EXHIBIT 10.1
ASSET PURCHASE AGREEMENT
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ASSET PURCHASE AGREEMENT, dated as of April 7, 1999 (the "Agreement"), by
and among DIANON SYSTEMS, INC., a Delaware corporation ("Buyer"), KYTO MERIDIEN
DIAGNOSTICS, L.L.C., a New York limited liability company ("KMD"), KYTO
DIAGNOSTICS, L.P., a New York limited partnership and Member of KMD ("Kyto"),
MERIDIEN DIAGNOSTICS LABS, INC., a New York corporation and Member of KMD
("Meridien") (Kyto and Meridien being hereinafter collectively referred to as
the "Members"), A. Bruce Shapiro, a Principal and indirect owner of KMD
("Shapiro"), and Ralph M. Richart, M.D., a Principal and indirect owner of KMD
("Richart") (KMD, Members, Shapiro and Richart being hereinafter collectively
referred to as the "Sellers" and each, individually, as a "Seller").
W I T N E S S E T H:
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WHEREAS, KMD is engaged in the business of owning and operating
laboratories that provide anatomic pathology, surgical pathology and clinical
laboratory testing services to patients, physicians, hospitals, clinics, managed
care organizations and other health care providers (the "Business"); and
WHEREAS, KMD desires to sell to Buyer, and Buyer desires to purchase from
KMD, certain assets of KMD used in connection with the Business, all in
accordance with the terms and subject to the conditions hereinafter set forth;
and
WHEREAS, the Members are the only direct owners of KMD and are entering
into this Agreement as an inducement to Buyer to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. DEFINITIONS: RULES OF CONSTRUCTION.
(a) Definitions. The following terms, as used herein, have the following
meanings:
"Acquisition Documents" shall mean, collectively, this Asset Purchase
Agreement, the New City Lease, the Bill of Sale and Assignment, the Registration
Rights Agreement and the Employment and Consulting Agreements, together with all
Exhibits and Schedules hereto and thereto.
"Affiliate" means, as to any Person, any other Person which, directly or
indirectly, controls, is controlled by or is under common control with such
Person. For the purposes of this definition, "control" means the possession of
the power to direct or cause the direction of management and policies of such
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Assets" shall have the meaning set forth in Section 2(a).
"Assumed Contracts," "Assumed Obligations" and "Assumption Agreement"
shall have the respective meanings set forth in Section 2(d).
"Benefit Plans" shall have the meaning set forth in Section 4(n).
"Bill of Sale and Assignment" shall have the meaning set forth in
Section 2(c).
"Business Day" means any day other than Saturday, Sunday, and any other
day on which banks are not generally open for business in New York City.
"CHAMPUS" shall mean the federal Civilian Health and Medical Plan of the
Uniformed Services.
"Closing" and "Closing Date" shall have the respective meanings set forth
in Section 11.
"Consulting Agreement" means the three year agreement for the consulting
services of Shapiro, to be entered into as of the Closing Date in the form of
EXHIBIT A hereto.
"Code" means the Internal Revenue Code of l986, as amended.
"Contract" means any contract, agreement, indenture, note, bond, loan or
credit agreement, instrument, security agreement, conditional or installment
sales contract, mortgage, lease, license, franchise, insurance policy,
commitment or other binding understanding or arrangement.
"Employment Agreements" means the three agreements for the employment of
Richart, Beth Phillips and Dana Shapiro, each to be entered into as of the
Closing Date in their respective forms set forth in EXHIBIT B hereto.
"Employment Agreement" means such of the three Employment Agreements as is
indicated by the context.
"Environmental Laws" means any federal, state, local or foreign law
(including common law), statute, code, ordinance, rule, regulation or other
requirement relating in any way to the environment, natural resources, or public
or employee health and safety and includes, without limitation, the
Comprehensive Environmental Response Compensation, and Liability Act, 42 U.S.C.
ss. 9601 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. ss. 1801
et seq., the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. ss.
136 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et
seq., the Toxic Substances Control Act, 15 U.S.C. ss. 2601 et seq., the Clean
Air Act, 42 U.S.C. ss. 7401 et seq., the Clean Water Act, 33 U.S.C. ss. 1251 et
seq., the Occupational Safety and Health Act, 29 U.S.C. ss. 651 et seq., and the
Oil Pollution Act of 1990, 33 U.S.C. ss. 2701 et seq., as such laws have been
amended or supplemented, and the regulations promulgated pursuant thereto, and
all analogous state and local statutes.
"ERISA" means the Employee Retirement Income Security Act of 1974 (or any
successor legislation thereto), as amended from time to time.
"Excluded Assets" shall have the meaning set forth in Section 2(b).
"Facilities" means KMD's laboratory testing facilities and offices located
at 216 Congers Road, New City, New York 10956 ("New City Facility"), and 40
Crossways Park Drive, Woodbury, New York 11797 ("Woodbury Facility").
"Federal Health Care Program" shall have the meaning set forth in SSA
Section 1128B(f).
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"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Board, which are applicable to the circumstances
as of the date of determination.
"Governmental Body" means any country, government or governmental
regulatory body thereof, any political subdivision thereof (whether federal,
state, local or foreign), any agency, instrumentality or authority of any
country or any government, or any court of competent jurisdiction.
"Hazardous Material" means any substance, material or waste which is
regulated by any Governmental Body of the United States or other national
government including any material, substance or waste which is defined as a
"hazardous waste," "hazardous material," "hazardous substance," "extremely
hazardous waste," "restricted hazardous waste," "contaminant," "toxic waste" or
"toxic substance" under any provision of Environmental Law, which includes (but
is not limited to) petroleum, petroleum products, asbestos, urea formaldehyde
and polychlorinated biphenyls.
"Intellectual Property Right" means any trademark, service mark, trade
name, patent, trade secret, copyright, know-how or other type of intellectual
property right (including any registrations or applications for registration of
any of the foregoing).
"Key Persons" means Richart, Shapiro and Dana Shapiro.
"Lease" means the agreement for the lease by Buyer of the New City
Facility, to be entered into as of the Closing Date substantially in the form of
EXHIBIT C hereto.
"Lien" means any mortgage, claim, encumbrance, deed of trust, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), security interest or preference, priority or other security agreement,
right of first offer or first refusal, or other preferential arrangement of any
kind or nature whatsoever.
"Material Adverse Effect" means a material adverse effect on the financial
condition, results of operations, business, properties, Assets, liabilities or
prospects of KMD or the Business.
"Member" means any Person who has been admitted as a member of KMD or who
has a membership or other ownership interest in KMD.
"Person" means any individual, corporation, limited liability company,
partnership, firm, joint venture, association, trust, Governmental Body or other
entity.
"Purchase Price" shall mean the sum of the First, Second and Third
Components, as described in Section 3(a).
"Registration Rights Agreement" means that agreement in the form of
EXHIBIT D hereto extending to KMD certain registration rights with respect to
the Shares.
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"Release" means any release, spill, emission, leaking, pumping, pouring,
dumping, emptying, injection, deposit, disposal, discharge, dispersal, leaching
or migration on or into the indoor or outdoor environment or into or out of any
property.
"Retained Liabilities" shall have the meaning set forth in Section 2(d).
"Shares" shall have the meaning set forth in Section 3(a).
"SSA" shall mean the federal Social Security Act and all regulations
promulgated pursuant thereto.
"State Health Care Program" shall have the meaning set forth in SSA
Section 1128(h).
"Taxes" means all taxes, charges, fees, levies, or other similar
assessments, including (a) income, gross receipts, ad valorem, premium, excise,
real property, personal property, windfall profit, sales, use, transfer,
licensing, withholding, employment, payroll, alternative or add-on minimum tax,
estimated and franchise taxes imposed by any federal, state, local, or foreign
government, or any subdivision, agency, or other similar person of any such
government; and (b) any interest, fines, penalties, assessments, or additions to
tax resulting from, attributable to, or incurred in connection with any such tax
or any contest or dispute thereof.
"Tax Returns" means any report, return, statement, or other information
required to be supplied to a taxing authority in connection with Taxes.
(b) Rules of Construction. As used in this Agreement, the words "herein,
"hereof," "hereto" and "hereunder" and other words of similar import refer to
this Agreement as a whole, including the Schedules and Exhibits hereto, as the
same may from time to time be amended or supplemented, and not to any
subdivision contained in this Agreement. The word "including" when used herein
is not intended to be exclusive and means "including, without limitation." The
term "Seller's knowledge," "Sellers' knowledge," "to the knowledge of Seller,"
"to the knowledge of Sellers" or similar terms means the collective actual
knowledge of Sellers and the actual knowledge of each individual Seller, after
diligent inquiry.
2. PURCHASE AND SALE.
(a) Assets. Upon the terms and subject to the conditions set forth in this
Agreement, KMD shall, at the Closing, sell, assign, convey, transfer and deliver
to Buyer, free and clear of all Liens, and Buyer shall purchase and accept from
KMD, all of KMD's right, title and interest in and to all assets, properties and
rights of every kind and description, wherever located, whether tangible or
intangible, other than the Excluded Assets referred to in Section 2(b), owned by
KMD and relating to or arising out of the Business (collectively the "Assets"),
including, without limitation, the following:
(i) all laboratory, clinical or chemical testing and other equipment,
computers, furnishings, furniture, office supplies, vehicles, spare parts,
tools, machinery or other equipment owned by KMD and all other goods and
personal property used in the operation of the Business, all of which items are
listed, specifically or by category, on Schedule 2(a)(i)(A) (in each case,
including all accessories, supplies, operating manuals and other documentation
with respect thereto, collectively, the "Equipment"); KMD's interests in the
leases of Equipment listed on Schedule 2(a)(i)(B) (collectively, the "Equipment
Leases");
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and all other fixed assets owned by KMD and that are located at one of the
Facilities or otherwise used in the Business, including the fixed assets listed
on Schedule 2(a)(i)(C) (collectively, the "Fixed Assets");
(ii) all inventories of supplies, chemicals, labels, stationary, forms,
packing, shipping and mailing materials owned by KMD and used in the Business
(collectively, the "Inventory");
(iii) all Contracts of KMD to provide services, equipment and real estate
leases, equipment maintenance agreements, software license agreements, service
agreements, reagent agreements and other agreements incurred in the ordinary
course of the Business (but excluding all Excluded Contracts and Benefit Plans),
any and all rights of KMD thereunder, and all rights of KMD under any
non-disclosure, confidentiality or noncompetition Contracts relating to the
Business (the "Included Contracts"), all of which Included Contracts (other than
such agreements that are terminable without penalty on less than thirty-one (31)
days notice or involve payments of not more than $500 per month and not more
than $30,000 in the aggregate over the life of such contracts) are listed on
Schedule 2(a)(iii) or 2(a)(i)(B);
(iv) all rights of KMD under or pursuant to all warranties,
representations or guarantees made by suppliers, manufacturers and contractors
in connection with products or services of, or used in, the Business, or
otherwise affecting the Equipment, the Fixed Assets or the Inventory;
(v) all customer and vendor lists relating to the Business, all files or
documents relating to customers and vendors of the Business, and all financial
records, files, books or documents otherwise relating to the Assets, the Assumed
Obligations and/or the Business, including computer programs, manuals, sales and
advertising materials, billing records, and sales, distribution and purchase
correspondence;
(vi) all Intellectual Property Rights of KMD and all of KMD's rights under
all Third Party Licenses (as defined in Section 4(l)) and all documentation
relating thereto in whatever media it is embodied, including books, records,
computer storage media, magnetic tape, data compilations and other embodiments
are listed on Schedule 2(a)(vi);
(vii) subject to the license granted by Section 7(e), all computer
software (including object code and source code in KMD's possession) owned by
KMD and used by KMD in connection with the Business, including all copies stored
in magnetic or other media of any kind, and all documentation and specifications
relating thereto;
(viii) all permits, licenses, provider numbers and other formal approvals
issued by any Governmental Body held and used by KMD in connection with the
Business (other than KMD's Medicare Provider Number L220810 issued by the Health
Care Financing Administration and pertaining to Medicare services performed at
the Facilities) to the extent transferable to Buyer, all of which material
permits, licenses and provider numbers are listed on Schedule 2(a)(viii);
(ix) all prepaid deposits, expenses or charges of the Business;
(x) all claims, choses of action and rights relating to the Business, the
Assets and the Assumed Obligations, and all insurance proceeds, judgments or
settlements with respect to the Business, the Assets and the Assumed
Obligations;
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(xi) all of KMD's right, title and interest in and to the name "Kyto
Meridien Diagnostics" and any derivation thereof, the goodwill pertaining to
such name and the Business, and the current telephone numbers and telephone
listings of the Business; and
(xii) all current accounts receivable existing on the Closing Date for
which no payment has been received by KMD as of the first posting date after the
Closing Date and which originated from billings to monthly billed accounts of
KMD (as opposed to patient and third party billed accounts described in
Subsection 2(b)(vii) below), together with all evidences thereof and
documentation relating thereto (the "Purchased Receivables").
(b) Excluded Assets. Notwithstanding anything to the contrary contained in
Section 2(a), KMD is not hereunder selling, assigning, transferring or conveying
to Buyer, and Buyer is not assuming any liability or obligation with respect to,
the following assets pertaining to the Business (collectively, the "Excluded
Assets");
(i) all Contracts of KMD listed on Schedule 2(b)(i) ( the "Excluded
Contracts");
(ii) all Contracts not listed on a Schedule pursuant to Section 2(a)
above, unless not required to be listed pursuant to the exceptions set forth in
Subsection 2(a)(iii), or unless Buyer, in its sole discretion, accepts the
transfer or assignment of such Contract;
(iii) any title to any real property, except for the leasehold interest
granted pursuant to the New City Lease and the lease of KMD's facility in
Woodbury, New York, and except for Buyer's leasehold improvements and fixtures
to the Facilities that are Assets;
(iv) all Benefit Plans, except as expressly provided herein;
(v) KMD's only Medicare Provider Number L220810 pertaining to Medicare
services performed at the Facilities and the Medicare provider agreement
pursuant to which such provider number was issued;
(vi) all assets described on Schedule 2(b)(vi), the aggregate value of
which assets shall not exceed a fair market value of fifty thousand ($50,000)
dollars. Notwithstanding their listing as Excluded Assets on Schedule 2(b)(vi),
the following Excluded Assets shall remain on site in their current locations
for a period of one hundred and twenty (120) days after the Closing and Buyer
shall have shared access and use of such Excluded Assets as reasonably required
by Buyer: In New City, the HP952 computer and disk drives, six terminals, DAT
drive and related printer; In Woodbury, the Compu Add computer, dual array
Seagate drive, Colorado Power DAT, Intel Pentium system, two Compustar personal
computers, three Hewlett Packard III SI laser printers and one Epson DFX 8000
line printer;
(vii) KMD's accounts receivable originating from billings directly to
patients and third party insurers (as opposed to the Purchased Receivables
described in Subsection 2(a)(xii) above), including, without limitation,
Medicare, Medicaid and CHAMPUS, for services performed prior to the Closing
Date; and
(viii) all cash and cash equivalents.
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(c) Transfer of Title to the Assets. The sale, assignment, transfer and
delivery by KMD of the Assets shall be made at the Closing and evidenced by a
duly executed Bill of Sale and Assignment substantially in the form of EXHIBIT E
hereto (the "Bill of Sale and Assignment") and by such other instruments of
transfer and assignment as Buyer shall reasonably request in order to vest in
Buyer, as of the Closing Date, title to the Assets which are owned and a valid
and assignable leasehold or other contractual interest in the Assets which are
leased or otherwise held under Contract, in each case free and clear of any and
all material Liens. Sellers covenant and agree to execute and deliver such other
and further instruments of assignment, transfer or conveyance of any of the
Assets as Buyer may reasonably request after the Closing Date to evidence
Buyer's right, title and interest in and to the Assets.
(d) Assumed Obligations: Retained Liabilities. On the Closing Date, Buyer
shall assume, perform and discharge the obligations and liabilities of KMD under
the Equipment Leases and the Included Contracts (collectively, the "Assumed
Contracts") pursuant to an Assumption Agreement substantially in the form of
EXHIBIT F hereto (the "Assumption Agreement"), provided that Buyer shall have
received all necessary consents with respect to the assignment thereof to Buyer
and provided further that Buyer shall assume KMD's obligations under the Assumed
Contracts only to the extent that (i) Sellers' representations and warranties
with respect to the Assumed Contracts are true and correct in all material
respects and (ii) such obligations of performance arise and relate to events
occurring on or after the Closing Date.
No other liabilities or obligations of Sellers are expressly or by
implication being assumed by Buyer under this Agreement. Without limiting the
generality of the preceding sentence, Sellers shall retain all obligations and
liabilities (known or unknown, contingent or fixed, liquidated or unliquidated,
accrued or unaccrued, "Liabilities") relating to, arising out of or accruing
from the operation of the Business prior to the Closing Date, including, without
limitation: any and all obligations of KMD for performance under Contracts
(other than obligations for performance arising after the Closing Date under the
Assumed Contracts); any and all Taxes with respect to the operation of KMD or
the Business or the ownership, use or leasing of any of the Assets on or prior
to the Closing Date; any and all Liabilities pertaining to any time period prior
to the Closing Date under any Environmental Law; any and all Liabilities with
respect to any Benefit Plan; any and all Liabilities arising from any claims in
respect of, or other obligations pertaining to, the Excluded Assets; any and all
Liabilities with respect to professional liability claims pertaining to any time
period prior to the Closing Date; any and all Liabilities with respect to the
accounts payable or other current liabilities of KMD pertaining to any time
period prior to the Closing Date; any and all Liabilities of Sellers under any
Clinical Laboratory Improvements Act ("CLIA") license or provider number of KMD
pertaining to any time period prior to the Closing Date including, without
limitation, the KMD Medicare provider agreement and Medicare provider number
L220810 pertaining to services performed at the Facilities; and any and all
Liabilities with respect to any false claims, civil or criminal enforcement
actions, civil money penalties, administrative sanctions or other Liabilities
related to any overpayment for services performed by or billed by or on behalf
of KMD prior to the Closing Date (collectively, the "Retained Liabilities") .
(e) Payment of Accounts Payable. Sellers shall pay all accounts payable
and other current liabilities of KMD not expressly assumed by Buyer hereunder
within thirty days of receipt of the invoice for payment therefore, but, in no
event, more than ninety days after the Closing Date. Failure of Sellers to make
payment as required by this Subsection (e), unless Sellers possess a good faith
defense to payment, shall be an indemnifiable event under Subsection 15(a)(vii)
below, but indemnification therefore shall not be subject to the Threshold
described in Section 15(e). Assuring that all such accounts payable and
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current liabilities are timely paid shall be a material obligation of Shapiro
under the Consulting Agreement.
(f) Books and Records. At the Closing, KMD shall deliver to Buyer all
books of account, leases, other agreements, customer lists, files and other
documents, instruments and papers of all kind and nature belonging to KMD and
relating to the Business (other than the Excluded Assets), whether in the
possession of KMD or any Member.
3. PURCHASE PRICE.
(a) Purchase Price and Restrictive Covenant Payments.
Subject to the provisions below, the aggregate payment to be made by Buyer
to Sellers for the Assets, including compensation to Sellers for their
restrictive covenants provided in Section 14 below, shall consist of three
components as follows:
First Component. Buyer shall, at the Closing, pay to KMD an amount
equal to ten million five hundred thousand ($10,500,000) dollars (the
"Closing Payment"), less the Withholding described in Subsection 3(d),
below. Such Closing Payment shall be paid by Buyer by wire transfer of
immediately available funds to the account designated in writing by KMD
not less than three (3) Business Days prior to the Closing Date.
Second Component. Buyer shall, at the Closing, deliver to KMD a
certificate for three hundred thousand (300,000) newly issued or treasury
shares of the common voting stock, par value $.01 per share, of Buyer (the
"Shares").
Third Component. Within forty-five days after the Closing Date,
Buyer shall pay to KMD an amount equal to the current monthly accounts
receivable balance (with respect to the Purchased Receivables described in
Subsection 2(a)(xii)) existing on the Closing Date less the payments
received after the Closing Date by KMD or any of the Sellers in payment of
such Purchased Receivables. KMD shall have an absolute obligation to post
payment for any receivable subject to this provision for which KMD has
received payment. Buyer shall have the right to audit the applicable
portions of the books and records of KMD to determine whether any payments
for the Purchased Receivables have been received by it and KMD shall
refund to Buyer any payments made by Buyer under this section to which KMD
is not entitled.
(b) Allocation of Purchase Price. Buyer and Sellers agree that the
Purchase Price of the Assets will be allocated as set forth on EXHIBIT G hereto,
provided that the allocation to the Sellers' restrictive covenants required
under Section 14 below shall in no way reflect or be construed as a ceiling on
the amount of damages that may be claimed or incurred by Buyer in the event of a
breach by any Seller of the requirements of Section 14 or any of the Employment
or Consulting Agreements. Buyer shall have no duty or obligation as to the
disbursement or division of the Purchase Price consideration among the Sellers.
Subject to the requirements of any applicable Tax law, all Tax Returns and
reports filed by Buyer and by KMD shall be prepared consistently with such
allocation.
(c) Collection of Purchased Receivables. Buyer shall have the right at any
time after the Closing Date to endorse, deposit and cash any checks received in
full or part payment for any of the Purchased Receivables and any accounts
receivable pertaining to services performed after the Closing Date, whether such
checks are made payable to the order of KMD or otherwise. KMD hereby grants
Buyer an irrevocable power of attorney for the purpose of endorsing any such
checks or other funds payable to the order of KMD. Sellers shall deliver to
Buyer any and all checks or money received by KMD or any Seller after the
Closing in full or part payment of any Purchased Receivable and any accounts
receivable pertaining to services performed on or after the Closing
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Date. Buyer shall refund to Sellers any pre-Closing receivables collected by it
that are not Purchased Receivables.
(d) Sales Tax Withholding. At least ten days prior to the Closing, Buyer
shall file a `Notification of Sale, Transfer or Assignment in Bulk' with the
State of New York, Department of Taxation and Finance. Prior to Closing, Buyer
shall estimate, based upon the allocation of purchase price determined by its
accountants, the amount of the sales tax that is likely to be owing on the sale
of the Assets under the New York State Sales and Use Tax Law ("Estimated Tax").
Buyer shall withhold an amount equal to one-half of such Estimated Tax from the
Closing Payment set forth in Subsection 3(a), above (the "Withholding"). Upon
receipt from the New York State Tax Commission of notice of the actual amount of
sales tax due ("Actual Tax"), Buyer shall pay such Actual Tax in full, one-half
of which Actual Tax shall be paid from the Withholding. In the event that the
Withholding exceeds one-half of the Actual Tax determined to be due, the balance
of the Withholding (that portion in excess of one-half of the Actual Tax) shall
be paid by Buyer to KMD. In the event that the Withholding is less than one-half
of the Actual Tax determined to be due, KMD shall pay to Buyer one-half of the
difference between the Actual Tax and the Estimated Tax. The obligations of
Buyer and KMD under this Section 3(d) shall not be subject to the
indemnification threshold set forth in Section 15(e), below.
4. REPRESENTATIONS AND WARRANTIES OF THE SELLERS. Sellers hereby severally
represent and warrant to Buyer as follows and acknowledge that Buyer is relying
upon such representations and warranties in connection with the transactions
provided for herein:
(a) Organization, Etc. KMD is a limited liability corporation duly
organized, validly existing and in good standing as a limited liability company
under the laws of the State of New York and has all requisite power and
authority to (i) conduct its Business as it is now conducted, (ii) own or lease
all of the properties owned or leased by it and (iii) enter into and perform its
obligations under the Acquisition Documents. KMD is duly qualified and is in
good standing in each jurisdiction where the nature of its business makes such
qualification necessary. True, correct and complete copies of the Articles of
Organization of KMD (together with all amendments thereto and restatements
thereof as of the date hereof) have been previously delivered to Buyer.
Kyto is a limited partnership duly organized, validly existing and
in good standing as a limited partnership under the laws of the State of New
York and has all the requisite power and authority to enter into and perform its
obligations under this Agreement. Kyto is duly qualified and is in good standing
in each jurisdiction where the nature of its business makes such qualification
necessary. True, correct and complete copies of the Limited Partnership
Agreement of Kyto (together with all amendments thereto and restatements thereof
as of the date hereof) have been previously delivered to Buyer.
Meridien is a Subchapter S corporation duly organized, validly
existing and in good standing as an S corporation under the laws of the State of
New York and has all the requisite power and authority to enter into and perform
its obligations under this Agreement. Meridien is duly qualified as a foreign
corporation and is in good standing in each jurisdiction where the nature of its
business makes such qualification necessary. True, correct and complete copies
of the Articles of Incorporation and By-
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Laws of Meridien (together with all amendments thereto and restatements thereof
as of the date hereof) have been previously delivered to Buyer.
(b) Authorization, Execution, Binding Effect. Each of the Sellers has
taken all actions necessary to authorize it to execute, deliver and perform its
obligations under this Agreement and the Acquisition Documents and the
consummation by each of them of the transactions provided for herein and
therein. This Agreement has been, and the other Acquisition Documents will at
Closing have been, duly and validly executed and delivered by KMD and the
Members and (assuming the due authorization, execution and delivery thereof by
Buyer), the Acquisition Documents constitute the legal, valid and binding
obligations of KMD and the Members, enforceable against KMD and the Members in
accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization or other laws affecting creditors' rights
and remedies generally and by general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
(c) No Conflicting Agreements or Charter Provisions, Consents. The
execution, delivery, compliance with and performance of the terms and provisions
of the Acquisition Documents will not conflict with or result in a material
breach of the terms, conditions or provisions of, or constitute a material
default (or an event which, with notice, lapse of time, or both, would
constitute a material default) under, or result in any material violation of or
require the consent of any Person under (i) the Articles of Organization or
operating agreement of KMD or any resolutions adopted by the Members of KMD,
(ii) except as set forth on Schedule 4(c), any provision of any Contract to
which KMD is a party or by which any property of KMD may be bound, (iii) any
Intellectual Property Right of any Person or constitute the misappropriation of
any trade secret of any Person, or (iv) any order, judgment, decree, permit,
statute, law, rule or regulation of any Governmental Body to which KMD is
subject or by which any of its properties or Assets is bound. The execution,
delivery and performance of this Agreement will not result in the creation of
any material Lien upon the Business conveyed to Buyer hereunder or any part of
the Assets or properties of KMD. Except as set forth on Schedule 4(c), no
consent, waiver, approval order, permit or authorization of, or declaration or
filing with, or notification to, any Person or Governmental Body is required on
the part of KMD or the Members in connection with the execution and delivery of
the Acquisition Documents or compliance with any of the provisions thereof.
(d) Litigation. Except as set forth on Schedule 4(d), there is no action,
suit, proceeding or investigation pending or, to Sellers' knowledge, threatened,
at law or in equity, in or before any Governmental Body (i) to which KMD is a
party or by which any of its properties or Assets is bound, (ii) against any
employee or Member of KMD in connection with the Business, or (iii) questioning
or otherwise affecting the validity of the Acquisition Documents or any action
taken or to be taken pursuant to or in connection with the Acquisition
Documents.
(e) Financial Statements. KMD has delivered to Buyer copies of (i) the
unaudited balance sheets of Buyer as at September 30, 1997, September 30, 1998,
November 30, 1998 and December 31, 1998 and the related unaudited statements of
income of KMD for the years-to-date then ended (such unaudited statements,
including the related notes and schedules thereto, are referred to herein as the
"Financial Statements"). Each of the Financial Statements is complete and
correct in all material respects, has been prepared in accordance with GAAP and
in conformity with the practices consistently applied by KMD without
modification of the accounting principles used in the preparation thereof
(except insofar as tests of materiality may have been applied by KMD to the
Business and Assets taken as a whole and for the absence of comprehensive notes
thereto) and presents fairly the financial position, results of operations and
cash flows of KMD as at the dates and for the periods indicated. KMD shall
update such
10
Financial Statements as of the month ended February 28, 1999. Schedule 3(a) sets
forth a true, accurate and complete list of the pre-Closing current accounts
receivable of KMD as of the Closing Date. Sellers understand that the Financial
Statements of KMD must be audited pursuant to Securities and Exchange Commission
regulations governing Buyer. Sellers have cooperated fully (and will continue to
cooperate fully as requested by Buyer for Buyer's preparation of its
post-Closing SEC filings) with the auditing firms designated by Buyer to audit
the Financial Statements of KMD by providing them with truthful and complete
information and required representations and documentation and such access to
the books, records and accounts of KMD as requested by them and have not failed
to provide such auditors with any fact, information or document within the
knowledge, possession or control of Sellers, or any of them, which was
explicitly requested by such auditors.
(f) Ownership. Kyto and Meridien are the only two Members of KMD and
collectively own all of the right, title and interest and all other equity and
beneficial ownership interests in and to KMD. KMD has no subsidiaries and does
not own, directly or indirectly, or control any equity or voting interest in any
Person. Except for their interest in KMD, none of the Members has, nor has had,
since January 1, 1997, any direct or indirect ownership interest (other than an
interest of less than two percent in a publicly held company traded on a
national securities exchange) in any business that conducts or has conducted any
anatomic pathology, surgical pathology or clinical laboratory testing services.
Except as disclosed in Schedule 4(f), neither of the Members conducts, nor,
since January 1, 1997, has either Member conducted any anatomic pathology,
surgical pathology or clinical laboratory testing services.
(g) Environmental Matters. To Sellers' knowledge, except as disclosed on
Schedule 4(g): (i) the operations of KMD are in material compliance with all
applicable Environmental Laws and all permits issued pursuant to Environmental
Laws; (ii) KMD has obtained all permits required under all applicable
Environmental Laws necessary to operate its business; (iii) KMD is not the
subject of any outstanding written order or Contract with any Governmental Body
respecting (A) Environmental Laws, (B) remedial action, site treatment,
clean-up, monitoring or evaluation with respect to any property, or (C) any
Release or threatened Release of Hazardous Material; (iv) KMD has not received
any written communication alleging that KMD may be in violation of any
Environmental Law or any permit issued pursuant to Environmental Law, or may
have any liability under any Environmental Law; (v) KMD does not have any
current contingent material liability in connection with any Release of any
Hazardous Materials into the indoor or outdoor environment (whether on-site or
off-site); (vi) there are no investigations of the business, operations, or
currently or previously owned, operated or leased property of KMD pending or
threatened which could lead to the imposition of any material liability pursuant
to any Environmental Law; (vii) there is not located at either Facility any (A)
underground storage tanks, (B) asbestos-containing material or (C) equipment
containing polychlorinated biphenyls; and (viii) KMD has provided to Buyer all
environmentally related audits, studies and reports that have been performed
with respect to each of the Facilities.
(h) No Undisclosed Liabilities. Except as reflected on the December 31,
1998 balance sheet included in the Financial Statements or as set forth on
Schedule 4(h), KMD has no material obligations, indebtedness or liabilities
(whether accrued, absolute, contingent or otherwise, and whether due or to
become due) other than such as may have been incurred or may have arisen since
the balance sheet date in the ordinary course of the Business.
(i) Defaults. To Sellers' knowledge, except as set forth on Schedule 4(i),
KMD is not in default or alleged to be in default with respect to any judgment,
order, writ, injunction or decree of any
11
Governmental Body or industry association other than defaults which individually
or in the aggregate would not have a Material Adverse Effect.
(j) Compliance with Laws, Regulatory Matters.
(i) Except as set forth on Schedule 4(j), KMD: (A) has made or
obtained each registration, filing, license, permit, certificate, or
governmental approval necessary to enable it to carry on its Business, other
than where the lack thereof, individually or in the aggregate, would not have a
Material Adverse Effect; (B) has complied in all material respects with all
laws, regulations and orders which are applicable to the Business as presently
conducted, other than for such non-compliance which, individually or in the
aggregate, would not have a Material Adverse Effect, and; (C) possesses all
material permits, licenses and other governmental approvals, authorizations and
orders applicable to, or necessary for the conduct of, its Business as presently
conducted other than where the lack thereof, individually or in the aggregate,
would not have a Material Adverse Effect. To Sellers' knowledge, except as set
forth in Schedule 4(j), KMD has obtained all material governmental approvals and
all other approvals, consents, certifications and waivers and has made all
filings, given all material notices and otherwise complied with all governmental
laws, rules and regulations which are required on the part of KMD in order for
KMD to enter into, perform and otherwise consummate the transactions provided
for in the Acquisition Documents. No Seller has received notice of any
deficiency in or violation of any applicable law, rule, regulation, license,
permit, or requirement of any governmental authority relating to the Business or
Assets, nor is any Seller aware of any facts which could result in any such
notice or which may constitute any material deficiency or violation. Except as
set forth on Schedule 4(d), there are no actions, suits or proceedings pending
or, to Sellers' knowledge, threatened against KMD or affecting any of KMD's
properties or rights, at law or in equity, or before any federal, state, local
or other Governmental Body that could materially adversely affect the Business,
the transactions contemplated hereby or Buyer's unencumbered possession or use
of the Assets.
(ii) Without limiting the generality of the foregoing:
(A) No Seller, including KMD, nor any of their Principals,
officers, directors, partners, managers, Members, nor, to Sellers' knowledge,
any of their employees or agents, has engaged in any activities which are
prohibited, or are cause for restitution, civil penalties or mandatory or
permissive exclusion from Medicare or Medicaid under Sections 1320a-7, 1320a-7a,
1320a-7b or 1395nn of Title 42 of the United States Code or otherwise under the
authorities of Sections 1128, 1156 or 1892 of the SSA, the federal CHAMPUS
statute, or the regulations promulgated pursuant to such statutes or regulations
or related state or local statutes or which are prohibited by any private
accrediting organization from which Seller seeks accreditation or by generally
recognized professional standards of care or conduct, including but not limited
to the following activities: (1) making or causing to be made a false statement
or representation of a material fact in any application for any benefit or
payment; (2) making or causing to be made any false statement or representation
of a material fact for use in determining rights to any benefit or payment; (3)
presenting or causing to be presented a claim for reimbursement under CHAMPUS,
Medicare, Medicaid or other State Health Care Program or any Federal Health Care
Program that is (x) for an item or service that the Person presenting or causing
to be presented knows or should know was not provided as claimed, (y) for an
item or service that the Person presenting or causing to be presented knows or
should know was not medically necessary, or (z) for an item or service that the
Person presenting or causing to be presented knows or should know that the claim
is false or fraudulent; (4) offering, paying, soliciting or receiving any
remuneration (including any kickback. bribe, or rebate), directly or indirectly,
overtly or covertly, in cash or in kind (x) in return for
12
referring, or to induce the referral of, an individual to a Person for the
furnishing or arranging for the furnishing of any item or service for which
payment may be made in whole or in part by CHAMPUS, Medicare or Medicaid, or
State Health Care Program or any Federal Health Care Program, or (y) in return
for, or to induce, the purchase, lease, or order, or the arranging for or
recommending of the purchase, lease order, of any good, facility, service, or
item for which payment may be made in whole in part by CHAMPUS, Medicare or
Medicaid or State Health Care Program or any Federal Health Care Program; or (5)
making or causing to be made or inducing or seeking to induce the making of any
false statement or representation (or omitting to state a material fact required
to be stated therein or necessary to make the statements contained therein not
misleading) or a material fact with respect to (x) the conditions or operations
of a Facility in order that the Facility may qualify for CHAMPUS, Medicare,
Medicaid or other State Health Care Program or Federal Health Care Program
certification or (y) information required to be provided under SSA Section
1124A.
(B) Neither KMD, nor any Member, nor any other controlling
person, Principal, Member, manager, partner, nor, to Sellers' knowledge, any
employee or other agent of KMD or any of the Sellers, has had or has any civil
monetary penalty assessed against it, him or her under SSA Section 1128A; is or
has been excluded from participation under the Medicare program or a State
Health Care Program; is or has been convicted (as that term is defined in 42 CFR
Section 1001.2) of any of the categories of offenses described in SSA Section
1128(a) and (b), including, without limitation: (I) criminal offenses relating
to the delivery of an item or service under Medicare, Medicaid or any other
State Health Care Program or any Federal Health Care Program; (II) criminal
offenses under federal or state law relating to patient neglect or abuse in
connection with the delivery of a health care item or service; (III) criminal
offenses under federal or state law relating to fraud, theft, embezzlement,
breach of fiduciary responsibility, or other financial misconduct in connection
with the delivery of a health care item or service or with respect to any act or
omission in a program operated by or financed in whole or in part by any
federal, state or local government agency; (IV) federal or state laws relating
to the interference with or obstruction of any investigation into any criminal
offense described in subclauses (I) through (III) above; or (V) criminal
offenses under federal or state law relating to the unlawful manufacture,
distribution. prescription or dispensing of a controlled substance.
(C) There is no arrangement relating to the Business
providing for any rebates, kickbacks or other forms of compensation that could
be determined to be unlawful if paid to any Person in return for the referral of
business or for the arrangement or recommendation of any referrals of testing
services. All billings by KMD have been true and correct in all material
respects and in compliance with all applicable laws, rules and regulations.
There are no financial or compensation relationships between any Seller,
Affiliate of a Seller or family member of a Seller, on the one hand, and any
Person who refers, or who is in a position to influence referrals of, any
Testing Services to KMD.
(k) No Adverse Changes. Except as set forth on Schedule 4(k), since
December 31, 1998, there has not been, occurred or arisen: (i) any material
change in any method of accounting or accounting practice by KMD; (ii) any
damage or destruction in the nature of a casualty loss, whether covered by
insurance or not, affecting the Assets or which might otherwise have or is
reasonably likely to have a Material Adverse Effect on the Business; (iii) any
increase in the compensation payable by KMD or to become payable by KMD to any
employee, consultant or advisor of the Business, except in the ordinary course
of business consistent with past practice; (iv) any actual or threatened strike
relating to the Business or any unionization activity with respect thereto; (v)
any extraordinary item (as defined by GAAP from time to time) resulting in a
loss suffered by the Business which, individually or in the aggregate, has or is
reasonably likely to have a Material Adverse Effect; (vi) any waiver or
13
relinquishment by KMD of any right or rights (under Contracts or otherwise)
relating to the Business which, individually or in the aggregate, has or is
reasonably likely to have a Material Adverse Effect, or any cancellation or
compromise of any Receivable, debt or claim, or any waiver or settlement of any
legal proceeding; (vii) any mortgage on, pledge of or grant of a material Lien
or option on any of the Assets of the Business; (viii) any obligation incurred
by KMD other than any incurred in the ordinary course of business or which,
individually or in the aggregate, with all other obligations so incurred, is or
are not material in amount to KMD, or any commitment to make any capital
expenditures or capital additions or betterments in excess of $10,000
individually or $50,000 in the aggregate; (ix) any adoption, entering into,
amendment, alteration or termination partially or completely of any Benefit Plan
or compensation arrangement relating to or affecting any Principal, director,
officer, partner, manager, employee, agent or other similar representative of
KMD; (x) any Contract with any Principal, director, officer, partner, manager,
or any material Contract with any employee, agent or other similar
representative, of KMD; (xi) any hiring of a Principal, director, officer,
partner, manager, employee, agent or other similar representative of KMD whose
annual salary or wage exceeds $65,000; (xii) any termination of a Contract that
is material to the Business or any indication that any third-party intends to
terminate any such Contract; or (xiii) any other event, condition or state of
facts which has or could reasonably be expected to have a Material Adverse
Effect.
(l) Intellectual Property. (i) Schedule 4(l) contains a complete and
accurate list of all material Intellectual Property Rights owned or licensed by
KMD (other than Intellectual Property Rights relating to publicly available
software used by KMD as an end-user in the administration and operation of the
Business), specifying as to each, as applicable: (A) the nature of such
Intellectual Property Right and the jurisdictions in which such rights are
registered; (B) the owner of each Intellectual Property Right licensed by Seller
and description of any royalty, license or other fee arrangements relating
thereto; (C) the expiration or termination date of each license or other
Contract under which KMD is licensed or otherwise authorized to copy, reproduce,
market, distribute, prepare derivative works based on, make, use or sell
products or services incorporating the subject matter of any Intellectual
Property Rights owned by third Persons ("Third Party Licenses ), and (D) any
third Person to whom any Intellectual Property Right is licensed or sublicensed
by KMD. Each of the Intellectual Property Rights shown as owned by KMD on
Schedule 4(1) is owned by KMD free and clear of material Liens. All of the Third
Party Licenses are valid, enforceable and in full force and effect, and the
interests of KMD under such Third Party Licenses are held free and clear of any
material Liens. Except pursuant to the Third Party Licenses set forth on
Schedule 4(1), KMD has no obligation to make any royalty or other payment to any
Person in connection with the use of or right to use any Intellectual Property
Right. The Intellectual Property Rights owned by KMD as set forth on Schedule
4(1) together with the interests of KMD under the Third Party Licenses
(collectively, the "KMD Intellectual Property Rights") constitute all of the
Intellectual Property Rights necessary for the conduct of the Business as it is
currently conducted.
(ii) (A) To the knowledge of Sellers, KMD Intellectual Property
Rights do not infringe. violate or conflict with any patent or any other
Intellectual Property Rights of any other Person and KMD has not been a
defendant in any action, suit, investigation or proceeding relating to, and has
not been notified of, any alleged claim of infringement, violation or conflict
as to any Intellectual Property Rights, and there has not been any such
infringement or violation by KMD; (B) to Sellers' knowledge, except as set forth
on Schedule 4(l), there has not been any infringement by any other Person of any
KMD Intellectual Property Rights which are material to the conduct of the
Business; (C) to the knowledge of Sellers, no KMD Intellectual Property Right
which is material to the conduct of the Business is subject to any outstanding
judgment, injunction, order, decree or agreement restricting the use thereof by
KMD or
14
restricting the licensing thereof by or to any Person; and (D) KMD has not
entered into any Contract to indemnify any other Person against any charge of
infringement of any Intellectual Property Right.
(iii) To Sellers' knowledge, the source codes of KMD do not contain
any back door, time bomb, drop dead device or other software routine designed to
disable a computer program, or any virus, worm or other software routines or
hardware components designed to permit unauthorized access, to disable, erase or
otherwise harm software, hardware or data, or to perform any other similar
actions.
(m) Certain Transactions, Customers and Suppliers.
(i) Except as set forth on Schedule 4(m)(i) and Contracts involving
payments of not more than $500 per month and not more than $30,000 in the
aggregate and Contracts terminable without penalty on less than thirty-one (31)
days notice, there are no Contracts, leases or business or financial
arrangements involving or affecting the Business, properties, Assets or
operations of KMD between, on the one hand, KMD, and, on the other hand, (A) any
Member, Principal, officer, director, partner, manager, employee or other
Affiliate of KMD, or (B) any immediate family member or Affiliates of any
Member, Principal, officer, director, partner, manager or employee of KMD or its
any Affiliate.
(ii) Schedule 4(m)(ii) lists the top ten customers and suppliers (in
terms of dollar value of goods and/or services purchased from or furnished to
KMD) for each of the past two completed fiscal years and the current
year-to-date. Except as described on Schedule 4(m)ii), none of such customers or
suppliers has indicated to KMD that it intends to decrease the level of business
currently conducted with KMD. Except as disclosed on Schedule 4(m)(ii), neither
any Seller nor any Member, Principal, or manager of KMD nor any of their
respective Affiliates, officers, directors, partners, employees or agents has
any direct or indirect interest in any such customer or supplier or in any
competitor of the Business.
(n) Pension and Benefit Plans. (i) Schedule 4(n) sets forth: (A) all
current "employee benefit plans," as defined in Section 3(3) of ERISA and (B)
all actual or ad hoc, as the case may be, severance pay, sick leave, vacation
pay, salary continuation, disability, deferred compensation, bonus or other
incentive compensation, stock purchase, life insurance and educational
assistance policies, programs or arrangements, pursuant to which KMD could have
any obligation or liability, contingent or otherwise (the "Benefit Plans"). None
of the Benefit Plans is a "multiemployer plan", as defined in Section 3(37) of
ERISA ("Multiemployer Plan"), or has been subject to Sections 4063 or 4064 of
ERISA ("Multiple Employer Plans").
(ii) True, correct and complete copies of the following documents
with respect to each of the Benefit Plans have been delivered or made available
to Buyer: (A) any plans and related trust documents, and amendments thereto; (B)
the most recent Form 5500; (C) the last IRS determination letter; (D) summary
plan descriptions. To Sellers' knowledge, there are no actuarial reports with
respect to any of the Benefit Plans, including an actuarial report relating to
post-employment benefits.
(iii) The Benefit Plans intended to qualify under Section 401 of the
Code and the trusts maintained pursuant thereto are in substantial compliance
with ERISA. Each Benefit Plan which is intended to be qualified under Section
401(a) of the Code has received a favorable determination letter from the
Internal Revenue Service, or such plan was established by adopting a prototype
plan which has received a favorable opinion letter from the Internal Revenue
Service and the Internal Revenue Service has not taken any action to revoke such
letter, the adoption agreement was a standard adoption agreement creating a
standardized plan, and KMD has done nothing, and to Sellers' knowledge, nothing
has
15
occurred with respect to the operation of any such plan which could create a
material risk of the loss of such qualification or exemption or the imposition
of any material liability, penalty or tax under ERISA or the Code.
(iv) All contributions (including all employer contributions and
employee salary reduction contributions) and payments required to have been made
under any of the Benefit Plans or by law (without regard to any waivers granted
under Section 412 of the Code), have been made by the due date therefor
(including any valid extension), except where failure to do so would not have a
Material Adverse Effect. No accumulated funding deficiencies exist in any of the
Benefit Plans subject to Section 412 of the Code.
(v) There is no substantial violation of ERISA with respect to the
filing of applicable reports, documents and notices regarding the Benefit Plans
with the Secretary of Labor and the Secretary of the Treasury or the furnishing
of such documents to the participants or beneficiaries of the Benefit Plans
which would have a material adverse effect.
(vi) The Benefit Plans have been maintained and operated in
substantial compliance with their terms and with all provisions of ERISA and
other applicable federal and state laws and neither KMD nor any of its
Affiliates has incurred any liability, direct or indirect, for any "prohibited
transaction" within the meaning of Section 4975 of the Code or Section 406 of
ERISA with respect to any Benefit Plan which would have a material adverse
effect.
(vii) Except as set forth on Schedule 4(n)(vii), no Seller has
received any notice (whether oral or written), nor is any Seller otherwise aware
of, any pending actions, claims or lawsuits which have been asserted or
instituted against the Benefit Plans, the assets of any of the trusts under such
plans or the plan sponsor or the plan administrator, or against any fiduciary of
the Benefit Plans with respect to the operation such plans (other than routine
benefit claims), nor, to Sellers' knowledge, are there any facts which could
form the basis for any such claim or lawsuit.
(viii) All amendments and actions required to bring the Benefit
Plans into conformity in all material respects with all of the applicable
provisions of ERISA and other applicable laws have been made or taken except to
the extent that such amendments or actions are not required by law to be made or
taken until a date after the Closing Date.
(ix) Except as disclosed in Schedule 4(n), KMD does not maintain
Benefit Plans which are post-employment medical or life insurance plans and
which provide for continuing benefits or coverage for any participant or any
beneficiary of a participant, except as may be required under Part 6 of Title I
of ERISA and at the expense of the participant or the participant's beneficiary
or which otherwise would not create a material liability for Buyer.
(x) Except for Key Employees, employees with an employment contract
with Buyer, or as provided in Subsections 6(e) and 7(c), below, neither the
execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will change the terms and conditions of
employment with respect to any individual or (A) result in any payment becoming
due to any employee (current, former or retired) of KMD, (B) increase any
benefits payable under any Benefit Plan, (C) result in the acceleration of the
time of payment or vesting of any such benefits, or (D) restrict or otherwise
limit Buyer's unrestricted opportunity to change the terms and conditions of
employment with respect to any individual.
16
(xi) KMD does not have any Contract, whether legally binding or not,
to create any additional employee benefit plan or to modify any existing Benefit
Plan.
(o) Tax Matters. Except as set forth in Schedule 4(o):
(i) KMD has timely filed all Tax Returns required to be filed by it,
such Tax Returns are complete and correct in all material respects, and all
Taxes reported payable on such Tax Returns, or claimed in writing by any taxing
authority to be due, have been timely paid or provided for in the Financial
Statements in accordance with GAAP. KMD has not incurred any material Tax
liability for its taxable year beginning January 1, 1999 other than in respect
of the conduct of the Business in the ordinary course. With respect to any
period up to the Closing Date for which Tax Returns have not yet been filed, or
for which Taxes are not yet due or owing, KMD has made (or, with respect to any
period after the end of the most recent fiscal quarter, will make) due and
sufficient current accruals for any such Taxes owed by KMD in its books and
records in accordance with GAAP. KMD has delivered to Buyer true, correct and
complete copies of its federal and state income Tax Returns for the preceding
two taxable years. There are no Liens with respect to Taxes upon any of the
Assets of KMD, other than Liens for Taxes which are not yet due and payable,
unless such Taxes are being contested in accordance with applicable law.
Schedule 4(o) sets forth a description of all such Taxes that are being
contested in accordance with applicable law.
(ii) The Tax Returns of KMD have not been audited by the Internal
Revenue Service (the "IRS") or by any state or local taxing authorities within
the two year period prior to the Closing. There are no outstanding agreements,
waivers, or arrangements extending the statutory period of limitation applicable
to any claim for, or the period for the collection or assessment of, Taxes due
from or with respect to KMD for any taxable period. No closing agreement
pursuant to Section 7122 of the Code or compromise pursuant to Section 7122 of
the Code (or any predecessor provision) or any similar provision of any state,
local, or foreign law has been entered into by KMD. No audit or other proceeding
by any court, governmental or regulatory authority is pending or, to the
knowledge of any Seller, threatened with respect to any Taxes due from KMD or
any Tax Return filed by KMD. No assessment of Tax is proposed against KMD or any
of its Assets.
(iii) All elections made or filed by KMD with respect to Taxes are
set forth on Schedule 4(o)(iv). None of the Assets of KMD is an asset or
property that is or will be required to be treated as being (A) owned by any
person other than KMD pursuant to the provisions of Section l68(f)(8) of the
Internal Revenue Code of 1986 as amended and in effect immediately before the
enactment of the Tax Reform Act of 1986, or (B) "tax-exempt use property" within
the meaning of Section 168(h)(l ) of the Code. KMD has not agreed to nor is it
required to make any adjustment pursuant to Section 481(a) of the Code (or any
predecessor provision) by reason of any change in any accounting method; there
is no application pending with any taxing authority requesting permission for
any changes in any accounting method; and, to the knowledge of Sellers, the IRS
has not proposed any such adjustment or change in accounting method.
(iv) KMD is not and has not been in violation (and, with notice or
lapse of time or both, would not be in violation) of any applicable law relating
to the payment or withholding of Taxes. KMD has duly and timely withheld from
employee salaries, wages, and other compensation and paid over to the
appropriate taxing authorities all amounts required to be so withheld and paid
over for all periods under all applicable laws.
17
(v) KMD is not a party to, is not bound by, and is not obligated
under, any Tax sharing agreement or similar Contract or arrangement. There is no
Contract, plan or arrangement covering any Person that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible by KMD by reason of Section 280G of the Code.
(p) Material Contracts. Except as set forth on Schedule 4(p), KMD is not a
party to or bound by any (A) material Contract with any hospital, clinic,
physician, health or medical insurance provider, health maintenance
organization, group health or managed care plan, preferred provider organization
or similar organization; (B) Contract requiring any Person to purchase, sell,
provide or refer all or a fixed portion of its output, produce services or
requirements from or to another Person; (C) Contract involving the commitment to
pay, or to acquire or to provide, goods or services with a fair market value, in
excess of $50,000, provided that such Contract does not extend for a period of
more than one year beyond the Closing Date; (D) partnership or joint venture
Contract; (E) Contract for the acquisition, sale or lease of any Assets of KMD;
(F) mortgage, pledge, conditional sales contract, security agreement, factoring
agreement or other similar Contract with respect to any material real, tangible
or intangible personal property of KMD; (G) material loan agreement, credit
agreement, promissory note, guarantee, subordination agreement, letter of credit
or any other similar type of Contract of KMD or the Members with respect to the
Business; (H) exclusive retainer Contract with attorneys, accountants,
actuaries, appraisers or other professional advisers; (I) Contract that limits
the freedom of KMD to compete in any line of business or with any Person or in
any area; (J) employment, severance or golden parachute Contract or any Contract
which has, as a principal purpose, the provision of indemnification to any
Person; and (K) other Contract material to the Business, the Assets or the
Assumed Obligations. KMD has made available to Buyer true, correct and complete
copies of each Contract listed on Schedule 4(p), together with all amendments,
modifications, supplements or side letters affecting the obligations of any
party thereunder. Schedule 4(p) indicates which Contracts require the consent of
another Person to the assignment thereof to Buyer pursuant to this Agreement. To
Sellers' knowledge, each of the Contracts listed on Schedule 4(p) is valid and
enforceable in accordance with its terms, subject to' applicable bankruptcy and
similar laws affecting creditors' rights and remedies generally and subject, as
to enforceability, to general principles of equity. There is no default under
any Contract listed on such Schedule by KMD or, to Sellers' knowledge, by any
other party thereto, and to the knowledge of Sellers, no event has occurred that
with the lapse of time or the giving of notice, or both would constitute a
default thereunder, except in each case to the extent that such default does not
or would not have a material adverse effect on the rights or obligations of the
parties under such Contract; and no previous or current party to any such
Contract has given to KMD notice of or made a claim with respect to any actual
or alleged breach or default thereunder or of such party's intent to terminate
or not renew any Contract .
(q) Insurance. Schedule 4(q) sets forth a list of all insurance policies
and other surety arrangements of any kind or nature whatsoever which are in
force and to which KMD is a named party or beneficiary, specifying the carrier,
and the type and limits of insurance coverage thereunder. KMD has complied with
the material requirements of each such policy and is current in the payment of
all premiums with respect thereto.
(r) Labor Matters. Schedule 4(r) sets forth a list containing the name,
position and date of employment of each employee of KMD as of the date hereof (a
"KMD Employee"). A list setting forth each KMD Employee's current base salary or
wage rate (and commission or bonus schedule) has been delivered by KMD to Buyer.
KMD is not party to any labor or collective bargaining agreement, and there are
no labor or collective bargaining agreements which pertain to any KMD Employee.
No labor
18
organization has made a pending demand for recognition or, to the knowledge of
Sellers, has filed a petition seeking a representation proceeding which is
presently pending before the National Labor Relations Board. Except as disclosed
on Schedule 4(r), there are no complaints, charges or claims against KMD pending
or threatened to be brought or filed with any Governmental Body based on,
arising out of, in connection with, or otherwise relating to, the employment or
termination of employment of any KMD Employee by KMD. KMD is in substantial
compliance with the provisions of the Occupational Safety and Health Act and
WARN, and all other federal, state and local laws, regulations and orders
relating to the employment of labor, including all such laws, regulations and
orders relating to wages, hours, collective bargaining, discrimination, civil
rights, safety and health, workers' compensation and the collection and payment
of withholding and/or social security taxes and any similar tax, except for
immaterial non-compliance.
(s) Personal Property. KMD has made available to Buyer a true and complete
list of all tangible assets (or categories thereof) reflected on the December
31, 1998 balance sheet and all items thereof are in good working and operating
condition (normal wear and tear excepted) and have been properly maintained in
accordance with the manufacturers' specifications and accepted industry
practices. Since December 31, 1998, KMD has not disposed of any tangible assets
(other than de minimis tangible assets) reflected on the December 31, 1998
balance sheet other than expendable supplies and through the sale of inventory
in the ordinary course of the Business. KMD does not hold any personal property
of any Person pursuant to any consignment or similar arrangement .
(t) Title to and Sufficiency of Assets. (i) KMD holds and owns good and
marketable title to and has an unrestricted right to transfer title to all of
the tangible assets being transferred to Buyer hereunder (including the Assets),
in each case free and clear of any material Lien, other than (A) Liens
specifically described in the December 31, 1998 balance sheet or noted on any
Schedule hereto and (B) assets leased by KMD as described in the December 31,
1998 balance sheet or any Schedule hereto; (ii) The Assets, together with the
Lease, are sufficient for the continued operation by Buyer of the Business from
and after the Closing in substantially the same manner as conducted on the date
hereof.
(u) The Facilities. To Sellers' knowledge, KMD has all certificates of
occupancy and permits of any Governmental Body necessary for the current use and
operation of the Facilities, and KMD has complied with all material conditions
of such permits.
(v) Brokers and Finders. No broker, investment banker or finder has been
retained by or authorized to act on behalf of KMD or any Member who might be
entitled to any fee or other commission in connection with the Acquisition
Documents and the transactions contemplated thereby.
(w) Year 2000 Compliance. KMD has (i) initiated a review and assessment of
all areas within its businesses and operations (including those affected by
suppliers, vendors and customers) that could be adversely affected by a failure
to be Year 2000 Compliant (as defined below), (ii) developed a plan and timeline
for addressing Year 2000 Compliance on a timely basis, and (iii) to date,
implemented that plan in accordance with that timetable, all as described on
Schedule 4(w). All computer applications (including those of its suppliers,
vendors and customers) that are material to the Business are, to the knowledge
of Sellers, except as set forth on Schedule 4(w), reasonably expected on a
timely basis to be Year 2000 Compliant.
For purposes of this Agreement, "Year 2000 Compliant" means that KMD's
systems are designed to be used prior to, during and after calendar year 2000
A.D. and, except for errors,
19
malfunctions, inaccuracies and failures due solely to non-compliant hardware,
software, networks or data owned or controlled by third parties, will (i)
operate normally, (ii) record dates properly, (iii) accurately determine
intervals between and time elapsed among dates before, within and after such
year and (iv) otherwise operate without error relating to date data,
specifically including any error relating to, or the product of, date data which
represents or references different centuries or more than one century. Without
limiting the foregoing, "Year 2000 Compliant" means that KMD's systems:
(i) will not abnormally terminate or stop processing upon
encountering date data either from before, within or after such year;
(ii) will properly identify leap years and process related date
data;
(iii) have been designed to ensure Year 2000 Compliance, including,
without limitation, recognizing and recording the proper century associated with
date data and properly calculating same century and multi-century formulas and
date values;
(iv) include user interfaces that properly display, record and
accept date data in single century and multi-century cases;
(v) properly send date data to, and receive date data from,
hardware, software and systems with which KMD's systems would be normally
operated, including on-site backup, hot-site companion and disaster recovery
systems, as well as properly recording, retaining and manipulating such date
data; and
(x) Medicare Provider Numbers. KMD has only one Medicare provider number,
which is L220810.
(y) Testing Services. There are no known, anticipated or suspected fixed
or contingent material liabilities with respect to any of the anatomic
pathology, surgical pathology or clinical laboratory testing services provided
by KMD that have not been disclosed to Buyer.
(z) No Misrepresentation. No representation or warranty of KMD or Sellers
contained in this Agreement contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained herein
or therein not misleading.
(Aa) Acquisition for Investment. KMD is acquiring the Shares for
investment for its own account and not with a view to, or for the resale in
connection with, the distribution thereof in violation of the Securities Act of
1933, as amended. KMD acknowledges that it has been advised by Buyer that (i)
the Shares have not been registered under the Act or the securities laws of any
state and are being offered and sold in reliance on exemptions from the
registration requirements of the Securities Act and such laws; (ii) the Shares
are subject to restrictions on transferability and resale and may not be
transferred or resold except as permitted under the Securities Act and such laws
pursuant to registration or exemption therefrom; and (iii) a restrictive legend
will be placed on the certificates representing the Shares.
5. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby represents and
warrants to KMD as follows and acknowledges that KMD is relying on such
representations and warranties in connection with the transactions provided for
herein:
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(a) Organization. Etc. Buyer is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to (i) conduct its business as it is
now conducted, (ii) enter into and perform its obligations under the Acquisition
Documents and (iii)consummate the transactions contemplated thereby. Buyer is
duly qualified and is in good standing in each jurisdiction where the nature of
its business makes such qualification necessary. True, correct and complete
copies of the Certificate of Incorporation and By-Laws of Buyer (together with
all amendments thereto and restatements thereof as of the date hereof) have been
previously delivered to KMD.
(b) Authorization; Execution; Binding Effect. The execution, delivery and
performance of the Acquisition Documents and the consummation of the
transactions provided for therein have been, or will as of the Closing Date have
been, duly authorized by all necessary corporate action on the part of Buyer.
This Agreement has been, and the other Acquisition Documents will at Closing
have been, duly and validly executed and delivered by Buyer and (assuming the
due authorization, execution and delivery thereof by KMD and the Members) the
Acquisition Documents constitute the legal, valid and binding obligation of
Buyer enforceable against Buyer in accordance with their terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization or other
laws affecting creditors rights and remedies generally and by general principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law). No approval, consent or authorization,
including any action, approval, consent or authorization of any kind from any
governmental entity or instrumentality is necessary or required as to Buyer in
order to constitute this Agreement as a valid and binding obligation of Buyer
enforceable in accordance with its terms. Notwithstanding the foregoing, the
parties are aware that audited financial statements of KMD must be filed by
Buyer with the SEC within seventy-five (75) days after the Closing and that an
SEC Form 8-K filing for disclosing material events must be made by Buyer within
fifteen (15) days after the Closing.
(c) No Conflicting Agreements or Charter Provisions. The execution,
delivery and compliance with and performance of the terms and provisions of the
Acquisition Documents will not conflict with or result in a material breach of
the terms, conditions or provisions of, or constitute a material default (or an
event which, with notice, lapse of time, or both, would constitute a material
default) under, or result in any material violation of, or require the consent
of any Person under (i) the Certificate of Incorporation or By-Laws of Buyer or
any resolutions adopted by the Board of Directors of Buyer, (ii) any provision
of any Contract to which Buyer is a party or by which any property of Buyer may
be bound, (iii) any order, judgment, decree, permit, statute, law, rule or
regulation of any Governmental Body to which Buyer is subject or by which any of
its properties or assets is bound. No consent, waiver, approval, order, permit
or authorization of, or declaration or filing with, or notification to any
Person or Governmental Body is required on the part of Buyer in connection with
the execution and delivery of the Acquisition Documents or the compliance by
Buyer with any of the provisions thereof, except for those already obtained.
(d) Brokers and Finders. No broker, investment banker or finder has been
retained or authorized to act on behalf of Buyer who might be entitled to any
fee or other commission in connection with the Acquisition Documents and the
transactions contemplated thereby .
(e) No Misrepresentation. No representation or warranty of Buyer contained
in this Agreement contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained herein or
therein not misleading.
21
(f) Litigation. Except as set forth in Schedule 5(f), there is no action,
suit, proceeding or investigation pending, or, to the actual knowledge of Buyer
after diligent inquiry, threatened, at law or in equity, in or before any
Governmental Body (i) to which Buyer is a party or by which any of its material
properties or material assets is bound, (ii) against any employee or director of
Buyer in connection with its business, or (iii) questioning or otherwise
affecting the validity of the Acquisition Documents or any action taken or to be
taken pursuant to or in connection with the Acquisition Documents.
(g) Capitalization, Options or Other Rights. The authorized, issued and
outstanding capital stock of the Company, including any warrants, options or
other rights to acquire such capital stock, is as set forth on Schedule 5(g)
hereto. All of such shares of capital stock set forth on such schedule as issued
and outstanding have been duly authorized and validly issued, are fully paid and
nonassessable and have not been issued in material violation of any federal or
state securities laws or any preemptive rights of third parties. When issued,
the Shares will be duly authorized and validly issued, fully paid and
nonassessable and, assuming the accuracy of the applicable representations of
Sellers in the Registrations Rights Agreement, will not have been issued in
violation of any applicable federal or state securities laws or any preemptive
rights of third parties. Except for stock options of eligible employees and
directors of Buyer and as otherwise set forth in Schedule 5(g), there are no
current commitments, plans or arrangements to issue or sell, and no outstanding
options, warrants, convertible securities or other rights calling for the
issuance of, additional shares of the capital stock or other equity securities
of Buyer.
(h) After diligent inquiry, Buyer is unaware of any actions taken or
conduct engaged in by it that would preclude Buyer from lawfully operating a
laboratory in accordance with the laws of the State of New York.
(i) SEC Reports. Buyer has delivered to KMD the Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 and the proxy statement with respect
to the 1999 Annual Meeting of Shareholders (collectively, the "SEC Reports"). At
the time of their filing, the SEC Reports complied in all material respects with
the applicable requirements of the Exchange Act and did not 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 made, in light of
the circumstances under which they were being made therein, not misleading.
6. COVENANTS OF KMD.
(a) Conduct of Business. From and after the date hereof until the Closing
Date, KMD shall (i) conduct its business in the ordinary course, consistent with
the present conduct of the Business, (ii) use reasonable commercial efforts to
maintain, preserve and protect the Assets and good-will of the Business, (iii)
use reasonable commercial efforts to keep available the services of present
employees, (iv) use reasonable commercial efforts to preserve its relationships
with all customers, suppliers and others doing business with it, (v) not merge
or consolidate with any other Person or acquire a material amount of assets or
securities of another Person, (vi) not sell, license or otherwise dispose of, or
grant any Lien or option on or otherwise encumber, any material assets or
property, (vii) not take any action that would make any representation or
warranty of Seller hereunder inaccurate in any material respect at, or as of any
time prior to, the Closing Date (including any action of the types described in
Section 4(k)), and not enter into or amend any material Contract or consent to
any judgment or settlement, in each case relating to or affecting the Business,
the Assets or the Assumed Obligations, in each case, without Buyer's specific
prior written consent and (viii) not agree or commit to take any action
inconsistent with its obligations under clauses (i) through (vii) above.
22
(b) Access to Documents; Opportunity to Ask Questions. From and after the
date hereof, KMD will continue to make available for inspection by Buyer and its
duly authorized representatives, during normal business hours, the corporate
records, books of account, Contracts, reports and all other documents of or
relating to KMD, the Business, the Assets, the Assumed Obligations or the
Facilities which are reasonably requested by Buyer or such representatives to
make reasonable inspection and examination of the Business, the Assets, the
Assumed Obligations and the affairs of KMD. KMD has and will continue to cause
its managerial employees, counsel and regular independent certified public
accountants to be available during normal business hours and upon reasonable
notice to answer questions of Buyer and its duly authorized representatives
concerning the business, assets and affairs of KMD, including, without
limitation, the ongoing audit of KMD being conducted at the direction of Buyer
for purposes of its required filing with the SEC. Any investigations carried out
by Buyer or its authorized representatives shall not affect or mitigate KMD's
covenants, representations and warranties hereunder, which shall continue in
full force and effect.
(c) Regulatory Approvals and Other Consents. KMD shall use its reasonable
commercial efforts to obtain any and all governmental and third-party approvals,
consents, certifications and waivers (and will provide copies thereof and of all
correspondence with respect thereto, to Buyer) required in connection with the
transactions contemplated by the Acquisition Documents, and KMD shall make all
filings required in connection therewith as promptly as practicable.
(d) Reasonable Commercial Efforts. KMD shall use its reasonable commercial
efforts to satisfy the conditions precedent to the performance by Buyer of its
obligations under this Agreement.
(e) Employee Obligations. Except for the Key Persons and those employees
of KMD subject to an Employment Agreement hereunder, Buyer shall have no
obligation to hire any employees of KMD. Notwithstanding the foregoing, Sellers
shall not interfere with Buyer's hiring of any KMD employee. Except as expressly
provided in Section 7(c) below, KMD shall be solely responsible for and shall
pay all accrued and unpaid salaries, wages, vacation and sick pay to all of its
employees, including those hired by Buyer, and shall be solely responsible for
any severance pay and benefits required to be paid or extended to KMD employees
not hired by Buyer. KMD shall continue to employ at will those billing,
collections and other personnel listed on Schedule 6(e) hereto and shall be
solely responsible for them. KMD shall comply with all federal, state and local
laws with respect to the termination of its employees. All commissions earned by
sales and marketing representatives of KMD through the Closing Date shall be
paid by KMD within sixty (60) days after the Closing Date.
Except as explicitly provided otherwise in this Agreement, KMD employees
hired by Buyer shall be subject to the policies of Buyer applicable to its other
employees and shall be eligible for benefits only under Buyer's benefit plans
and policies, all in accordance with their terms, conditions and requirements,
including, without limitation, eligibility requirements based upon the date of
hire by Buyer.
7. COVENANTS OF BUYER.
(a) Cooperation with KMD; Reasonable Commercial Efforts. Buyer shall
cooperate with KMD in connection with the KMD's fulfillment of KMD's covenants
and agreements set forth in Section 6, and in connection therewith, Buyer shall
furnish KMD with such information as is reasonably requested by KMD with respect
to the transaction contemplated thereby, and Buyer shall use its
23
reasonable commercial efforts to satisfy the conditions precedent to the
performance by KMD of its obligations under this Agreement.
(b) Regulatory Approvals and Other Consents. Buyer shall use its
reasonable commercial efforts to obtain any and all governmental and third-party
approvals, consents, certifications and waivers (and will provide copies of such
notices to KMD) required in connection with the transactions contemplated by the
Acquisition Documents, and Buyer shall make all filings required in connection
therewith as promptly as possible.
(c) Hiring of KMD Employees. Except for the Key Persons and those
employees of KMD subject to an Employment Agreement hereunder, Buyer shall have
no obligation to hire any employees of KMD and Buyer shall have the right to
hire any of the employees of KMD that it chooses (other than those employees
listed on Schedule 6(e)), which employment shall be on the terms and conditions
and for the compensation determined by Buyer and such employee. For KMD
employees hired by Buyer and terminated within one hundred twenty (120) days
after the Closing Date, KMD shall pay all accrued and unpaid vacation and sick
pay through the date of termination and Buyer shall pay such severance as would
be required under its severance policy had such persons been hired by Buyer on
their original date of hire by KMD, Kyto or Meridien. For KMD employees hired by
Buyer and terminated after one hundred twenty (120) days following the Closing
Date, Buyer shall pay all accrued and unpaid vacation and sick pay through the
date of termination, as well as such severance as would be required under its
severance policy had such persons been hired by Buyer on their original date of
hire by KMD, and, for such employees, Buyer shall be responsible for payment of
all contributions required under employment insurance, social security and
income tax laws.
Buyer shall permit KMD employees hired by Buyer to carry into 1999 any
unused vacation time that has accrued since such employee's most recent
anniversary of the date of his or her hire by KMD, provided that such allowance
shall not exceed four weeks of vacation time for any employee and no accrued
vacation time shall be carried over into the year 2000. Beginning on the Closing
Date, KMD employees hired by Buyer shall be subject to Buyer's policies
regarding vacation time and accrual and shall not be permitted to carry over any
accrued and unused vacation time from year-to-year, except as expressly provided
herein or by Buyer's policies. Except as limited above, Buyer shall determine
vacation benefits by reference to the former KMD employees' original date of
hire by KMD, Kyto or Meridien.
(d) Recordkeeping. Buyer shall maintain reports and records
delivered to it by KMD under Section 2(f) above for such time periods as are
specified by Title 10, Subpart 58-1, Section 58-1.11 of the New York Code of
Rules and Regulations, as the same may be amended from time to time, and, during
such retention periods, shall make the same reasonably accessible to KMD as
required for audit purposes or for verifying Buyer's compliance with its
obligation under Section 3(c) above. For a period of five years from and after
the Closing Date or for such longer period as is required by law with respect to
the retention of such slides, specimens and records, Buyer shall, after receipt
of a request or demand for pathology or cytology slides, specimens or medical
records pertaining to medical examinations conducted in the pre-Closing time
period, notify Richart of such request or demand and provide him with a
reasonable opportunity to review the same on site at DIANON prior to notifying
or granting access to any other person or persons (except where required by law)
in accordance with DIANON's protocols for the preservation of such slides,
specimens and records. DIANON shall lawfully dispose of all such slides,
specimens and records upon the termination of the applicable legal retention
period.
24
(e) Software License. Buyer shall, and hereby does, effective as of the
Closing Date, to the full extent permitted by the right, title and interest
acquired in the same by Buyer at the Closing, grant to Richart a perpetual,
world-wide, royalty-free license to make, have made, use and sell the laboratory
and billing software currently in use in the KMD New City Facility.
8. MUTUAL CONDITIONS TO THE OBLIGATIONS OF BUYER AND KMD. The obligations
of Buyer and KMD to consummate the Closing are subject to the satisfaction, on
or prior to the Closing Date, of the following conditions, any or all of which
may be waived in writing by the party entitled to waive such condition;
(a) No Prohibition. No provision of any applicable law or regulation and
no judgment, injunction, order or decree shall restrain, prohibit or impose
substantial damages with respect to the consummation of the Closing.
(b) Government Approval. All actions by or in respect of or filings with
any Governmental Body required to permit the consummation of the transaction
contemplated herein shall have been taken or made.
(c) Employment Agreements. Richart, Beth Phillips and Dana Shapiro shall
have entered into their respective Employment Agreements with Buyer as provided
in EXHIBIT B.
(d) Consulting Agreement. Shapiro shall have entered into the Consulting
Agreement with Buyer provided in EXHIBIT A.
(e) Lease. Buyer and lessor shall have entered into the Lease as provided
in EXHIBIT C and Sellers shall have obtained the lessor's consent to assignment,
and Buyer shall have entered into, the lease of the Woodbury Facility.
(f) Absence of Proceedings. No action or proceeding shall have been
instituted or threatened and no claim or demand shall have been made against any
Seller or Buyer before any Governmental Body which has, or, in either party's
judgment, might have, a material adverse effect on the financial condition,
results of operations, prospects, business, properties, assets or liabilities of
the Business or Buyer.
(g) Consents. All consents necessary to transfer the Included Contracts to
Buyer shall have been obtained in a form reasonably satisfactory to Buyer,
including consent to the assignment of the lease agreement for the Woodbury
Facility.
(h) Registration Rights. Buyer, KMD and all other parties thereto shall
have entered into the Registration Rights Agreement as provided in EXHIBIT D.
(i) New York State License. Buyer shall have received notice from the New
York State Department of Health that its Application for Laboratory Permit
(Changes Only), pertaining to KMD's New York State laboratory licenses, PFI 3126
and PFI 4163, has been approved by the State of New York.
9. ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF KMD. The obligation of KMD
to consummate the transactions contemplated hereby is subject to the
fulfillment, on or prior to the Closing
25
Date, of all of the following conditions, any or all of which may be waived in
writing by KMD in its sole discretion;
(a) Representations and Warranties. The representations and warranties
made by Buyer in Section 5 hereof shall have been true and correct on the date
hereof and, except for any representations and warranties made as of a specific
date, shall be true and correct on and as of the Closing Date as though such
representations and warranties were made on and as of such date.
(b) Performance. Buyer shall have performed and complied with all
agreements, obligations, covenants and conditions required herein to be
performed or complied with by Buyer on or prior to the Closing Date.
(c) Purchase Price. KMD shall have received the Closing payment and Shares
in accordance with Section 3(a).
(d) Assumption Agreement. Buyer shall have executed and delivered the
Assumption Agreement to KMD.
(e) Opinion of Buyer's Counsel. KMD shall have received the signed opinion
of counsel for Buyer, dated the Closing Date, to the effect set forth in EXHIBIT
H.
(f) Other Matters. KMD shall have received such other documents and
certificates as may reasonably be requested by KMD in connection with the
transactions contemplated hereunder, including: (i) an incumbency certificate
and certified copy of all corporate actions required for the execution and
delivery of this Agreement and the performance by Buyer of its obligations
hereunder, and (ii) an officer's certificate, dated as of the Closing Date,
certifying as to the accuracy of the representations set forth in Article 5
hereto and its compliance with and performance, to the extent such covenants are
capable of being performed as of the Closing Date, of the covenants of Buyer set
forth in Article 7 hereto.
10. ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF BUYER. The obligation of
Buyer to consummate the transactions contemplated hereby is subject to the
fulfillment on or prior to the Closing Date, of all of the following conditions,
any or all of which may be waived in writing by Buyer in its sole discretion:
(a) Representations and Warranties. The representations and warranties
made by Seller in Section 4 hereof shall have been true and correct on the date
hereof and. except for any representations and warranties made as of a specific
date, shall be true and correct on and as of the Closing Date as though such
representations and warranties were made on and as of such date.
(b) Performance. Seller shall have performed and complied with all
agreements, obligations, covenants and conditions required herein to be
performed or complied with by Seller on or prior to the Closing Date.
(c) Condition of Assets. There shall have been no material damage,
deterioration or casualty loss with respect to the Assets or the Facilities.
(d) Bill of Sale and Assignment. KMD shall have executed and delivered the
Bill of Sale and Assignment to Buyer.
26
(e) Opinion of KMD's Counsel. Buyer shall have received the signed opinion
of Brown Raysman Millstein Felder & Steiner LLP, counsel for KMD, dated the
Closing Date, to the effect set forth in EXHIBIT I.
(f) Principal's Certificate. Buyer shall have received a notarized
Principal's Certificate of KMD, dated as of the Closing Date, certifying as to
the (A) satisfaction of the conditions set forth in clause (a), (b) and (c) of
this Section 10; (B) KMD's compliance with and performance, to the extent that
such covenants are capable of being performed as of the Closing Date, of the
covenants of KMD set forth in Article 6 hereof; (C) incumbency and signatures of
the Principals of KMD executing this Agreement and any other Acquisition
Document, certificate or instrument to be delivered pursuant hereto; and (D)
providing certified copies of the unanimous resolutions of the Principals and
Members of KMD approving the consummation of the transactions contemplated
hereby and that certifying that such resolutions are in full force and effect on
the Closing Date.
(g) Insurance Tail Coverage. Sellers shall have delivered to Buyer proof
of insurance evidencing Prior Acts Coverage for the Business, including, without
limitation, medical professional liability and comprehensive general liability
coverage, for a period of five years following the Closing Date and with
professional liability coverage and limits of at lease one million ($1,000,000)
per incident and three million ($3,000,000) annual aggregate, which tail
coverage policy of insurance shall conform with the terms specified in EXHIBIT
J.
(h) KMD Audit. Sellers shall have cooperated fully in Buyer's efforts and
those of its accountants to audit the books, records and financial statements of
KMD and Buyer's auditors shall have provided assurances satisfactory to Buyer
that a clean, non-qualified opinion of KMD's audited financial statements will
be rendered by them.
(i) Integration. From and after the date of this Agreement through
the Closing date, Buyer and its officers, employees, agents and representatives
shall have had, after providing to KMD oral notice and explanation of their
purpose and task, full access to the Facilities, its systems, information and
pertinent personnel for the purpose of integrating KMD into Buyer's billing,
accounting, accounts payable, payroll and information systems and other general
and administrative functions. Buyer covenants and agrees that it will not,
during such integration period, disable or, in any way, damage, any KMD system
accessed by it, nor, except as temporarily needed to obtain information from a
KMD system and except for such interference or impedance as will not materially
disrupt the functioning of any KMD system, interfere with or impede the
functioning of any KMD system. Buyer covenants and agrees that the information
to be derived from KMD systems during the integration process is the
confidential and proprietary information of KMD and shall be governed by the
confidentiality requirements of Section 12(b), below. Buyer covenants that it
shall not use information obtained from the integration process to solicit any
KMD customer for the sale of Testing Services in the Territory should the
Closing fail to occur.
(j) Other Matters. Buyer shall have received such other documents and
certificates as may reasonably be requested by Buyer in connection with the
transactions contemplated hereunder.
11. CLOSING. The closing of the transactions contemplated hereby (the
"Closing") shall take place at the offices of Brown Raysman Millstein Felder &
Steiner LLP, located at 120 West 45th Street in New York City, at 10 A.M. local
time, on Thursday, April 29, 1999, with an effective date of May 1, 1999, or at
such other date mutually satisfactory to the parties hereto, which date shall be
as soon as
27
practicable following the fulfillment or waiver of the conditions set forth in
Sections 8, 9 and 10 hereof (such date being herein referred to as the "Closing
Date"'). All proceedings to be taken and all documents to be executed and
delivered by the parties at the Closing shall be deemed taken and executed
simultaneously and no proceeding shall be deemed taken nor any document executed
or delivered until all have been taken, executed and delivered.
12. PUBLICITY, CONFIDENTIALITY, PRESERVATION OF RECORDS. (a) Each party
hereto recognizes and acknowledges that the timing and manner of any public
disclosure of information relating to the transactions contemplated hereby is of
material importance to the business and affairs of the other parties.
Accordingly, the parties hereto agree to consult with each other and to
cooperate in issuing any press release or other public statement with respect to
the transactions contemplated hereby. Any such press release or other public
statement may only be issued with the prior consent of the other parties hereto,
which consent shall not be unreasonably withheld; provided, however nothing
contained herein shall restrain or prohibit any party from making any press
release or other public disclosure which, in the reasonable judgment of such
party's counsel is required by any applicable law or regulation of any
Governmental Body or NASDAQ or stock exchange rules and, provided further, the
parties shall use reasonable commercial efforts to provide prior notice of, and
an opportunity to review and comment upon, and to cooperate with respect to the
timing and content of, any press release or other public disclosure contemplated
by the immediately preceding proviso.
(b) Sellers and Buyer will hold, and will use their best efforts to cause,
as applicable, their respective Principals, officers, managers, directors,
partners, employees, accountants, counsel, consultants, advisors and agents to
hold, in confidence, unless compelled to disclose by judicial or administrative
process or by other requirements of law (including the rules of the NASDAQ or
any stock exchange), all confidential documents and information (on whatever
form or media) concerning the other party furnished in connection with the
transactions contemplated by this Agreement, except that (i) from and after the
Closing, Buyer need not maintain the confidentiality of any information relating
to the Business, the Assets or the Assumed Obligations, and (ii) neither party
need maintain the confidentially of any information to the extent that such
information can be shown to have been (A) previously known on a non-confidential
basis to such party, (B) in the public domain through no fault of such party, or
(C) later lawfully acquired by such party from sources other than the other
party.
(c) KMD and Buyer agree that each of them shall preserve and keep the
records held by them relating to the Business for a period of six (6) years from
the Closing Date, or such longer period of time as is required by law or
regulation, and shall make such records available to the other as may be
reasonably required by such party in connection with, among other things, any
insurance claims by, legal proceedings, or threatened legal proceedings, against
or governmental investigations or tax audits of KMD or Buyer or any of their
respective Affiliates or in order to enable KMD or Buyer to comply with their
respective obligations under this Agreement and each other agreement, document
or instrument contemplated hereby. See also Section 7(d) above.
13. CERTAIN TAX COVENANTS.
(a) Cooperation. Each of Seller and Buyer shall cooperate with each other
and make available or cause to be made available to each other for consultation,
inspection and copying (at such other party's expense) in a timely fashion such
personnel, tax data, tax returns and filings, files, books, records, documents,
financial, technical and operational data, computer records and other
information as
28
may be reasonably required (i) for the preparation by Buyer or KMD of any Tax
Returns prepared or to be prepared and filed by Buyer or KMD or (ii) in
connection with any audit or proceeding relating to Taxes for which Buyer or KMD
is responsible.
(b) Payment of Taxes. Except for any Taxes arising as a result of actions
taken or elections made by Buyer and not agreed to by Sellers and except for
Buyer's obligation to pay one-half of the New York State bulk sales tax on the
sale of the Assets as provided in Section 3(d) above, Sellers shall pay, and
shall indemnify Buyer against all Taxes payable in connection with the sale of
the Assets contemplated hereby.
14. NONCOMPETITION.
(a) Sellers acknowledge that reasonable limits on their ability to engage
in activities competitive with the Business from and after the Closing Date are
warranted to protect Buyer's investment in acquiring the Assets. Accordingly,
KMD and the Members covenant and agree that from the Closing Date until the
third anniversary of the Closing Date (such period being referred to herein as
the "Term"), they shall not, without the express prior written consent of Buyer,
which consent may be withheld by Buyer in its sole and absolute discretion, for
its own account or jointly with any other Person, directly or indirectly, own,
manage, operate, join, control, finance, invest in, bid for, advise (or advise
others with respect to) or otherwise participate in, or be connected with, or
become or act as a partner, manager, member, director, officer, employee,
consultant, representative or agent of, any business, individual, partnership,
firm, corporation, limited liability company or other entity which is in
competition with Buyer, or is otherwise engaged anywhere within a radius of 150
miles of New York City (the "Territory") in any business, other than that of
Buyer or its Affiliates, that offers anatomic pathology, surgical pathology or
clinical laboratory testing services (collectively, the "Testing Services");
provided, however, that KMD and Members may purchase or own, solely as an
inactive investor, the securities of any entity if (a) such securities are
publicly traded on a nationally-recognized stock exchange or on NASDAQ and (b)
the aggregate holdings of such securities by KMD and its Members does not exceed
two percent of the voting power or two percent of the capital stock of such
entity.
(b) Each of the Key Persons shall, as a condition to Closing by Buyer and
in consideration of the purchase of the Business and Assets of KMD by Buyer and
the Purchase Price set forth in Section 3(a) above, enter into a restrictive
covenant with Buyer for a term of three years within the Territory and with
respect to Testing Services as provided in the Consulting Agreement set forth in
EXHIBIT A and the respective Employment Agreements set forth in EXHIBIT B.
(c) KMD and each of the Members hereby jointly and severally agree that
during the Term they shall not, directly or indirectly, for their own account or
jointly with or for or on behalf of any other Person, as principal, agent or
otherwise, (i) solicit or induce or in any manner attempt to solicit or induce
any Person employed by or acting as a consultant to or agent of the Business to
leave such position or (ii) interfere with, disrupt or attempt to disrupt any
relationship, contractual or otherwise, between the Business and any of its
customers, clients or suppliers.
(d) KMD and each of the Members hereby jointly and severally agree that
during the Term they shall not, use for their own benefit or for the benefit of
any Seller or third Person or, except as required by law, disclose the name or
requirements of any customer of KMD or Buyer to any Person, or solicit any
customer of Buyer or any Affiliate of Buyer for the sale of Testing Services in
the Territory, or induce,
29
encourage, or attempt to induce or encourage, any customer for Testing Services
of Buyer or any Affiliate of Buyer to reduce such customer's purchases from
Buyer or any Affiliate of Buyer.
(e) KMD and each of the Members acknowledge that it has had, and may
continue to have access to and the use of confidential materials and information
and trade secrets concerning the Business and Buyer. No Seller shall use for
itself or any other Person, or divulge or convey to any Person, except
authorized personnel of Buyer and except as necessary to fulfill the obligations
of this Agreement, any secret or confidential information, knowledge or data
related to the Business or Buyer. Such information, knowledge or data includes,
but is not limited to, secret or confidential matters not published or generally
known in the industry, such as information regarding pricing, costs, purchasing,
profits, markets, sales or customer lists, future developments, audits,
investigations, enforcement actions, future marketing or expansion plans.
(f) Each of the Sellers hereby represents and warrants to Buyer that he or
its authorized representative has reviewed this Agreement with his attorneys and
such other advisors as he or it has deemed appropriate and has concluded that
the covenants herein are reasonable and that each of them has adequate financial
and other means and business opportunities to provide for his or its anticipated
needs notwithstanding his covenants herein.
(g) Sellers acknowledge that irreparable harm would be suffered by Buyer
in the event that any of the provisions of this Section 14 were not performed
fully in accordance with the terms specified herein and that monetary damages
are an inadequate remedy for breach thereof because of the difficulty of
ascertaining and quantifying the amount of damage that will be suffered by the
parties relying hereon in the event that such undertakings and provisions were
breached or violated. Accordingly Sellers hereby agree that Buyer shall be
entitled to an injunction or injunctions to restrain, enjoin and prevent
breaches or threatened breaches of the covenants, undertakings and provisions
herein and to enforce specifically the provisions hereof in any court of the
United States or any state having jurisdiction over the matter, it being
understood that any such remedies shall be in addition to, and not in lieu of,
any other rights and remedies available at law or in equity, including, without
limitation, any remedies existing under the restrictive covenants and the
agreements pertaining thereto required by Section 14(b) above. Sellers further
acknowledge and agree that the covenants contained in this Section 14 shall not
be deemed exclusive of any common law or other rights of Buyer in connection
with the matters covered hereby.
(h) Nothing in this Section 14 shall be deemed to limit the ability of KMD
to take any action reasonably necessary for the collection of patient and third
party insurer accounts receivable retained by it under this Agreement.
15. INDEMNIFICATION.
(a) Seller Indemnification Sellers hereby jointly and severally (but, with
respect to Sellers other than KMD, limited for each Seller to fifty percent of
the Damages) agree to indemnify Buyer, its Affiliates and its directors,
officers, agents, representatives and employees (collectively "Buyers") and to
hold Buyers harmless from and against any and all damage, loss, liability
(whether fixed or contingent, known or unknown, accrued or unaccrued) and
expense (including reasonable expenses of investigation and reasonable
attorneys, and other professionals' fees and expenses in connection with any
action, suit or proceeding) (collectively, "Damages") incurred or suffered by
Buyers, or any of them, arising out of or in respect of the following:
30
(i) any material misrepresentation or breach of representation
or warranty of Sellers, or any of them, contained herein;
(ii) any breach of covenant or agreement made or to be performed by
Sellers or any of them pursuant to this Agreement;
(iii) any and all Retained Liabilities;
(iv) except as provided in Section 7(c) above, any and all claims
relating to the employment or termination of employment by KMD of any
Person, or for compensation and other employee benefits (including,
without limitation, severance benefits, disability or post-retirement
benefits, health, workers' compensation and death benefits) and any and
all claims with respect to any employee benefit or welfare plan maintained
or contributed to by KMD or its Affiliates or any other claim by any
employee of KMD, whether or not hired by Buyer and except as expressly
provided for herein, for any accrued compensation or benefit owing or
maintained by KMD arising out of services rendered prior to the Closing
Date;
(v) any violation or alleged violation of law by KMD, its
Principals, managers, employees or agents or of any of the Members or
their respective officers, directors, partners, employees or agents and
any action or claim for overpayment, restitution, civil or criminal
penalties or other Damages arising out of the conduct of the Business
prior to the Closing;
(vi) KMD's failure to pay any "bulk sales" taxes for which it is
liable hereunder applicable to the sale of the Assets; and
(vii) Sellers' failure to discharge KMD's accounts payable and
other current liabilities in accordance with Section 2(e) above.
Other than with respect to those Sellers' representations and
warranties set forth in Sections 4(b) and 4(f) and Subsection 4(t)(i), above, no
indemnification shall be payable to Buyer with respect to claims asserted under
Subsection 15(a)(i), above, if not asserted by Buyer within two (2) years after
the Closing Date. No indemnification shall be payable to Buyer with respect to
claims asserted under Subsection 15(a)(i) with respect to Sellers
representations and warranties set forth in Section 4(b) and Subsection 4(t)(i)
if not asserted by Buyer within five (5) years and thirty (30) days after the
Closing Date. No indemnification shall be payable to Buyer with respect to
claims asserted under Subsection 15(a)(ii), above, if not asserted by Buyer
within four (4) years after the Closing Date. For purposes of this provision and
Section 15(b), below, a claim is asserted on the date on which a general notice
of such claim has been given to the Indemnifying Party in accordance with
Article 17, below.
(b) Buyer Indemnification. Buyer hereby agrees to indemnify Sellers and
their directors, officers, agents, representatives and employees (collectively
"Sellers") and to hold Sellers harmless from and against any and all Damages
incurred or suffered by Sellers arising out of or in respect of the following:
(i) any breach of representation or warranty of Buyer under this Agreement, a
claim for which, except for those representations and warranties of Buyer under
Section 5(b) above, is asserted within two (2) years after the Closing Date;
(ii) any breach of representation or warranty of Buyer under Section 5(b)above,
a claim for which is asserted within five (5) years and thirty (30) days after
the Closing Date; (iii) any breach of a covenant or agreement made or to be
performed by Buyer pursuant to this Agreement, a claim for which is asserted
within four (4) years after the Closing Date (except that an alleged breach of
Buyer's covenant to provide access to slides, specimens and records in
accordance with Section 7(d) above, shall have a claim period of five (5) years
after the Closing Date or such longer time period as is required by law with
respect to the retention of such slides, specimens and records); (iv) the
31
Assumed Obligations; (v) the operation of the Assets and the Business from and
after the Closing Date, except with respect to Damages incurred after the
Closing Date that were caused by or arose from a breach of any of Sellers'
representations, warranties, covenants or agreements contained in this Agreement
and except for any alleged decline in the value of the Shares resulting from
Buyer's operation of the Assets and Business after the Closing Date; (vi) except
as provided in Section 7(c) above, any and all claims relating to the employment
or termination of employment by Buyer of any Person, other than Key Persons, or
for compensation and other of Buyer's employee benefits (including without
limitation, its severance, disability or post-retirement, health, workers'
compensation and death benefits) and any and all claims with respect to any
employee benefit or welfare plan maintained or contributed to by Buyer or any
other claim by any employee, other than Key Employees, of Buyer, except as
required to be paid by Sellers hereunder, for any accrued compensation or
benefit owing or maintained by Buyer arising out of services rendered to Buyer
after the Closing Date; and (vii) Buyer's failure to pay any New York State bulk
sales tax for which it is liable under Section 3(d), above.
(c) Procedures for Claims. A party seeking indemnification pursuant to
this Section 15 (an "Indemnified Party") from or against the assertion of any
claim, or the commencement of any action, suit or proceeding by a third Person
in respect of which indemnity may be sought under this Section is (a "Third
Person Assertion") shall give prompt notice to the party from whom
indemnification is sought (the "Indemnifying Party") and shall provide the
Indemnifying Party such information with respect thereto as the Indemnifying
Party may reasonably request, but no failure to give such notice or provide such
information shall relieve the Indemnifying Party of any liability hereunder
(except to the extent that the Indemnifying Party has suffered actual prejudice
by such failure). No Indemnified Party shall settle any Third Person Assertion
without the prior written consent of the Indemnifying Party, which consent shall
not be unreasonably withheld or delayed. The Indemnifying Party shall have the
right, exercisable by written notice to the Indemnified Party within ten (10)
Business Days of receipt of notice from the Indemnified Party pursuant hereto of
a Third Person Assertion, to assume the defense of such Third Person Assertion.
If the Indemnifying Party assumes such defense, the Indemnifying Party may
select counsel, which counsel shall be reasonably acceptable to the Indemnified
Party. If the Indemnifying Party does not assume the defense of any Third Person
Assertion in accordance with the preceding sentences or, having so assumed such
defense, unreasonably fails to defend against such Third Person Assertion at any
time after the Indemnifying Party shall have assumed the defense of such Third
Person Assertion, then upon five (5) days' prior written notice to the
Indemnifying Party, the Indemnified Party may assume the defense of such Third
Person Assertion and shall have the right to consent to the entry of judgment
with respect to, or otherwise settle, such Third Person Assertion with the
consent of the Indemnifying Party, which consent shall not be unreasonably
withheld. In such event, the Indemnified Party shall be entitled under this
Section 15, as part of its Damages, to indemnification for the reasonable costs
of such defense The Indemnifying Party, if it shall have assumed the defense of
any Third Person Assertion, shall have the right to consent to the entry of
judgment with respect to, or otherwise settle, such Third Person Assertion with
the consent of the Indemnified Party, which consent shall not be unreasonably
withheld; provided, however, that the Indemnified Part may withhold its consent
if (1) any such judgment imposes a continuing non-monetary obligation on the
Indemnified Party or any of its Affiliates, (2) does not include an
unconditional release of the Indemnified Party and its Affiliates from all
liability in respect of claims that are the subject matter of such Third Person
Assertion, or (3) may result in a loss, suspension or other restriction of any
license or right to participate as a provider under any Federal Health Care
Program, State Health Care Program or CHAMPUS. The Indemnifying Party and the
Indemnified Party shall cooperate, and cause their respective Affiliates to
cooperate, in the defense or prosecution of any Third Person Assertion and shall
furnish or cause to be furnished such records, information and testimony, and
attend such conferences, discovery proceedings, hearings, trials or appeals as
may be
32
requested in connection therewith. The Indemnifying Party or the Indemnified
Party, as the case may be, shall have the right to participate, at its own
expense, in the defense or settlement of any Third Person Assertion which the
other is defending.
(d) In the event an Indemnified Party should have a claim against any
Indemnifying Party under this Section 15 that does not involve a Third Person
Assertion, the Indemnified Party shall deliver notice of such claim with
reasonable promptness to the Indemnifying Party. If the Indemnifying Party does
not notify the Indemnified Party within sixty (60) days following its receipt of
such notice that the Indemnifying Party disputes its liability to the
Indemnified Party under Section 15, such claim specified by the Indemnified
Party in such notice shall be conclusively deemed a liability of the
Indemnifying Party and the Indemnifying Party shall pay the amount of such
liability to the Indemnified Party within five days after expiration of such
60-day period. If the Indemnifying Party timely disputes its liability with
respect to such claim, the Indemnifying Party and the Indemnified Party shall
proceed in good faith to negotiate a resolution of such dispute and, if not
resolved within thirty (30) days, either party may institute legal proceedings
relating thereto.
(e) Threshold. Except as otherwise expressly provided below, no
indemnification pursuant to Article 15 shall be required of the Indemnifying
Party except to the extent that, at the time of the applicable claim, the
aggregate amount due the Indemnified Party for all claims brought under Article
15 through the date thereof (the "Aggregate Amount") shall exceed fifty thousand
($50,000) dollars (the "Threshold"). In the event that the Aggregate Amount due
an Indemnified Party under this Article 15 exceeds the Threshold, the
Indemnifying Party shall, at that time, pay to the Indemnified Party the
Aggregate Amount. Notwithstanding the foregoing, no claim asserted under
Subsections 15(a)(iv), 15(a)(vi) or 15(a)(vii) shall be subject to the
Threshold.
(f) Ceiling. The Indemnifying Party shall be liable to the Indemnified
Party under this Article 15 only for the first ten million five hundred thousand
($10,500,000) dollars of the Aggregate Amount during the first twelve months
following the Closing Date and for the first thirteen million ($13,000,000)
dollars of the Aggregate Amount thereafter.
16. TERMINATION. (a) This Agreement may be terminated at any time
prior to the Closing as follows:
(i) by mutual written consent of KMD and Buyer;
(ii) by Sellers if there shall have been a breach by Buyer, or by
Buyer if there shall have been a breach by Sellers, of any of their
respective representations and warranties set forth in this Agreement, (A)
if such breach is reasonably capable of being cured within 10 Business
Days following receipt by the breaching party of written notice of such
breach, then upon delivery of written notice of termination following
termination of such 10 Business Day period if such breach has not been
cured by such time or, if such breach is not reasonably capable of being
cured within 10 Business Days following receipt of written notice of such
breach, then upon one Business Day's prior written notice of termination,
and (B) in each case of a breach that would entitle the non-breaching
party not to consummate the transactions contemplated hereby under Section
9(a) (in the case a breach of representation or warranty by Buyer) or
Section 10(a) (in the case of a breach of representation or warranty by
Sellers);
(iii) by Sellers if there shall have been a material breach by
Buyer, or by Buyer if there shall have been a material breach by Sellers,
of any of their covenants or agreements set forth in
33
this Agreement, which breach shall not have been cured within ten (10)
Business Days following receipt by the breaching party of written notice
of such breach from Sellers or Buyer, as the case may be; and
Notwithstanding Section 16(a)(ii)-(iii), a party who is, or whose
Affiliate is, in material breach of any of its obligations or representations
and warranties hereunder shall not have the right to terminate this Agreement
pursuant to Section 16(a)(ii) or (iii).
The termination of this Agreement shall be effectuated by the delivery by
the party terminating this Agreement to the other party of a written notice of
such termination. If this Agreement so terminates, it shall become null and void
and have no further force or effect, except as provided in Section 16(b).
Notwithstanding anything to the contrary in this Agreement, neither Buyer,
nor any of the Sellers, may terminate this Agreement on the basis that either
KMD or Buyer has suffered a Material Adverse Effect during the time period from
the date of this Agreement and the Closing Date.
(b) Survival After Termination. If this Agreement is terminated in
accordance with Section 16(a) hereof and the transactions contemplated hereby
are not consummated, this Agreement shall become void and of no further force
and effect, except for the provisions of Sections 12(a), 12(b), 14(e) (as to
secret or confidential information of Buyer and KMD) and 17, which shall survive
termination of this Agreement. None of the parties shall have any liability in
the event of a termination of this Agreement, except to the extent that such
termination results from the breach by such party of any of its obligations
under, or a breach of its representations or warranties contained in, this
Agreement. In the event of a termination as a result of the breach by any party
of its obligations under, or a breach of its representations or warranties
contained in, this Agreement, the other party shall be entitled to all remedies
at law or in equity which may be available as a result of such breach.
17. NOTICES. Any and all notices or other communication provided for
herein shall be made by hand-delivery, first-class mail (registered or
certified, return receipt requested), facsimile or overnight air courier (i) in
the case of Sellers to: Tribute International Corporation, 173 Crossways Park
Drive West, Woodbury, New York, 11797, facsimile (516) 921-3637, Attention: A.
Bruce Shapiro, with a copy (which shall not constitute notice) to: Brown Raysman
Millstein Felder & Steiner LLP, 120 West 45th Street, New York, New York 10036,
facsimile (212) 840-2429, Attention: Sarah Hewitt, Esq.; and (ii) in the case of
Buyer, to DIANON Systems, Inc., 200 Watson Boulevard, Stratford, Connecticut
06615, facsimile (203) 380-4138, Attention: Chief Executive Officer, with a copy
(which shall not constitute notice) to: Cadwalader, Wickersham & Taft, 100
Maiden Lane, New York, New York 10038, facsimile (212) 504-5557, Attention:
Dennis J. Block, Esq. Except as otherwise provided in this Agreement, each such
notice shall be deemed given at the time delivered by hand, if personally
delivered; five (5) Business Days after being deposited in the mail, postage
prepaid, if mailed; when answered-back with receipt acknowledged, if telefaxed;
and the next Business Day after timely delivery to the courier, if sent by
reputable overnight air courier guaranteeing next day delivery.
18. BULK SALES LAWS. The parties hereby waive compliance by KMD with the
requirements of Article 6 of the Uniform Commercial Code as in effect in
relevant jurisdictions, and KMD and the Members hereby covenant and agree to
indemnify Buyer and hold Buyer harmless from any costs or liabilities resulting
from such non-compliance.
19. GENERAL.
34
(a) Entire Agreement. This Agreement, including the Exhibits and Schedules
hereto, contains the entire understanding and agreement of the parties hereto
with respect to the subject matter hereof.
(b) Survival. The covenants and agreements of the parties contained herein
shall survive the execution and delivery of this Agreement and the purchase of
the Assets. All representations and warranties contained herein shall survive
the execution and delivery of this Agreement, any examination by or on behalf of
the parties hereto, the Closing and the completion of the transactions
contemplated herein for a period of two (2) years commencing on the Closing
Date, provided, however, that (i) the representations and warranties of Sellers
contained in Sections 4(b) and 4(t)(i) shall survive the Closing and remain in
full force and effect for a period of five (5) years commencing on the Closing
Date, and (ii) the expiration of any representation or warranty shall in no way
limit or compromise the obligation of Sellers to indemnify Buyers with respect
to the Retained Liabilities. Notwithstanding anything to the contrary contained
herein, a representation or warranty that is the basis for a claim for
indemnification timely made hereunder shall continue to survive with respect to
such claim until the final resolution of such claim.
(c) Further Assurances. The parties hereto each agree to execute such
other instruments, documents or agreements as may be reasonably necessary or
desirable for the implementation of this Agreement and the consummation of the
transactions contemplated thereby. In addition, the parties hereto agree to
provide reasonable access to such party's personnel, documents and materials at
the visiting party's expense and with as little business interference to the
party providing such access as is feasible under the circumstances, as may be
reasonably necessary or desirable for the implementation of this Agreement and
the consummation of the transactions contemplated hereby.
(d) Amendment: Waiver. This Agreement may be amended or waived only by a
written instrument signed by the party against whom enforcement thereof is
sought.
(e) Binding Effect: Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
legal representatives and permitted assigns; provided, however, that no party
may delegate or otherwise transfer any of its rights or obligations hereunder by
operation of law or otherwise, without the prior written consent of the other
party, and any purported assignment without such consent shall be null and void,
except that Buyer may assign any of its rights or delegate any of its
obligations hereunder to any wholly owned subsidiary of Buyer without KMD's
consent upon ten (10) days prior written notice to Sellers, and, in the event of
any such assignment, Buyer shall not be relieved of liability for the
performance of any obligations so delegated.
(f) Section Headings. The section headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the State of New York
without giving effect to the policies or principles thereof respecting conflict
or choice of laws.
(h) Jurisdiction. The parties hereto consent to personal jurisdiction in
the courts of the State of New York and the United States District Court for the
Southern or Eastern Districts therein in connection with any action arising out
of the Acquisition Documents. Each party irrevocably waives its
35
right to a trial by jury and consents that service of process may be by mail in
accordance with the notice provisions of Section 17.
(i) Severability. The provisions of this Agreement are severable and the
invalidity of any provision shall not affect the validity of any other
provision. It is the intention of the parties that this Agreement be enforced to
the fullest extent permitted and, therefore, in the event that any provision of
this Agreement or the application thereof is held to be unenforceable in any
jurisdiction because of the duration or scope thereof, the parties hereto agree
that the court or panel of arbitrators making such determination shall have the
power to reduce the duration and scope of such provision to the extent necessary
to make it enforceable, and that the Agreement in its reduced form shall be
valid and enforceable to the full extent permitted by law, but no such
invalidity or reduction shall affect the enforceability of the express terms
hereof in any other jurisdiction.
(j) Expenses. Each party hereto shall pay its own fees and expenses in
connection with this Agreement.
(k) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute but one and the same agreement.
[The remainder of this page left intentionally blank]
36
(l) No Third Party Beneficiaries. Except as expressly set forth in this
Agreement, nothing herein, express or implied, is intended to or shall confer
upon any Person (including any employee of KMD or Sellers or Buyer) other than
the parties hereto and the Persons described in Sections 15(a) and 15(b) above,
any legal or equitable right benefit or remedy of any nature whatsoever under or
by reason of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
DIANON SYSTEMS, INC.
By: /s/ Kevin C. Johnson
--------------------
Name: Kevin C. Johnson
Title: President & CEO
KYTO MERIDIEN DIAGNOSTICS, L.L.C.
By: /s/ Ralph M. Richart
--------------------
Name : Ralph M. Richart
Title: President of General
Partner of Member
KYTO DIAGNOSTICS, L.P.
By: /s/ Ralph M. Richart
--------------------
Name : Ralph M. Richart
Title: President of General Partner
MERIDIEN DIAGNOSTICS LABS, INC.
By: /s/ A. Bruce Shapiro
--------------------
Name: A. Bruce Shapiro
Title: President
/s/ A. Bruce Shapiro
--------------------
A. Bruce Shapiro
/s/ Ralph M. Richart
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Ralph M. Richart, M.D.
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