust established in connection with any
Parent Plan which is intended to be exempt from federal income taxation under
Section 501(a) of the Code has received a determination letter from the IRS that
it is so exempt, and, to the knowledge of Parent, no fact or event has occurred
since the date of such determination letter or letters from the IRS to adversely
affect the qualified status of any such Parent Plan or the exempt status of any
such trust.
(d) To the knowledge of Parent, there has not been any prohibited
transaction (within the meaning of Section 406 of ERISA or Section 4975 of the
Code) with respect to any Parent Plan. Neither Parent nor any Subsidiary has any
liability under, arising out of or by operation of Title IV of ERISA (other than
liability for premiums to the Pension Benefit Guaranty Corporation arising in
the ordinary course), including, without limitation, any liability in connection
with (i) the termination or reorganization of any employee benefit plan subject
to Title IV of ERISA, or (ii) the withdrawal from any Multiemployer Plan or
Multiple Employer Plan, and no fact or event exists which could reasonably be
expected to give rise to any such liability.
SECTION 6.13 Absence of Parent Material Adverse Effect. Since December
31, 2001, (a) there has not been a Parent Material Adverse Effect, and (b)
Parent and its subsidiaries have not taken any action that, if taken after the
date of this Agreement, would constitute a breach of the covenants set forth in
Section 7.02.
SECTION 6.14 Litigation. Except as set forth in Section 6.14 of the
Parent Disclosure Schedule, there is no Action pending or, to the knowledge of
Parent, threatened against Parent or any of its subsidiaries, or any property or
asset of Parent or any such subsidiary, before any Governmental Authority that
(a) has had or would reasonably be expected to have a Parent Material Adverse
Effect or (b) seeks to materially delay or prevent the consummation of the
Transaction. Neither Parent nor any of its subsidiaries nor any property or
asset of Parent or any such subsidiary is subject to any continuing order of,
consent decree, settlement agreement or other similar written agreement with,
or, to the knowledge of Parent, continuing investigation by, any Governmental
Authority, or any order, writ, judgment, injunction, decree, determination or
award of any Governmental Authority that seeks to materially delay or prevent
the consummation of the Transaction or
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would prevent or materially delay Parent from performing its obligations under
this Agreement or would reasonably be expected to have a Parent Material Adverse
Effect.
SECTION 6.15 Permits; Compliance. Each of Parent and its subsidiaries is
in possession of all franchises, grants, authorizations, licenses,
certifications, permits, easements, variances, exceptions, consents,
certificates, approvals and orders of any Governmental Authority necessary for
each of Parent and such subsidiaries to own, lease and operate its properties or
to carry on its business as it is now being conducted (the "Parent Permits"),
except where the failure to have, or the suspension or cancellation of, any of
the Parent Permits would not prevent or materially delay consummation of the
Merger or otherwise prevent or materially delay Parent or Purchaser from
performing its obligations under this Agreement and would not reasonably be
expected to have a Parent Material Adverse Effect. As of the date of this
Agreement, no suspension or cancellation of any of the Parent Permits is pending
or, to the knowledge of Parent, threatened. None of Parent nor any of its
subsidiaries is in conflict with, or in default, breach or violation of, (a) any
Law applicable to Parent or any such subsidiary or by which any property or
asset of Parent or any such subsidiary is bound or affected, or (b) any note,
bond, mortgage, indenture, contract, agreement, lease, license, Parent Permit,
franchise or other instrument or obligation to which Parent or any such
subsidiary is a party or by which Parent or any such subsidiary or any property
or asset of Parent or any such subsidiary is bound, except in either case for
any such conflicts, defaults, breaches or violations that would not prevent or
materially delay the consummation of the Merger or otherwise prevent or
materially delay Parent or Purchaser from performing its obligations under this
Agreement and would not reasonably be expected to have a Parent Material Adverse
Effect.
(b) None of Parent nor any of its subsidiaries or any individual who is
currently an executive officer, director or, to the knowledge of Parent,
employee of Parent or any such subsidiary (i) has been convicted of, charged
with or, to the knowledge of Parent, investigated for a Medicare, Medicaid or
state health program-related offense, (ii) since January 1, 1999, has been
convicted of, charged with or, to the knowledge of Parent, investigated for a
violation of Law related to fraud, theft, embezzlement, financial misconduct or
obstruction of an investigation, (iii) has been excluded or suspended from
participation in Medicare, Medicaid or any federal or state health program or
(iv) since January 1, 1999, has been subject to any Order or any criminal or
civil fine imposed by any Governmental Authority with respect to any such
Medicare, Medicaid or any other federal or state health care program.
(c) Except as disclosed in Section 6.15(c) of the Parent Disclosure
Schedule, since January 1, 1999, there have been no written notices, citations
or decisions by any Governmental Authority that Parent or any of its
subsidiaries fails to meet any applicable standards promulgated by such
Governmental Authority for which a plan of correction has not been accepted, and
Parent does not know of any such failure or facts upon which such a failure
could be alleged except, in either case, as would not reasonably be expected to
have a Parent Material Adverse Effect. Except as set forth in Section 6.15(c) of
the Parent Disclosure Schedule, none of Parent or any of its subsidiaries has
received any notice of any potential deficiency in or violation of any
applicable Law or Order relating to Parent or any such subsidiary for which a
plan of correction has not been accepted except as would not reasonably be
expected to have a Parent Material Adverse Effect. Except as disclosed in
Section 6.15(c) of the Parent Disclosure Schedule, and except as would not
reasonably be expected to have a Parent Material Adverse Effect, since January
1, 1996, Parent has complied in all material respects with all applicable Laws
with respect to the services provided and business operated by Parent.
(d) Except as disclosed in Section 6.15(d) of the Parent Disclosure
Schedule, and except as would not have a Parent Material Adverse Effect, (i)
none of Parent nor any of its subsidiaries has engaged in any activities that
are prohibited under or would violate Medicare and Medicaid statutes, 42 U.S.C.
Section 1320a-7a and 7b, or the regulations promulgated pursuant to such
statutes, or comparable state or local Law or rules of professional conduct;
(ii) Parent and its subsidiaries have timely and accurately filed in all
material respects all requisite claims and other reports required to be filed in
connection with all applicable state and federal Medicare and Medicaid programs
due on or before the date of this Agreement; (iii) there is no arrangement
providing for any rebates, kickbacks or other forms of compensation that is
unlawful to be paid to any person or entity in return for the referral of
business or for the arrangement for recommendation of
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such referrals; and (iv) none of Parent nor any of its subsidiaries has any
financial arrangement which renders any of its billings unlawful pursuant to the
Stark Law or comparable state Law.
(e) To the knowledge of Parent, all agreements of Parent and its
subsidiaries with third-party payors were entered into by Parent or any such
subsidiaries, as the case may be, in the ordinary course of business. Parent and
its subsidiaries are in compliance with each of their respective third-party
payor agreements, and Parent and its subsidiaries have properly charged and
billed in accordance with the terms of their respective third-party payor
agreements, including, where applicable, billing and collection of all
deductibles and co-payments, except for any such violations that would not
reasonably be expected to have a Parent Material Adverse Effect.
(f) Except as disclosed in Section 6.15(f) of the Parent Disclosure
Schedule, (i) no right of Parent or any of its subsidiaries to receive
reimbursements pursuant to any government program or private program has ever
been terminated or suspended as a result of any investigation or action whether
by any Governmental Authority or other third party, (ii) none of Parent nor any
of its subsidiaries has since January 1, 1999 received notice from any
Governmental Authority that it has been the subject of any inspection,
investigation, survey, audit, monitoring or other form of review by any
Governmental Authority, professional review organization, accrediting
organization or certifying agency for the purpose of any alleged improper
activity on the part of such entity, other than routine audits or inquiries and
other than those that would not reasonably be expected to have a Parent Material
Adverse Effect, (iii) none of Parent nor any of its subsidiaries has received
any written notice of deficiency from a Governmental Authority in connection
with its operations for which a plan of correction has not been accepted, and
(iv) none of Parent nor any of its subsidiaries has received any written notice
of any claim, requirement or demand of any licensing, accrediting or certifying
agency to rework or redesign their operations or any part thereof.
SECTION 6.16 Financing. Parent has, or will have prior to the Acceptance
Date, sufficient cash, available lines of credit or other sources of immediately
available funds to enable it to pay the Cash Consideration for all Tendered Cash
Election Shares and to pay all fees and expenses in connection therewith.
SECTION 6.17 Ownership of Company Common Stock. As of the date of this
Agreement, none of Parent, any of its subsidiaries or any of their respective
controlled affiliates beneficially owns any shares of Company Common Stock.
ARTICLE VII
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 7.01 Conduct of Business by the Company Pending the Merger. (a)
The Company agrees that, between the date of this Agreement and the Effective
Time, except as expressly contemplated by any other provision of this Agreement,
as set forth in Section 7.01 of the Company Disclosure Schedule or as required
by a Governmental Authority of competent jurisdiction, unless Parent shall
otherwise consent in writing:
(i) the businesses of the Company and the Subsidiaries shall be
conducted in all material respects only in, and the Company and the
Subsidiaries shall not take any material action except in, the ordinary
course of business and in a manner consistent with past practice; and
(ii) the Company shall use its reasonable best efforts to preserve
substantially intact the business organization of the Company and the
Subsidiaries, to keep available the services of the current officers,
employees and consultants of the Company and the Subsidiaries and to
preserve the current relationships of the Company and the Subsidiaries with
customers, suppliers and other persons with which the Company or any
Subsidiary has significant business relations.
(b) By way of amplification and not limitation, except as expressly
contemplated by any other provision of this Agreement or as set forth in Section
7.01 of the Company Disclosure Schedule, neither the Company
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nor any Subsidiary shall, between the date of this Agreement and the Effective
Time, directly or indirectly, do, or propose to do, any of the following without
the prior written consent of Parent:
(i) amend or otherwise change its certificate of incorporation or
by-laws or equivalent organizational documents;
(ii) issue, sell, pledge, dispose of, grant or encumber, or authorize
the issuance, sale, pledge, disposition, grant or encumbrance of, (A) any
shares of any class of capital stock of the Company or any Subsidiary, or
any options, warrants, convertible securities or other rights of any kind
to acquire any shares of such capital stock, or any other ownership
interest (including, without limitation, any phantom interest), of the
Company or any Subsidiary (except for the issuance of up to a maximum of
3,822,307 shares of Company Common Stock issuable pursuant to Company Stock
Options outstanding on the date hereof) or (B) any assets of the Company or
any Subsidiary, except in the ordinary course of business and in a manner
consistent with past practice;
(iii) except as expressly set forth in, and permitted by, Section 4.04
of the Company Disclosure Schedule, waive any stock repurchase rights,
accelerate, amend or change the period of exercisability of options or
restricted stock, reprice options granted under any Company Stock Option
Plan or authorize cash payments in exchange for any options granted under
any of such plans;
(iv) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock, except for dividends payable by a Subsidiary
of the Company to the Company or any other Subsidiary;
(v) reclassify, combine, split, subdivide or redeem, or purchase or
otherwise acquire, directly or indirectly, any of its capital stock or
other securities;
(vi) (A) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets or any other business
combination) any corporation, partnership, other business organization or
any division thereof or any material amount of assets; (B) incur any
indebtedness for borrowed money or issue any debt securities or assume,
guarantee or endorse, or otherwise become responsible for, the obligations
of any person, or make any loans or advances, or grant any security
interest in any of its assets except in the ordinary course of business and
consistent with past practice (which shall be deemed to include borrowings
under its senior credit facility); (C) enter into any contract or agreement
other than in the ordinary course of business and consistent with past
practice; (D) authorize, or make any commitment with respect to, any single
capital expenditure which is in excess of $500,000 or capital expenditures
which are, in the aggregate, in excess of $500,000 per month (the "Monthly
CapEx Amount") from the date hereof until the earlier of (x) the Acceptance
Date or (z) the termination of this Agreement pursuant to Section 10.01 (it
being understood that any unused portion of the Monthly CapEx Amount may be
rolled forward and utilized in any subsequent month); or (E) enter into or
amend any contract, agreement, commitment or arrangement with respect to
any matter set forth in this Section 7.01(vi);
(vii) sell, lease, license, mortgage, pledge, encumber or dispose of
in any manner any properties or assets which are material, individually or
in the aggregate, to the Company;
(viii) increase the compensation payable or to become payable or the
benefits provided to its directors, officers or employees, except for
increases in the ordinary course of business and consistent with past
practice in salaries or wages of employees of the Company or any Subsidiary
who are not directors or officers of the Company or any Subsidiary, or
grant any severance or termination pay to, or enter into any employment or
severance agreement with, any director, officer or other employee of the
Company or of any Subsidiary, or establish, adopt, enter into or amend any
bonus, profit-sharing, thrift, compensation, stock option, restricted
stock, pension, retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or arrangement for
the benefit of any director, officer or employee;
(ix) change any of the accounting principals used by it, other than as
required by GAAP;
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(x) (A) make or rescind any Tax election, settle or compromise any
liability for Taxes or change or revoke any of its methods of Tax
accounting, or (B) take any action with respect to the computation of Taxes
or the preparation of Tax returns that is inconsistent with past practice;
provided, however, that, in the case of this clause (x), Parent shall not
unreasonably withhold its consent;
(xi) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than in the ordinary course of business and consistent with past practice
or claims, liabilities or obligations not exceeding $500,000 in the
aggregate;
(xii) (A) amend, modify or consent to the termination of any Material
Contract, or amend, waive, modify or consent to the termination of the
Company's or any Subsidiary's rights thereunder, or (B) enter into any
contract or agreement that would be a Restrictive Agreement or a Related
Party Agreement;
(xiii) except with respect to trademarks in the ordinary course of
business and consistent with past practice, (A) grant any license in
respect of any material Intellectual Property of the Company or any
Subsidiary, (B) develop any Intellectual Property jointly with any third
party, or (C) disclose any confidential Intellectual Property or other
confidential information of the Company or any Subsidiary, unless such
disclosure is made in the ordinary course of business consistent with past
practice or would not reasonably be expected to have a Company Material
Adverse Effect;
(xiv) commence or settle any material Action; or
(xv) announce an intention, enter into any formal or informal
agreement or otherwise make a commitment to do any of the foregoing or take
any action that would materially delay the consummation of the Offer and
the Merger.
SECTION 7.02 Conduct of Business by Parent Pending Consummation of the
Merger. (a) Parent agrees that, between the date of this Agreement and the
Effective Time, except as expressly contemplated by any other provision of this
Agreement or as set forth in Section 7.02 of the Parent Disclosure Schedule,
unless the Company shall otherwise consent in writing, Parent shall not:
(i) amend or otherwise change its certificate of incorporation or
by-laws in a manner adverse to the stockholders of the Company as opposed
to any other holders of Parent Common Stock;
(ii) issue, sell, or grant, or authorize the issuance, sale or grant
of, any shares of capital stock of Parent except at the market price or
upon the exercise of options, warrants, convertible securities or other
rights of any kind to acquire any shares of such capital stock which were
issued with an exercise or conversion price of not less than the market
price at the time of issuance; provided, however, that the foregoing shall
not prohibit issuances of capital stock, options or rights as part of
normal employee compensation in the ordinary course of business; and
provided further, however, that this clause (ii) shall not prohibit the
issuance of capital stock, options, warrants, convertible securities or
other rights in connection with the acquisition of another entity or
business if such acquisition is otherwise permitted by clause (v) below;
(iii) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock, except for dividends payable by a subsidiary
of Parent to Parent or any other subsidiary;
(iv) reclassify, combine, split or subdivide its capital stock without
appropriate adjustment being made to the Stock Consideration payable to the
holders of Company Common Stock in the Offer or the Merger;
(v) acquire (including, without limitation, by merger, consolidation,
or acquisition of stock or assets or any other business combination) any
corporation, partnership, other business organization or any division
thereof or any material amount of assets, unless such acquisition or the
entering into of a definitive agreement relating to the consummation of
such transaction would not, in the reasonable judgment of Parent at the
time of such determination, (A) impose any material delay in the obtaining
of,
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or materially increase the risk of not obtaining, any authorizations,
consents, orders, declarations or approvals of any Governmental Authority
necessary to consummate the Offer or the Merger or the expiration or
termination of any applicable waiting period under any antitrust or
competition Law, or (B) materially increase the risk of any Governmental
Authority entering an order prohibiting the consummation of the Offer or
the Merger or commencing any action seeking to achieve any of the effects
described in paragraph (a) of clause (v) of Annex I; or
(vi) announce an intention, enter into any formal or informal
agreement or otherwise make a commitment, to do any of the foregoing or
take any action that would materially delay the consummation of the Offer
and the Merger.
ARTICLE VIII
ADDITIONAL AGREEMENTS
SECTION 8.01 Company Stockholder Meeting. If required by applicable Law,
the Company, acting through the Company Board, shall, in accordance with
applicable Law, duly call, convene and hold a special meeting of the holders of
Company Common Stock (the "Company Stockholder Meeting"), as soon as reasonably
practicable after the acceptance for payment or exchange of shares of Company
Common Stock pursuant to the Offer, for the purpose of voting upon this
Agreement and the Merger, and the Company agrees that this Agreement shall be
submitted at such meeting. Subject to Section 8.04, the Company shall take all
action necessary to secure the vote of holders of Company Common Stock required
by applicable Law and the Company's Third Amended and Restated Certificate of
Incorporation and Third Amended and Restated By-Laws to obtain the approval for
this Agreement.
SECTION 8.02 Preparation of Merger Registration Statement and Proxy
Statement/Prospectus. (a) If required by applicable Law, promptly after the
acceptance for exchange or payment of shares of Company Common Stock pursuant to
the Offer, Parent and the Company shall prepare, and Parent shall file with the
SEC, the Merger Registration Statement, in which the Proxy Statement/Prospectus
will be included as Parent's prospectus. Parent shall provide the Company and
its counsel with any comments it may receive from the SEC or its staff with
respect to the Merger Registration Statement as promptly as practicable after
receipt of such comments and the parties shall cooperate to prepare appropriate
responses to the SEC to such comments and make such modifications to the Merger
Registration Statement as shall be reasonably appropriate. Each of the Company
and Parent shall use all reasonable efforts to have the Merger Registration
Statement declared effective under the Securities Act as promptly as practicable
after the acceptance for payment or exchange of shares of Company Common Stock
pursuant to the Offer and to keep the Merger Registration Statement effective as
long as is necessary to consummate the Merger. The Company shall furnish all
information concerning the Company as Parent may reasonably request in
connection with such action and preparation of the Merger Registration Statement
and Proxy Statement/Prospectus. If required by applicable Law, the Company shall
use its reasonable best efforts to mail the Proxy Statement/Prospectus to its
stockholders as promptly as practicable after the Merger Registration Statement
is declared effective under the Securities Act and, if necessary, after the
Proxy Statement/Prospectus shall have been so mailed, promptly circulate
amended, supplemental or supplemented proxy material, and, if required in
connection therewith, resolicit proxies. Parent shall take any action reasonably
required to be taken under applicable state securities or Blue Sky Laws in
connection with the issuance of Parent Common Stock in the Offer and the Merger.
No amendment or supplement to the Merger Registration Statement or Proxy
Statement/Prospectus will be made by Parent or the Company without the approval
of the other party, which will not be unreasonably withheld or delayed. Each
party will advise the other party promptly, after it receives notice thereof, of
the time when the Merger Registration Statement is declared effective or any
supplement or amendment thereto has been filed, of the issuance of any stop
order, of the suspension or qualification of Parent Common Stock issued in
connection with the Merger for offering or sale in any jurisdiction, or of any
request by the SEC for amendment of the Proxy Statement/Prospectus or comments
thereon and responses thereto or requests by the SEC for additional information.
If, at any time prior to the Effective Time, the Company or Parent discovers any
information relating to either party, or any of their respective affiliates,
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officers or directors, that should be set forth in an amendment to the Proxy
Statement/Prospectus so that such document would not contain any misstatement of
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, the party that
discovers that information shall promptly notify the other party and an
appropriate amendment or supplement describing such information shall be
promptly filed with the SEC and, to the extent required by law or regulation,
disseminated to the stockholders of the Company.
(b) Notwithstanding the foregoing, if Parent or Merger Sub shall
acquire at least 90% of the outstanding shares of Company Common Stock
pursuant to the Offer or otherwise, the parties hereto agree, subject to
the satisfaction or (to the extent permitted hereunder) waiver of all
conditions to the Merger, to take, or cause to be taken, all necessary and
appropriate action to cause the Merger to be effective as soon as
practicable after the acceptance for payment or exchange of shares of
Company Common Stock pursuant to the Offer without the Company Stockholder
Meeting.
SECTION 8.03 Access to Information; Confidentiality. (a) Except as
otherwise prohibited by applicable Law or the terms of any contract or agreement
(provided that the Company shall use all reasonable efforts to promptly obtain
any consent required under any such contract or agreement in order that it may
comply with the terms of this Section 8.03), from the date of this Agreement
until the Effective Time, the Company shall, and shall cause its Subsidiaries
to, (i) provide to Parent and Parent's officers, directors, employees,
accountants, consultants, legal counsel, agents and other representatives access
at reasonable times during normal business hours upon prior notice to the
officers, employees, agents, properties, offices and other facilities of the
Company and its Subsidiaries and to the books and records thereof, and (ii)
furnish promptly to Parent such information concerning the business, properties,
contracts, assets, liabilities, personnel and other aspects of the Company and
its Subsidiaries as Parent or its representatives may reasonably request.
(b) All information obtained by the parties pursuant to this Section
8.03 shall be kept confidential in accordance with the confidentiality
agreement, dated November 20, 2001 (the "Confidentiality Agreement"),
between Parent and the Company.
(c) No investigation pursuant to this Section 8.03 shall affect any
representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto.
SECTION 8.04 No Solicitation of Transactions. The Company shall, and
shall cause its Subsidiaries, and its and their respective officers, directors,
employees, subsidiaries, agents or advisors or other representatives (including,
without limitation, any investment banker, attorney or accountant retained by it
) ("Representatives") to, immediately cease and cause to be terminated any
discussions or negotiations with third parties with respect to a Competing
Transaction (as defined below). The Company will not, directly or indirectly,
and will instruct its Representatives not to, directly or indirectly, solicit,
initiate or, except as and only to the extent permitted by Section 8.04(b),
encourage (including by way of furnishing nonpublic information), or take any
other action to facilitate, any inquiries or the making of any proposal or offer
(including, without limitation, any proposal or offer to its stockholders) that
constitutes, or may reasonably be expected to lead to, any Competing Transaction
(as defined below), or, except as and only to the extent permitted by Section
8.04(b), enter into or maintain or continue discussions or negotiate with any
person or entity in furtherance of such inquiries or to obtain a Competing
Transaction, or agree to or endorse any Competing Transaction, or authorize or
permit any Representative of the Company or any of its Subsidiaries to take any
such action. The Company shall not release any third party from, or waive any
provision of, any confidentiality or standstill agreement to which it is a
party.
(b) Notwithstanding anything to the contrary in this Section 8.04, the
Company Board may furnish information to, and enter into discussions with,
a person who has made an unsolicited bona fide written proposal or offer
regarding a Competing Transaction (that did not result from a breach of
this Section 8.04), and with respect to which the Company Board has (i)
determined, in its good faith judgment (after consultation with a financial
advisor of internationally recognized reputation), that such proposal or
offer constitutes or is reasonably likely to result in or lead to a
Superior Proposal (as defined below), (ii) determined, in its good faith
judgment after consultation with outside legal counsel, that, in light of
such Superior Proposal, the failure to furnish such information or to enter
into such discussions
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would result in a breach of its fiduciary obligations under applicable Law,
(iii) provided written notice to Parent of its intent to furnish
information or enter into discussions with such person at least two
business days prior to taking any such action and (iv) obtained from such
person an executed confidentiality agreement on terms no less favorable to
the Company than those contained in the Confidentiality Agreement.
(c) The Company agrees that in addition to the obligations of the
Company set forth in paragraphs (a) and (b) of this Section 8.04, promptly
following receipt thereof, the Company shall advise Parent in writing of
any request for information or any Competing Transaction, or any inquiry,
discussions or negotiations with respect to any Competing Transaction and
the terms and conditions of such request for information, Competing
Transaction, inquiry, discussions or negotiations and the Company shall
promptly provide to Parent copies of any written materials received by the
Company in connection with any of the foregoing, and the identity of the
person or group making any such request for information, Competing
Transaction or inquiry or with whom any discussions or negotiations may be
taking place (as permitted by Section 8.04(b)). The Company agrees that it
shall keep Parent informed of the status and material details (including
amendments or proposed amendments) of any such request for information,
Competing Transaction or inquiry and keep Parent informed as to the
material details of any information requested of or provided by the Company
(pursuant to Section 8.04(b)) and as to the status and material terms of
all substantive discussions or negotiations (permitted by Section 8.04(b))
with respect to any such request, Competing Transaction or inquiry. The
Company agrees that it shall simultaneously provide to Parent any
non-public information concerning the Company that may be provided
(pursuant to Section 8.04(b)) to any other person or group in connection
with any Competing Transaction which was not previously provided to Parent.
(d) Except as otherwise set forth in this Section 8.04(d), the Company
Board shall not withdraw, qualify, modify or amend, or propose to withdraw,
qualify, modify or amend, in any manner adverse to Parent or Merger Sub,
the Recommendation of the Company Board, or take any action, or make any
statement, filing or release inconsistent with such Recommendation;
provided, however, that if, prior to consummation of the Offer, the Company
Board reasonably determines in good faith, after consultation with outside
legal counsel, that the failure of the Company Board to withdraw, qualify,
modify or amend the Recommendation would be a breach of its fiduciary
duties under applicable Law, the Company Board shall be permitted to
withdraw, qualify, modify or amend, in a manner adverse to Parent or Merger
Sub, the Company Recommendation. The Company Board shall promptly deliver
to Parent written notice advising Parent (i) that it has withdrawn,
qualified, modified or amended, in a manner adverse to Parent or Merger
Sub, the Recommendation and (ii) if applicable, the material terms and
conditions of the Superior Proposal received by the Company prior to such
withdrawal, qualification, modification or amendment and the identity of
the person or persons making such Superior Proposal. Nothing contained in
this Section 8.04 shall prohibit the Company or the Company Board from
taking and disclosing to its stockholders a position with respect to a
tender or exchange offer by a third party pursuant to Rules 14d-9 and
14e-2(a) promulgated under the Exchange Act, or from making any disclosure
required by applicable Law; provided, however, that any withdrawal,
qualification, modification or amendment of the Recommendation shall be
made as and only to the extent permitted by Section 8.04(d).
(e) A "Competing Transaction" means any of the following (other than
the Transaction): (i) any merger, consolidation, share exchange, business
combination, recapitalization, liquidation, dissolution or other similar
transaction involving the Company or any Subsidiary, (ii) any sale, lease,
exchange, transfer or other disposition of all or a substantial part of the
assets of the Company or of any Subsidiary, (iii) any sale, exchange,
transfer or other disposition of 15% or more of any class of equity
securities of the Company or of any Subsidiary or of 15% or more of the
assets of the Company or of any Subsidiary, or (iv) any tender offer or
exchange offer that, if consummated, would result in any person
beneficially owning 15% or more of any class of equity securities of the
Company or of any Subsidiary.
(f) A "Superior Proposal" means an unsolicited bona fide written offer
made by a third party to consummate any of the following transactions: (i)
a merger, consolidation, share exchange, business combination,
recapitalization or other similar transaction involving the Company
pursuant to which the
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stockholders of the Company immediately preceding such transaction would
hold less than 50% of the equity interest in the surviving or resulting
entity of such transaction, (ii) the sale, lease, exchange, transfer or
other disposition of at least 50% of the assets of the Company and its
Subsidiaries, taken as a whole, in a single or related series of
transactions or (iii) the acquisition by any person or group (including by
means of a tender offer or an exchange offer or a two-step transaction
involving a tender offer followed with reasonable promptness by a merger
involving the Company), directly or indirectly, of ownership of at least
50% of the then outstanding shares of Company Common Stock, in each case,
on terms (including conditions to consummation of the contemplated
transaction) that the Company Board determines, in its good faith judgment
(after consultation with a financial advisor of nationally recognized
reputation), to be more favorable to the Company stockholders than the
Offer and the Merger, is reasonably capable of being consummated and for
which financing, to the extent required, is reasonably likely, in the good
faith judgment of the Board (after consultation with a financial advisor of
nationally recognized reputation), to be obtained on a timely basis.
SECTION 8.05 Employee Benefits Matters. (a) From and after the Effective
Time, Parent shall cause the Surviving Corporation and its subsidiaries to honor
in accordance with their terms, all contracts, agreements, arrangements,
policies, plans and commitments of the Company and the Subsidiaries as in effect
immediately prior to the Effective Time that are applicable to any current or
former employees or directors of the Company or any Subsidiary; provided,
however, that nothing contained herein shall prohibit Parent or the Surviving
Corporation or any of Parent's subsidiaries from amending, modifying or
terminating any such contracts, agreements, arrangements, policies, plans and
commitments in accordance with their terms. Employees of the Company or any
Subsidiary shall receive full credit for purposes of eligibility to participate
and vesting (but not for benefit accruals) under any employee benefit plan,
program or arrangement established or maintained by the Surviving Corporation or
any of its subsidiaries for service accrued or deemed accrued prior to the
Effective Time with the Company or any Subsidiary; provided, however, that such
crediting of service shall not operate to duplicate any benefit or the funding
of any such benefit. In addition, Parent shall waive, or cause to be waived, any
limitations on benefits relating to any pre-existing conditions to the same
extent such limitations are waived under any comparable plan of Parent or its
subsidiaries and recognize, for purposes of annual deductible and out-of-pocket
limits under its medical and dental plans, deductible and out-of-pocket expenses
paid by employees of the Company and its subsidiaries in the calendar year in
which the Effective Time occurs.
(b) Except as contemplated by the Employment Agreements, following the
Effective Time, Parent shall continue to provide, or shall cause to be continued
to be provided, to individuals who are employed by the Surviving Corporation and
its subsidiaries as of the Effective Time and who remain employed with Parent or
any subsidiary of Parent ("Affected Employees"), for so long as such Affected
Employees remain employed by Parent or any subsidiary of Parent, employee
benefits (other than salary or incentive compensation) (i) pursuant to the
Company's or its Subsidiaries employee benefit plans, programs, policies and
arrangements as provided to such Affected Employees immediately prior to the
Effective Time or (ii) pursuant to employee benefit plans, programs, policies or
arrangements maintained by Parent or any subsidiary of Parent providing coverage
and benefits that, in the aggregate, are no less favorable than those provided
to employees of Parent or its subsidiaries in positions reasonably comparable to
the positions held by the Affected Employees.
SECTION 8.06 Directors' and Officers' Indemnification and Insurance. (a)
The Certificate of Incorporation of the Surviving Corporation shall (i) contain
provisions no less favorable with respect to indemnification for matters
occurring prior to the Effective Time than are set forth in the Third Amended
and Restated Certificate of Incorporation and Third Amended and Restated By-Laws
of the Company, as of the date hereof, which provisions shall not be amended,
repealed or otherwise modified for a period of six years from the Effective Time
in any manner that would affect adversely the rights thereunder of individuals
who, at or prior to the Effective Time, were directors, officers, employees or
agents of the Company, unless such modification shall be required by Law, and
(ii) contain provisions no less favorable with respect to indemnification for
matters occurring from and after the Effective Time than are set forth in
Parent's Certificate of Incorporation, as of the date hereof.
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(b) The Surviving Corporation shall maintain in effect for six years from
the Effective Time directors' and officers' liability insurance covering those
persons who are currently covered on the date of this Agreement by the current
directors' and officers' liability insurance policies maintained by the Company
(provided that the Surviving Corporation or Parent may substitute therefor
policies of at least the same dollar limit coverage containing terms and
conditions that are not, in the aggregate, less favorable) with respect to
matters occurring prior to the Effective Time; provided, however, that in no
event shall the Surviving Corporation or Parent be required to expend pursuant
to this Section 8.06(b) more than the annual amount set forth on Section 8.06(b)
of the Company Disclosure Schedule; provided further, however, that, if the
amount of the annual premiums necessary to maintain or procure such insurance
coverage exceeds such maximum amount, the Surviving Corporation shall maintain
or procure, for such six-year period, the most advantageous policies of
directors' and officers' insurance obtainable for an annual premium equal to
that maximum amount.
(c) In addition to the other rights provided for in this Section 8.06 and
not in limitation thereof (but without in any way limiting or modifying the
obligations of any insurance carrier contemplated by Section 8.06(b)), for six
years from and after the Effective Time, the Surviving Corporation shall, to the
fullest extent permitted by the DGCL (including Section 145(f) thereof) on the
date hereof, indemnify and hold harmless (and release from any liability to the
Surviving Corporation or any of their respective subsidiaries) the persons who,
at or prior to the Effective Time, were officers or directors of the Company or
served on behalf of the Company as an officer or director of any of the
Company's current or former Subsidiaries (the "Indemnitees") against all
expenses (including attorneys' fees), losses, claims, damages, judgments, fines
and amounts paid in settlement that are actually and reasonably incurred by the
person in connection with any threatened, pending or completed action, suit or
proceeding, whether criminal, civil, administrative or investigative, that
related to an event, act or omission which occurred prior to the Effective Time
by reason of the fact that such person was at or prior to the Effective Time a
director or officer of the Company or any of its current or former Subsidiaries
(collectively, an "Indemnifiable Claim"); provided, however, that the Surviving
Corporation shall not be responsible for any amounts paid in settlement of any
Indemnifiable Claim without the prior written consent of Parent or the Surviving
Corporation. In the event any Indemnifiable Claim is asserted or made within
such six-year period, all rights to indemnification shall continue until such
claim is disposed of or all judgments, orders, decrees or other rulings in
connection with such claim are fully satisfied.
(d) In addition to the other rights provided for in this Section 8.06, and
not in limitation thereof, the Surviving Corporation, Parent and the Company
agree that all contracts, agreements, arrangements or understandings between the
Company and any Indemnitees, as in effect on the date hereof (including without
limitation that certain Financial Advisory Agreement, dated November 23, 1999,
between the Company and Kelso & Company, L.P., to the extent in effect as of the
date of this Agreement, and including those contracts, agreements, arrangements
or understandings set forth in Section 5.17 or Section 5.20 of the Company
Disclosure Schedule), copies of which have been provided to Parent prior to the
date hereof, shall survive the Merger and continue in full force and effect in
accordance with their terms.
(e) In the event the Company or the Surviving Corporation or any of their
respective successors or assigns (i) consolidates with or merges into any other
person and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then, and in each such case, proper
provision shall be made so that the successors and assigns of the Company or the
Surviving Corporation, as the case may be, or at Parent's option, Parent, shall
assume the obligations set forth in this Section 8.06.
(f) The obligation of the Surviving Corporation under this Section 8.06
shall not be terminated or modified in such a manner as to adversely affect any
Indemnitee to whom this Section 8.06 applies without the consent of such
Indemnitee (it being expressly agreed that the Indemnitees to whom this Section
8.06 applies shall be third party beneficiaries of this Section 8.06).
SECTION 8.07 Notification of Certain Matters. (a) The Company shall give
prompt notice to Parent, and Parent or Merger Sub shall give prompt notice to
the Company, of (i) any representation or warranty made by it contained in this
Agreement becoming untrue or inaccurate in any material respect and (ii) the
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failure by it to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement; provided, however, that the delivery of any such notification
pursuant to this Section 8.07 shall not limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
(b) The Company shall give prompt notice to Parent, and Parent or Merger
Sub shall give prompt notice to the Company, of: (i) any notice or other
communication from any Governmental Authority in connection with the
transactions contemplated by this Agreement, and (ii) any actions, suits,
claims, investigations or proceedings commenced or, to its knowledge, threatened
in writing against, relating to or involving or otherwise affecting it or any of
its subsidiaries which, if pending on the date of this Agreement, would have
been required to have been disclosed pursuant to Article V and Article VI or
which relate to the consummation of the Transaction.
SECTION 8.08 Company Affiliates. No later than five business days after
the date of this Agreement, the Company shall deliver to Parent a list of names
and addresses of those persons who were, in the Company's reasonable judgment,
on such date, affiliates (within the meaning of Rule 145 of the rules and
regulations promulgated under the Securities Act (each such person being, a
"Company Affiliate")) of the Company. The Company shall provide Parent with such
information and documents as Parent shall reasonably request for purposes of
reviewing such list. The Company shall use its reasonable best efforts to
deliver or cause to be delivered to Parent, prior to the initial expiration of
the Offer, an affiliate letter in the form attached hereto as Exhibit A,
executed by each of the Company Affiliates identified in the foregoing list and
any person who shall, to the knowledge of the Company, have become a Company
Affiliate subsequent to the delivery of such list.
SECTION 8.09 Further Action; Reasonable Best Efforts. (a) Upon the terms
and subject to the conditions of this Agreement, each of the parties hereto
shall promptly after the date of this Agreement (i) make its respective filings,
and thereafter make any other required submissions, under the HSR Act with
respect to the Transaction and (ii) use its reasonable best efforts to take, or
cause to be taken, all appropriate action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable Laws or otherwise to
consummate and make effective the Transaction, including, without limitation,
using its reasonable best efforts to obtain all permits, consents, approvals,
authorizations, qualifications and orders of Governmental Authorities and
parties to contracts with the Company and the Subsidiaries as are necessary for
the consummation of the Transaction and to fulfill the conditions to the Offer
and the Merger; provided that neither Merger Sub nor Parent will be required by
this Section 8.09 to take any action, including entering into any consent
decree, hold separate orders or other arrangements, that (A) requires the
divestiture of any assets of any of Merger Sub, Parent, the Company or any of
their respective subsidiaries or (B) limits Parent's freedom of action with
respect to, or its ability to retain, the Company and the Subsidiaries or any
portion thereof or any of Parent's or its affiliates' other assets or
businesses.
(b) Each of the parties hereto shall use its reasonable best efforts to
cause its respective officers, employees, agents, auditors and representatives
to cooperate with each other, prior to the Effective Time, to ensure the orderly
combination of the Company and the Subsidiaries with Parent and its subsidiaries
following the Effective Time and to minimize any disruption to the respective
businesses of Parent, the subsidiaries of Parent, the Company and the
Subsidiaries that might result from the Transaction.
(c) The Company shall cooperate with Parent, and shall use its reasonable
best efforts to cause the Company's accountants to provide to Parent, at
Parent's expense, the requisite consents required to enable Parent to fulfill
any requirements imposed on it by the Exchange Act or the Securities Act, and
the Company shall cooperate with Parent in Parent's efforts to obtain extended
reporting coverage for certain liability insurance policies maintained by the
Company and the Subsidiaries as contemplated by Section 8.06(b) hereof.
SECTION 8.10 Plan of Reorganization. (a) This Agreement is intended to
constitute a "plan of reorganization" within the meaning of section 1.368-2(g)
of the income tax regulations promulgated under the Code. From and after the
date of this Agreement and until the Effective Time, each party hereto shall use
its reasonable best efforts to cause the Offer and the Merger to qualify, and
will not knowingly take any action,
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cause any action to be taken, fail to take any action or cause any action to
fail to be taken which action or failure to act could prevent the Offer and the
Merger from qualifying as a reorganization within the meaning of Section 368(a)
of the Code; provided, however, that Parent may elect to effect the Reverse
Merger as permitted by Section 3.01 of this Agreement. Following the Effective
Time, none of the Surviving Corporation, Parent or any of their affiliates
knowingly shall take any action, cause any action to be taken, fail to take any
action or cause any action to fail to be taken, which action or failure to act
could cause the Offer and the Merger to fail to qualify as a reorganization
within the meaning of Section 368(a) of the Code.
(b) At or immediately prior to the Effective Time, Parent shall seek to
obtain an opinion of Shearman & Sterling, counsel to Parent, that the Offer and
the Merger will be treated as a reorganization within the meaning of Section
368(a) of the Code (together with the opinion referred to in Section 8.10(c)
below, the "Tax Opinions"). In connection therewith, both Parent (together with
Merger Sub) and the Company shall deliver to Shearman & Sterling representation
letters (together with the representation letters referred to in Section 8.10(c)
below, the "Representation Letters"), dated and executed as of the Effective
Time (and as of such other date or dates as reasonably requested by Shearman &
Sterling), substantially in the form attached hereto as Exhibit 8.10(b).
(c) At or immediately prior to the Effective Time, the Company shall seek
to obtain an opinion of Skadden, Arps, Slate, Meagher & Flom LLP, counsel to the
Company, that the Offer and the Merger will be treated as a reorganization
within the meaning of Section 368(a) of the Code (together with the opinion
referred to in Section 8.10(b) above, the "Tax Opinions"). In connection
therewith, both Parent (together with Merger Sub) and the Company shall deliver
to Skadden, Arps, Slate, Meagher & Flom LLP representation letters (together
with the representation letters referred to in Section 8.10(b) above, the
"Representation Letters"), dated and executed as of the Effective Time (and as
of such other date or dates as reasonably requested by Skadden, Arps, Slate,
Meagher & Flom LLP), substantially in the form attached hereto as Exhibit
8.10(c).
(d) As of the date hereof, the Company does not know of any reason (i) why
it would not be able to deliver the Representation Letters contemplated by
Sections 8.10(b) and 8.10(c) to enable such firms to deliver the Tax Opinions or
(ii) why counsel to Parent and the Company would not be able to deliver the Tax
Opinions contemplated by Sections 8.10(b) and 8.10(c).
(e) As of the date hereof, Parent does not know of any reason (i) why it
would not be able to deliver the Representation Letters contemplated by Sections
8.10(b) and 8.10(c) to enable such firms to deliver the Tax Opinions or (ii) why
counsel to Parent and the Company would not be able to deliver the Tax Opinions
contemplated by Sections 8.10(b) and 8.10(c).
SECTION 8.11 Merger Sub. Parent shall take all action necessary to cause
Merger Sub to perform its obligations under this Agreement and to consummate the
Merger on the terms and subject to the conditions set forth in this Agreement.
SECTION 8.12 Letters of Accountants. (a) Parent shall use its reasonable
best efforts to cause to be delivered to the Company "comfort" letters of
PricewaterhouseCoopers LLP, Parent's independent public accountants, dated and
delivered the date on which the Offer Registration Statement shall become
effective, the Acceptance Date, the date the Merger Registration Statement shall
become effective and as of the Effective Time, and addressed to the Company, in
form and substance reasonably satisfactory to the Company and reasonably
customary in scope and substance for letters delivered by independent public
accountants in connection with transactions such as those contemplated by this
Agreement.
(b) The Company shall use its reasonable best efforts to cause to be
delivered to Parent "comfort" letters of Deloitte & Touche LLP, the Company's
independent public accountants, dated and delivered the date on which the Offer
Registration Statement shall become effective, the Acceptance Date, the date the
Merger Registration Statement shall become effective and as of the Effective
Time, and addressed to Parent, in form and substance reasonably satisfactory to
Parent and reasonably customary in scope and substance for letters delivered by
independent public accountants in connection with transactions such as those
contemplated by this Agreement.
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SECTION 8.13 NYSE Listing. Parent shall as promptly as practicable
prepare and submit to the NYSE a listing application covering the shares of
Parent Common Stock to be issued in the Offer and the Merger, and shall use its
reasonable efforts to obtain, prior to the initial scheduled expiration date of
the Offer (or as soon thereafter as practicable) and prior to the Effective
Time, approval for the listing of Parent Common Stock to be issued in the Offer
and the Merger, as the case may be, subject to official notice of issuance to
the NYSE, and the Company shall cooperate with Parent with respect to such
listing.
SECTION 8.14 Public Announcements. The initial press release relating to
this Agreement shall be a joint press release the text of which has been agreed
to by each of Parent and the Company. Thereafter, unless otherwise required by
applicable Law or the requirements of the NYSE or the NASDAQ National Market,
each of Parent and the Company shall use its reasonable best efforts to consult
with each other before issuing any press release or otherwise making any public
statements with respect to this Agreement, the Offer or the Merger; provided,
however, that this Section 8.14 shall terminate in the event the Company Board
withdraws the Recommendation.
SECTION 8.15 Transfer Tax. The Company and Parent shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp Taxes, any transfer, recording,
registration and other fees and any similar Taxes which become payable in
connection with the transactions contemplated by this Agreement (together with
any related interest, penalties or additions to Tax, "Transfer Taxes"). All
Transfer Taxes shall be paid by the Company and expressly shall not be a
liability of any holder of the Company Common Stock.
SECTION 8.16 Transaction Fees and Expenses. Notwithstanding anything to
the contrary contained in this Agreement, the Company shall not incur, or cause
to be incurred, aggregate Transaction Fees (as defined below) in excess of
$10,000,000. For purposes of this Section 8.16, "Transaction Fees" shall mean
the fees and disbursements of the Company's legal counsel and financial advisors
that are incurred in connection with the preparation, negotiation, execution,
delivery and performance of the Merger Agreement and the consummation of the
transactions contemplated hereby, except that any legal costs and expenses
incurred solely in connection with complying with the HSR Act (including,
without limitation, complying with any "second request" made thereunder) shall
be excluded from the calculation of such costs and expenses.
SECTION 8.17 Restrictions on Acquisition of Company Common Stock. From
and after the date of this Agreement and until the earlier to occur of (x) two
years following the purchase of any Stockholders' Shares pursuant to the
exercise of the Options (as such terms are defined in the Stockholders
Agreement) and (y) in the event Parent does not exercise the Options and
purchase any Stockholders' Shares pursuant thereto, the termination of the
Option Exercise Period (such period being, the "Standstill Period"), neither
Parent, nor any of its subsidiaries or controlled affiliates shall, and Parent
shall use its reasonable efforts to cause its affiliates not to, directly or
indirectly, acquire, announce an intention to acquire, offer to acquire, or
enter into any agreement, arrangement or undertaking of any kind the purpose of
which is to acquire, by purchase, exchange or otherwise, any shares of Company
Common Stock or options or rights to acquire shares of Company Common Stock,
except pursuant to (i) the Offer, (ii) the Merger, (iii) the exercise of the
Options, or (iv) a transaction made available to all holders of Company Common
Stock that is approved by a majority of the Independent Directors. For purposes
of this Section 8.17, the term "Independent Directors" shall mean the directors
on the Company Board who are not, at the time of such determination, directors,
officers, employees or affiliates of Parent or officers or employees of the
Company.
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ARTICLE IX
CONDITIONS TO THE MERGER
SECTION 9.01 Conditions to the Obligations of Each Party. The obligations
of the Company, Parent and Merger Sub to consummate the Merger are subject to
the satisfaction or waiver (where permissible) of the following conditions:
(a) Merger Registration Statement. If required, the Merger
Registration Statement shall have been declared effective by the SEC under
the Securities Act and no stop order suspending the effectiveness of the
Merger Registration Statement shall have been issued by the SEC and no
proceeding for that purpose shall have been initiated by the SEC and not
concluded or withdrawn.
(b) Company Stockholder Approval. If required under the DGCL, this
Agreement shall have received Company Stockholder Approval.
(c) No Order. No Governmental Authority shall have enacted, issued,
promulgated, enforced or entered any Law, rule, regulation, judgment,
decree, executive order or award (an "Order") which is then in effect and
has the effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger.
(d) NYSE Listing. The shares of Parent Common Stock to be issued in
the Merger shall have been authorized for listing on the NYSE, subject to
official notice of issuance.
(e) Offer. Merger Sub shall have purchased shares of Company Common
Stock pursuant to the Offer.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.01 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after the Company Stockholder
Approval:
(a) by mutual written consent of Parent and the Company; or
(b) by Parent if, at any time prior to the Acceptance Date, (i) the
Company has breached in any material respect any representation, warranty,
covenant or other agreement contained in this Agreement, which (A) would
give rise to the failure of a condition set forth in clause (e)(i), (ii) or
(iii) of Annex I, (B) cannot be or has not been cured prior to the
Termination Date (as defined below) and (C) has not been waived by Parent
pursuant to the provisions hereof; or (ii) the Company Board shall have (1)
amended, qualified, withdrawn or modified, or proposed or resolved to do
so, in a manner adverse to Parent or Merger Sub, the Recommendation, or (2)
approved or recommended, or proposed to approve or recommend, any Competing
Transaction other than the Offer and the Merger, or the Company Board or
any committee thereof shall have resolved to do any of the foregoing; or
(c) by the Company if, at any time prior to the Acceptance Date,
Parent has breached or failed to perform in any material respect any
representation, warranty, covenant or other agreement contained in this
Agreement, which (A) would give rise to the failure of a condition set
forth in clause (i), (ii) or (iii) of Section 2.01(c), (B) cannot be or has
not been cured prior to the Termination Date and (C) has not been waived by
the Company pursuant to the provisions hereof; or
(d) by either Parent or the Company if (i) the Offer has not been
consummated on or before September 30, 2002 (the "Termination Date");
provided that the right to terminate this Agreement pursuant to this clause
(d)(i) shall not be available to any party whose willful or intentional
failure to fulfill any obligation of this Agreement or other willful or
intentional breach of this Agreement has resulted in the failure of any
condition to the Offer or the Merger not to be satisfied prior to such
date, (ii) the Offer shall have expired or been terminated in accordance
with the terms of this Agreement without Parent or Merger Sub having
accepted for exchange any shares of Company Common Stock
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pursuant to the Offer; or (iii) any court of competent jurisdiction or any
Governmental Authority shall have issued an Order or taken any other action
permanently restricting, enjoining, restraining or otherwise prohibiting
acceptance for payment or exchange of shares of Company Common Stock
pursuant to the Offer or consummation of the Merger and such Order or other
action shall have become final and nonappealable.
SECTION 10.02 Effect of Termination. In the event of termination of this
Agreement by Parent or the Company, as provided in Section 10.01, this Agreement
shall forthwith become void and there shall be no liability hereunder on the
part of the Company, Parent or Merger Sub or their respective officers or
directors (except that Section 8.03, Section 8.17, this Section 10.02, Section
10.03 and Article XI shall survive the termination); provided, however, that
nothing contained in this Section 10.02 or in Section 10.03 shall relieve any
party hereto from any liability for any willful or intentional breach of this
Agreement.
SECTION 10.03 Payment of Certain Fees; Expenses. (a) If this Agreement is
terminated by Parent in accordance with Section 10.01(b)(ii), then the Company
shall pay to Parent in immediately available funds, all of Parent's Expenses, up
to a maximum of $4 million, plus a termination fee in an amount equal to $35
million (the "Termination Fee"); provided, however, that the Company shall not
be required to pay the Termination Fee to Parent or to reimburse Parent for all
of Parent's Expenses pursuant to this Section 10.03(a) if, at the time of the
event giving rise to Parent's right to terminate this Agreement pursuant to
Section 10.01(b)(ii), a Parent Share Price Decrease (as such term is defined in
the Stockholders Agreement, but without giving effect to the provisions of
clause (3) of such definition for purposes hereof) shall have occurred and be
continuing.
(b) If this Agreement is terminated by Parent pursuant to Section
10.01(b)(i), then the Company shall pay to Parent, within five business days
after submission of statements therefor, all of Parent's Expenses up to a
maximum of $5 million.
(c) If this Agreement is terminated by the Company pursuant to Section
10.01(c), then Parent shall pay to Company, within five business days after
submission of statements therefor, all of Company's Expenses (as defined in
paragraph (e) of this Section) up to a maximum of $5 million.
(d) If (x) this Agreement is terminated by Parent or the Company pursuant
to Section 10.01(b)(i), Section 10.01(d)(i) or Section 10.01(d)(ii), (y) a
proposal or offer for a Competing Transaction (replacing references to 15% in
the definition thereof with references to 50%) had been made and publicly
announced or communicated to the Company's stockholders after the date of this
Agreement and prior to the date of termination of this Agreement and (1) had not
been publicly withdrawn in a bona fide manner, (2) at the time of termination of
the Merger Agreement, provided for consideration that was more favorable to the
holders of Company Common Stock, from a financial point of view (taking into
account, among other things, the composition of such consideration compared to
the composition of the consideration being offered in the Offer and the Merger)
than the consideration payable to the holders of Company Common Stock in the
Offer and the Merger and (3) was reasonably capable of being consummated by the
party proposing it, and (z) concurrently with or within 18 months of the date of
such termination a Third Party Acquisition Event occurs, then, in addition to
any amount paid or payable pursuant to Section 10.03(b), the Company shall
within five business days of the occurrence of such Third Party Acquisition
Event pay to Parent the Termination Fee; provided, however, that the Company
shall not be required to pay the Termination Fee to Parent pursuant to this
Section 10.03(d) if the Merger Agreement was terminated pursuant to Section
10.01(d)(i) or on the Termination Date pursuant to Section 10.01(d)(ii), and if,
at the time of such termination, either (x) the condition contained in clause
(ii) of Annex I has not been satisfied or (y) the condition contained in
paragraph (d) of clause (v) of Annex I has not been satisfied or any litigation
of the type described in paragraph (a) of clause (v) of Annex I with respect to
antitrust or competition Laws shall have been instituted or commenced by any
Governmental Authority and be pending.
"Third Party Acquisition Event" shall mean the earlier of (i) the
consummation of a Competing Transaction involving the purchase of a majority of
either the equity securities of the Company or of the consolidated assets of the
Company and its Subsidiaries, taken as a whole, or any such transaction that, if
it had been proposed prior to the termination of this Agreement, would have
constituted a Competing
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Transaction (replacing references to 15% in the definition thereof with
references to 50%) or (ii) the entering into by the Company or any of its
Subsidiaries of a definitive agreement with respect to any such transaction.
(e) Notwithstanding anything to the contrary contained in this Section
10.03, Parent shall not be entitled to receive the Termination Fee, and neither
Parent nor the Company shall be entitled to receive reimbursement for Expenses,
if, at the time of termination of this Agreement, in the case of Parent, the
Company is entitled to terminate this Agreement under Section 10.01(c), and, in
the case of the Company, Parent is entitled to terminate this Agreement under
Section 10.01(b)(i). Notwithstanding the applicability of more than one of the
foregoing subsections of this Section 10.03 or anything to the contrary in this
Agreement, Parent shall not be entitled to be paid more than one Termination Fee
pursuant to this Agreement.
Except as set forth in this Section 10.03, all Expenses (as defined below)
incurred in connection with this Agreement and the transactions contemplated by
this Agreement shall be paid by the party incurring such expenses, whether or
not the Offer or Merger or any other transaction is consummated. "Expenses", as
used in this Agreement, shall include all reasonable out-of-pocket expenses
(including, without limitation, all fees and expenses of counsel, accountants,
investment bankers, experts and consultants to a party hereto and its
affiliates) incurred by a party or on its behalf in connection with or related
to the authorization, preparation, negotiation, execution and performance of
this Agreement, the preparation, printing, filing and mailing of the Offer
Documents and the Merger Registration Statement, the solicitation of stockholder
approvals, the filing of any required notices under the HSR Act or other similar
regulations and all other matters related to the closing of the Merger and the
other transactions contemplated by this Agreement.
(f) The Company and Parent acknowledge that the agreements contained in
this Section 10.03 are an integral part of the transactions contemplated by this
Agreement and that without these agreements Parent and the Company would not
enter into this Agreement. In the event that the Company shall fail to pay any
Termination Fee or Expenses when due, such Termination Fee or Expenses shall be
deemed to include the costs and expenses actually incurred or accrued by Parent
(including, without limitation, fees and expenses of counsel) in connection with
the collection under and enforcement of this Section 10.03, together with
interest on such unpaid Termination Fee or Expenses, commencing on the date that
such Termination Fee or Expenses became due, at a rate equal to the rate of
interest publicly announced by Citibank, N.A., from time to time, in The City of
New York, as such bank's prime rate plus 3.00%. Payment of the fees and expenses
described in this Section 10.03 shall not be in lieu of any damages incurred in
the event of willful or intentional breach of this Agreement.
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.01 Non-Survival of Representations and Warranties. The
representations and warranties in this Agreement and in any certificate or
instrument delivered pursuant hereto shall terminate at the Effective Time or
upon the termination of this Agreement pursuant to Section 10.01. This Section
shall not limit any covenant or other obligation of the parties hereto which
shall survive in accordance with their terms.
SECTION 11.02 Amendments, Modification and Waiver. (a) Except as may
otherwise be provided herein, any provision of this Agreement may be amended,
modified or waived by the parties hereto, by action taken by or authorized by
their respective Board of Directors, prior to the Effective Time if, and only
if, such amendment or waiver is in writing and signed, in the case of an
amendment, by the Company and Parent or, in the case of a waiver, by the party
against whom the waiver is to be effective; provided that approval by the
Company of any amendment or waiver to this Agreement after the purchase by
Parent or Merger Sub of any shares of Company Common Stock in the Offer shall be
subject to the provisions of Section 2.03(a); provided further, however, that,
after the approval of this Agreement by the stockholders of the Company, no such
amendment shall be made except as allowed under applicable Law.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or
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the exercise of any other right, power or privilege. The rights and remedies
herein provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 11.03 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by telecopy
or by registered or certified mail (postage prepaid, return receipt requested)
to the respective parties at the following addresses (or at such other address
for a party as shall be specified in a notice given in accordance with this
Section 11.03):
if to Parent or Merger Sub:
Quest Diagnostics Incorporated
One Malcolm Avenue
Teterboro, NJ 07608
Facsimile No: (201) 393-5289
Attention: General Counsel
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022-6069
Facsimile No: (212) 848-7179
Attention: Clare O'Brien, Esq.
if to the Company:
Unilab Corporation
18448 Oxnard Street
Tarzana, CA 91356
Facsimile No.: (818) 757-3807
Attention: Robert E. Whalen
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, NY 10036
Facsimile: 212-735-2000
Attention: Lou R. Kling, Esq.
or to such other person or address as any party shall specify by notice in
writing to each of the other parties. All such notices, requests, demands,
waivers and communications shall be deemed to have been received on the date of
delivery unless if mailed, in which case on the third business day after the
mailing thereof except for a notice of a change of address, which shall be
effective only upon receipt thereof.
SECTION 11.04 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of Law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the Transaction is not affected in any manner materially adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
Transaction be consummated as originally contemplated to the fullest extent
possible.
SECTION 11.05 Entire Agreement; Assignment. This Agreement and the
Confidentiality Agreement constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
undertakings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof. This Agreement shall not be assigned
(whether pursuant to a merger, by operation of law or otherwise), except that
Parent and Merger Sub may assign all or any of their rights and obligations
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hereunder to any wholly owned subsidiary of Parent, provided that no such
assignment shall relieve the assigning party of its obligations hereunder if
such assignee does not perform such obligations.
SECTION 11.06 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, other than Section 8.06 (which is intended to be for the
benefit of the persons covered thereby and may be enforced by such persons).
SECTION 11.07 Interpretation. References in this Agreement to "reasonable
best efforts" shall require a person obligated to use its reasonable best
efforts to obtain any consent of a third party and to make reasonable
out-of-pocket expenditures, including all expenditures incurred in connection
with litigation. References herein to the "knowledge of the Company" shall mean
the actual knowledge of the "officers" of the Company (as such term is defined
in Rule 3b-2 promulgated under the Exchange Act) after due inquiry of those
persons who would reasonably be expected to have knowledge of the subject matter
of the inquiry. Whenever the words "include", "includes" or "including" are used
in this Agreement they shall be deemed to be followed by the words "without
limitation". The phrase "made available" when used in this Agreement shall mean
that the information referred to has been made available if requested by the
party to whom such information is to be made available. References to "hereof"
shall mean this Agreement and references to the "date hereof" shall mean the
date of this Agreement. References in this Agreement to satisfaction of any
condition set forth on Annex I shall mean, as of such date of determination, the
absence of the event or circumstance described in such condition.
SECTION 11.08 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement were
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
SECTION 11.09 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
contracts executed in and to be performed in that State (other than those
provisions set forth herein that are required to be governed by the DGCL). All
actions and proceedings arising out of or relating to this Agreement shall be
heard and determined exclusively in any New York state or federal court sitting
in the Borough of Manhattan of The City of New York. The parties hereto hereby
(a) submit to the exclusive jurisdiction of any state or federal court sitting
in the Borough of Manhattan of The City of New York for the purpose of any
action arising out of or relating to this Agreement brought by any party hereto,
and (b) irrevocably waive, and agree not to assert by way of motion, defense, or
otherwise, in any such action, any claim that it is not subject personally to
the jurisdiction of the above-named courts, that its property is exempt or
immune from attachment or execution, that the action is brought in an
inconvenient forum, that the venue of the action is improper, or that this
Agreement or the Transaction may not be enforced in or by any of the above-named
courts.
SECTION 11.10 Waiver of Jury Trial. Each of the parties hereto hereby
waives to the fullest extent permitted by applicable Law any right it may have
to a trial by jury with respect to any litigation directly or indirectly arising
out of, under or in connection with this Agreement or the Transaction. Each of
the parties hereto (a) certifies that no representative, agent or attorney of
any other party has represented, expressly or otherwise, that such other party
would not, in the event of litigation, seek to enforce that foregoing waiver and
(b) acknowledges that it and the other parties hereto have been induced to enter
into this Agreement and the Transaction, as applicable, by, among other things,
the mutual waivers and certifications in this Section 11.10.
SECTION 11.11 Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 11.12 Counterparts. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of
A-50
which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
SIGNATURE PAGE FOLLOWS
A-51
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
QUEST DIAGNOSTICS INCORPORATED
By /s/ KENNETH W. FREEMAN
------------------------------------
Name: Kenneth W. Freeman
Title: Chairman and Chief Executive
Officer
QUEST DIAGNOSTICS NEWCO INCORPORATED
By /s/ KENNETH W. FREEMAN
------------------------------------
Name: Kenneth W. Freeman
Title: Chief Executive Officer
UNILAB CORPORATION
By /s/ ROBERT E. WHALEN
------------------------------------
Name: Robert E. Whalen
Title: Chairman & CEO
A-52
ANNEX I
CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, but subject to compliance
with the terms of the Agreement and any applicable rules and regulations of the
SEC, including Rule 14e-1(c) relating to Merger Sub's obligation to exchange or
return tendered shares after the termination of the Offer, Merger Sub shall not
be required to accept for exchange or exchange or deliver any consideration for
any shares of Company Common Stock tendered pursuant to the Offer, and may
terminate, extend or amend the Offer in accordance with the Agreement, if (i)
the Minimum Condition shall not have been satisfied; (ii) the applicable waiting
period under the HSR Act shall not have expired or been terminated; (iii) the
Offer Registration Statement shall not have become effective under the
Securities Act or shall be the subject of any stop order or proceedings seeking
a stop order; (iv) the Parent Common Stock to be issued in the Offer and the
Merger shall not have been approved for listing on the NYSE, subject to official
notice of issuance; or (v) on or after the date of the Agreement and at or prior
to the Acceptance Date, any of the following events or circumstances occurs or
exists and is continuing:
(a) there shall have been instituted, pending, or issued any litigation,
suit, claim, action or proceeding before any federal or state court of the
United States (other than any such action in which a motion for a temporary
restraining order, a preliminary injunction or a permanent injunction shall have
been denied or shall have expired, or a judicial order granting any such
temporary restraining order, preliminary injunction or permanent injunction
shall have been reversed on appeal and not reinstated) by any United States
federal government or governmental authority or agency or any of the several
states of the United States or any attorney general thereof (1) challenging or
seeking to make illegal or otherwise, directly or indirectly, restrain or
prohibit or make materially more costly, the making of the Offer, the acceptance
for exchange or payment of any shares of Company Common Stock by Parent, Merger
Sub or any other Subsidiary of Parent, or the consummation of the Offer or the
Merger; (2) seeking to obtain material damages or otherwise directly or
indirectly relating to the transactions contemplated by the Offer, the Merger or
the Agreement, (3) seeking to limit, restrain or prohibit Parent's or Merger
Sub's ownership or operation of all or any material portion of the business or
assets of the Company and the Subsidiaries, taken as a whole, or to compel
Parent or any of its affiliates to dispose of or hold separate all or any
material portion of the business or assets of the Company and the Subsidiaries,
taken as a whole, or (4) seeking to impose or confirm any limitation on the
ability of Parent or Merger Sub to effectively exercise full rights of ownership
of any shares of Company Common Stock to be accepted in the Offer on all matters
properly presented to the Company's stockholders, including, without limitation,
the approval and adoption of the Agreement and the transactions contemplated by
the Agreement;
(b) there shall have been (i) any Law enacted, promulgated, amended, issued
or deemed applicable to (1) Parent, the Company or any of their respective
subsidiaries or (2) any transaction contemplated by the Agreement or (ii)
entered, promulgated or enforced by any court or Governmental Authority, any
Order of any kind which prohibits, restrains, restricts or enjoins the
consummation of the Offer or has the effect of making the Offer illegal, in each
case, by any legislative body or Governmental Authority that would result,
directly or indirectly, in any of the consequences referred to in clauses (1)
through (4) of paragraph (a) above;
(c) there shall have occurred (i) a declaration of a banking moratorium or
any suspension of payments in respect of banks in the United States, or (ii) any
limitation (whether or not mandatory) by any Governmental Authority on the
extension of credit by banks or other lending institutions;
(d) other than with respect to any Order that is the subject of paragraph
(a) or (b) above, there shall have been enacted, entered, promulgated or
enforced by any court or Governmental Authority any Order which prohibits,
restrains, restricts or enjoins the consummation of the Offer or has the effect
of making the Offer illegal;
(e) (i) the Company shall have breached or failed to perform in any
material respect its obligations, covenants or agreements under the Agreement,
(ii) the representations and warranties of the Company
Annex I-1
contained in the Agreement that are qualified by reference to a Company Material
Adverse Effect shall not have been true and correct when made or as of the
Acceptance Date as if made at or at and as of such time (other than
representations and warranties which by their terms address matters only as of
another specified date, which shall be true and correct only as of such date),
or (iii) the representations and warranties of the Company contained in the
Agreement that are not so qualified shall not have been true and correct when
made or as of the Acceptance Date as if made at or at and as of such time (other
than representations and warranties which by their terms address matters only as
of another specified date, which shall be true and correct only as of such date)
except in the case of this clause (iii) only, for such inaccuracies as have not
resulted, or are not reasonably likely to result, in a Company Material Adverse
Effect;
(f) there shall have occurred or exist any events, circumstances, changes,
occurrences, facts or effects that have had or would reasonably be expected to
have a Company Material Adverse Effect; and
(g) the Agreement shall have been terminated in accordance with its terms;
which, in the reasonable judgment of Parent in any such case, and regardless of
the circumstances (including any action or inaction by Parent or any of its
affiliates) giving rise to any such condition, makes it inadvisable to proceed
with such acceptance for exchange or payment.
The foregoing conditions are for the sole benefit of Merger Sub and Parent
and may be asserted by Merger Sub or Parent regardless of the circumstances
giving rise to any such condition or, except in the case of the Minimum
Condition, may be waived by Merger Sub or Parent in whole or in part at any time
and from time to time in their sole discretion. The failure by Parent or Merger
Sub at any time to exercise any of the foregoing rights shall not be deemed a
waiver of any such right; the waiver of any such right with respect to
particular facts and other circumstances shall not be deemed a waiver with
respect to any other facts and circumstances; and each such right shall be
deemed an ongoing right that may be asserted at any time and from time to time.
Annex I-2
EXHIBIT A
FORM OF AFFILIATE LETTER FOR
AFFILIATES OF THE COMPANY
[ -- ], 2002
Quest Diagnostics Incorporated
One Malcolm Avenue
Teterboro NJ 07608
Attention: General Counsel
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be deemed to
be an "affiliate" of UNILAB CORPORATION (the "Company"), as the term "affiliate"
is defined for purposes of paragraphs (c) and (d) of Rule 145 of the rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Act"). Pursuant to the terms of the Agreement and Plan of Merger, dated as of
April 2, 2002 (the "Merger Agreement"), among QUEST DIAGNOSTICS INCORPORATED, a
Delaware corporation ("Parent"), QUEST DIAGNOSTICS NEWCO INCORPORATED, a wholly
owned subsidiary of Parent and a Delaware corporation ("Merger Sub"), and the
Company, the Company will be merged with and into Merger Sub (the "Merger").
Capitalized terms used in this letter agreement without definition shall have
the meanings assigned to them in the Merger Agreement.
As a result of the Offer and Merger, I may receive shares of common stock,
par value $.01 per share, of Parent (the "Parent Shares"). I would receive such
Parent Shares in exchange for shares (or upon exercise of options for shares)
owned by me of common stock, par value $.01 per share, of the Company (the
"Company Shares").
1. I represent, warrant and covenant to Parent that in the event I receive
any Parent Shares as a result of the Offer or Merger:
A. I shall not make any sale, transfer or other disposition of the
Parent Shares in violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and discussed the requirements
of such documents and other applicable limitations upon my ability to sell,
transfer or otherwise dispose of the Parent Shares, to the extent I felt
necessary, with my counsel or counsel for the Company.
C. I have been advised that the issuance of the Parent Shares to me
pursuant to the Offer or Merger has been registered with the Commission
under the Act on a Registration Statement on Form S-4. However, I have also
been advised that, because at the time of the Offer or at the time the
Merger is submitted for a vote of the stockholders of the Company, (a) I
may be deemed to be an affiliate of the Company and (b) the distribution by
me of the Parent Shares has not been registered under the Act, I may not
sell, transfer or otherwise dispose of the Parent Shares issued to me in
the Offer and/or Merger unless (i) such sale, transfer or other disposition
is made in conformity with the volume and other limitations of Rule 145
promulgated by the Commission under the Act, (ii) such sale, transfer or
other disposition has been registered under the Act or (iii) I deliver an
opinion of counsel reasonably acceptable to Parent, or a "no action" or
interpretive letter of the Commission is furnished to Parent, stating that
such sale, transfer or other disposition is otherwise exempt from
registration under the Act.
D. Except with respect to the Parent Shares that will be issued to
the Stockholders in the Offer or following the exercise by Parent of the
Options granted in the Stockholders Agreement, I understand that Parent is
under no obligation to register the sale, transfer or other disposition of
the Parent Shares by me
Exhibit A-1
or on my behalf under the Act or, except as provided in paragraph 2(A)
below, to take any other action necessary in order to make compliance with
an exemption from such registration available.
E. I understand that Parent may give stop-transfer instructions to
its transfer agent with respect to the Parent Shares to enforce the
restrictions set forth herein and that there will be placed on the
certificates for the Parent Shares issued to me, or any substitutions
therefor, a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION
TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES.
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE TRANSFERRED IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED APRIL 2, 2002 BETWEEN
THE REGISTERED HOLDER HEREOF AND PARENT, A COPY OF WHICH AGREEMENT IS ON
FILE AT THE PRINCIPAL OFFICES OF PARENT."
F. I understand that unless a sale or transfer is made in conformity
with the provisions of Rule 145, or pursuant to a registration statement,
Parent reserves the right to put the following legend on the certificates
issued to my transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED
BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933
AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN
ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OF 1933."
G. Execution of this letter should not be considered an admission on
my part that I am an "affiliate" of the Company as described in the first
paragraph of this letter, nor as a waiver of any rights I may have to
object to any claim that I am such an affiliate on or after the date of
this letter.
2. By Parent's acceptance of this letter, Parent hereby agrees with me as
follows:
A. For so long as and to the extent necessary to permit me to sell
the Parent Shares pursuant to Rule 145 and, to the extent applicable, Rule
144 under the Act, Parent shall (a) use its reasonable efforts to (i) file,
on a timely basis, all reports and data required to be filed with the
Commission by it pursuant to Section 13 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and (ii) furnish to me upon request
a written statement as to whether Parent has complied with such reporting
requirements during the 12 months preceding any proposed sale of the Parent
Shares by me under Rule 145, and (b) otherwise use its reasonable efforts
to permit such sales pursuant to Rule 145 and Rule 144. Parent hereby
represents to me that it has filed all reports that are required to be
filed with the Commission under Section 13 of the Exchange Act during the
preceding 12 months.
B. It is understood and agreed that certificates with the legends set
forth in paragraphs 1(E) and 1(F) above will be substituted by delivery of
certificates without such legends if (i) one year shall have elapsed from
the date the undersigned acquired the Parent Shares received in the Offer
or Merger, as applicable, and the provisions of Rule 145(d)(2) are then
available to the undersigned, (ii) two years shall have elapsed from the
date the undersigned acquired the Parent Shares received in the Offer or
Merger, as applicable, and the provisions of Rule 145(d)(3) are then
applicable to the undersigned, or (iii) Parent has received either an
opinion of counsel, which opinion and counsel shall be reasonably
satisfactory to Parent, or a "no action" letter obtained by the undersigned
from the staff of the
Exhibit A-2
Commission to the effect that the restrictions imposed by Rule 145 under
the Act no longer apply to the undersigned.
Very truly yours,
--------------------------------------
Name:
Agreed and accepted this [ -- ]
day of [ -- ], 2002, by
QUEST DIAGNOSTICS INCORPORATED
By:
--------------------------------------
Name:
Title:
Exhibit A-3
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
AMENDMENT, dated as of May 13, 2002 (this "Amendment"), among QUEST
DIAGNOSTICS INCORPORATED, a Delaware corporation ("Parent"), QUEST DIAGNOSTICS
NEWCO INCORPORATED, a Delaware corporation and a direct wholly owned subsidiary
of Parent ("Merger Sub"), and UNILAB CORPORATION, a Delaware corporation (the
"Company").
WHEREAS, the parties hereto have entered into an Agreement and Plan of
Merger, dated as of April 2, 2002 (the "Merger Agreement"); and
WHEREAS, the parties have been engaged in discussions relating to the terms
of the Merger Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
and covenants set forth herein, the Merger Agreement shall be amended, in
accordance with Section 11.02 thereof, as follows:
1. Definitions; References. Unless otherwise specifically defined
herein, each term used herein shall have the meaning assigned to such term
in the Merger Agreement. Each reference to "hereof", "herein", "hereby" and
"this Agreement" shall from and after the date hereof refer to the Merger
Agreement as amended by this Amendment. Notwithstanding the foregoing, the
date of the Merger Agreement, as amended hereby, shall in all instances
remain as April 2, 2002, and references to "the date hereof" and "the date
of this Agreement" shall continue to refer to April 2, 2002.
2. The Offer. The reference to "25 business days" in clause (i) of
the third sentence of Section 2.01(b) of the Merger Agreement is hereby
deleted in its entirety and replaced by "23 business days".
3. The Merger. Section 3.01 of the Merger Agreement is hereby
deleted in its entirety and replaced by the following:
"SECTION 3.01 The Merger. (a) At the Effective Time, upon the
terms and subject to the conditions of this Agreement and in accordance
with the DGCL, the Company shall be merged with and into Merger Sub. As a
result of the Merger, the separate corporate existence of the Company shall
cease and Merger Sub shall continue as the surviving corporation of the
Merger; provided, however, that if either of the conditions set forth in
Section 3.01(b)(A) or all of the conditions set forth in Section 3.01(b)(B)
below is satisfied, then, at Parent's discretion, the Merger may instead be
effected as a merger of Merger Sub with and into the Company in accordance
with the DGCL with the Company continuing as the surviving corporation (the
"Reverse Merger").
(b) Notwithstanding anything else to the contrary contained in
this Agreement, Parent may elect to effect the Reverse Merger if either of
the following two conditions is satisfied: (A)(i) the aggregate value of
all shares of Parent Common Stock payable to holders of Company Common
Stock upon consummation of the Offer and the Merger, based upon the lower
of the closing price of shares of Parent Common Stock on the NYSE Composite
Tape on the date immediately prior to the Effective Time or the Acceptance
Date (the "Stock Value"), is less than 42% of the aggregate value of the
Stock Value and all cash (including, without limitation, the Cash
Consideration, cash paid pursuant to the exercise of dissenters' rights,
and cash in lieu of fractional shares) payable to holders of Company Common
Stock upon consummation of the Offer and the Merger, or (ii) Parent and/or
the Company do not obtain the Tax Opinions referred to in Section 8.10(b)
and Section 8.10(c); or (B)(i) the aggregate value of all cash (including,
without limitation, the Cash Consideration, cash paid pursuant to the
exercise of dissenters' rights, and cash in lieu of fractional shares)
payable to holders of Company Common Stock upon consummation of the Offer
and the Merger is less than 18% of the aggregate value of the Stock Value
and all cash (including, without limitation, the Cash Consideration, cash
paid pursuant to the exercise of dissenters' rights and cash in lieu of
fractional shares) payable to holders of Company Common Stock upon
consummation of the Offer and the Merger, (ii) holders of Company Common
Stock constituting more than 82% of the outstanding shares of Company
Common Stock exchange such stock solely for Parent Common Stock in the
Offer and the Merger (except for cash
received in lieu of fractional shares), and (iii) Parent and the Company
have received the Tax Opinions referred to in Section 8.10(b) and Section
8.10(c). In connection with the delivery of Tax Opinions pursuant to
Section 3.01(b)(B)(iii) herein, both Parent (together with Merger Sub) and
the Company shall deliver to Shearman & Sterling, counsel to Parent, and to
Skadden, Arps, Slate, Meagher & Flom LLP, counsel to the Company,
Representation Letters, dated and executed as of the Effective Time (and as
of such other date or dates reasonably requested by counsel), substantially
similar to those set forth in Exhibit 8.10(b) and Exhibit 8.10(c).
(c) If the Reverse Merger is effected, then the separate
existence of Merger Sub shall cease and the Company shall become the
surviving corporation and shall continue its existence under the laws of
the State of Delaware as a wholly owned subsidiary of Parent. The surviving
corporation of the Merger or the Reverse Merger, as the case may be, shall
be herein referred to as the "Surviving Corporation". In the event Parent
elects to effect the Reverse Merger, all references to the "Merger" in this
Agreement and all other ancillary or related agreements, documents and
instruments, except, in the case of a Reverse Merger effected pursuant to
Section 3.01(b)(A), where such references relate to the qualification of
the transaction as a tax-free reorganization under Section 368(a) of the
Code, shall be deemed to be references to the "Reverse Merger", and this
Agreement and such other ancillary agreements, documents and instruments
shall be construed and interpreted accordingly."
4. Authorizations. Each of Parent, Merger Sub and the Company
represents and warrants that this Amendment has been duly authorized by all
necessary corporate action.
5. Effect of Amendment. Except as and to the extent expressly
modified by this Amendment, the Merger Agreement shall remain in full force
and effect in all respects.
6. Miscellaneous. The provisions contained in Article XI of the
Merger Agreement are incorporated by reference in this Amendment as though
they were expressly set forth herein.
[The Remainder of This Page is Intentionally Left Blank]
2
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as of the date first written above by their respective officers thereunto duly
authorized.
QUEST DIAGNOSTICS INCORPORATED
by /s/ KENNETH W. FREEMAN
------------------------------------
Name: Kenneth W. Freeman
Title: Chairman and Chief
Executive Officer
QUEST DIAGNOSTICS NEWCO INCORPORATED
by /s/ LEO C. FARRENKOPF, JR.
------------------------------------
Name: Leo C. Farrenkopf, Jr.
Title: Deputy General Counsel,
Vice President and Secretary
UNILAB CORPORATION
by /s/ ROBERT E. WHALEN
------------------------------------
Name: Robert E. Whalen
Title: Chairman and Chief
Executive Officer
3
AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF MERGER
AMENDMENT NO. 2, dated as of June 20, 2002 (this "Amendment"), among QUEST
DIAGNOSTICS INCORPORATED, a Delaware corporation ("Parent"), QUEST DIAGNOSTICS
NEWCO INCORPORATED, a Delaware corporation and a direct wholly owned subsidiary
of Parent ("Merger Sub"), and UNILAB CORPORATION, a Delaware corporation (the
"Company").
WHEREAS, the parties hereto have entered into an Agreement and Plan of
Merger, dated as of April 2, 2002, as amended on May 13, 2002 (the "Merger
Agreement"); and
WHEREAS, the parties have been engaged in discussions relating to the terms
of the Merger Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
and covenants set forth herein, the Merger Agreement shall be amended, in
accordance with Section 11.02 thereof, as follows:
1. Definitions; References. Unless otherwise specifically defined
herein, each term used herein shall have the meaning assigned to such term
in the Merger Agreement. Each reference to "hereof", "herein", "hereby" and
"this Agreement" shall from and after the date hereof refer to the Merger
Agreement as amended by this Amendment. Notwithstanding the foregoing, the
date of the Merger Agreement, as amended hereby, shall in all instances
remain as April 2, 2002, and references to "the date hereof" and "the date
of this Agreement" shall continue to refer to April 2, 2002.
2. Exchange Fund; Distributions on Shares of Parent Common
Stock. The first sentence of Section 2.04(a) of the Merger Agreement is
hereby deleted in its entirety and replaced by the following: "(a) Promptly
after the Acceptance Date, Parent shall deposit, or shall cause to be
deposited, with Computershare Investor Services, LLC or a bank or trust
company that may be designated by Parent and is reasonably satisfactory to
the Company (the "Offer Exchange Agent"), for the benefit of the holders of
Company Common Stock, for exchange in accordance with the terms of the
Offer set forth in Article II, (a) cash representing the Cash Consideration
payable pursuant to Section 2.01 and (b) certificates representing the
shares of Parent Common Stock issuable to holders of Company Common Stock
in the Offer pursuant to Section 2.01 (such cash and certificates for
shares of Parent Common Stock, together with any dividends or distributions
with respect thereto, being hereinafter referred to as, the "Offer Exchange
Fund")."
3. Letters of Accountants. Section 8.12 of the Merger Agreement is
hereby deleted in its entirety and replaced by the following:
"SECTION 8.12 Letters of Accountants. (a) Parent shall use its
reasonable best efforts to cause to be delivered to the Company a "comfort"
letter of PricewaterhouseCoopers LLP, Parent's independent public
accountants, dated and delivered on the Acceptance Date, and addressed to
the Company, in form and substance reasonably satisfactory to the Company
and reasonably customary in scope and substance for letters delivered by
independent public accountants in connection with transactions such as
those contemplated by this Agreement.
(b) The Company shall use its reasonable best efforts to cause to be
delivered to Parent a "comfort" letter of Deloitte & Touche LLP, the
Company's independent public accountants, dated and delivered the date on
the Acceptance Date, and addressed to Parent, in form and substance
reasonably satisfactory to Parent and reasonably customary in scope and
substance for letters delivered by independent public accountants in
connection with transactions such as those contemplated by this Agreement."
4. Authorizations. Each of Parent, Merger Sub and the Company
represents and warrants that this Amendment has been duly authorized by all
necessary corporate action.
5. Effect of Agreement. Except as and to the extent expressly
modified by this Amendment, the Merger Agreement shall remain in full force
and effect in all respects.
6. Miscellaneous. The provisions contained in Article XI of the
Merger Agreement are incorporated by reference in this Amendment as though
they were expressly set forth herein.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as of the date first written above by their respective officers thereunto duly
authorized.
QUEST DIAGNOSTICS INCORPORATED
By /s/ KENNETH W. FREEMAN
------------------------------------
Name: Kenneth W. Freeman
Title: Chairman and Chief
Executive Officer
QUEST DIAGNOSTICS NEWCO INCORPORATED
By /s/ KENNETH W. FREEMAN
------------------------------------
Name: Kenneth W. Freeman
Title: Chief Executive Officer
UNILAB CORPORATION
By /s/ DAVID W. GEE
------------------------------------
Name: David W. Gee
Title: Executive Vice President,
Secretary and
General Counsel
2
ANNEX B
--------------------------------------------------------------------------------
STOCKHOLDERS AGREEMENT
dated as of April 2, 2002
by and among
QUEST DIAGNOSTICS INCORPORATED,
QUEST DIAGNOSTICS NEWCO INCORPORATED,
KELSO INVESTMENT ASSOCIATES VI, L.P.
and
KEP VI, LLC
--------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
----
ARTICLE I
TENDER OF SHARES
SECTION 1.01. Tender of Shares............................. 1
ARTICLE II
VOTING AGREEMENT
SECTION 2.01. Voting Agreement............................. 2
SECTION 2.02. Irrevocable Proxy............................ 2
ARTICLE III
THE OPTION
SECTION 3.01. Grant of Option.............................. 2
SECTION 3.02. Payment of the Purchase Price................ 2
SECTION 3.03. Exercise of Option........................... 3
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
SECTION 4.01. Organization, Authority and Qualification of
the Stockholders.......................................... 4
SECTION 4.02. No Conflict; Required Filings and Consents... 4
SECTION 4.03. Ownership of Shares.......................... 5
SECTION 4.04. Absence of Litigation........................ 5
SECTION 4.05. Brokers...................................... 5
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
SECTION 5.01. Organization, Authority and Qualification.... 5
SECTION 5.02. No Conflict; Required Filings and Consents... 5
ARTICLE VI
COVENANTS OF THE STOCKHOLDERS
SECTION 6.01. No Disposition or Encumbrance of Shares...... 6
SECTION 6.02. No Solicitation of Transactions.............. 6
SECTION 6.03. Further Action; Reasonable Best Efforts...... 6
SECTION 6.04. Information for Offer Documents and Proxy
Statement/Prospectus; Disclosure.......................... 6
ARTICLE VII
REGISTRATION RIGHTS
SECTION 7.01. Registration................................. 7
SECTION 7.02. Blackout Periods............................. 7
SECTION 7.03. Obligations of Parent........................ 7
SECTION 7.04. Expenses of Registration..................... 8
SECTION 7.05. Indemnification.............................. 8
SECTION 7.06. Furnish Information.......................... 10
B-i
PAGE
----
ARTICLE VIII
TERMINATION
SECTION 8.01. Termination.................................. 10
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Notices...................................... 12
SECTION 9.02. Severability................................. 12
SECTION 9.03. Entire Agreement; Assignment................. 12
SECTION 9.04. Parties in Interest.......................... 13
SECTION 9.05. Specific Performance......................... 13
SECTION 9.06. Governing Law................................ 13
SECTION 9.07. Waiver of Jury Trial......................... 13
SECTION 9.08. Headings..................................... 13
SECTION 9.09. Counterparts................................. 13
SECTION 9.10. Amendment.................................... 13
SECTION 9.11. Waiver....................................... 13
SECTION 9.12. Costs and Expenses of This Agreement and the
Merger Agreement.......................................... 13
SECTION 9.13. Affiliate Letters............................ 14
SECTION 9.14. Adjustments.................................. 14
B-ii
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT, dated as of April 2, 2002 (this "Agreement"), among
QUEST DIAGNOSTICS INCORPORATED, a Delaware corporation ("Parent"), QUEST
DIAGNOSTICS NEWCO INCORPORATED, a Delaware corporation and a wholly owned
subsidiary of Parent ("Purchaser"), KELSO INVESTMENT ASSOCIATES VI, L.P., a
Delaware limited partnership ("LP"), and KEP VI, LLC, a Delaware limited
liability company ("LLC" and, together with LP as stockholders of UNILAB
CORPORATION (the "Company"), the "Stockholders"; and each of LP and LLC,
individually, a "Stockholder").
WHEREAS, Parent, Purchaser and the Company are entering into an Agreement
and Plan of Merger, dated as of the date hereof (as amended from time to time,
the "Merger Agreement"; capitalized terms used but not defined in this Agreement
have the meanings attributed to such terms in the Merger Agreement), pursuant to
which (i) Purchaser shall commence a cash election exchange offer (as such
exchange offer may hereafter be amended from time to time in accordance with the
Merger Agreement, the "Offer") to acquire each issued and outstanding share of
common stock, par value $0.01 per share, of the Company ("Common Stock") in
exchange for, at the election of the holder thereof, either (x) a net amount of
$26.50 in cash, or (y) 0.3256 of a share of common stock, par value $0.01 per
share, of Parent, all in accordance with and subject to the terms and conditions
of the Merger Agreement; and (ii) following consummation of the Offer, the
Company shall merge with Purchaser (the "Merger");
WHEREAS, each Stockholder is the record or beneficial owner of the number
of shares of Common Stock set forth on Schedule A hereto opposite such
Stockholder's name (all such shares of Common Stock and any shares of Common
Stock hereafter acquired by the Stockholders prior to termination of this
Agreement being, the "Shares");
WHEREAS, as a condition to entering into the Merger Agreement and incurring
the obligations set forth therein, including the Offer, Parent and Purchaser
have required that the Stockholders agree to enter into this Agreement; and
WHEREAS, the Stockholders wish to induce Parent and Purchaser to enter into
the Merger Agreement and, therefore, the Stockholders are willing to enter into
this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties hereto agree as follows:
ARTICLE I
TENDER OF SHARES
SECTION 1.01. Tender of Shares. Each Stockholder agrees to promptly (and,
in any event, not later than two business days prior to the initial scheduled
expiration date of the Offer) tender or cause to be tendered into the Offer,
pursuant to and in accordance with the terms of the Offer, and not withdraw or
cause to be withdrawn (except following the termination of the Offer in
accordance with its terms), all of such Stockholder's Shares. Each Stockholder
acknowledges and agrees that Purchaser's obligation to accept for exchange or
payment shares of Common Stock in the Offer, including any Shares tendered by a
Stockholder, is subject to the terms and conditions of the Merger Agreement and
the Offer. Parent acknowledges and agrees that the ability of Parent or Merger
Sub to purchase shares of Parent Common Stock in the Offer is subject to the
terms and conditions of the Merger Agreement and the Offer. Notwithstanding the
foregoing, under certain circumstances set forth in Section 8.01(a) hereof, the
Stockholders shall be entitled to withdraw Shares tendered into the Offer.
Parent shall give each Stockholder reasonably adequate notice so as to enable
the Stockholders to exercise such rights of withdrawal in a reasonable manner,
including by (i) providing the Stockholders with two business days notice prior
to any anticipated final expiration date of the Offer, and (ii) arranging for
the Offer to expire at midnight on the applicable expiration date.
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ARTICLE II
VOTING AGREEMENT
SECTION 2.01. Voting Agreement. Each Stockholder hereby agrees that, from
and after the date hereof and until the earliest to occur of (x) the Effective
Time, (y) the termination of this Article II pursuant to Section 8.01(a) and (z)
the termination of this Agreement pursuant to Section 8.01(b)(other than the
certain specified Sections identified therein), at any meeting of the
stockholders of the Company, however called, and in any action by consent of the
stockholders of the Company, such Stockholder shall vote (or cause to be voted)
all such Stockholder's Shares (i) in favor of adoption of the Merger Agreement,
the Merger and all the transactions contemplated by the Merger Agreement and
this Agreement and otherwise in such manner as may be necessary to consummate
the Merger; (ii) against any action, proposal, agreement or transaction that
would result in a breach of any covenant, obligation, agreement, representation
or warranty of the Company under the Merger Agreement or of such Stockholder
contained in this Agreement; and (iii) against any action, agreement,
transaction (other than the Merger Agreement or the transactions contemplated
thereby) or proposal (including any proposal relating to a Competing
Transaction) that could reasonably be expected to result in any of the
conditions to the Company's obligations under the Merger Agreement not being
fulfilled or that is intended, or could reasonably be expected, to impede,
interfere, delay, discourage or adversely affect the Merger Agreement, the
Offer, the Merger or this Agreement. Any vote by such Stockholder that is not in
accordance with this Section 2.01 shall be considered null and void, and the
provisions of Section 2.02 shall be deemed to take immediate effect.
SECTION 2.02. Irrevocable Proxy. If, and only if, a Stockholder fails to
comply with the provisions of Section 2.01, such Stockholder hereby agrees that
such failure shall result, without any further action by such Stockholder
effective as of the date of such failure, in the constitution and appointment of
Parent and each of its executive officers from and after the date of such
determination until the earlier to occur of (x) the Effective Time, (y) the
termination of this Article II pursuant to Section 8.01(a) and (z) the
termination of this Agreement pursuant to Section 8.01(b) (other than the
certain specified Sections identified therein)(at which point such constitution
and appointment shall automatically be revoked) as such Stockholder's attorney,
agent and proxy (such constitution and appointment, the "Irrevocable Proxy"),
with full power of substitution, to vote and otherwise act with respect to all
such Stockholder's Shares at any meeting of the stockholders of the Company
(whether annual or special and whether or not an adjourned or postponed
meeting), and in any action by written consent of the stockholders of the
Company, on the matters and in the manner specified in Section 2.01. THIS PROXY
AND POWER OF ATTORNEY ARE IRREVOCABLE AND COUPLED WITH AN INTEREST AND, TO THE
EXTENT PERMITTED UNDER APPLICABLE LAW, SHALL BE VALID AND BINDING ON ANY PERSON
TO WHOM A STOCKHOLDER MAY TRANSFER ANY OF ITS SHARES IN BREACH OF THIS
AGREEMENT. Each Stockholder hereby revokes all other proxies and powers of
attorney with respect to all such Stockholder's Shares that may have heretofore
been appointed or granted, and no subsequent proxy or power of attorney shall be
given (and if given, shall not be effective) by such Stockholder with respect
thereto. All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of such Stockholder and any obligation of such
Stockholder under this Agreement shall be binding upon the heirs, personal
representatives, successors and assigns of such Stockholder.
ARTICLE III
THE OPTION
SECTION 3.01. Grant of Option. Each Stockholder hereby grants to Parent
an irrevocable option (each, an "Option" and, collectively, the "Options") to
purchase all of such Stockholder's Shares at a purchase price per Share of
$26.50 (the "Purchase Price").
SECTION 3.02. Payment of the Purchase Price. The Purchase Price shall be
payable by Parent, at the option of Parent, either (x) in cash or (y) in a
combination of cash and shares of Parent Common Stock in the same proportions as
though such Shares and any other Tendered Cash Election Shares had been acquired
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pursuant to and in accordance with the terms of the Offer, taking into account
for this purpose the aggregate number of Tendered Cash Election Shares in the
Offer, including the number of Stockholder Shares that were Tendered Cash
Election Shares.
SECTION 3.03. Exercise of Option. (a) Each of the Options shall become
exercisable by Parent for a ten business day period (the "Option Exercise
Period") commencing on the Initial Exercisability Date. For purposes of this
Agreement, the "Initial Exercisability Date" shall be the date on which either
(1) the Merger Agreement is terminated by Parent or the Company pursuant to
Section 10.01(a), Section 10.01(b) or clause (ii) of Section 10.01(d), or (2)
the Merger Agreement is terminated by Parent or the Company pursuant to Section
10.01(d)(i) thereof, if (w) in the case of clauses (1) and (2) of this Section
3.03(a), at the time of termination, no Parent Share Price Decrease (without
giving effect to clause (3) in the definition thereof) shall have occurred and
be continuing, (x) in the case of clauses (1) and (2) of this Section 3.03(a),
at the time of termination, all of the conditions set forth in Section 2.01(c)
of the Merger Agreement shall have been satisfied, (y) in the case of a
termination of the Merger Agreement pursuant to Section 10.01(d)(i) or Section
10.01(d)(ii) thereof, at the time of termination, the conditions set forth in
paragraphs (c) and (d) of clause (v) of Annex I shall have been satisfied, and
no litigation of the type described in paragraph (a) of clause (v) of Annex I
shall have been brought by any Governmental Authority on antitrust grounds and
remain pending, and (z) in the case of a termination of the Merger Agreement on
the Termination Date pursuant to Section 10.01(d)(i) or Section 10.01(d)(ii), at
the time of termination, the conditions set forth in clauses (ii), (iii) and
(iv) of Annex I of the Merger Agreement shall have been satisfied. The Options
shall be exercisable in whole but not in part, and in no event shall Parent be
permitted to exercise an Option with respect to a Stockholders' Shares unless
Parent concurrently exercises all Options to purchase the Shares of all
Stockholders. Notwithstanding anything to the contrary contained in this
Agreement, in no event shall any Stockholders' Shares be purchased after the
close of business on the 45th day following the termination of the Merger
Agreement (the "Option Termination Date").
(b) If Parent wishes to exercise the Options during the Option Exercise
Period, Parent shall send a written notice (the "Exercise Notice") to each
Stockholder of its intention to exercise such Stockholder's Option, specifying
the place, and, if then known, the time and the date (the "Closing Date") of the
closing of such purchase (the "Closing"). The Closing Date shall, subject to
satisfaction of the conditions in paragraph (d), occur on the later of (i) the
third business day after the date on which such Exercise Notice is delivered and
(ii) one business day following the expiration or termination of the waiting
period under the HSR Act applicable to the consummation of the purchase and sale
of the Shares hereunder. For the purposes of this Agreement, the term "business
day" means any day that is not a Saturday, a Sunday or a day on which banks are
not required or authorized by law or executive order to be closed in the City of
New York.
(c) At the Closing, (i) each Stockholder shall deliver to Parent (or its
designee) such Stockholder's Shares by delivery of a certificate or certificates
evidencing such Shares duly endorsed to Parent or accompanied by stock powers
duly executed in favor of Parent, with all necessary stock transfer stamps
affixed, and (ii) Parent shall pay for the Stockholders' Shares with (a) cash or
(b) a combination of cash and shares of Parent Common Stock in the same
proportions as though such Shares and any other Tendered Cash Election Shares
had been acquired pursuant to and in accordance with the terms of the Offer,
taking into account for this purpose the aggregate number of Tendered Cash
Election Shares in the Offer, including the number of Stockholder Shares that
were Tendered Cash Election Shares, in either case in accordance with the
provisions of Sections 3.02(a) and 3.02(b).
(d) The Closing shall be subject to the satisfaction or, in the case of
clause (iv) below, waiver by the Stockholders of each of the following
conditions:
(i) no Governmental Authority shall have enacted, issued,
promulgated, enforced or entered any Law that is then in effect and no
Order shall have been entered or be in effect, in either case that has the
effect of making the acquisition of the Shares by Parent illegal or
otherwise restricting, preventing or prohibiting consummation of the
purchase and sale of the Shares pursuant to the exercise of the Options;
(ii) any waiting period under the HSR Act applicable to the
consummation of the purchase and sale of the Shares hereunder shall have
expired or been terminated;
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(iii) the approval for listing of any shares of Parent Common Stock
to be issued to Stockholders hereunder on the NYSE, subject to official
notice of issuance; and
(iv) all of the conditions to the Offer set forth in Section 2.01(c)
of the Merger Agreement shall have been satisfied.
At the Closing, (i) each Stockholder will deliver good and valid title to
such Stockholder's Shares free and clear of any Liens and, upon delivery to
Parent of such Shares and payment for the Purchase Price therefor as
contemplated herein, Parent will receive good, valid and marketable title to
such Stockholder's Shares free and clear of any Liens, and (ii) Parent shall
deliver to each Stockholder the cash portion of the Purchase Price to which such
Stockholder is entitled pursuant to Section 3.02 by wire transfer in immediately
available funds to a bank account to be designated by such Stockholder in a
written notice to Parent at least two business days prior to the Closing and,
with respect to the stock portion of the Purchase Price, if any, Parent shall
deliver to each Stockholder stock certificates evidencing the shares of Parent
Common Stock to which such Stockholder is entitled pursuant to Section 3.02.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder hereby jointly and severally represents and warrants to
Parent and to Purchaser as follows:
SECTION 4.01. Organization, Authority and Qualification of the
Stockholders. Each Stockholder is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization or formation and
has all necessary power and authority to enter into this Agreement, to carry out
its obligations hereunder and to consummate the transactions contemplated
hereby. Each Stockholder is duly licensed or qualified to do business and is in
good standing in each jurisdiction in which the properties owned or leased by it
or the operation of its business makes such licensing or qualification
necessary, except to the extent that the failure to be so licensed or qualified
would not prevent or materially delay the ability of such Stockholder to carry
out its obligations under, and to consummate the transactions contemplated by,
this Agreement. The execution and delivery of this Agreement by each
Stockholder, the performance by each Stockholder of its obligations hereunder
and the consummation by each Stockholder of the transactions contemplated hereby
have been duly authorized by all requisite action on the part of each
Stockholder. This Agreement has been duly and validly executed and delivered by
each Stockholder and (assuming due authorization, execution and delivery by
Parent and Purchaser) this Agreement constitutes a legal, valid and binding
obligation of each Stockholder enforceable against each Stockholder in
accordance with its terms.
SECTION 4.02. No Conflict; Required Filings and Consents. The execution
and delivery of this Agreement by each Stockholder do not, and the performance
of this Agreement by each Stockholder shall not, (i) conflict with or violate
the agreement of limited partnership, limited liability company agreement or
equivalent organizational documents, as the case may be, of such Stockholder,
(ii) assuming satisfaction of the requirements set forth in 4.02(b) below,
conflict with or violate any Law applicable to such Stockholder or by which any
property or asset of such Stockholder is bound or affected or (iii) result in
any breach of, or constitute a default (or event that with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a Lien on any Shares (other than pursuant to this Agreement)
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation of such
Stockholder, except for any such conflicts, violations, breaches, defaults or
other occurrences that would not prevent or materially delay the ability of such
Stockholder to carry out its obligations under, and to consummate the
transactions contemplated by, this Agreement.
(b) The execution and delivery of this Agreement by each Stockholder do
not, and the performance of this Agreement by each Stockholder shall not,
require any consent, approval, authorization or permit of, or filing with, or
notification to, any Governmental Authority, except (i) for applicable
requirements, if any, of the Exchange Act, Blue Sky Laws and the premerger
notification requirements of the HSR Act, and
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(ii) where the failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not prevent or
materially delay the ability of such Stockholder to carry out its obligations
under, and to consummate the transactions contemplated by, this Agreement.
SECTION 4.03. Ownership of Shares. As of the date hereof, each
Stockholder is the record or beneficial owner of, and has good title to, the
number of Shares set forth opposite such Stockholder's name on Schedule A
hereto. Except as set forth on Schedule A, such Shares are all the securities of
the Company owned, either of record or beneficially, by such Stockholder as of
the date hereof and such Stockholder does not have any option or other right to
acquire any other securities of the Company. The Shares owned by such
Stockholder are owned free and clear of all Liens, other than any Liens created
by this Agreement. Except as provided in this Agreement, such Stockholder has
not appointed or granted any proxy, which appointment or grant is still
effective, with respect to the Shares owned by such Stockholder.
SECTION 4.04. Absence of Litigation. As of the date of this Agreement,
there is no litigation, suit, claim, action, proceeding or investigation pending
or, to the knowledge of the Stockholders, threatened against either Stockholder,
or any property or asset of either Stockholder, before any Governmental
Authority that seeks to delay or prevent the consummation of the transactions
contemplated by this Agreement.
SECTION 4.05. Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of either, or both, of the Stockholders.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Each of Parent and Purchaser hereby jointly and severally represent and
warrant to the Stockholders as follows:
SECTION 5.01. Organization, Authority and Qualification. Each of Parent
and Purchaser is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all necessary power and
authority to enter into this Agreement, to carry out its obligations hereunder
and to consummate the transactions contemplated hereby. Each of Parent and
Purchaser is duly licensed or qualified to do business and is in good standing
in each jurisdiction in which the properties owned or leased by it or the
operation of its business makes such licensing or qualification necessary,
except to the extent that the failure to be so licensed or qualified would not
prevent or materially delay the ability of Parent or Purchaser to carry out its
obligations under, and to consummate the transactions contemplated by, this
Agreement. The execution and delivery of this Agreement by each of Parent and
Purchaser, the performance by each of Parent and Purchaser of its obligations
hereunder and the consummation by each of Parent and Purchaser of the
transactions contemplated hereby have been duly authorized by all requisite
action on the part of each of Parent and Purchaser. This Agreement has been duly
and validly executed and delivered by each of Parent and Purchaser and (assuming
due authorization, execution and delivery by each Stockholder) this Agreement
constitutes a legal, valid and binding obligation of each of Parent and
Purchaser enforceable against Parent and Purchaser in accordance with its terms.
SECTION 5.02. No Conflict; Required Filings and Consents. The execution
and delivery of this Agreement by each of Parent and Purchaser do not, and the
performance of this Agreement by each of Parent and Purchaser shall not, (i)
conflict with or violate the certificate of incorporation and by-laws of Parent
or Purchaser, (ii) assuming satisfaction of the requirements set forth in
Section 5.02(b) below, conflict with or violate any Law applicable to Parent or
Purchaser or by which any property or asset of Parent or Purchaser is bound or
affected or (iii) result in any breach of, or constitute a default (or event
that with notice or lapse of time or both would become a default) under, or give
to others any rights of termination, amendment, acceleration or cancellation of,
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation of Parent or Purchaser,
except for any such conflicts, violations, breaches, defaults or other
occurrences that would not prevent or materially delay the ability of
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Parent or Purchaser to carry out its obligations under, and to consummate the
transactions contemplated by, this Agreement.
(b) The execution and delivery of this Agreement by each of Parent and
Purchaser do not, and the performance of this Agreement by each of Parent and
Purchaser shall not, require any consent, approval, authorization or permit of,
or filing with, or notification to, any Governmental Authority, except (i) for
applicable requirements, if any, of the Securities Act, the Exchange Act, Blue
Sky Laws and the premerger notification requirements of the HSR Act, and (ii)
where the failure to obtain such consents, approvals, authorizations or permits,
or to make such filings or notifications, would not prevent or materially delay
the ability of Parent or Purchaser to carry out its obligations under, and to
consummate the transactions contemplated by, this Agreement.
ARTICLE VI
COVENANTS OF THE STOCKHOLDERS
SECTION 6.01. No Disposition or Encumbrance of Shares. Each Stockholder
hereby agrees that, except as contemplated by this Agreement, such Stockholder
shall not (i) sell, transfer, tender (except into the Offer), pledge, assign,
contribute to the capital of any entity, hypothecate, give or otherwise dispose
of, grant a proxy or power of attorney with respect to (other than the
Irrevocable Proxy), deposit into any voting trust, enter into any voting
agreement, or create or permit to exist any Liens of any nature whatsoever
(other than pursuant to this Agreement) with respect to, any of such
Stockholder's Shares (or agree or consent to, or offer to do, any of the
foregoing), or (ii) take any action that would make any representation or
warranty of such Stockholder herein untrue or incorrect in any material respect
or have the effect of preventing or disabling such Stockholder from performing
such Stockholder's obligations hereunder.
SECTION 6.02. No Solicitation of Transactions. None of the Stockholders
shall, directly or indirectly, through any director, officer, affiliate,
employee, representative, agent or otherwise, (i) solicit, initiate, endorse,
accept or encourage the submission of any Competing Transaction, or (ii)
participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, or otherwise cooperate in any way with
respect to, or participate in, assist, facilitate, endorse or encourage any
proposal that constitutes, or may reasonably be expected to lead to, a Competing
Transaction; provided, however, that nothing herein shall prevent an officer or
director of a Stockholder from acting in his or her capacity as a director of
the Company, or taking any action in any capacity (including at the direction of
the Company Board), but only in either such case as and to the extent permitted
by Section 8.04(b) of the Merger Agreement. Each Stockholder shall, and shall
direct or cause its directors, officers, employees, representatives and agents
to, and shall use its reasonable efforts to cause its affiliates to, immediately
cease and cause to be terminated any discussions or negotiations with any
parties that may be ongoing with respect to a Competing Transaction.
SECTION 6.03. Further Action; Reasonable Best Efforts. Upon the terms and
subject to the conditions hereof, Parent, Purchaser and each Stockholder shall
use their reasonable best efforts to take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
this Agreement.
SECTION 6.04. Information for Offer Documents and Proxy
Statement/Prospectus; Disclosure. Each Stockholder covenants and agrees that
none of the information relating to such Stockholder and its affiliates for
inclusion in the Schedule 14D-9, the Offer Documents or, if applicable, the
Proxy Statement/Prospectus or the Merger Registration Statement that has been
furnished to Parent by such Stockholder for inclusion in such documents will, at
(i) the time the Schedule 14D-9 or the Proxy Statement/Prospectus (or any
amendment or supplement thereto) is first filed with the SEC or mailed to
stockholders of the Company, (ii) the time the Merger Registration Statement is
declared effective, or (iii) the time of the Company Stockholders Meeting (in
the case of information included in the Proxy Statement/Prospectus), contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
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misleading. Nothing contained herein shall require the Stockholders to furnish
information relating to the Company to Parent for inclusion in the Offer
Documents or, if applicable, the Proxy Statement/Prospectus or Merger
Registration Statement. Each Stockholder agrees to permit Parent and Purchaser
to publish and disclose in the Offer Documents and, if applicable, the Proxy
Statement/Prospectus, the Merger Registration Statement and any related filings
under applicable securities Laws such Stockholder's identity and ownership of
Shares and the nature of its commitments, arrangements and understandings under
this Agreement and any other information regarding such Stockholder as required
by applicable Law.
ARTICLE VII
REGISTRATION RIGHTS
SECTION 7.01. Registration. As promptly as practicable (and in any event
within five business days) after the Acceptance Date or, if applicable, the date
on which Parent has purchased the Stockholders' Shares pursuant to Section 3.01,
Parent shall file with the SEC, and thereafter use its reasonable best efforts
to have declared effective as soon as practicable, a "shelf" Registration
Statement on Form S-3 (a "Shelf Registration Statement") pursuant to Rule 415
promulgated under the Securities Act covering the resale by the Stockholders of
shares of Parent Common Stock issued to such Stockholders pursuant to the Offer
as Stock Consideration or, if applicable, pursuant to the purchase of the
Stockholder's Shares following the exercise of the Options (the "Registrable
Shares"). Parent shall, subject to customary terms and conditions (including,
without limitation, Section 7.02), use its reasonable efforts to keep the Shelf
Registration Statement continuously effective from the date that such Shelf
Registration Statement is declared effective until the first anniversary of such
effective date (the "Effectiveness Period"). The plan of distribution
contemplated by the Shelf Registration Statement may include, without
limitation, block trades and hedging transactions executed by, or on behalf of,
the Stockholders.
SECTION 7.02. Blackout Periods. Notwithstanding anything to the contrary
contained herein, Parent shall have the right to defer or delay filing the Shelf
Registration Statement for a period of not more than 60 days or suspend sales
under the Shelf Registration Statement filed hereunder or defer the updating of
such filed Shelf Registration Statement and suspend sales thereunder during no
more than two periods aggregating not more than 60 days (each, a "Blackout
Period"), in either case in the event that Parent furnishes to the Stockholders
a certificate signed by the President or Chief Executive Officer of Parent
stating that, in the good faith opinion of such person, such registration or
sale would interfere with any material transaction then being proposed by Parent
or would otherwise require disclosure of any material event that Parent would
not otherwise be required to disclose; provided, however, that Parent shall
extend the Effectiveness Period by the number of days, if any, during which the
registration rights contemplated hereunder are subject to a Blackout Period.
SECTION 7.03. Obligations of Parent. In connection with using its
reasonable best efforts to effect the registration under the Shelf Registration
Statement of any Registrable Shares, Parent shall, as expeditiously as possible:
(a) prepare and file with the SEC such amendments and supplements to the
Shelf Registration Statement and the prospectus used in connection therewith as
may be necessary to comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Shares covered by the Shelf
Registration Statement and as may be necessary to keep such Shelf Registration
Statement effective as provided in Sections 7.01 and 7.02, and promptly notify
the Stockholders (i) when the Shelf Registration Statement and the prospectus
used in connection therewith has been filed, and, with respect to the Shelf
Registration Statement or any post-effective amendment thereto, when the same
has become effective; (ii) of any request by the SEC for amendments or
supplements to the Shelf Registration Statement and the prospectus used in
connection therewith or for additional information; or (iii) of any stop order
issued or, to Parent's knowledge, threatened to be issued by the SEC and take
all reasonable actions required to prevent the entry of such stop order or to
remove it if entered;
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(b) furnish to the Stockholders such numbers of copies of the Shelf
Registration Statement and amendments and supplements thereto and the prospectus
included therein in conformity with the requirements of the Securities Act, any
exhibits filed therewith and such other documents and information as they may
reasonably request;
(c) use all reasonable best efforts to register or qualify the Registrable
Shares covered by the Shelf Registration Statement under such other securities
or Blue Sky Laws of such jurisdiction within the United States as shall be
reasonably appropriate for the distribution of the Registrable Shares covered by
the Shelf Registration Statement; provided, however, that Parent shall not be
required in connection therewith or as a condition thereto to qualify to do
business in or to file a general consent to service of process in any
jurisdiction wherein it would not but for the requirements of this paragraph (c)
be obligated to do so; and provided further, however, that Parent shall not be
required to qualify such Registrable Shares in any jurisdiction in which the
securities regulatory authority requires that any Stockholder submit any shares
of its Registrable Shares to the terms, provisions and restrictions of any
escrow, lockup or similar agreement(s) for consent to sell Registrable Shares in
such jurisdiction unless such Stockholder agrees to do so;
(d) promptly notify each Stockholder upon becoming aware of the happening
of any event as a result of which the prospectus included in such Shelf
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances under which they were made, and, at the request of any such
Stockholder, promptly prepare and furnish to such Stockholder a reasonable
number of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such securities,
such prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which they
were made. In the event Parent shall give such notice, Parent shall extend the
Effectiveness Period by the number of days during the period from and including
the date of the giving of such notice to the date when Parent shall make
available to the Stockholders such supplemented or amended prospectus; and
(e) enter into customary agreements and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Shares to be so included in the Shelf Registration Statement.
SECTION 7.04. Expenses of Registration. All expenses incurred in
connection with the Shelf Registration Statement, including without limitation
all registration, filing and qualification fees, word processing, duplicating,
printers' and accounting fees (including the expenses of any special audits or
"cold comfort" letters required by or incident to such performance and
compliance), fees of the National Association of Securities Dealers, Inc. or
listing fees, messenger and delivery expenses, all fees and expenses of
complying with state securities or Blue Sky Laws, and the fees and disbursements
of counsel for Parent, but excluding any brokers' discounts or commissions,
shall be paid by Parent. The Stockholders shall bear and pay the fees and
disbursements of their counsel in connection with any registrations, filings and
qualifications made pursuant to this Agreement.
SECTION 7.05. Indemnification. (a) Parent shall indemnify and hold
harmless each Stockholder, such Stockholder's directors and officers, each
person who participates in the offering of such Registrable Shares, and each
person, if any, who controls such Stockholder, against any losses, claims,
damages or liabilities, joint or several, to which they may become subject under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or proceedings in respect thereof) arise out of or are based on any
untrue or alleged untrue statement of any material fact contained in the Shelf
Registration Statement on the effective date thereof (including any prospectus
filed under Rule 424 under the Securities Act or any amendments or supplements
thereto) or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and shall reimburse each such
Stockholder, such Stockholder's directors and officers and controlling persons
for any legal or other expenses reasonably incurred by them (but not in excess
of expenses incurred in respect of one counsel for all of them) in connection
with investigating or defending any such loss, claim, damage,
B-8
liability or action; provided, however, that the indemnity agreement contained
in this Section 7.05(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of Parent (which consent shall not be unreasonably
withheld); provided further, that Parent shall not be liable to any Stockholder,
such Stockholder's directors and officers or controlling persons in any such
case for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in connection with the Shelf Registration
Statement, preliminary prospectus, final prospectus or amendments or supplements
thereto, in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Stockholder,
such Stockholder's directors and officers or controlling persons.
(b) Each Stockholder jointly and severally shall indemnify and hold
harmless Parent, each of its directors and officers, each person, if any, who
controls Parent within the meaning of the Securities Act, and each agent and any
underwriter for Parent (within the meaning of the Securities Act) against any
losses, claims, damages or liabilities, joint or several, to which Parent or any
such director, officer, controlling person, agent or underwriter may become
subject, under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or proceedings in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in the Shelf Registration Statement on the effective date thereof
(including any prospectus filed under Rule 424 under the Securities Act or any
amendments or supplements thereto) or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent that such untrue statement or alleged untrue statement
or omission or alleged omission was made in such Shelf Registration Statement,
preliminary or final prospectus, or amendments or supplements thereto, in
reliance upon and in conformity with written information furnished by or on
behalf of such Stockholder expressly for use in connection with such
registration; and each such Stockholder shall reimburse Parent or any such
director, officer, controlling person, agent or underwriter for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under this Section 7.05
of notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against any indemnifying party under this
Section 7.05, notify the indemnifying party in writing of the commencement
thereof and the indemnifying party shall have the right to participate in and
assume the defense thereof with counsel selected by the indemnifying party and
reasonably satisfactory to the indemnified party (unless (i) such indemnified
party reasonably objects to such assumption on the grounds that there may be
defenses available to it which are different from or in addition to those
available to such indemnifying party, (ii) the indemnifying party and such
indemnified party shall have mutually agreed to the retention of such counsel or
(iii) in the reasonable opinion of such indemnified party, representation of
such indemnified party by the counsel retained by the indemnifying party would
be inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding, in which case the indemnified party shall be reimbursed by the
indemnifying party for the reasonable expenses incurred in connection with
retaining separate legal counsel); provided, however, that an indemnified party
shall have the right to retain its own counsel, with all fees and expenses
thereof to be paid by such indemnified party, and to be apprised of all progress
in any proceeding the defense of which has been assumed by the indemnifying
party, it being understood that the indemnifying party will control such
defense. The failure to notify an indemnifying party promptly of the
commencement of any such action shall not relieve the indemnifying party from
any liability in respect of such action which it may have to such indemnified
party on account of the indemnity contained in this Section 7.05, unless (and
only to the extent) the indemnifying party was prejudiced by such failure, and
in no event shall such failure relieve the indemnifying party from any other
liability which it may have to such indemnified party. No indemnifying party
shall, without the prior written consent of the indemnified party (which consent
will not be unreasonably withheld), effect any settlement, compromise or
discharge of any claim or pending or threatened proceeding in respect of which
the indemnified party is or could have been a party and indemnity could have
been sought hereunder by such indemnified
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party, unless such settlement, compromise or discharge includes an unconditional
release of such indemnified party from all liability arising out of such claim
or proceeding.
(d) To the extent any indemnification by an indemnifying party is
prohibited or limited by Law, the indemnifying party, in lieu of indemnifying
such indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party and indemnified party in connection with the actions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
indemnified party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages or liabilities
referred to above shall be deemed to include any legal or other fees or expenses
reasonably incurred by such party in connection with any investigation or
proceeding. In no event shall (i) the liability of any Stockholder pursuant to
this paragraph (d) be greater in amount than the aggregate amount of net
proceeds received by such Stockholder upon the sale of its Shares to Parent in
the Offer or hereunder or (ii) the liability of any indemnifying party be
greater in amount than the amount for which such indemnifying party would have
been obligated to pay by way of indemnification if the indemnification provided
for under Section 7.05(a) or 7.05(b) hereof had been available under the
circumstances.
(e) The parties hereto agree that it would not be just and equitable if
contribution pursuant to Section 7.05(d) were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
SECTION 7.06. Furnish Information. It shall be a condition precedent to
the obligations of Parent to take any action pursuant to this Article VII that
the Stockholders shall furnish to Parent such information regarding themselves
and the intended method of disposition of such securities as Parent shall
reasonably request and as shall be required in connection with the action to be
taken by Parent; provided that Parent and the Stockholders hereby acknowledge
and agree that, unless otherwise expressly agreed to in writing by the
Stockholders, for all purposes of this Agreement the only information furnished
or to be furnished to Parent for use in any registration statement, preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement
hereunder are statements specifically relating to (a) transactions between such
Stockholders and their respective affiliates, on the one hand, and Parent, on
the other hand, (b) the beneficial ownership of shares of Common Stock by such
Stockholders and their respective affiliates and (c) the name and address of
such Stockholders. If any additional information about the Stockholders or the
plan of distribution (other than for an underwritten offering) is required by
Law to be disclosed in any such document, then the Stockholders shall promptly
furnish to Parent such information for disclosure upon request by Parent.
ARTICLE VIII
TERMINATION
SECTION 8.01. Termination. (a) Each of the Stockholder's obligations
under Section 1.01 and Article II hereof shall terminate upon the occurrence of
a Parent Share Price Decrease (as defined in Section 8.01(c) below); provided,
however, that each Stockholder's obligation under Section 1.01 to tender and not
withdraw its Shares pursuant to the Offer shall terminate prior to such time
upon the expiration or termination of, or the acceptance for payment of shares
of Common Stock pursuant to, the Offer.
(b) Except with respect to Article IX hereof which shall survive the
termination of this Agreement and remain in full force and effect thereafter,
all of the provisions of this Agreement shall terminate, and no party
B-10
shall have any rights or obligations hereunder, and this Agreement shall become
null and void and have no further force or effect upon the earlier to occur of
(1) the Effective Time and (2) the termination of the Merger Agreement;
provided, however, that (A) in the case of clause (2) of this Section 8.01(b),
the provisions of Article III shall survive the termination of this Agreement
and remain in full force and effect until the Option Termination Date, (B) in
the case of clause (2) of this Section 8.01(b), Sections 4.01, 4.02(a)(i), 4.03
and 4.05 and the provisions of Article V (other than Sections 5.02(a)(ii),
(a)(iii) and 5.02(b)) hereof shall survive the termination of this Agreement and
remain in full force and effect subject to the penultimate sentence of this
paragraph, (C)(i) in the case of clause (2) of this Section 8.01(b), the
provisions of Section 6.01 shall survive the termination of this Agreement and
remain in full force and effect until the Option Termination Date, and (ii) in
the case of clauses (1) and (2) of this Section 8.01(b), the provisions of
Section 6.03 shall survive such termination and remain in full force and effect
until the Option Termination Date, unless the Shares are purchased by Parent
pursuant to the exercise of the Options, in which case Section 6.03 shall
survive indefinitely, and (D) in the case of clauses (1) and (2) of this Section
8.01(b), the provisions of Article VII shall survive the termination of this
Agreement and remain in full force and effect (x) if the Shares are not
purchased by Parent either pursuant to the Offer or through the exercise of the
Options, until the Option Termination Date or (y) if the Shares are purchased by
Parent pursuant to the Offer or through the exercise of the Options, until the
obligations of the parties thereunder have been complied with. Notwithstanding
anything to the contrary contained in Section 8.01, the representations and
warranties of the parties contained in Articles IV and V of this Agreement (i)
shall terminate upon acceptance for payment of the Shares in the Offer, and (ii)
shall not survive the purchase of Shares by Parent through the exercise of the
Options except, in the case of this clause (ii), for those provisions set forth
in clause (B) of the previous sentence, which shall survive for a period of
three years following the Closing. Nothing contained in this Section 8.01(b)
shall relieve any party of any liability for any willful or intentional breach
of this Agreement.
(c) A "Parent Share Price Decrease" shall occur if (1) during the five
trading days ending on the second trading day prior to the then scheduled
expiration date of the Offer (the "Measuring Period"), the average closing
trading price for a share of Parent Common Stock (as reported in the Wall Street
Journal or, if not reported thereby, by any other authoritative source) (the
"Parent Post-Announcement Average Share Price") shall be less than 50% of the
Parent Pre-Announcement Average Share Price (a "50% Parent Share Price
Decrease"), (2) at the time of determination, if any, of the occurrence of a 50%
Parent Share Price Decrease, the Parent Share Price Decrease Percentage (as
defined below) is 25% greater than the Index Share Price Decrease Percentage (as
defined below), if any, and (3) at the time of such determination, all of the
conditions to the Offer (other than the Minimum Condition) have been satisfied
or, to the extent permitted, waived by Parent. For purposes of this Section
8.01, the "Index Company" means the company identified on Schedule B attached
hereto; the "Index Post-Announcement Average Share Price" means the weighted
average closing trading price for shares of common stock of the Index Company
(as reported in the Wall Street Journal or, if not reported thereby, by any
other authoritative source) during the Measuring Period; the "Index
Pre-Announcement Average Share Price" means the weighted average closing trading
price for shares of common stock of the Index Company (as reported in the Wall
Street Journal or, if not reported thereby, by any other authoritative source)
for the five trading days immediately preceding the date of this Agreement; the
"Index Share Price Decrease Percentage" means the quotient, expressed as a
percentage, of (i) the excess of the Index Pre-Announcement Average Share Price
over the Index Post-Announcement Average Share Price, if positive (and zero, if
such amount is negative), divided by (ii) the Index Pre-Announcement Average
Share Price; the "Parent Pre-Announcement Average Share Price" means the average
closing trading price for a share of Parent Common Stock (as reported in the
Wall Street Journal or, if not reported thereby, by any other authoritative
source) for the five trading days immediately preceding the date of this
Agreement; and, the "Parent Share Price Decrease Percentage" means the quotient,
expressed as a percentage, of (i) the excess of the Parent Pre-Announcement
Average Share Price over the Parent Post-Announcement Average Share Price, if
positive (and zero, if such amount is negative), divided by (ii) the Parent
Pre-Announcement Average Share Price.
B-11
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by telecopy
or by registered or certified mail (postage prepaid, return receipt requested)
to the respective parties at the following addresses (or at such other address
for a party as shall be specified in a notice given in accordance with this
Section 9.01):
if to the Stockholders:
Kelso & Company, L.P.
320 Park Avenue, 24th Floor
New York, NY 10022
Facsimile No: (212) 223-2379
Attention: James J. Connors II, Esq.
with a copy to:
Unilab Corporation
18448 Oxnard Street
Tarzana, CA 91356
Facsimile No: (818) 757-3807
Attention: Robert E. Whalen
and a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
Facsimile No: (212) 735-2000
Attention: Lou R. Kling, Esq.
if to Parent or Purchaser:
Quest Diagnostics Incorporated
One Malcolm Avenue
Teterboro, NJ 07608
Facsimile No: (201) 393-5289
Attention: General Counsel
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telecopy: (212) 848-7179
Attention: Clare O'Brien
SECTION 9.02. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of Law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby and by the Merger Agreement
are not affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in a mutually acceptable manner in order that such transactions be
consummated as originally contemplated to the fullest extent possible.
SECTION 9.03. Entire Agreement; Assignment. This Agreement constitutes
the entire agreement among the parties with respect to the subject matter hereof
and supersedes all prior agreements and
B-12
undertakings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof. This Agreement shall not be assigned by
operation of law or otherwise, except that Parent and Purchaser may assign all
or any of their rights and obligations hereunder to any wholly owned subsidiary
of Parent, provided that no such assignment shall relieve Parent or Purchaser of
its obligations hereunder.
SECTION 9.04. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and, except as set forth in
Section 9.10 hereof, nothing in this Agreement, express or implied, is intended
to or shall confer upon any other person any right, benefit or remedy of any
nature whatsoever under or by reason of this Agreement.
SECTION 9.05. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement were
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at Law or in equity.
SECTION 9.06. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
contracts executed in and to be performed in that State (other than those
provisions set forth herein that are required to be governed by the General
Corporation Law of the State of Delaware). All actions and proceedings arising
out of or relating to this Agreement shall be heard and determined exclusively
in any New York state or federal court sitting in the Borough of Manhattan of
The City of New York. The parties hereto hereby (a) submit to the exclusive
jurisdiction of any state or federal court sitting in the Borough of Manhattan
of The City of New York for the purpose of any action arising out of or relating
to this Agreement brought by any party hereto, and (b) irrevocably waive, and
agree not to assert by way of motion, defense, or otherwise, in any such action,
any claim that it is not subject personally to the jurisdiction of the
above-named courts, that its property is exempt or immune from attachment or
execution, that the action is brought in an inconvenient forum, that the venue
of the action is improper, or that this Agreement may not be enforced in or by
any of the above-named courts.
SECTION 9.07. Waiver of Jury Trial. Each of the parties hereto hereby
waives to the fullest extent permitted by applicable Law any right it may have
to a trial by jury with respect to any litigation directly or indirectly arising
out of, under or in connection with this Agreement. Each of the parties hereto
(a) certifies that no representative, agent or attorney of any other party has
represented, expressly or otherwise, that such other party would not, in the
event of litigation, seek to enforce that foregoing waiver and (b) acknowledges
that it and the others hereto have been induced to enter into this Agreement by,
among other things, the mutual waivers and certifications in this Section 9.07.
SECTION 9.08. Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 9.09. Counterparts. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement.
SECTION 9.10. Amendment. This Agreement may not be amended except by an
instrument in writing signed by all the parties hereto. Notwithstanding the
foregoing, the provisions of this Agreement shall not be amended without the
prior written consent of the Company.
SECTION 9.11. Waiver. Any party to this Agreement may (i) extend the time
for the performance of any obligation or other act of any other party hereto,
(ii) waive any inaccuracy in the representations and warranties of another party
contained herein or in any document delivered pursuant hereto and (iii) waive
compliance with any agreement of another party contained herein. Any such
extension or waiver shall be valid if set forth in an instrument in writing
signed by the party or parties to be bound thereby.
SECTION 9.12. Costs and Expenses of This Agreement and the Merger
Agreement. All costs and expenses of the parties hereto, including, without
limitation, fees and disbursements of counsel, financial advisors and
accountants, incurred in connection with this Agreement and the transactions
contemplated
B-13
hereby shall be paid by the party incurring such costs and expenses, whether or
not the Closing shall have occurred.
SECTION 9.13. Affiliate Letters. Each Stockholder agrees to execute an
affiliate letter, as soon as practicable after the date hereof, in the form
attached to the Merger Agreement as Exhibit A.
SECTION 9.14. (a) Adjustments. In the event (i) of any increase or
decrease or other change in the Shares by reason of stock dividend, stock split,
recapitalizations, combinations, exchanges of shares or the like or (ii) that a
Stockholder becomes the beneficial owner of any additional shares of Common
Stock or other securities of the Company, then the terms of this Agreement shall
apply to the shares of capital stock and other securities of the Company held by
the Stockholders immediately following the effectiveness of the events described
in clause (i), or such Stockholder becoming the beneficial owner thereof
pursuant to clause (ii).
(b) Each Stockholder hereby agrees to promptly notify Parent and Purchaser
of the number of any new Shares or other securities acquired by such
Stockholder, if any, after the date hereof.
B-14
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.
QUEST DIAGNOSTICS INCORPORATED
By /s/ KENNETH W. FREEMAN
------------------------------------
Name: Kenneth W. Freeman
Title: Chairman and Chief Executive
Officer
QUEST DIAGNOSTICS NEWCO INCORPORATED
By /s/ KENNETH W. FREEMAN
------------------------------------
Name: Kenneth W. Freeman
Title: Chief Executive Officer
KELSO INVESTMENT ASSOCIATES VI, L.P.
By: Kelso GP VI, LLC, its General
Partner
By /s/ DAVID I. WAHRHAFTIG
------------------------------------
Name: David I. Wahrhaftig
Title: Managing Member
KEP VI, LLC
By /s/ DAVID I. WAHRHAFTIG
------------------------------------
Name: David I. Wahrhaftig
Title: Managing Member
Acknowledged and Agreed
(with respect to Article II)
UNILAB CORPORATION
By /s/ ROBERT E. WHALEN
------------------------------------
Name: Robert E. Whalen
Title: Chairman & CEO
B-15
SCHEDULE A
NAME SHARES OF COMMON STOCK
---- ----------------------
LP.......................................................... 11,985,668
LLC......................................................... 1,855,510
A-1
AMENDMENT NO. 1 TO STOCKHOLDERS AGREEMENT
The parties hereto agree that the Stockholders Agreement, dated as of April
2, 2002, (the "Stockholders Agreement") among Parent, Purchaser and each of the
Stockholders shall be amended (this "Amendment") as follows:
1. The following is added as the last sentence to Section 1.01:
"Notwithstanding anything to the contrary herein, each Stockholder
shall be permitted to withdraw Shares that have been previously
tendered for the sole purpose of changing such Stockholder's election,
provided that such Stockholder immediately retenders such Shares."
2. Section 1.01 is further amended by changing the reference from "two
business days prior to the initial scheduled expiration date of the
Offer" to "June 17, 2002".
1. Terms. Capitalized terms used herein and not defined shall have
the meaning set forth in the Stockholders Agreement.
2. Authorizations. Each party hereto represents and warrants that
this Amendment has been duly authorized by all necessary action.
3. Effect of Agreement. Except as and to the extent expressly
modified by this Amendment, the Stockholders Agreement shall remain in full
force and effect in all respects.
4. Miscellaneous. The provisions contained in Article IX of the
Stockholders Agreement are incorporated by reference in this Amendment as
though they were expressly set forth herein.
[The Remainder of This Page is Intentionally Left Blank]
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as of the date first written above by their respective officers thereunto duly
authorized.
QUEST DIAGNOSTICS INCORPORATED
By /s/ KENNETH W. FREEMAN
------------------------------------
Name: Kenneth W. Freeman
Title: Chairman and Chief
Executive Officer
QUEST DIAGNOSTICS NEWCO INCORPORATED
By /s/ KENNETH W. FREEMAN
------------------------------------
Name: Kenneth W. Freeman
Title: Chief Executive Officer
KELSO INVESTMENT ASSOCIATES VI, L.P.
By: Kelso GP VI, LLC,
its General Partner
By /s/ MICHAEL B. GOLDBERG
------------------------------------
Name: Michael B. Goldberg
Title: Managing Member
KEP VI, LLC
BY /s/ MICHAEL B. GOLDBERG
------------------------------------
Name: Michael B. Goldberg
Title: Managing Member
2
UNILAB CORPORATION
By /s/ DAVID W. GEE
-----------------------------------
Name: David W. Gee
Title: Executive Vice President,
Secretary and General
Counsel
3
ANNEX C
APPRAISAL RIGHTS PROCEDURES RELATING TO UNILAB COMMON STOCK
Under Delaware law, Unilab stockholders will not have appraisal rights in
connection with the offer. If the offer is successfully completed, holders of
Unilab shares who (a) do not tender their shares into the offer and hold Unilab
shares at the effective time of the subsequent merger, (b) do not wish to accept
the consideration provided for in that merger and (c) comply with the procedures
provided for in Section 262 of the DGCL, will be entitled to, other than in
connection with a long-form merger, have their Unilab shares appraised by the
Delaware Court of Chancery and to receive a payment in cash of the "fair value"
of those shares as determined by the court. The following summarizes the
provisions of Section 262 of the DGCL regarding appraisal rights that would be
applicable in connection with the subsequent merger. This discussion is
qualified in its entirety by reference to Section 262 of the DGCL, which follows
this summary. If you fail to take any action required by Delaware law, your
rights to an appraisal in connection with the merger will be waived or
terminated.
Notification of Merger's Effective Time. Either before the effective time
or within 10 days after the effective time, Unilab will send notice of the
effective time of the merger and the availability of appraisal rights to each
holder of its stock.
Electing Appraisal Rights. To exercise appraisal rights, the record holder
of Unilab shares must, within 20 days after the date Unilab mails the notice
referred to in the prior paragraph, deliver a written demand for appraisal to
Unilab. This demand must reasonably inform Unilab of the identity of the holder
of record and that the stockholder demands appraisal of his, her or its Unilab
shares.
A demand for appraisal must be delivered to: Corporate Secretary, Unilab
Corporation, 18448 Oxnard Street, Tarzana, CA 91356
Only Record Holders May Demand Appraisal Rights. Only a record holder of
Unilab shares is entitled to demand appraisal rights. The demand must be
executed by or for the record holder, fully and correctly, as the holder's name
appears on the holder's stock certificates.
Court Petition Must Be Filed. Within 120 days after the effective time of
the merger, Unilab or any stockholder who has satisfied the foregoing conditions
may file a petition in the Delaware Court of Chancery demanding a determination
of the fair value of Unilab shares.
Within 120 days after the effective time of the subsequent merger, any
stockholder who has complied with the requirements under Section 262 of the DGCL
for exercise of appraisal rights may make a written request to receive from
Unilab a statement of the aggregate number of shares not voted in favor of the
merger and the total number of Unilab shares with respect to which demands for
appraisal have been received and the total number of holders of these shares.
Unilab will be required to mail these statements within ten days after it
receives a written request.
Appraisal Proceeding by Delaware Court. If a petition for an appraisal is
timely filed, after a hearing on the petition, the Delaware Court of Chancery
will determine which of the stockholders are entitled to appraisal rights. The
court will appraise the common stock owned by the stockholders and determine its
fair value. In determining fair value, the court may consider all relevant
factors. The court will also determine the amount of interest, if any, to be
paid upon the value of the common stock to the stockholders entitled to
appraisal.
The value of Unilab shares determined by the court could be more than, less
than, or the same as the merger consideration, but the form of the consideration
payable as a result of the appraisal proceeding would be cash. The court may
determine the costs of the appraisal proceeding and allocate them to the parties
as the court determines to be equitable under the circumstances. The court may
also order that all or a portion of any stockholder's expenses incurred in
connection with an appraisal proceeding, including reasonable attorney's fees
and expenses and reasonable fees and expenses of experts utilized in the
appraisal proceeding, be charged, on a pro rata basis against the value of all
shares of Unilab's common stock entitled to appraisal.
C-1
Effect of Appraisal Demand on Voting and Right to Dividends; Tax
Consequences. Any stockholder who has duly demanded an appraisal in compliance
with Delaware law will not, after the effective time of the merger, be entitled
to vote the shares subject to demand for any purpose. The shares subject to the
demand will not be entitled to dividends or other distributions, other than
those payable or deemed to be payable to stockholders of record as of a date
prior to the effective time. We describe in the prospectus under "The
Offer -- Certain Federal Income Tax Consequences", beginning on page 42, the tax
consequences to a Unilab stockholder who receives cash for his or her Unilab
shares pursuant to the exercise of appraisal rights.
Loss, Waiver or Withdrawal of Appraisal Rights. Holders of Unilab shares
will lose the right to appraisal if no petition for appraisal is filed within
120 days after the effective time of the merger. At any time within 60 days
after the effective date of the merger, a stockholder who has made a demand for
appraisal may withdraw such demand and accept the terms offered. The number of
Quest Diagnostics shares, and cash in lieu of a fraction of a Quest Diagnostics
share, delivered to such stockholder will be based on the same exchange ratio
utilized in the offer and the merger, regardless of the market price of Quest
Diagnostics' shares at the time of delivery.
SECTION 262 OF THE DGCL
sec. 262 APPRAISAL RIGHTS. -- (a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to sec. 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of the stockholder's shares of stock under
the circumstances described in subsections (b) and (c) of this section. As used
in this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to
sec. 251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or
sec. 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as
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a national market system security on an interdealer quotation system by
the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or sec. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective
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date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or
within 10 days after such effective date; provided, however, that if such
second notice is sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such
holder's shares in accordance with this subsection. An affidavit of the
secretary or assistant secretary or of the transfer agent of the
corporation that is required to give either notice that such notice has
been given shall, in the absence of fraud, be prima facie evidence of the
facts stated therein. For purposes of determining the stockholders entitled
to receive either notice, each constituent corporation may fix, in advance,
a record date that shall be not more than 10 days prior to the date the
notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the
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pendency of the proceeding. Upon application by the surviving or resulting
corporation or by any stockholder entitled to participate in the appraisal
proceeding, the Court may, in its discretion, permit discovery or other pretrial
proceedings and may proceed to trial upon the appraisal prior to the final
determination of the stockholder entitled to an appraisal. Any stockholder whose
name appears on the list filed by the surviving or resulting corporation
pursuant to subsection (f) of this section and who has submitted such
stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
339, L. '98, eff. 7-1-98.)
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Manually signed facsimiles of the letter of election and transmittal,
properly completed, will be accepted. The letter of election and transmittal and
certificates evidencing Unilab shares and any other required documents should be
sent or delivered by each stockholder or his or her broker, dealer, commercial
bank, trust company or other nominee to the offer exchange agent at one of its
addresses set forth below.
The Offer Exchange Agent is:
COMPUTERSHARE TRUST COMPANY OF NEW YORK
By Mail: By Facsimile: By Overnight or Hand Delivery:
Computershare Trust Company Computershare Trust Company Computershare Trust Company
of New York of New York of New York
Wall Street Station By Facsimile: (212) 701-7636 Wall Street Plaza
P.O. Box 1010 Telephone: (212) 701-7624 88 Pine Street, 19th Floor
New York, New York 10268-1010 New York, New York 10005
Other Information:
Questions or requests for assistance may be directed to the information
agent or the dealer manager at their respective addresses and telephone numbers
listed below. Additional copies of this offer, the letter of election and
transmittal and the notice of guaranteed delivery may be obtained from the
information agent. A stockholder may also contact brokers, dealers, commercial
banks or trust companies for assistance concerning the offer.
The Information Agent for the Offer is:
(Georgeson Shareholder Logo)
17 STATE STREET, 10TH FLOOR
NEW YORK, NY 10004
BANKS AND BROKERS CALL: (212) 440-9800
ALL OTHERS CALL TOLL FREE: (866) 318-0509
The Dealer Manager for the Offer is:
MERRILL LYNCH & CO.
4 WORLD FINANCIAL CENTER
NEW YORK, NEW YORK 10080
(866) 276-1462
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
LIMITATION ON LIABILITY OF DIRECTORS
Pursuant to authority conferred by Section 102 of the DGCL, Paragraph 11 of
our certificate of incorporation eliminates the personal liability of directors
to us or our stockholders for monetary damages for breach of fiduciary duty,
including, without limitation, directors serving on committees of our board of
directors. Directors remain liable for (1) any breach of the duty of loyalty to
us or our stockholders, (2) any act or omission not in good faith or which
involves intentional misconduct or a knowing violation of law, (3) any violation
of Section 174 of the DGCL, which proscribes the payment of dividends and stock
purchases or redemptions under certain circumstances, and (4) any transaction
from which directors derive an improper personal benefit.
INDEMNIFICATION AND INSURANCE
In accordance with Section 145 of the DGCL, which provides for the
indemnification of directors, officers and employees under certain
circumstances, Paragraph 11 of the certificate of incorporation grants our
directors and officers a right to indemnification for all expenses, liabilities
and losses relating to civil, criminal, administrative or investigative
proceedings to which they are a party (1) by reason of the fact that they are or
were our directors or officers or (2) by reason of the fact that, while they are
or were our directors or officers, they are or were serving at our request as
directors or officers of another corporation, partnership, joint venture, trust
or enterprise.
Paragraph 11 of the certificate of incorporation further provides for the
mandatory advancement of expenses incurred by officers and directors in
defending such proceedings in advance of their final disposition upon delivery
to us by the indemnitee of an undertaking to repay all amounts so advanced if it
is ultimately determined that such indemnitee is not entitled to be indemnified
under Paragraph 11. We may not indemnify or make advance payments to any person
in connection with proceedings initiated against us by such person without the
authorization of our board of directors.
In addition, Paragraph 11 of the certificate of incorporation provides that
directors and officers therein described shall be indemnified to the fullest
extent permitted by Section 145 of the DGCL, or any successor provisions or
amendments thereunder.
In the event that any such successor provisions or amendments provide
indemnification rights broader than permitted prior thereto, Paragraph 11 of the
certificate of incorporation allows such broader indemnification rights to apply
retroactively with respect to any predating alleged action or inaction and also
allows the indemnification to continue after an indemnitee has ceased to be our
director or officer and to inure to the benefit of the indemnitee's heirs,
executors and administrators.
Paragraph 11 of the certificate of incorporation further provides that the
right to indemnification is not exclusive of any other right that any indemnitee
may have or thereafter acquire under any statute, the certificate of
incorporation, any agreement or vote of stockholders or disinterested directors
or otherwise, and allows us to indemnify and advance expenses to any person whom
the corporation has the power to indemnify under the DGCL or otherwise.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted for directors and officers and controlling persons pursuant to
the foregoing provisions, we have been advised that in the opinion of the SEC,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
The certificate of incorporation authorizes us to purchase insurance for
our directors and officers and persons who serve at our request as directors,
officers, employees or agents of another corporation, partnership, joint
venture, trust or enterprise against any expense, liability or loss incurred in
such capacity, whether or not
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we would have the power to indemnify such persons against such expense or
liability under the DGCL. We intend to maintain insurance coverage of our
officers and directors as well as insurance coverage to reimburse us for
potential costs of our corporate indemnification of directors and officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) List of Exhibits.
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
2.1 Agreement and Plan of Merger, dated as of April 2, 2002, as
amended, among Quest Diagnostics, Quest Diagnostics Newco
Incorporated and Unilab Corporation (filed as an annex to
Quest Diagnostics' Final Prospectus, dated August 6, 2002,
and incorporated herein by reference).
2.2 Amendment to the Agreement and Plan of Merger, dated as of
May 13, 2002, among Quest Diagnostics, Quest Diagnostics
Newco Incorporated and Unilab Corporation (filed as an annex
to Quest Diagnostics' Final Prospectus, dated August 6,
2002, and incorporated herein by reference).
2.3 Amendment No. 2 to the Agreement and Plan of Merger, dated
as of June 20, 2002, among Quest Diagnostics, Quest
Diagnostics Newco Incorporated and Unilab Corporation (filed
as an annex to Quest Diagnostics' Final Prospectus, dated
August 6, 2002, and incorporated herein by reference).
2.4 Amendment No. 3 to the Agreement and Plan of Merger, dated
as of September 25, 2002, among Quest Diagnostics, Quest
Diagnostics Newco Incorporated and Unilab Corporation
(incorporated herein by reference to Exhibit (a)(11) of
Quest Diagnostics's Schedule TO Amendment No. 12 filed with
the Commission on September 26, 2002, file No. 001-12215).
2.5 Amendment No. 4 to the Agreement and Plan of Merger, dated
as of January 4, 2003, among Quest Diagnostics, Quest
Diagnostics Newco Incorporated and Unilab Corporation
(incorporated herein by reference to Exhibit (a)(20) of
Quest Diagnostics's Schedule TO Amendment No. 20 filed with
the Commission on January 6, 2003, file No. 001-12215).
3.1 Restated Certificate of Incorporation (incorporated herein
by reference to Exhibit 3.4 of Quest Diagnostics' Current
Report on Form 8-K filed with the Commission on May 31,
2001, File No. 001-12215).
3.2 Amended and Restated By-Laws of Quest Diagnostics
(incorporated herein by reference to Exhibit 3.3 of Quest
Diagnostics' Annual Report on Form 10-K for the fiscal year
ended December 31, 2000 filed with the Commission on April
2, 2001, File No. 001-12215).
4.1 Form of Rights Agreement, dated December 31, 1996, between
Corning Clinical Laboratories Inc. and Harris Trust and
Savings Bank as Rights Agent (incorporated herein by
reference to Exhibit 4.2 of Quest Diagnostics' Registration
Statement on Form 10 filed with the Commission on November
19, 1996, File No. 001-12215).
4.2 Form of Amendment No. 1, effective as of July 1, 1999 to the
Rights Agreement (incorporated herein by reference to
Exhibit 2 of Quest Diagnostics' Current Report on Form 8-K
filed with the Commission on August 16, 1997, File No.
001-12215).
4.3 Form of Amendment No. 2 to the Rights Agreement
(incorporated herein by reference to Exhibit 4.3 of Quest
Diagnostics' Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, filed with the Commission on March
31, 2000, File No. 001-12215).
4.4 Form of Amendment No. 3 to the Rights Agreement
(incorporated herein by reference to Exhibit 4.4 of Quest
Diagnostics' Annual Report on Form 10-K for the fiscal year
ended December 31, 2000, filed with the Commission on April
2, 2001, File No. 001-12215).
4.5 Indenture, dated as of June 27, 2001, among Quest
Diagnostics, the Subsidiary Guarantors, and the Trustee
(incorporated herein by reference to Exhibit 4.3 of Quest
Diagnostics' Current Report on Form 8-K filed with the
Commission on June 27, 2001, File No. 001-12215).
4.6 First Supplemental Indenture, dated as of June 27, 2001,
among Quest Diagnostics, the Subsidiary Guarantors, and the
Trustee to the Indenture referred to in Exhibit 10.4
(incorporated herein by reference to Exhibit 4.4 of Quest
Diagnostics' Current Report on Form 8-K filed with the
Commission on June 27, 2001, File No. 001-12215).
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EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
4.7 Second Supplemental Indenture, dated as of November 26,
2001, among Quest Diagnostics, the Subsidiary Guarantors,
and the Trustee to the Indenture referred to in Exhibit 10.4
(incorporated herein by reference to Exhibit 4.1 of Quest
Diagnostics' Current Report on Form 8-K filed with the
Commission on November 26, 2001, File No. 001-12215).
4.8 Third Supplemental Indenture, dated as of April 4, 2002,
among Quest Diagnostics, the Additional Subsidiary
Guarantors, and the Trustee to the Indenture referred to in
Exhibit 10.4 (incorporated herein by reference to Exhibit
4.1 of Quest Diagnostics' Current Report on Form 8-K filed
with the Commission on April 12, 2002, File No. 001-12215).
5 Opinion of Leo C. Farrenkopf, Jr., Deputy General Counsel of
Quest Diagnostics, as to the validity of the securities
being registered (incorporated herein by reference to
Exhibit 5 of Quest Diagnostics' Registration Statement on
Form S-4 filed with the Commission on May 15, 2002, File No.
333-88330).
10.1 Form of 6 3/4% Senior Notes due 2006, including the form of
guarantee endorsed thereon (incorporated herein by reference
to Exhibit 4.1 of Quest Diagnostics' Current Report on Form
8-K filed with the Commission on June 27, 2001, File No.
001-12215).
10.2 Form of 7 1/2% Senior Notes due 2011, including the form of
guarantee endorsed thereon (incorporated herein by reference
to Exhibit 4.2 of Quest Diagnostics' Current Report on Form
8-K filed with the Commission on June 27, 2001, File No.
001-12215).
10.3 Form of 1.75% Contingent Convertible Debentures due 2021,
including the form of guarantee endorsed thereon
(incorporated herein by reference to Exhibit 8.1 of Quest
Diagnostics' Current Report on Form 8-K filed with the
Commission on November 26, 2001, File No. 001-12215).
10.4 Credit Agreement, dated as of June 27, 2001, among Quest
Diagnostics, the Subsidiary Guarantors and the Banks
(incorporated herein by reference to Exhibit 10.1 of Quest
Diagnostics' Current Report on Form 8-K filed with the
Commission on June 27, 2001, File No. 001-12215).
10.5 Amended and Restated Credit and Security Agreement, dated as
of September 28, 2001, among Quest Diagnostics Receivables
Inc., as Borrower, Quest Diagnostics, as Initial Servicer,
each of the Lenders party thereto and Wachovia Bank, N.A.,
as Administrative Agent (incorporated herein by reference to
Exhibit 10.1 of Quest Diagnostics' Quarterly Report on Form
10-Q for the quarter ended September 30, 2001, filed with
the Commission on October 31, 2001, File No. 001-12215).
10.6 Amendment No. 1 to the Amended and Restated Credit and
Security Agreement, dated as of October 30, 2001, among
Quest Diagnostics Receivables Inc., as Borrower, Quest
Diagnostics, as Initial Servicer, each of the Lenders party
thereto and Wachovia Bank, N.A., as Administrative Agent
(incorporated herein by reference to Exhibit 10.2 of Quest
Diagnostics' Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001, filed with the Commission on
October 31, 2001, File No. 001-12215).
10.7 Amendment No. 2 to the Amended and Restated Credit and
Security Agreement, dated as of January 14, 2002, among
Quest Diagnostics Receivables Inc., as Borrower, Quest
Diagnostics, as Initial Servicer, each of the Lenders party
thereto and Wachovia Bank, N.A., as Administrative Agent
(incorporated herein by reference to Exhibit 10.10 of Quest
Diagnostics' Annual Report on Form 10-K for the fiscal year
ended December 31, 2001, filed with the Commission on March
4, 2002, File No. 001-12215).
10.8 Amendment No. 3 to the Amended and Restated Credit and
Security Agreement dated as of July 24, 2002 among Quest
Diagnostics Receivables Inc., as Borrower, Quest
Diagnostics, as Initial Servicer, each of the Lenders party
thereto and Wachovia Bank, N.A., as Administrative Agent
(incorporated herein by reference to Exhibit 10.2 of Quest
Diagnostics' Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002 filed with the Commission on August 13,
2002, File No. 001-12215).
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EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
10.9 Waiver and Amendment No. 4 to the Amended and Restated
Credit and Security Agreement dated as of September 24, 2002
among Quest Diagnostics Receivables Inc., as Borrower, Quest
Diagnostics, as Initial Servicer, each of the Lenders party
thereto and Wachovia Bank, N.A., as Administrative Agent
(incorporated herein by reference to Exhibit 10.2 of Quest
Diagnostics' Quarterly Report on Form 10-Q for the quarter
ended September 30, 2002 filed with the Commission on
October 31, 2002, File No. 001-12215).
10.10 Omnibus Amendment to the Amended and Restated Credit and
Security Agreement dated as of October 15, 2002 among Quest
Diagnostics Receivables Inc., as Borrower, Quest
Diagnostics, as Initial Servicer, each of the Lenders party
thereto and Wachovia Bank, N.A., as Administrative Agent
(incorporated herein by reference to Exhibit 10.3 of Quest
Diagnostics' Quarterly Report on Form 10-Q for the quarter
ended September 30, 2002 filed with the Commission on
October 31, 2002, File No. 001-12215).
10.11 Receivables Sale Agreement, dated as of July 21, 2000,
between Quest Diagnostics, each of the subsidiary sellers
party thereto and Quest Diagnostics Receivables Inc.
(incorporated herein by reference to Exhibit 10.9 of Quest
Diagnostics' Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000, filed with the Commission on August 3,
2000, File No. 001-12215).
10.12 Stock and Asset Purchase Agreement, dated as of February 9,
1999, among SmithKline Beecham plc, SmithKline Beecham
Corporation and Quest Diagnostics (incorporated herein by
reference to Appendix A of Quest Diagnostics' Definitive
Proxy Statement filed with the Commission on May 11, 1999,
File No. 001-12215).
10.13 Amendment No. 1, dated August 6, 1999, to the Stock and
Asset Purchase Agreement (incorporated herein by reference
to Exhibit 4 of Quest Diagnostics' Current Report on Form
8-K filed with the Commission on August 16, 1999, File No.
001-12215).
10.14 Non-Competition Agreement, dated as of August 16, 1999,
between SmithKline Beecham plc and Quest Diagnostics
(incorporated herein by reference to Exhibit 5 of Quest
Diagnostics' Current Report on Form 8-K filed with the
Commission on August 16, 1999, File No. 001-12215).
10.15 Stockholders Agreement, dated as of August 16, 1999, between
SmithKline Beecham plc and Quest Diagnostics (incorporated
herein by reference to Exhibit 6 of Quest Diagnostics'
Current Report on Form 8-K filed with the Commission on
August 16, 1999, File No. 001-12215).
*10.16 Amended and Restated Global Clinical Trials Agreement, dated
as of December 19, 2002, between SmithKline Beecham plc and
Quest Diagnostics.
10.17 Form of Employees Stock Purchase Plan (incorporated herein
by reference to Exhibit 10.3 of Quest Diagnostics' Quarterly
Report on Form 10-Q for the quarter ended June 30, 2002
filed with the Commission on August 13, File No. 001-12215).
10.18 Form of 1996 Employee Equity Participation Program
(incorporated herein by reference to Exhibit 10.5 of Quest
Diagnostics' Quarterly Report on Form 10-Q for the quarter
ended September 30, 2002 filed with the Commission on
October 31, 2002, File No. 001-12215).
10.19 Form of 1999 Employee Equity Participation Program
(incorporated herein by reference to Exhibit 10.4 of Quest
Diagnostics' Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002 filed with the Commission on August 13,
2002, File No. 001-12215).
*10.20 Form of Stock Option Plan for Non-Employee Directors.
10.21 Employment Agreement between Quest Diagnostics and Kenneth
W. Freeman (incorporated herein by reference to Exhibit
10.22 of Quest Diagnostics' Annual Report on Form 10-K for
the fiscal year ended December 31, 1999, filed with the
Commission on March 30, 2000, File No. 001-12215).
10.22 Amendment to the Employment Agreement between Quest
Diagnostics and Kenneth W. Freeman (incorporated herein by
reference to Exhibit 10.26 of Quest Diagnostics' Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000,
filed with the Commission on August 3, 2000, File No.
001-12215).
II-4
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
10.23 Form of Supplemental Deferred Compensation Plan
(incorporated herein by reference to Exhibit 10.12 of Quest
Diagnostics' Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, filed with the Commission on March
31, 1999, File No. 001-12215).
*10.24 Amendment No. 1 to the Supplemental Deferred Compensation
Plan.
*10.25 Amendment No. 2 to the Supplemental Deferred Compensation
Plan.
10.26 Form of Executive Retirement Supplemental Plan (incorporated
herein by reference to Exhibit 10.10 of Quest Diagnostics'
Registration Statement on Form 10 filed with the Commission
on November 25, 1996, File No. 001-12215).
10.27 Form of Variable Compensation Plan (incorporated herein by
reference to Exhibit 10.6 of Quest Diagnostics' Registration
Statement on Form 10 filed with the Commission on December
31, 1996, File No. 001-12215).
10.28 Employment Agreement for Robert E. Whalen, dated as of April
2, 2002 (incorporated herein by reference to Exhibit 10.25
of Quest Diagnostics' Registration Statement on Form S-4
filed with the Commission on May 15, 2002, File No.
333-88330).
10.29 Employment Agreement for Emmett C. Kane, dated as of April
2, 2002 (incorporated herein by reference to Exhibit 10.26
of Quest Diagnostics' Registration Statement on Form S-4
filed with the Commission on May 15, 2002, File No.
333-88330).
10.30 Employment Agreement for David W. Gee, dated as of April 2,
2002 (incorporated herein by reference to Exhibit 10.27 of
Quest Diagnostics' Registration Statement on Form S-4 filed
with the Commission on May 15, 2002, File No. 333-88330).
10.31 Employment Agreement for Brian D. Urban, dated as of April
2, 2002 (incorporated herein by reference to Exhibit 10.28
of Quest Diagnostics' Registration Statement on Form S-4
filed with the Commission on May 15, 2002, File No.
333-88330).
*21 Subsidiaries of Quest Diagnostics.
*23.1 Consent of PricewaterhouseCoopers LLP.
*23.2 Consent of Deloitte & Touche LLP.
24 Power of Attorney (included on the signature page of Quest
Diagnostics' Registration Statement on Form S-4 filed with
the Commission on May 15, 2002, File No. 333-88330).
99.1 Joint Press Release, dated April 2, 2002 (incorporated
herein by reference to Exhibit 99.1 of Quest Diagnostics'
Current Report on Form 8-K filed with the Commission on
April 2, 2002, File No. 001-12215).
99.2 Stockholders Agreement, dated as of April 2, 2002, as
amended, among Quest Diagnostics, Quest Diagnostics Newco
Incorporated, Kelso Investment Associates VI, L.P. and KEP
VI, LLC (filed as an annex to Quest Diagnostics' Final
Prospectus, dated August 6, 2002, and incorporated herein by
reference).
*99.3 Form of Letter of Election and Transmittal.
*99.4 Form of Notice of Guaranteed Delivery.
*99.5 Form of Letter to Brokers, Dealers, etc.
II-5
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
*99.6 Form of Letter to Clients.
*99.7 Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
99.8 Joint Press Release, dated May 24, 2002 (incorporated herein
by reference to Quest Diagnostics' Form 425 filed May 28,
2002).
99.9 Press Release, dated June 18, 2002 (incorporated herein by
reference to Quest Diagnostics' Form 425 filed June 18,
2002).
99.10 Press Release, dated July 2, 2002 (incorporated herein by
reference to Quest Diagnostics' Form 425 filed July 2,
2002).
99.11 Press Release, dated July 17, 2002 (incorporated herein by
reference to Quest Diagnostics' Form 425 filed July 17,
2002).
99.12 Press Release, dated July 19, 2002 (incorporated herein by
reference to Quest Diagnostics' Form 425 filed July 19,
2002).
99.13 Press Release, dated July 31, 2002 (incorporated herein by
reference to Quest Diagnostics' Form 425 filed July 31,
2002).
99.14 Press Release, dated August 14, 2002 (incorporated herein by
reference to Quest Diagnostics' Form 425 filed August 14,
2002).
99.15 Press Release, dated August 28, 2002 (incorporated herein by
reference to Quest Diagnostics' Form 425 filed August 28,
2002).
99.16 Press Release, dated September 12, 2002 (incorporated herein
by reference to Quest Diagnostics' Form 425 filed September
12, 2002).
99.17 Press Release, dated September 20, 2002 (incorporated herein
by reference to Quest Diagnostics' Form 425 filed September
20, 2002).
99.18 Press Release, dated September 26, 2002 (incorporated herein
by reference to Quest Diagnostics' Form 425 filed September
26, 2002).
99.19 Press Release, dated October 10, 2002 (incorporated herein
by reference to Quest Diagnostics' Form 425 filed October
10, 2002).
99.20 Press Release, dated October 24, 2002 (incorporated herein
by reference to Quest Diagnostics' Form 425 filed October
24, 2002).
99.21 Press Release, dated November 7, 2002 (incorporated herein
by reference to Quest Diagnostics' Form 425 filed November
7, 2002).
99.22 Press Release, dated November 21, 2002 (incorporated herein
by reference to Quest Diagnostics' Form 425 filed November
21, 2002).
99.23 Press Release, dated December 2, 2002 (incorporated herein
by reference to Quest Diagnostics' Form 425 filed December
2, 2002).
99.24 Press Release, dated December 6, 2002 (incorporated herein
by reference to Quest Diagnostics' Form 425 filed December
6, 2002).
99.25 Press Release, dated December 20, 2002 (incorporated herein
by reference to Quest Diagnostics' Form 425 filed December
20, 2002).
99.26 Press Release, dated January 6, 2003 (incorporated herein by
reference to Quest Diagnostics' Form 425 filed January 6,
2003).
99.27 Press Release, dated January 7, 2003 (incorporated herein by
reference to Quest Diagnostics' Form 425 filed January 7,
2003).
99.28 Term Loan Credit Agreement dated as of June 21, 2002 among
Quest Diagnostics, certain subsidiary guarantors of Quest
Diagnostics, the Lenders party thereto, and Bank of America,
N.A., as Administrative Agent (incorporated herein by
reference to Exhibit 99.12 of Amendment No. 2 to Quest
Diagnostics' Registration Statement on Form S-4 filed with
the Commission on June 24, 2002, File No. 333-88330)).
99.29 First Amendment to the Credit Agreement dated as of
September 20, 2002 among Quest Diagnostics, certain
subsidiary guarantors of Quest Diagnostics, the Lenders
party thereto, and Bank of America, N.A., as Administrative
Agent (incorporated herein by reference to Exhibit 10.1 of
Quest Diagnostics' Quarterly Report on Form 10-Q for the
quarter ended September 30, 2002 filed with the Commission
on October 31, 2002, File No. 001-12215).
II-6
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
*99.30 Second Amendment to the Credit Agreement dated as of
December 19, 2002 among Quest Diagnostics, certain
subsidiary guarantors of Quest Diagnostics, the Lenders
party thereto, and Bank of America, N.A., as Administrative
Agent.
---------------
* Filed herewith
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof;
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering; and
(4) if the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any
financial statements required by Rule 3-19 of this chapter at the start of
any delayed offering or throughout a continuous offering. Financial
statements and information otherwise required by Section 10(a)(3) of the
Act need not be furnished, provided that the registrant includes in the
prospectus, by means of a post-effective amendment, financial statements
required pursuant to this paragraph (a)(4) and other information necessary
to ensure that all other information in the prospectus is at least as
current as the date of those financial statements. Notwithstanding the
foregoing, with respect to registration statements on Form F-3, a
post-effective amendment need not be filed to include financial statements
and information required by Section 10(a)(3) of the Act or Rule 3-19 of
this chapter if such financial statements and information are contained in
periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the Form F-3.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of
II-7
the Securities Exchange Act of 1934 (and, where applicable, each filing of any
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time be deemed to be the initial bona fide offering thereof.
(c) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such post-
effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(e) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(f) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(g) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Teterboro, State of New
Jersey, on January 21, 2003.
QUEST DIAGNOSTICS
(Registrant)
By: /s/ KENNETH W. FREEMAN
------------------------------------
Name: Kenneth W. Freeman
Title: Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* Chairman and Chief Executive January 21, 2003
------------------------------------------------ Officer (principal executive
Kenneth W. Freeman officer)
/s/ SURYA N. MOHAPATRA President and Chief Operating January 21, 2003
------------------------------------------------ Officer
Surya N. Mohapatra
* Vice President, Chief Financial January 21, 2003
------------------------------------------------ Officer (principal financial
Robert A. Hagemann officer)
* Vice President, Corporate January 21, 2003
------------------------------------------------ Controller and Chief Accounting
Thomas F. Bongiorno Officer (principal accounting
officer)
* Director January 21, 2003
------------------------------------------------
Kenneth D. Brody
* Director January 21, 2003
------------------------------------------------
William F. Buehler
* Director January 21, 2003
------------------------------------------------
Van C. Campbell
* Director January 21, 2003
------------------------------------------------
Mary A. Cirillo
* Director January 21, 2003
------------------------------------------------
William R. Grant
* Director January 21, 2003
------------------------------------------------
Rosanne Haggerty
II-9
SIGNATURE TITLE DATE
--------- ----- ----
* Director January 21, 2003
------------------------------------------------
Dan C. Stanzione
* Director January 21, 2003
------------------------------------------------
Gail R. Wilensky
* Director January 21, 2003
------------------------------------------------
Jack B. Ziegler
*By: /s/ LEO C. FARRENKOPF, JR.
------------------------------------------
Leo C. Farrenkopf, Jr.
Attorney-in-Fact
II-10
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
2.1 Agreement and Plan of Merger, dated as of April 2, 2002, as
amended, among Quest Diagnostics, Quest Diagnostics Newco
Incorporated and Unilab Corporation (filed as an annex to
Quest Diagnostics' Final Prospectus, dated August 6, 2002,
and incorporated herein by reference).
2.2 Amendment to the Agreement and Plan of Merger, dated as of
May 13, 2002, among Quest Diagnostics, Quest Diagnostics
Newco Incorporated and Unilab Corporation (filed as an annex
to Quest Diagnostics' Final Prospectus, dated August 6,
2002, and incorporated herein by reference).
2.3 Amendment No. 2 to the Agreement and Plan of Merger, dated
as of June 20, 2002, among Quest Diagnostics, Quest
Diagnostics Newco Incorporated and Unilab Corporation (filed
as an annex to Quest Diagnostics' Final Prospectus, dated
August 6, 2002, and incorporated herein by reference).
2.4 Amendment No. 3 to the Agreement and Plan of Merger, dated
as of September 25, 2002, among Quest Diagnostics, Quest
Diagnostics Newco Incorporated and Unilab Corporation
(incorporated herein by reference to Exhibit (a)(11) of
Quest Diagnostics's Schedule TO Amendment No. 12 filed with
the Commission on September 26, 2002, file No. 001-12215).
2.5 Amendment No. 4 to the Agreement and Plan of Merger, dated
as of January 4, 2003, among Quest Diagnostics, Quest
Diagnostics Newco Incorporated and Unilab Corporation
(incorporated herein by reference to Exhibit (a)(20) of
Quest Diagnostics's Schedule TO Amendment No. 20 filed with
the Commission on January 6, 2003, file No. 001-12215).
3.1 Restated Certificate of Incorporation (incorporated herein
by reference to Exhibit 3.4 of Quest Diagnostics' Current
Report on Form 8-K filed with the Commission on May 31,
2001, File No. 001-12215).
3.2 Amended and Restated By-Laws of Quest Diagnostics
(incorporated herein by reference to Exhibit 3.3 of Quest
Diagnostics' Annual Report on Form 10-K for the fiscal year
ended December 31, 2000 filed with the Commission on April
2, 2001, File No. 001-12215).
4.1 Form of Rights Agreement, dated December 31, 1996, between
Corning Clinical Laboratories Inc. and Harris Trust and
Savings Bank as Rights Agent (incorporated herein by
reference to Exhibit 4.2 of Quest Diagnostics' Registration
Statement on Form 10 filed with the Commission on November
19, 1996, File No. 001-12215).
4.2 Form of Amendment No. 1, effective as of July 1, 1999 to the
Rights Agreement (incorporated herein by reference to
Exhibit 2 of Quest Diagnostics' Current Report on Form 8-K
filed with the Commission on August 16, 1997, File No.
001-12215).
4.3 Form of Amendment No. 2 to the Rights Agreement
(incorporated herein by reference to Exhibit 4.3 of Quest
Diagnostics' Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, filed with the Commission on March
31, 2000, File No. 001-12215).
4.4 Form of Amendment No. 3 to the Rights Agreement
(incorporated herein by reference to Exhibit 4.4 of Quest
Diagnostics' Annual Report on Form 10-K for the fiscal year
ended December 31, 2000, filed with the Commission on April
2, 2001, File No. 001-12215).
4.5 Indenture, dated as of June 27, 2001, among Quest
Diagnostics, the Subsidiary Guarantors, and the Trustee
(incorporated herein by reference to Exhibit 4.3 of Quest
Diagnostics' Current Report on Form 8-K filed with the
Commission on June 27, 2001, File No. 001-12215).
4.6 First Supplemental Indenture, dated as of June 27, 2001,
among Quest Diagnostics, the Subsidiary Guarantors, and the
Trustee to the Indenture referred to in Exhibit 10.4
(incorporated herein by reference to Exhibit 4.4 of Quest
Diagnostics' Current Report on Form 8-K filed with the
Commission on June 27, 2001, File No. 001-12215).
4.7 Second Supplemental Indenture, dated as of November 26,
2001, among Quest Diagnostics, the Subsidiary Guarantors,
and the Trustee to the Indenture referred to in Exhibit 10.4
(incorporated herein by reference to Exhibit 4.1 of Quest
Diagnostics' Current Report on Form 8-K filed with the
Commission on November 26, 2001, File No. 001-12215).
4.8 Third Supplemental Indenture, dated as of April 4, 2002,
among Quest Diagnostics, the Additional Subsidiary
Guarantors, and the Trustee to the Indenture referred to in
Exhibit 10.4 (incorporated herein by reference to Exhibit
4.1 of Quest Diagnostics' Current Report on Form 8-K filed
with the Commission on April 12, 2002, File No. 001-12215).
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
5 Opinion of Leo C. Farrenkopf, Jr., Deputy General Counsel of
Quest Diagnostics, as to the validity of the securities
being registered (incorporated herein by reference to
Exhibit 5 of Quest Diagnostics' Registration Statement on
Form S-4 filed with the Commission on May 15, 2002, File No.
333-88330).
10.1 Form of 6 3/4% Senior Notes due 2006, including the form of
guarantee endorsed thereon (incorporated herein by reference
to Exhibit 4.1 of Quest Diagnostics' Current Report on Form
8-K filed with the Commission on June 27, 2001, File No.
001-12215).
10.2 Form of 7 1/2% Senior Notes due 2011, including the form of
guarantee endorsed thereon (incorporated herein by reference
to Exhibit 4.2 of Quest Diagnostics' Current Report on Form
8-K filed with the Commission on June 27, 2001, File No.
001-12215).
10.3 Form of 1.75% Contingent Convertible Debentures due 2021,
including the form of guarantee endorsed thereon
(incorporated herein by reference to Exhibit 8.1 of Quest
Diagnostics' Current Report on Form 8-K filed with the
Commission on November 26, 2001, File No. 001-12215).
10.4 Credit Agreement, dated as of June 27, 2001, among Quest
Diagnostics, the Subsidiary Guarantors and the Banks
(incorporated herein by reference to Exhibit 10.1 of Quest
Diagnostics' Current Report on Form 8-K filed with the
Commission on June 27, 2001, File No. 001-12215).
10.5 Amended and Restated Credit and Security Agreement, dated as
of September 28, 2001, among Quest Diagnostics Receivables
Inc., as Borrower, Quest Diagnostics, as Initial Servicer,
each of the Lenders party thereto and Wachovia Bank, N.A.,
as Administrative Agent (incorporated herein by reference to
Exhibit 10.1 of Quest Diagnostics' Quarterly Report on Form
10-Q for the quarter ended September 30, 2001, filed with
the Commission on October 31, 2001, File No. 001-12215).
10.6 Amendment No. 1 to the Amended and Restated Credit and
Security Agreement, dated as of October 30, 2001, among
Quest Diagnostics Receivables Inc., as Borrower, Quest
Diagnostics, as Initial Servicer, each of the Lenders party
thereto and Wachovia Bank, N.A., as Administrative Agent
(incorporated herein by reference to Exhibit 10.2 of Quest
Diagnostics' Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001, filed with the Commission on
October 31, 2001, File No. 001-12215).
10.7 Amendment No. 2 to the Amended and Restated Credit and
Security Agreement, dated as of January 14, 2002, among
Quest Diagnostics Receivables Inc., as Borrower, Quest
Diagnostics, as Initial Servicer, each of the Lenders party
thereto and Wachovia Bank, N.A., as Administrative Agent
(incorporated herein by reference to Exhibit 10.10 of Quest
Diagnostics' Annual Report on Form 10-K for the fiscal year
ended December 31, 2001, filed with the Commission on March
4, 2002, File No. 001-12215).
10.8 Amendment No. 3 to the Amended and Restated Credit and
Security Agreement dated as of July 24, 2002 among Quest
Diagnostics Receivables Inc., as Borrower, Quest
Diagnostics, as Initial Servicer, each of the Lenders party
thereto and Wachovia Bank, N.A., as Administrative Agent
(incorporated herein by reference to Exhibit 10.2 of Quest
Diagnostics' Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002 filed with the Commission on August 13,
2002, File No. 001-12215).
10.9 Waiver and Amendment No. 4 to the Amended and Restated
Credit and Security Agreement dated as of September 24, 2002
among Quest Diagnostics Receivables Inc., as Borrower, Quest
Diagnostics, as Initial Servicer, each of the Lenders party
thereto and Wachovia Bank, N.A., as Administrative Agent
(incorporated herein by reference to Exhibit 10.2 of Quest
Diagnostics' Quarterly Report on Form 10-Q for the quarter
ended September 30, 2002 filed with the Commission on
October 31, 2002, File No. 001-12215).
10.10 Omnibus Amendment to the Amended and Restated Credit and
Security Agreement dated as of October 15, 2002 among Quest
Diagnostics Receivables Inc., as Borrower, Quest
Diagnostics, as Initial Servicer, each of the Lenders party
thereto and Wachovia Bank, N.A., as Administrative Agent
(incorporated herein by reference to Exhibit 10.3 of Quest
Diagnostics' Quarterly Report on Form 10-Q for the quarter
ended September 30, 2002 filed with the Commission on
October 31, 2002, File No. 001-12215).
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
10.11 Receivables Sale Agreement, dated as of July 21, 2000,
between Quest Diagnostics, each of the subsidiary sellers
party thereto and Quest Diagnostics Receivables Inc.
(incorporated herein by reference to Exhibit 10.9 of Quest
Diagnostics' Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000, filed with the Commission on August 3,
2000, File No. 001-12215).
10.12 Stock and Asset Purchase Agreement, dated as of February 9,
1999, among SmithKline Beecham plc, SmithKline Beecham
Corporation and Quest Diagnostics (incorporated herein by
reference to Appendix A of Quest Diagnostics' Definitive
Proxy Statement filed with the Commission on May 11, 1999,
File No. 001-12215).
10.13 Amendment No. 1, dated August 6, 1999, to the Stock and
Asset Purchase Agreement (incorporated herein by reference
to Exhibit 4 of Quest Diagnostics' Current Report on Form
8-K filed with the Commission on August 16, 1999, File No.
001-12215).
10.14 Non-Competition Agreement, dated as of August 16, 1999,
between SmithKline Beecham plc and Quest Diagnostics
(incorporated herein by reference to Exhibit 5 of Quest
Diagnostics' Current Report on Form 8-K filed with the
Commission on August 16, 1999, File No. 001-12215).
10.15 Stockholders Agreement, dated as of August 16, 1999, between
SmithKline Beecham plc and Quest Diagnostics (incorporated
herein by reference to Exhibit 6 of Quest Diagnostics'
Current Report on Form 8-K filed with the Commission on
August 16, 1999, File No. 001-12215).
*10.16 Amended and Restated Global Clinical Trials Agreement, dated
as of December 19, 2002, between SmithKline Beecham plc and
Quest Diagnostics.
10.17 Form of Employees Stock Purchase Plan (incorporated herein
by reference to Exhibit 10.3 of Quest Diagnostics' Quarterly
Report on Form 10-Q for the quarter ended June 30, 2002
filed with the Commission on August 13, File No. 001-12215).
10.18 Form of 1996 Employee Equity Participation Program
(incorporated herein by reference to Exhibit 10.5 of Quest
Diagnostics' Quarterly Report on Form 10-Q for the quarter
ended September 30, 2002 filed with the Commission on
October 31, 2002, File No. 001-12215).
10.19 Form of 1999 Employee Equity Participation Program
(incorporated herein by reference to Exhibit 10.4 of Quest
Diagnostics' Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002 filed with the Commission on August 13,
2002, File No. 001-12215).
*10.20 Form of Stock Option Plan for Non-Employee Directors.
10.21 Employment Agreement between Quest Diagnostics and Kenneth
W. Freeman (incorporated herein by reference to Exhibit
10.22 of Quest Diagnostics' Annual Report on Form 10-K for
the fiscal year ended December 31, 1999, filed with the
Commission on March 30, 2000, File No. 001-12215).
10.22 Amendment to the Employment Agreement between Quest
Diagnostics and Kenneth W. Freeman (incorporated herein by
reference to Exhibit 10.26 of Quest Diagnostics' Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000,
filed with the Commission on August 3, 2000, File No.
001-12215).
10.23 Form of Supplemental Deferred Compensation Plan
(incorporated herein by reference to Exhibit 10.12 of Quest
Diagnostics' Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, filed with the Commission on March
31, 1999, File No. 001-12215).
*10.24 Amendment No. 1 to the Supplemental Deferred Compensation
Plan.
*10.25 Amendment No. 2 to the Supplemental Deferred Compensation
Plan.
10.26 Form of Executive Retirement Supplemental Plan (incorporated
herein by reference to Exhibit 10.10 of Quest Diagnostics'
Registration Statement on Form 10 filed with the Commission
on November 25, 1996, File No. 001-12215).
10.27 Form of Variable Compensation Plan (incorporated herein by
reference to Exhibit 10.6 of Quest Diagnostics' Registration
Statement on Form 10 filed with the Commission on December
31, 1996, File No. 001-12215).
10.28 Employment Agreement for Robert E. Whalen, dated as of April
2, 2002 (incorporated herein by reference to Exhibit 10.25
of Quest Diagnostics' Registration Statement on Form S-4
filed with the Commission on May 15, 2002, File No.
333-88330).
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
10.29 Employment Agreement for Emmett C. Kane, dated as of April
2, 2002 (incorporated herein by reference to Exhibit 10.26
of Quest Diagnostics' Registration Statement on Form S-4
filed with the Commission on May 15, 2002, File No.
333-88330).
10.30 Employment Agreement for David W. Gee, dated as of April 2,
2002 (incorporated herein by reference to Exhibit 10.27 of
Quest Diagnostics' Registration Statement on Form S-4 filed
with the Commission on May 15, 2002, File No. 333-88330).
10.31 Employment Agreement for Brian D. Urban, dated as of April
2, 2002 (incorporated herein by reference to Exhibit 10.28
of Quest Diagnostics' Registration Statement on Form S-4
filed with the Commission on May 15, 2002, File No.
333-88330).
*21 Subsidiaries of Quest Diagnostics.
*23.1 Consent of PricewaterhouseCoopers LLP.
*23.2 Consent of Deloitte & Touche LLP.
24 Power of Attorney (included on the signature page of Quest
Diagnostics' Registration Statement on Form S-4 filed with
the Commission on May 15, 2002, File No. 333-88330).
99.1 Joint Press Release, dated April 2, 2002 (incorporated
herein by reference to Exhibit 99.1 of Quest Diagnostics'
Current Report on Form 8-K filed with the Commission on
April 2, 2002, File No. 001-12215).
99.2 Stockholders Agreement, dated as of April 2, 2002, as
amended, among Quest Diagnostics, Quest Diagnostics Newco
Incorporated, Kelso Investment Associates VI, L.P. and KEP
VI, LLC (filed as an annex to Quest Diagnostics' Final
Prospectus, dated August 6, 2002, and incorporated herein by
reference).
*99.3 Form of Letter of Election and Transmittal.
*99.4 Form of Notice of Guaranteed Delivery.
*99.5 Form of Letter to Brokers, Dealers, etc.
*99.6 Form of Letter to Clients.
*99.7 Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
99.8 Joint Press Release, dated May 24, 2002 (incorporated herein
by reference to Quest Diagnostics' Form 425 filed May 28,
2002).
99.9 Press Release, dated June 18, 2002 (incorporated herein by
reference to Quest Diagnostics' Form 425 filed June 18,
2002).
99.10 Press Release, dated July 2, 2002 (incorporated herein by
reference to Quest Diagnostics' Form 425 filed July 2,
2002).
99.11 Press Release, dated July 17, 2002 (incorporated herein by
reference to Quest Diagnostics' Form 425 filed July 17,
2002).
99.12 Press Release, dated July 19, 2002 (incorporated herein by
reference to Quest Diagnostics' Form 425 filed July 19,
2002).
99.13 Press Release, dated July 31, 2002 (incorporated herein by
reference to Quest Diagnostics' Form 425 filed July 31,
2002).
99.14 Press Release, dated August 14, 2002 (incorporated herein by
reference to Quest Diagnostics' Form 425 filed August 14,
2002).
99.15 Press Release, dated August 28, 2002 (incorporated herein by
reference to Quest Diagnostics' Form 425 filed August 28,
2002).
99.16 Press Release, dated September 12, 2002 (incorporated herein
by reference to Quest Diagnostics' Form 425 filed September
12, 2002).
99.17 Press Release, dated September 20, 2002 (incorporated herein
by reference to Quest Diagnostics' Form 425 filed September
20, 2002).
99.18 Press Release, dated September 26, 2002 (incorporated herein
by reference to Quest Diagnostics' Form 425 filed September
26, 2002).
99.19 Press Release, dated October 10, 2002 (incorporated herein
by reference to Quest Diagnostics' Form 425 filed October
10, 2002).
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
99.20 Press Release, dated October 24, 2002 (incorporated herein
by reference to Quest Diagnostics' Form 425 filed October
24, 2002).
99.21 Press Release, dated November 7, 2002 (incorporated herein
by reference to Quest Diagnostics' Form 425 filed November
7, 2002).
99.22 Press Release, dated November 21, 2002 (incorporated herein
by reference to Quest Diagnostics' Form 425 filed November
21, 2002).
99.23 Press Release, dated December 2, 2002 (incorporated herein
by reference to Quest Diagnostics' Form 425 filed December
2, 2002).
99.24 Press Release, dated December 6, 2002 (incorporated herein
by reference to Quest Diagnostics' Form 425 filed December
6, 2002).
99.25 Press Release, dated December 20, 2002 (incorporated herein
by reference to Quest Diagnostics' Form 425 filed December
20, 2002).
99.26 Press Release, dated January 6, 2003 (incorporated herein by
reference to Quest Diagnostics' Form 425 filed January 6,
2003).
99.27 Press Release, dated January 7, 2003 (incorporated herein by
reference to Quest Diagnostics' Form 425 filed January 7,
2003).
99.28 Term Loan Credit Agreement dated as of June 21, 2002 among
Quest Diagnostics, certain subsidiary guarantors of Quest
Diagnostics, the Lenders party thereto, and Bank of America,
N.A., as Administrative Agent (incorporated herein by
reference to Exhibit 99.12 of Amendment No. 2 to Quest
Diagnostics' Registration Statement on Form S-4 filed with
the Commission on June 24, 2002, File No. 333-88330)).
99.29 First Amendment to the Credit Agreement dated as of
September 20, 2002 among Quest Diagnostics, certain
subsidiary guarantors of Quest Diagnostics, the Lenders
party thereto, and Bank of America, N.A., as Administrative
Agent (incorporated herein by reference to Exhibit 10.1 of
Quest Diagnostics' Quarterly Report on Form 10-Q for the
quarter ended September 30, 2002 filed with the Commission
on October 31, 2002, File No. 001-12215).
*99.30 Second Amendment to the Credit Agreement dated as of
December 19, 2002 among Quest Diagnostics, certain
subsidiary guarantors of Quest Diagnostics, the Lenders
party thereto, and Bank of America, N.A., as Administrative
Agent.
---------------
* Filed herewith