As filed with the Securities and Exchange Commission on September 7, 2001
Registration No. 333-66966
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-----------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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DIANON SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 8071 06-1128081
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
200 Watson Boulevard
Stratford, CT 06615 (203) 381-4000
(Address, Including Zip Code, and Telephone Number, including Area Code, of
Registrant's Principal Executive Offices)
-----------------
Mr. Kevin C. Johnson
DIANON Systems, Inc.
200 Watson Boulevard
Stratford, CT 06615
(203) 381-4000
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
-----------------
copies to:
Dennis J. Block, Esq. Mr. Michael W. George Robert E. Wilson, Esq.
Cadwalader, Wickersham & Taft UroCor, Inc. Fulbright & Jaworski L.L.P.
100 Maiden Lane 840 Research Parkway 1301 McKinney, Suite 5100
New York, New York 10038 Oklahoma City, OK 73104 Houston, Texas 77010
(212) 504-6000 (405) 290-4000 (713) 651-5151
Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable after the effectiveness of this Registration Statement and the
effective time of the merger of a wholly-owned subsidiary of the Registrant
with and into UroCor, Inc. as described in the Agreement and Plan of Merger
dated as of June 28, 2001.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
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The Registrant amends this Registration Statement on the date or dates as
may be necessary to delay its effective date until the Registrant files a
further amendment which states that this Registration Statement will become
effective in accordance with Section 8(a) of the Securities Act of 1933 or
until this Registration Statement shall become effective on the date that the
Commission, acting under Section 8(a), determines.
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[PRELIMINARY DRAFT DATED SEPTEMBER 7, 2001--SUBJECT TO COMPLETION]
[DIANON LOGO]
[UROCOR LOGO]
MERGER PROPOSAL--YOUR VOTE IS VERY IMPORTANT
The boards of directors of DIANON Systems, Inc. and UroCor, Inc. have
unanimously approved a merger between our two companies that we believe will be
able to create substantially more stockholder value than could be achieved by
either company individually. We are sending you this joint proxy
statement/prospectus to ask you to vote in favor of the merger transaction and
related matters.
If the merger is completed, UroCor stockholders will receive up to 0.4064 of
a share of Dianon common stock for each share of UroCor common stock, subject
to adjustment as described in this joint proxy statement/prospectus. Holders of
UroCor common stock will be entitled to receive shares of Dianon common stock
with a value of up to $18 in exchange for each share of UroCor common stock
they hold, determined on the basis of the market price of Dianon common stock
as described in this joint proxy statement/prospectus. Dianon stockholders will
continue to own their existing Dianon shares. We estimate that Dianon will
issue approximately 3.7 million shares of Dianon common stock to UroCor
stockholders as a result of the merger, assuming Dianon's August 31, 2001
closing market price of $48.95 per share, for an aggregate consideration of
$180 million. The shares of Dianon common stock received by UroCor stockholders
as a result of the merger will be quoted on the Nasdaq National Market under
the symbol "DIAN". We are asking the Dianon stockholders to approve the
issuance of the shares of Dianon common stock to be issued in the merger. We
are asking the UroCor stockholders to adopt the merger agreement and approve
the merger.
In addition, Dianon is asking its stockholders, in connection with its
annual meeting, to vote in favor of the election of eight Dianon directors, to
approve the adoption of the 2001 Stock Incentive Plan, to ratify the
appointment of Arthur Andersen LLP as Dianon's independent public accountants
for the 2001 fiscal year and to consider other Dianon annual meeting matters
described in this joint proxy statement/prospectus.
We cannot complete the merger unless the stockholders of UroCor adopt the
merger agreement and approve the merger and the stockholders of Dianon approve
the issuance of Dianon common stock in connection with the merger. Approval of
the 2001 Stock Incentive Plan and other Dianon annual meeting matters is not a
condition of the merger.
We have each scheduled a meeting of our respective stockholders to vote on
these important matters.
The dates, times and places of the meetings are set forth in the
accompanying notices of meetings.
This document gives you detailed information about the proposed merger. It
also contains information about our companies from documents that we have filed
with the Securities and Exchange Commission. We encourage you to read this
document carefully and in its entirety. In particular, you should read the
"Risk Factors" section, starting on page I-17, for a description of the various
risks you should consider in evaluating the proposed transaction.
We are very enthusiastic about this merger and the strength and capabilities
we expect from the combined company.
/s/ Kevin C. Johnson /s/ Michael W. George
Kevin C. Johnson Michael W. George
President and Chief Executive Officer President and Chief Executive Officer
DIANON Systems, Inc. UroCor, Inc.
Neither the SEC nor any state securities commission has approved or
disapproved the securities to be issued under this document or determined if
this document is accurate or adequate. Any representation to the contrary is
a criminal offense.
This joint proxy statement/prospectus is dated September , 2001, and is
first being mailed to the stockholders of Dianon on or about September , 2001
and UroCor on or about September , 2001.
REFERENCES TO ADDITIONAL INFORMATION
This joint proxy statement/prospectus incorporates important business and
financial information about Dianon and UroCor from other documents that are not
included in or delivered with this joint proxy statement/prospectus. This
information is available to you without charge upon your written or oral
request. You can obtain those documents incorporated by reference in this joint
proxy statement/prospectus by requesting them in writing or by telephone from
the appropriate company at the following address and telephone number.
DIANON Systems, Inc. UroCor, Inc.
David R. Schreiber Bruce C. Hayden
200 Watson Boulevard 840 Research Parkway
Stratford, CT 06615 Oklahoma City, OK 73104
Tel: (203) 381-4055 Tel: (405) 290-4117
If you would like to request documents, please do so by October , 2001 in
order to receive them before your meeting.
See "Additional Information for Stockholders--Where You Can Find More
Information".
[DIANON LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of the stockholders of DIANON Systems, Inc. ("Dianon")
will be held at Dianon's corporate headquarters at 200 Watson Boulevard,
Stratford, Connecticut, on October [ ], 2001, at 10:00 A.M., for the following
purposes:
1. To consider and vote upon a proposal to approve the issuance of shares
of Dianon common stock under an Agreement and Plan of Merger, dated as
of June 28, 2001, among DIANON Systems, Inc., UroCor Acquisition Corp.,
a wholly-owned subsidiary of Dianon, and UroCor, Inc. A copy of the
merger agreement is attached as Annex A to the joint proxy
statement/prospectus accompanying this notice;
2. To elect directors for the ensuing year;
3. To consider and approve the adoption of the 2001 Stock Incentive Plan;
4. To ratify the appointment of Arthur Andersen LLP as the independent
public accountants of Dianon for the fiscal year ending December 31,
2001; and
5. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
Only stockholders of record at the close of business on August 29, 2001 will
be entitled to vote at the Annual Meeting. As of that date, there were [ ]
shares of common stock outstanding. Each share of common stock is entitled to
one vote on each matter properly brought before the meeting. A list of
stockholders eligible to vote at the Annual Meeting will be available for
inspection at the Annual Meeting and during business hours from October [ ],
2001 to the date of the Annual Meeting at Dianon's corporate headquarters.
Whether you expect to attend the Annual Meeting or not, your proxy vote is
important. To assure your representation at the meeting, please sign and date
the enclosed proxy card and return it promptly in the enclosed envelope, which
requires no additional postage if mailed in the United States or Canada.
By Order of the Board of Directors
David R. Schreiber
Corporate Secretary
200 Watson Boulevard
Stratford, Connecticut 06615
September , 2001
[UROCOR LOGO]
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS OF UROCOR
NOTICE IS HEREBY GIVEN that UroCor, Inc. ("UroCor") will hold a special
meeting of its stockholders, on October [ ], 2001 at 11:00 a.m., local time, at
the Renaissance Hotel, 10 Broadway Avenue, Oklahoma City, Oklahoma, for the
following purposes:
1. To consider and vote on a proposal to adopt the Agreement and Plan of
Merger, dated as of June 28, 2001, among DIANON Systems, Inc., UroCor
Acquisition Corp., a wholly-owned subsidiary of Dianon, and UroCor,
Inc., and approve the merger contemplated by that agreement. A copy of
the merger agreement is attached as Annex A to the joint proxy
statement/prospectus accompanying this notice; and
2. To transact such other business as may properly come before the special
meeting and any adjournment or postponement.
Holders of common stock at the close of business on September [ ], 2001 are
entitled to receive notice of and to vote their shares at the special meeting
or any adjournment or postponement thereof. As of that date, there were [ ]
shares of common stock outstanding. Each share of common stock is entitled to
one vote on each matter properly brought before the meeting. A list of the
stockholders entitled to vote at the UroCor special meeting will be available
at the special meeting and for ten days prior to the meeting, during business
hours, at UroCor's corporate headquarters at the address set forth below.
Your board of directors unanimously recommends that you vote to adopt the
merger agreement and approve the merger, both of which are described in detail
in the accompanying joint proxy statement/prospectus.
By Order of the Board of Directors
Bruce C. Hayden
Corporate Secretary
September , 2001
UroCor, Inc.
840 Research Parkway
Oklahoma City, OK 73104
IMPORTANT
Your vote is important. Please mark, sign, date and return the enclosed
proxy card as promptly as possible in the enclosed postage-paid envelope. In
this way, if you are unable to attend in person, your shares can still be voted
at the UroCor special meeting.
TABLE OF CONTENTS
CHAPTER ONE
THE MERGER
Page
----
QUESTIONS AND ANSWERS ABOUT THE
MERGER...................................... I-1
SUMMARY....................................... I-4
The Companies.............................. I-4
Our Recommendations to Stockholders........ I-4
Stockholder Votes Required................. I-5
The Merger................................. I-5
What UroCor Stockholders Will
Receive.................................. I-5
Ownership of Dianon After the Merger....... I-6
Conditions to the Completion of the
Merger................................... I-6
Termination of Merger Agreement............ I-6
Regulatory Approvals....................... I-8
Material Federal Income Tax
Consequences of the Merger............... I-8
Comparative Per Share Market Price
Information.............................. I-8
Dissenters' Appraisal Rights............... I-8
Interests of Officers and Directors in the
Merger................................... I-8
Accounting Treatment of the Merger......... I-8
Opinions of Financial Advisors............. I-8
Other Dianon Annual Meeting Matters........ I-9
SELECTED HISTORICAL AND PRO
FORMA FINANCIAL DATA........................ I-10
SELECTED HISTORICAL FINANCIAL
DATA OF DIANON.............................. I-11
SELECTED HISTORICAL FINANCIAL
DATA OF UROCOR.............................. I-12
SELECTED UNAUDITED PRO FORMA
COMBINED FINANCIAL DATA............ I-13
UNAUDITED PRO FORMA COMBINED
SELECTED FINANCIAL DATA OF
DIANON AND UROCOR.................. I-13
COMPARATIVE PER SHARE DATA........... I-14
COMPARATIVE PER SHARE AND OTHER
DATA............................... I-15
COMPARATIVE PER SHARE MARKET
PRICE AND DIVIDEND
INFORMATION........................ I-16
RISK FACTORS......................... I-17
Risks Related to the Merger....... I-17
Risks Related to Our Business and
Industry After the Merger....... I-20
FORWARD-LOOKING STATEMENTS........... I-25
Page
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THE PROPOSED MERGER.......................... I-27
General................................... I-27
Dianon Proposals.......................... I-27
UroCor Proposal........................... I-27
Background of the Merger.................. I-27
Dianon's Reasons for the Merger........... I-25
Factors Considered by, and
Recommendation of, the Board of
Directors of Dianon..................... I-36
Factors Considered by, and
Recommendation of, the Board of
Directors of UroCor..................... I-38
Accounting Treatment...................... I-40
Material Federal Income Tax
Consequences of the Merger.............. I-40
Regulatory Matters Relating to the
Merger.................................. I-42
No Appraisal Rights....................... I-42
Certain Litigation........................ I-42
Federal Securities Laws Consequences;
Stock Transfer Restriction
Agreements.............................. I-42
OPINIONS OF FINANCIAL ADVISORS............... I-43
Opinion of Dianon's Financial Advisor..... I-43
Opinion of UroCor's Financial Advisor..... I-48
INTERESTS OF CERTAIN PERSONS IN
THE MERGER................................. I-55
UroCor's Arrangements With Executive
Officers and Key Employees.............. I-55
Ownership Of Common Stock; Stock
Options................................. I-56
Indemnification; Directors' And Officers'
Insurance............................... I-56
THE MERGER AGREEMENT......................... I-57
General................................... I-57
Closing Matters........................... I-57
Consideration to be Received in the
Merger.................................. I-57
Treatment of Stock Options................ I-58
Exchange of Certificates in the Merger.... I-58
Fractional Shares......................... I-58
Listing of Dianon Stock................... I-59
Covenants................................. I-59
Other Covenants and Agreements............ I-61
Representations and Warranties............ I-62
Conditions................................ I-63
Termination of Merger Agreement........... I-64
Amendments, Extensions and Waivers........ I-65
i
CHAPTER TWO
SELECTED FINANCIAL DATA
CHAPTER THREE
INFORMATION ABOUT THE MEETINGS AND VOTING
Page
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Matters Relating to the Meetings..... III-1
Vote Necessary to Approve Dianon and
UroCor Proposals................... III-3
Proxies.............................. III-3
How to Vote by Proxy................. III-4
Other Business; Adjournments......... III-5
Dianon Stockholder Account
Maintenance........................ III-5
CHAPTER FOUR
CERTAIN LEGAL INFORMATION
COMPARISON OF DIANON/UROCOR
STOCKHOLDER RIGHTS..................... IV-1
Summary of Material Differences
Between Current Rights of UroCor
Stockholders and Rights Those
Stockholders Will Have as Dianon
Stockholders Following the Merger... IV-1
DESCRIPTION OF DIANON CAPITAL
STOCK.................................. IV-3
Authorized Capital Stock.............. IV-3
Dianon Common Stock................... IV-3
Dianon Preferred Stock................ IV-4
Transfer Agent and Registrar.......... IV-4
Stock Exchange Listing; Delisting and
Deregistration of UroCor Common
Stock............................... IV-4
LEGAL MATTERS............................ IV-4
EXPERTS.................................. IV-4
CHAPTER FIVE
OTHER DIANON ANNUAL MEETING PROPOSALS
ELECTION OF DIRECTORS................... V-1
Information Concerning Directors and
Nominees........................... V-1
Committees of the Board.............. V-2
Attendance at Board and Committee
Meetings........................... V-3
Compensation of Directors............ V-4
Page
----
Voting for Directors.................... V-5
EXECUTIVE OFFICERS......................... V-5
EXECUTIVE COMPENSATION..................... V-5
Compensation Committee Report........... V-5
Compensation Program Components......... V-6
Discussion of 2000 Compensation for the
Chief Executive Officer............... V-6
SUMMARY COMPENSATION TABLE................. V-7
Performance Graph....................... V-8
Employment and Severance
Agreements............................ V-8
Change of Control Provisions............ V-9
Section 16(a) Beneficial Ownership
Reporting Compliance.................. V-10
Stock Options........................... V-10
OWNERSHIP OF VOTING STOCK BY
MANAGEMENT............................... V-11
OWNERSHIP OF VOTING STOCK BY
CERTAIN BENEFICIAL OWNERS................ V-12
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS..................... V-13
ADOPTION OF THE 2001 STOCK
INCENTIVE PLAN........................... V-13
Principal Provisions of the Plan........ V-13
General Provisions...................... V-13
Discretionary Awards.................... V-14
Automatic Awards to Outside Directors... V-16
Provisions Relating to a Change of
Control............................... V-17
Other Provisions........................ V-17
Certain Federal Income Tax
Consequences.......................... V-18
Benefits Under the Plan................. V-19
Additional Information.................. V-19
RATIFICATION OF INDEPENDENT
PUBLIC ACCOUNTANTS'
APPOINTMENT.............................. V-20
AVAILABILITY OF ANNUAL REPORT
ON FORM 10-K............................. V-20
CHAPTER SIX
ADDITIONAL INFORMATION FOR
STOCKHOLDERS
FUTURE DIANON STOCKHOLDER
PROPOSALS................................ VI-1
WHERE YOU CAN FIND MORE
INFORMATION.............................. VI-1
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS UROCOR, INC.
ii
ANNEXES
Annex A Agreement and Plan of Merger
Annex B Opinion of Lazard Freres & Co.
Annex C Opinion of U.S. Bancorp Piper
Jaffray, Inc.
Annex D Charter of the Audit Committee of
the Board of Directors of Dianon
Annex E 2001 Stock Incentive Plan
iii
CHAPTER ONE
THE MERGER
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: Why is Dianon acquiring UroCor?
A: The board of directors of Dianon believes that this merger will further
enhance Dianon's position as a leader in the full-service cancer diagnostics
market and create a company with a leading share in the urology segment of
this market. In addition, the boards of directors of Dianon and UroCor
believe that the merger will:
. increase scale nationwide;
. build customer base and strengthen relationships with managed care
customers;
. expand capacity with a group of board-certified, experienced urological
pathologists;
. enhance technological capabilities;
. strengthen information databases; and
. present significant opportunities for earnings growth.
For more detailed reasons for the merger, see "The Proposed Merger--Dianon's
Reasons for the Merger."
Q: What will UroCor stockholders receive for their UroCor shares?
A: UroCor stockholders will receive up to 0.4064 of a share of Dianon common
stock for each share of UroCor common stock, subject to adjustment as
described in this joint proxy statement/prospectus. As a result of such
adjustment UroCor stockholders will receive shares of Dianon common stock
with a value of up to $18 in exchange for each share of UroCor common stock
they hold, determined on the basis of the market price of Dianon common
stock as described in this joint proxy statement/prospectus. See "The Merger
Agreement--Consideration to be Received in the Merger".
Q: Will Dianon stockholders receive any shares as a result of the merger?
A: No. Dianon stockholders will continue to hold the Dianon shares they
currently own.
Q: What will happen to UroCor stock options as a result of the merger?
A: All stock options that are outstanding at the closing of the merger under
the UroCor employee stock option plan and the UroCor non-employee director
stock option plan will be assumed by Dianon and become exercisable for
shares of Dianon common stock. All outstanding stock options under the
UroCor employee stock option plan will become fully vested upon the closing
of the merger. The outstanding stock options under the UroCor non-employee
director stock option plan will not vest upon the closing of the merger. At
September [ ], 2001, there were [ ] shares of UroCor common stock
subject to issuance upon exercise pursuant to options granted under the
UroCor employee stock option plan.
Q: What will happen to UroCor as a result of the merger?
A: If the merger is completed, UroCor will become a wholly-owned subsidiary of
Dianon, and UroCor's common stock will cease to be traded on the Nasdaq
National Market.
Q: When do you expect the merger to be completed?
A: We are working to complete the merger in the fourth quarter of this year.
However, it is possible that factors outside the control of the parties
could require us to complete the merger at a later time. We hope to complete
the merger as soon as reasonably practicable. In addition, subject to
certain exceptions, either Dianon or UroCor may terminate the merger
agreement if the merger is not completed by December 31,
I-1
2001. See "The Merger Agreement--Termination of the Merger Agreement".
Q: When and where are the stockholder meetings?
A: The Dianon stockholder meeting will take place on October [ ], 2001 at
Dianon's headquarters at 200 Watson Boulevard, Stratford, Connecticut, at
10:00 a.m. The UroCor stockholder meeting will take place on October [ ],
2001 at the Renaissance Hotel, 10 Broadway, Oklahoma City, Oklahoma, at
11:00 a.m., local time.
Q: What do I need to do now?
A: After you carefully read this document, mail your signed proxy card in the
enclosed return envelope as soon as possible, so that your shares may be
represented at your meeting. In order to assure that your vote is obtained,
please vote your proxy as instructed on your proxy card even if you
currently plan to attend your meeting in person.
Q: Can I change my vote after I have mailed my proxy card?
A: Yes. You can change your vote at any time before your proxy is voted at your
company's stockholder meeting. You can do this in one of three ways:
. timely delivery of a valid, later-dated proxy;
. written notice to your company's Secretary before the meeting that you
have revoked your proxy; or
. voting by ballot at either the Dianon annual meeting or the UroCor special
meeting.
Q: What happens if I do not return a proxy card?
A: If you are a Dianon stockholder, the failure to return your proxy card could
be a factor in establishing a quorum for the annual meeting of Dianon
stockholders. If you are a UroCor stockholder, the failure to return your
proxy card will have the same effect as voting against the merger.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: No. If you do not provide your broker with instructions on how to vote your
"street name" shares, your broker will not be permitted to vote them on
either the approval of the merger by UroCor stockholders or the share
issuance by Dianon stockholders. You should therefore be sure to provide
your broker with instructions on how to vote your shares. Please check the
voting form used by your broker to see if it offers telephone or Internet
voting. If you are a Dianon stockholder and do not give voting instructions
to your broker, your broker may not vote your shares on the share issuance
proposal without instructions from you, and you will not be counted as
voting for purposes of the Dianon share issuance proposal unless you appear
in person at the Dianon meeting with a legal, valid proxy from the record
holder. If you are a UroCor stockholder and do not give voting instructions
to your broker, you will, in effect, be voting against the merger unless you
appear in person at the UroCor meeting with a legal, valid proxy from the
record holder. You should therefore be sure to provide your broker with
instructions on how to vote your shares.
Q: Should I send in my stock certificates now?
A: No. If the merger is completed, we will send UroCor stockholders written
instructions for exchanging their stock certificates. Dianon stockholders
will keep their existing stock certificates.
Q: Am I entitled to dissenters' rights?
A: No. Neither Dianon nor UroCor stockholders will be entitled to dissenters'
appraisal rights.
Q: Who can help me answer my questions about the meetings or the merger?
A: If you are a Dianon stockholder, and would like additional copies, without
charge, of this joint proxy statement/prospectus or if you have questions
about the merger, including the
I-2
procedures for voting your shares, or if you have questions with respect to
the annual meeting, you should contact:
DIANON Systems, Inc. David R. Schreiber Chief Financial Officer 200 Watson
Boulevard Stratford, Connecticut 06615 Telephone: (203) 381- 4055
If you are a UroCor stockholder, and would like additional copies, without
charge, of this joint proxy statement/prospectus or if you have questions about
the merger, including the procedures for voting your shares, or if you have
questions with respect to the special meeting, you should contact:
UroCor, Inc. Bruce C. Hayden Chief Financial Officer 840 Research Parkway
Oklahoma City, Oklahoma 73104 Telephone: (405) 290-4117
I-3
SUMMARY
This summary highlights the material aspects of the proposed merger. To
understand the merger fully and for a more complete description of the legal
terms of the merger, you should carefully read this entire document and the
documents to which we refer you. See "Where You Can Find More Information".
The Companies
DIANON Systems, Inc.
200 Watson Boulevard
Stratford, CT 06615
(203) 381-4000
Internet address: www.Dianon.com
Dianon provides a full line of anatomic pathology testing services, which
involves the microscopic examination of tissue and fluid cells and fluids for
the diagnosis of various diseases (including cancer), and a number of genetic
and clinical chemistry testing services to patients, physicians and managed
care organizations throughout the United States. Dianon's principal physician
audience for these services includes approximately 50,000 clinicians engaged in
the fields of medical oncology, urology, dermatology, gynecology and
gastroenterology. Dianon is one of the leading specialized providers of
anatomic pathology testing services in the United States.
Dianon performs all testing at either its main facility in Stratford,
Connecticut or at its other facilities located in Tampa, Florida; New City, New
York; Woodbury, New York or Englewood, Colorado (the latter acquired in October
2000). Dianon provides most test results to physicians within forty-eight
hours. In 1996, Dianon opened a specimen processing facility at the hub of its
airfreight provider in Ohio in order to prepare certain specimens for more
rapid processing when they arrive in the appropriate laboratory and to improve
overall turnaround time to the physicians.
UroCor, Inc.
840 Research Parkway
Oklahoma City, OK 73104
Internet address: www.Urocor.com
UroCor markets a comprehensive range of products and services to assist in
detecting, diagnosing, treating and managing prostate cancer, bladder cancer,
kidney stones and other complex urologic disorders. UroCor's primary focus is
providing products and services to help urologists improve patient care and
outcomes while reducing the total cost of managing these diseases.
UroCor provides comprehensive diagnostic services to detect major urologic
conditions, enhance the accuracy of prognosis of individual patient's disease,
monitor the patient's therapy and identify recurrence of the disease. UroCor
manufactures ProstaSeed and acquires marketing and co-promotion rights to
urologic pharmaceutical products and selected devices. UroCor markets these
services and products directly to urologists and managed care organizations
across the United States through its urology-focused sales force.
UroCor also performs research and development work pursuant to which it
develops, evaluates and customizes new diagnostic products and technologies for
use in diagnostic service offerings and facilitates and the development and
utilization of disease databases and related information systems. UroCor
utilizes information systems to develop proprietary urologic disease databases
and disease management models directed at improving the diagnosis and treatment
of patients. These efforts led to the development of UroSavant(R), a
proprietary service that tracks individual client's prostate disease management
data and compares results to regional and national statistics, as well as the
capability to deliver diagnostic reports to clients via the Internet.
Our Recommendations to Stockholders
To Dianon Stockholders:
Dianon's board of directors believes the merger is advisable, fair to you
and in your best interests and recommends that you vote FOR the share issuance
proposal in connection with the merger.
Dianon's board of directors also recommends that you vote FOR the election
of the directors, FOR
I-4
the adoption of the 2001 Stock Incentive Plan and FOR the proposal to approve
Arthur Andersen LLP as our independent public accountants.
To UroCor Stockholders:
UroCor's board of directors believes the merger is advisable, fair to you
and in your best interests and unanimously recommends that you vote FOR the
proposal to adopt the merger agreement and approve the merger.
Stockholder Votes Required
For Dianon Stockholders:
Approval of the share issuance proposal requires the affirmative vote of at
least a majority of the votes cast by the holders of Dianon common stock,
provided that the total votes cast represent a majority of the outstanding
shares of Dianon common stock. A plurality of votes cast is required to elect
directors. Approvals of Arthur Andersen LLP as independent public accountants
and the adoption of the 2001 Stock Incentive Plan require the affirmative vote
of a majority of the shares present or represented at the annual meeting.
As of August 29, 2001, directors, executive officers and affiliates of
Dianon beneficially owned an aggregate of shares, or %, of Dianon common
stock.
None of the Dianon proposals are conditioned on approval of any other Dianon
proposal.
For UroCor Stockholders:
Adoption of the merger agreement and approval of the merger requires the
affirmative vote of at least a majority of the outstanding shares of UroCor
common stock.
As of September [ ], 2001, directors, executive officers and affiliates of
UroCor beneficially owned an aggregate of shares, or %, of UroCor common
stock.
The Merger
Under the terms of the proposed merger, a wholly-owned subsidiary of Dianon
formed for the purpose of the merger will merge with and into UroCor. As a
result, UroCor will become a wholly-owned subsidiary of Dianon.
The merger agreement is attached as Annex A to this joint proxy
statement/prospectus. We encourage you to read the merger agreement carefully
and in its entirety as it is the legal document that governs the merger. For a
summary of the merger agreement, see "The Merger Agreement."
What UroCor Stockholders Will Receive
The merger agreement provides that, at the effective time of the merger,
each share of UroCor common stock issued and outstanding immediately prior to
the effective time of the merger, together with the associated rights issued
under the UroCor stockholder rights plan, will be converted into the right to
receive the shares of Dianon common stock and associated rights at the
following exchange ratio:
. If the Dianon "market price" is less than or equal to $44.29, the exchange
ratio shall equal 0.4064; and
. If the Dianon "market price" is greater than $44.29, the exchange ratio
shall equal a quotient (rounded to four decimal points), the numerator of
which is $18.00, and the denominator of which is the Dianon "market
price".
The Dianon "market price" will be the average daily closing price per share
of Dianon common stock as reported on the Nasdaq for the "random trading days."
The "random trading days" will be the five trading days selected by Dianon and
UroCor by lot out of the fifteen trading days ending on and including the third
Nasdaq trading day preceding the closing date of the merger.
Dianon will not issue any fractional shares in the merger. As a result, the
total number of shares of Dianon common stock that each UroCor stockholder will
receive in the merger will be rounded down to the nearest whole number, and
UroCor stockholders will receive a cash payment for the remaining fraction of a
share of Dianon common stock that they would otherwise receive, if any. See
"The Merger Agreement--Exchange of Certificates in the Merger".
I-5
Example:
. If you currently own 100 shares of UroCor common stock and the Dianon
market price is equal to $44.00, then after the merger you will receive 40
shares of Dianon common stock and a check for the sale proceeds for .64 of
one share of Dianon common stock, rounded to the nearest one cent, or, in
this case $28.16. The value of the Dianon stock that you will receive will
fluctuate as the price of Dianon common stock changes after the merger.
. If you currently own 100 shares of UroCor stock and the Dianon market
price is $48.00 per share, then after the merger you will receive 37
shares of Dianon common stock and a check for the sale proceeds for 0.5 of
one share of Dianon common stock, rounded to the nearest one cent, or, in
this case, $24.00 in cash. The value of the Dianon stock that you will
receive will fluctuate as the price of Dianon common stock changes after
the merger.
On August 31, 2001, the most recent practicable date prior to the mailing of
this document, the closing price of Dianon common shares was $48.95. Based on
that Dianon closing price, the 0.4064 exchange ratio would be adjusted to
become 0.3677. Applying this exchange ratio of 0.3677 to the Dianon closing
price on that date, each holder of UroCor common shares would be entitled to
receive shares of Dianon common stock with a value of $18 for each share of
UroCor common stock. The actual value of the Dianon common shares to be issued
in the merger, however, will depend on the market price of Dianon common stock
at that time, and may be more or less than the value given in this example. We
urge you to obtain current price quotations for UroCor and Dianon common
shares.
Ownership of Dianon After the Merger
Dianon will issue approximately 3.7 million shares of Dianon common stock to
UroCor stockholders in the merger, assuming Dianon's August 31, 2001 closing
market price of $48.95 per share. The shares of Dianon common stock to be
issued to UroCor stockholders in the merger will represent approximately 32% of
the outstanding Dianon common stock after the merger.
Conditions to the Completion of the Merger
The completion of the merger depends upon a number of conditions, including
the following:
. adoption of the merger agreement and the approval of merger by the UroCor
stockholders and approval of the share issuance by the Dianon
stockholders;
. receipt of any material regulatory approvals;
. absence of any law or court order prohibiting the merger;
. receipt of opinions of counsel to Dianon and UroCor that the merger will
qualify as a tax-free reorganization;
. material accuracy, as of the closing, of the representations and
warranties in the merger agreement made by each party;
. Nasdaq listing of the shares of common stock to be issued by Dianon;
. no event or circumstance shall have occurred relating to any governmental
review or inquiry concerning any product or business practice which is
likely to have a material adverse effect on either UroCor or Dianon.
Should any material conditions to the merger be waived, Dianon and UroCor
intend to amend this joint proxy statement/prospectus and resolicit their
respective stockholders.
Termination of Merger Agreement
Right to Terminate. Dianon and UroCor can mutually agree to terminate the
merger agreement without completing the merger, and either party can terminate
the merger agreement if any of the following occurs:
. the merger has not been completed by December 31, 2001 for reasons other
than relating to regulatory approval, and, in such event, no later than
March 31, 2002;
I-6
. a governmental authority or a court order permanently prohibits the
completion of the merger;
. either Dianon's or UroCor's stockholders do not give the required
approvals necessary to complete the merger; or
. the board of directors of UroCor authorizes UroCor to enter into an
agreement with a third party that the UroCor board determined is a
"superior proposal" (as defined in the merger agreement).
Dianon may terminate the merger agreement if any of the following occurs:
. UroCor's board of directors either fails to recommend the merger to its
stockholders, changes its recommendation, or fails to call a special
meeting of UroCor stockholders to vote on the merger;
. UroCor or any of its directors, employees or agents breaches the "no
solicitation" (as defined in the merger agreement) provisions of the
merger agreement;
. UroCor's board of directors authorizes UroCor to accept an "acquisition
proposal" (as defined in the merger agreement), or, after an acquisition
proposal is made public, UroCor's board fails to affirm its recommendation
of the merger with Dianon as soon as practicable and no later than three
business days after being so requested by Dianon;
. A tender or exchange offer is commenced and the UroCor board fails to
recommend against such offer; or
. UroCor breaches any of its representations, warranties or covenants
contained in the merger agreement, resulting in its failure to satisfy one
of the closing conditions to the merger, and, if curable, that breach
remains uncured for 30 days.
UroCor may terminate the merger agreement if any of the following occurs:
. Dianon breaches any of its representations, warranties or covenants
contained in the merger agreement, resulting in its failure to satisfy one
of the closing conditions to the merger, and, if curable, that breach
remains uncured for 30 days.
Termination Fees and Expenses Payable by UroCor. UroCor has agreed to pay
Dianon a termination fee of $5,128,000 and up to $1,000,000 of Dianon's
expenses if one of the following occurs:
. Dianon or UroCor terminates the merger agreement because the UroCor
stockholder approval was not obtained and, prior to the UroCor stockholder
meeting, any person shall have made or announced an intention to make an
"acquisition proposal";
. Dianon or UroCor terminates the merger agreement because UroCor enters
into an agreement with respect to an acquisition proposal that the UroCor
board concludes is a superior proposal;
. Dianon terminates the merger agreement because:
. the UroCor board fails to recommend the merger to UroCor's stockholders,
withdraws or changes its recommendation or fails to call the stockholder
meeting;
. UroCor breaches the "no solicitation" clause set forth in the merger
agreement;
. the UroCor board approves or recommends an acquisition proposal or fails
to affirm its recommendation of the merger with Dianon;
. the UroCor board fails to recommend against a tender offer for UroCor
stock; or
. UroCor breaches the merger agreement and within 12 months enters into an
agreement with a third party with respect to an acquisition proposal; or
. Dianon terminates the merger agreement because any person consummates a
tender offer or exchange offer for UroCor.
I-7
Regulatory Approvals
Completion of the merger will not occur until receipt of all material
regulatory approvals.
See "The Proposed Merger--Regulatory Matters Relating to the Merger".
Material Federal Income Tax Consequences of the Merger
The merger has been structured as a "tax-free reorganization" for federal
income tax purposes. Accordingly, holders of UroCor common stock generally will
not recognize any gain or loss for federal income tax purposes on the exchange
of their shares of UroCor common stock for shares of Dianon common stock in the
merger, except any gain or loss that may result from the receipt of cash
instead of a fractional share of Dianon common stock. The companies themselves,
as well as the current holders of Dianon common stock, will not recognize gain
or loss as a result of the merger. It is a condition to the obligations of
UroCor and Dianon that each receive an opinion from its counsel that the merger
will be a tax-free reorganization for federal income tax purposes. Dianon and
UroCor have agreed not to waive the condition to the merger that each party's
tax counsel shall have delivered an opinion that the merger will qualify as a
tax-free reorganization.
The federal income tax consequences described above may not apply to some
holders of UroCor common stock, including some holders specifically referred to
in "The Proposed Merger--Material Federal Income Tax Consequences of the
Merger". Your tax consequences will depend upon your own personal situation.
Accordingly, we strongly urge you to consult your tax advisor for a full
understanding of the particular tax consequences of the merger to you.
Comparative Per Share Market Price Information
Dianon and UroCor common stock are both quoted on the Nasdaq National Market
under the symbols "DIAN" and "UCOR", respectively. On June 27, 2001, the last
full trading day before the public announcement of the proposed merger, Dianon
common stock closed at $40.01 and UroCor common stock closed at $16.95. On
August 31, 2001, the most recent practicable date prior to the mailing of this
document, the closing price per Dianon common share was $48.95 and the closing
price per UroCor common share was $17.44.
Dissenters' Appraisal Rights
The holders of Dianon and UroCor common stock do not have any dissenters'
appraisal rights under Delaware law in connection with the merger.
Interests of Officers and Directors in the Merger
When UroCor stockholders consider their board of directors' recommendation
that they vote in favor of the adoption of the merger agreement and approval of
the merger, UroCor stockholders should be aware that a number of UroCor
officers and directors may have interests in the merger that may be different
from, or in addition to, their interests. See "Interests of Certain Persons in
the Merger".
Accounting Treatment of the Merger
The merger will be accounted for using the purchase method of accounting.
This method accounts for a business combination as the acquisition of one
entity by another. The acquiring company records the acquired assets less
liabilities assumed at fair value. Any difference between acquisition cost and
the sum of the fair values of the target's identifiable assets and liabilities
is recorded as goodwill.
Opinions of Financial Advisors
In connection with the merger, the Dianon board of directors received the
opinion of Lazard Freres & Co., Dianon's financial advisor, and the UroCor
board of directors received the opinion of U.S. Bancorp Piper Jaffray Inc.,
UroCor's financial advisor. Dianon's board of directors received the written
opinion from Lazard as to the fairness, from a financial point of view, to
Dianon of the exchange ratio in the merger as of June 28, 2001, and UroCor's
board received a written opinion from U.S. Bancorp Piper Jaffray as to the
fairness from a financial point of view to the UroCor stockholders of the
exchange ratio in the merger as of June 27, 2001. These opinions, which are
attached as Annex B and Annex C, respectively, set forth assumptions made,
matters
I-8
considered and limitations on the review undertaken in connection with the
opinions. We encourage you to read these opinions in their entirety. These
opinions are directed to the board of directors of the respective companies and
are not recommendations to stockholders with respect to any matter relating to
the merger. The opinions speak only as of their respective dates and the
financial advisors of Dianon and UroCor are under no obligation to confirm
their opinions as of a later date. Further, the Dianon and UroCor boards of
directors may not necessarily request that their financial advisors confirm
their opinions as of a later date.
Other Dianon Annual Meeting Matters
At the Dianon annual meeting, Dianon is also asking its stockholders to:
. elect eight directors to the Dianon board of directors;
. ratify the appointment of Arthur Andersen LLP as Dianon's independent
public accountants for the 2001 fiscal year;
. approve the adoption of the 2001 Stock Incentive Plan; and
. conduct other business if properly presented.
Approval by Dianon stockholders of these other annual meeting proposals is
not a condition to completion of the merger. Approval of the share issuance for
the merger is not a condition to approval of these annual meeting proposals.
The Dianon Board recommends that you vote FOR the election of directors, FOR
the approval of the adoption of the 2001 Stock Incentive Plan and FOR the
ratification of the appointment of Artur Andersen LLP as Dianon's independent
public accountants for the 2001 fiscal year.
I-9
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
How We Prepared the Financial Statements
The following information is provided to aid in the analysis of the
financial aspects of the merger. We derived this information from the audited
financial statements of Dianon and UroCor for the years 1996 through 2000. The
information is only a summary and you should read it together with our
historical financial statements and related notes contained in the annual
reports on Form 10-K, quarterly reports on Form 10-Q and other information that
we have filed with the SEC and incorporated by reference. See "Where You Can
Find More Information".
Accounting Treatment
The merger will be accounted for using the purchase method of accounting.
This method accounts for a business combination as the acquisition of one
entity by another. The acquiring company records the acquired assets less
liabilities assumed at fair value. Any difference between acquisition cost and
the sum of the fair values of the target's identifiable assets and liabilities
is recorded as goodwill.
Merger-Related Costs
We estimate that merger-related fees and expenses, consisting primarily of
SEC filing fees, fees and expenses of investment bankers, attorneys,
accountants and financial printer, and integration related costs, including
among others severance, the elimination of duplicate facilities and excess
capacity, directly related to the transaction, will be approximately $18.5
million. See notes to pro forma financial statements in "Chapter Two--Selected
Financial Data--Notes to Pro Forma Condensed Combined Financial Statements".
I-10
SELECTED HISTORICAL FINANCIAL DATA OF DIANON
The following selected historical financial data for each of the years ended
December 31, 1996 through 2000 has been derived from Dianon's audited
consolidated financial statements. All other historical financial data was
derived from unaudited financial statements. This information is only a summary
and you should read it together with Dianon's historical financial statements
and related notes contained in the annual reports and other information that we
have filed with the SEC and incorporated by reference. See "Where You Can Find
More Information".
As of and for As of and for
the Six the Six
Months Months
Ended Ended As of and for the Year Ended December 31,
June 30, June 30, -----------------------------------------
2001 2000 2000 1999 1998 1997 1996
------------- ------------- ----- ----- ----- ----- -----
(unaudited) (unaudited) (in millions, except per share data)
Net revenues.............................. $55.5 $46.5 $95.7 $76.1 $62.2 $60.9 $56.0
Net income................................ 4.4 2.8 6.6 4.1 3.0 3.3 2.2
Depreciation.............................. 1.7 1.5 3.2 2.8 2.6 2.9 2.1
Cash dividends paid....................... -- -- -- -- -- -- --
Working capital........................... 36.6 27.5 32.6 25.3 24.3 21.4 18.1
Total assets.............................. 65.3 54.9 61.8 52.1 36.7 36.9 34.5
Long-term obligations..................... .2 4.8 2.7 6.4 .1 .1 .3
Stockholders' equity...................... 57.6 42.5 52.3 38.8 31.4 29.1 26.6
Per common share data:
Basic:
Net income............................. .60 .40 .92 .61 .44 .51 .35
Diluted:
Net income............................. .55 .37 .84 .59 .43 .48 .35
Cash dividends paid per share............. -- -- -- -- -- -- --
Weighted average shares used to calculate:
Basic earnings per share amounts......... 7.4 7.1 7.2 6.8 6.7 6.4 6.2
Diluted earnings per share amounts....... 8.0 7.7 7.8 7.1 6.9 6.8 6.3
I-11
SELECTED HISTORICAL FINANCIAL DATA OF UROCOR
The following selected historical financial data for each of the years ended
December 31, 1996 through 2000 has been derived from UroCor's audited
consolidated financial statements. All other historical financial data was
derived from unaudited financial statements. This information is only a summary
and you should read it together with UroCor's historical financial statements
and related notes contained in the annual reports and other information that we
have filed with the SEC and incorporated by reference. See "Where You Can Find
More Information".
As of and for As of and for
the Six the Six
Months Months
Ended Ended As of and for the Year Ended December 31,
June 30, June 30, -----------------------------------------
2001 2000 2000 1999 1998 1997 1996
------------- ------------- ----- ----- ----- ----- -----
(unaudited) (unaudited) (in millions, except per share data)
Net revenues................................ $31.3 $24.4 $52.6 $45.5 $47.6 $33.0 $26.5
Net income (loss)........................... 4.7 .9 (4.8) (4.1) (2.5) 4.3 2.4
Depreciation and non-intangible amortization 1.3 1.4 2.6 2.9 2.6 1.6 1.1
Cash dividends paid......................... -- -- -- -- -- -- --
Working capital............................. 23.2 21.7 13.4 21.6 34.4 37.4 34.9
Total assets................................ 47.6 46.1 51.3 42.2 53.3 54.5 50.3
Long-term obligations....................... 1.1 .6 1.2 .3 -- .2 .7
Stockholders' equity........................ 40.6 40.7 35.1 37.9 48.8 50.8 45.7
Per common share data:
Basic.................................... .48 .09 (.50) (.41) (.24) .42 .27
Diluted.................................. .44 .09 (.50) (.41) (.24) .38 .24
Cash dividends paid per share............... -- -- -- -- -- -- --
Weighted average shares used to calculate:
Basic earnings per share amounts......... 9.9 9.6 9.7 9.9 10.4 10.2 8.7
Diluted earnings per share amounts....... 10.7 9.8 9.7 9.9 10.4 11.1 9.8
I-12
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following selected unaudited pro forma combined financial data has been
derived from and should be read with the Selected Pro Forma Condensed Combined
Financial Statements and related notes in "Chapter Two --Selected Financial
Data". The Unaudited Pro Forma Condensed Combined Balance Sheet combines the
historical consolidated balance sheet of Dianon and the historical consolidated
balance sheet of UroCor, giving effect to the merger as if it had been
consummated on June 30, 2001. The Unaudited Pro Forma Condensed Combined
Statements of Income for the six months ended June 30, 2001 and the year ended
December 31, 2000 combine the historical consolidated statements of income of
Dianon and UroCor, giving effect to the merger as if it had occurred on January
1, 2000. The unaudited pro forma financial statements give effect to the merger
using the purchase method of accounting. This information is for illustrative
purposes only. The companies may have performed differently had they always
been combined. You should not rely on the selected unaudited pro forma combined
financial data as indicating the historical results that would have been
achieved had the companies always been combined or the future results that the
combined company will experience after the merger.
UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL DATA OF
DIANON AND UROCOR
As of and for the As of and for the
Six Months Ended Year Ended
June 30, December 31,
2001 2000
----------------- -----------------
(in millions, except per share data)
Net revenues................. $ 86.8 $148.2
Net income................... 8.9 1.3
Per common share data:
Net income:
Basic..................... .80 .12
Diluted................... .75 .11
Cash dividends paid per share -- --
Total assets................. 279.3
Long-term obligations........ 3.8
The following scenarios illustrate the effects of differences in Dianon's
stock price, which impcts the exchange ratio, at the time of the transaction as
of and for the six months ended June 30, 2001 (in millions, except per share
data).
Assumed Dianon Price Per
Share
------------------------
$48.95 $44.29 $43.29
------ ------ ------
Net revenues................. $ 86.8 $ 86.8 $ 86.8
Net income................... 8.9 8.9 8.9
Per common share data:
Net income:
Basic..................... .80 .78 .78
Diluted................... .75 .72 .72
Cash dividends paid per share -- -- --
Total assets................. 279.3 279.3 274.6
Long-term obligations........ 3.8 3.8 3.8
I-13
COMPARATIVE PER SHARE DATA
Set forth below are the net income, cash dividends and book value per common
share data separately for Dianon and UroCor on a historic basis, for Dianon on
a pro forma combined basis and on a pro forma combined basis per UroCor
equivalent share. Based upon the Dianon closing price of $48.95 per share on
August 31, 2001, the exchange ratio for the business combination assumed for
these purposes and used herein is 0.3677 of a share of Dianon common stock for
each share of UroCor common stock. The Dianon pro forma data was derived by
combining the historic consolidated financial information of Dianon and UroCor
using the purchase method of accounting for business combinations as described
under "Unaudited Pro Forma Condensed Combined Financial Statements". The UroCor
equivalent share pro forma information shows the effect of the merger from the
perspective of an owner of UroCor common shares. The information was computed
by multiplying the Dianon pro forma information by the exchange ratio. You
should read the information below together with our historical financial
statements and related notes contained in the annual reports and other
information that we have filed with the SEC and incorporated by reference. See
"Where You Can Find More Information". The unaudited pro forma combined data
below is for illustrative purposes only. The companies may have performed
differently had they always been combined. You should not rely on this
information as indicating the historical results that would have been achieved
had the companies always been combined or the future results that the combined
company will experience after the merger.
I-14
COMPARATIVE PER SHARE AND OTHER DATA
As of and for the As of and for the
Six Months Ended Year Ended
June 30, 2001 December 31, 2000
----------------- -----------------
Unaudited Pro Forma Combined
Per common share data:
Net income.........................
Basic.......................... $ .80 $ .12
Diluted........................ .75 .11
Cash dividends paid................... -- --
Stockholders' equity (in millions).... 264.0
Book value per common share--basic.... 23.78
Book value per common share--diluted.. 22.18
Dianon Historical
Per common share data:
Net income.........................
Basic.......................... $ .60 $ .92
Diluted........................ .55 .84
Cash dividends paid................... -- --
Stockholders' equity (in millions).... 57.6 52.3
Book value per common share--basic.... 7.78 7.30
Book value per common share--diluted.. 7.17 6.67
UroCor Historical
Per common share data:
Net income.........................
Basic.......................... $ .48 $(.50)
Diluted........................ .44 (.50)
Cash dividends paid................... -- --
Stockholders' equity (in millions).... 40.6 35.1
Book value per common share--basic.... 4.11 3.62
Book value per common share--diluted.. 3.79 3.62
UroCor Unaudited Pro Forma Equivalents
Per common share data:
Net income.........................
Basic.......................... $ .29 $ .04
Diluted........................ .28 .04
Cash dividends paid................... -- --
Stockholders' equity (in millions).... 97.1
Book value per common share--basic.... 8.76
Book value per common share--diluted.. 8.13
The following scenarios illustrate the effects of differences in Dianon's
stock price, which impacts the exchange ratio, at the time of the transaction
as of and for the six months ended June 30, 2001.
Assumed Dianon Price
Per Share
- - --------------------
$48.95 $44.29 $43.29
------ ------ ------
Stockholders' equity (in millions).. $264.0 $264.0 $259.3
Net income (in millions)........... 8.9 8.9 8.9
Net income per common share--basic.. .80 .78 .78
Net income per common share--diluted .75 .72 .72
I-15
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
Dianon common stock and UroCor common stock are each quoted on the Nasdaq
National Market. Dianon's and UroCor's ticker symbols are "DIAN" and "UCOR,"
respectively. The following table shows, for the calendar quarters indicated,
based on published financial sources, the high and low last-reported closing
prices per share of Dianon and UroCor common stock as reported on the Nasdaq.
Neither Dianon nor UroCor has paid any cash dividends over this period.
Dianon UroCor
Common Stock Common Stock
------------- ------------
High Low High Low
---- --- ---- ---
1998
First Quarter........................... $11 1/4 $ 8 1/4 $ 7 3/4 $5 11/16
Second Quarter.......................... $10 15/16 $ 8 1/8 $ 8 $6 3/4
Third Quarter........................... $ 9 5/8 $ 6 $ 7 3/16 $4 1/4
Fourth Quarter.......................... $ 9 $ 5 1/4 $ 7 $4 1/8
1999
First Quarter........................... $ 9 1/8 $ 7 $ 6 1/2 $4 5/16
Second Quarter.......................... $11 $ 8 $ 5 7/8 $3
Third Quarter........................... $11 $ 8 5/8 $ 5 1/4 $3 1/2
Fourth Quarter.......................... $13 7/8 $ 9 $ 4 1/4 $2 3/4
2000
First Quarter........................... $24 1/4 $13 $ 8 5/16 $3 3/4
Second Quarter.......................... $30 1/4 $13 1/4 $ 5 1/4 $3 3/8
Third Quarter........................... $47 1/2 $25 1/8 $ 8 13/16 $4 3/8
Fourth Quarter.......................... $46 $26 $ 9 1/4 $5 17/32
2001
First Quarter........................... $45 1/4 $20 1/2 $12 3/16 $7
Second Quarter.......................... $47 1/4 $27 $17 13/32 $8
Third Quarter (through August 31, 2001). $55 1/2 $39 1/4 $17 45/64 $14 21/32
On June 27, 2001, the last full trading day before Dianon and UroCor
publicly announced the execution of the merger agreement, the last reported
closing prices per share of Dianon and UroCor were $40.01 and $16.95,
respectively. On August 31, 2001, the most recent practicable date prior to the
mailing of this joint proxy statement/prospectus, Dianon common stock closed at
$48.95 and UroCor common stock closed at $17.44. Stockholders are urged to
obtain current market quotations prior to making any decision with respect to
the merger.
Although dividends are subject to future approval and declaration by
Dianon's and UroCor's respective boards of directors, neither Dianon nor UroCor
currently plan to pay any dividends on their common stock until closing of the
merger. The dividend policy of the combined company will be determined by its
board of directors following the merger. In formulating this policy, we expect
the board of directors to consider various factors, including financial
condition, cash flows and earnings of the combined company.
I-16
RISK FACTORS
Dianon and UroCor stockholders should carefully consider the following
material risks with respect to Dianon, UroCor and the proposed merger.
Risks Related to the Merger
The value of Dianon shares to be received in the merger will fluctuate.
The market prices of Dianon common stock when the merger is completed may
vary from its market price at the date of this document and at the date of the
stockholder meetings of Dianon and UroCor. For example, during the 12-month
period ending on August 31, 2001, the most recent date prior to the mailing of
this joint proxy statement/prospectus, the closing price of Dianon common stock
varied from a low of $23.91 to a high of $53.32 and ended that period at
$48.95. See "Comparative Per Share Market Price and Dividend Information" for
more detailed share price information.
These variations may be the result of various factors including:
. changes in the business, operations or prospects of Dianon, UroCor or the
combined company;
. governmental and/or litigation developments and/or regulatory
considerations;
. market assessments as to whether and when the merger will be consummated;
. the timing of the merger; and
. general market and economic conditions.
Stockholders of Dianon and UroCor are urged to obtain current market
quotations for Dianon common stock.
Shares of Dianon common stock are subject to different market risks than shares
of UroCor common stock.
Dianon provides a full line of anatomic pathology testing services, as well
as a number of genetic and clinical testing services, while UroCor's focus is
on urologic products and services. Therefore, the business, strategy, financial
condition and results of operations of Dianon differ in material respects from
those of UroCor. Accordingly, holders of shares of common stock of Dianon are
subject to different market risks than holders of shares of UroCor common
stock. For a description of the business, strategy, financial condition and
results of operations of Dianon, see the discussions in the reports on Forms
10-K, 10-Q and 8-K that we have incorporated by reference and described under
"Where You Can Find More Information".
We may be unable to successfully integrate our operations and realize the full
cost savings we anticipate from the merger, which could result in a decline in
the market price of Dianon common stock.
Among the factors considered by the Dianon board of directors in connection
with its approval of the merger agreement were the opportunities for economies
of scale, as well as operating efficiencies that could result from the merger.
Specifically, we anticipate cost savings of about $10 million for calendar year
2002. However, our ability to achieve these cost savings will depend on our
ability to combine Dianon's and UroCor's operations. We may encounter several
difficulties in this regard. The difficulties of combining the companies'
operations include:
. the necessity of coordinating geographically separated organizations;
. employee redeployment, relocation or severance;
I-17
. conversion of information systems;
. integration of operational processes and procedures;
. reorganization or closure of facilities; and
. relocation or disposition of excess equipment.
The process of integrating operations could cause an interruption of, or
loss of momentum in, the activities of one or more of the combined companies'
businesses, the loss of key personnel and the inability to maintain customer
relationships. The diversion of management's attention and any delays or
difficulties encountered in connection with the merger and the integration of
the two companies' operations could have an adverse effect on the business,
results of operations, financial condition or prospects of the combined company
after the merger.
We will incur significant integration and restructuring costs in connection
with the merger. We estimate that merger-related fees and costs, consisting
primarily of SEC filing fees, fees and costs of investment bankers, attorneys,
accountants and financial printer, and integration related costs, including
among others severance, the elimination of duplicate facilities and excess
capacity, directly related to the transaction, will be approximately $18.5
million. This amount is a preliminary estimate and is subject to change.
Additional unanticipated costs may be incurred in the integration of the
businesses of Dianon and UroCor. Although Dianon expects that the elimination
of duplicative costs, as well as the realization of other efficiencies related
to the integration of the businesses, may offset additional expenses over time,
we cannot give any assurance that any benefit will be achieved in the near
term, or at all. See "Unaudited Pro Forma Condensed Combined Financial
Statements" for more detail on the charges we expect to incur in connection
with the merger.
If we cannot realize the cost savings we anticipate within the time periods
contemplated or the effect of the merger on our financial results is not
consistent with the expectations of financial analysts or investors, the market
price of Dianon common stock could decline as a result of the merger.
The merger may cause dilution to historical Dianon earnings.
The merger and the transactions contemplated by the merger agreement may
have a dilutive effect on historical earnings per share of Dianon due to the
additional shares of Dianon that will be issued in the merger and that may be
issued upon exercise of UroCor options assumed by Dianon in connection with the
merger. On a historical basis for Dianon, diluted earnings per share were $0.84
for the year ended December 31, 2000, as compared to $0.65 on a pro forma basis
for the combined company. See "Unaudited Pro Forma Condensed Combined Financial
Statements" for additional pro forma financial information for the combined
company after the merger.
The "no solicitation" restrictions in the merger agreement and the termination
fee may discourage other companies from trying to acquire UroCor.
While the merger agreement is in effect, subject to specified exceptions,
UroCor is prohibited from entering into or soliciting, initiating or
encouraging any inquiries or proposals that may lead to a proposal or offer for
a merger or other business combination transaction with any person other than
Dianon. In addition, in the merger agreement, UroCor agreed to pay a
termination fee of $5,128,000 to Dianon in specified circumstances, including
circumstances where a third party acquires or seeks to acquire UroCor. These
provisions could discourage other companies from trying to acquire UroCor even
though those other companies might be willing to offer greater value to UroCor
stockholders than Dianon has offered in the merger agreement. The payment of
the termination fee could also have a material adverse effect on UroCor's
financial condition.
Directors and officers of UroCor have potential conflicts of interest that may
have influenced their opinions with respect to the merger.
You should be aware of potential conflicts of interest, and the benefits
available to directors and officers of UroCor when considering the UroCor
board's recommendation of the merger. The directors and officers of
I-18
UroCor have interests in the merger that are in addition to, or different from,
their interests as UroCor stockholders. The UroCor board was aware of these
conflicts of interest when it approved the merger. These interests relate to:
. Rights to accelerated stock option vesting and receipt of certain benefits
under change in control agreements; and
. Rights to directors' and officers' insurance coverage and to
indemnification with respect to acts and omissions in their capacities as
directors and officers of UroCor.
See "Interests of Certain Persons in the Merger".
Provisions of Dianon's charter documents and Delaware law may inhibit an
attempt by stockholders to replace or remove Dianon's management.
Provisions in Dianon's certificate of incorporation and bylaws may have the
effect of delaying or preventing the shareholders from replacing or removing
Dianon's management. For example, Dianon's stockholders cannot act by written
consent in lieu of a stockholder meeting, and a special meeting of Dianon's
stockholders may not be called by the stockholders. In addition, Dianon's
by-laws and certain provisions of Dianon's certificate of incorporation may be
amended only by the affirmative vote of 80% of the holders of outstanding
shares of Dianon common stock.
Risks Related to Our Business and Industry After the Merger
Changes in reimbursement policies for clinical laboratory services may reduce
our revenues.
Government payors, such as Medicare and Medicaid, as well as private
insurers and large employers, have taken steps and may continue to take steps
to control the cost, use and delivery of health care services. For the year
ended December 31, 2000, approximately 37% of Dianon's total net revenue was
provided under the Medicare and Medicaid programs. The Medicare and Medicaid
amounts include the 20% co-payment and deductible normally billed to the
patient when anatomic pathology services are involved. At least 90% of the
Medicare and Medicaid net revenues are derived under the Medicare program. Any
efforts on the part of these or other payors to reduce reimbursement for our
laboratory testing services could reduce our revenue and adversely affect our
operating results.
Our business depends on continued participation in these programs and we are
generally required by law to accept reimbursement from Medicare and Medicaid as
payment in full for covered tests performed for Medicare and Medicaid
beneficiaries. In an effort to address increasing health care costs,
legislative and regulatory changes continue to be introduced with an objective
of reducing amounts paid for laboratory services under the Medicare and
Medicaid programs. Recent examples include:
. federal legislation or proposed legislation to reduce ceilings on Medicare
reimbursement for laboratory testing services;
. changes in the number of tests which can be concurrently ordered and
billed for;
. limits on the ability of laboratories to bill for tests unless the tests
are considered to be medically necessary and properly documented by the
ordering physician; and
. requirements in the 1997 Balanced Budget Act that the U.S. Health Care
Finance Administration, or HCFA, conduct and complete by 2002 five
Medicare bidding demonstrations involving various types of medical
services. HCFA is expected to include a laboratory demonstration project
in a metropolitan statistical area as part of the legislative mandate.
Competitive bidding for laboratory tests is still under review. If
competitive bidding were implemented on a regional or national basis for
laboratory testing, it could materially adversely affect the clinical
laboratory industry and our business.
I-19
Due to these legislative and regulatory changes, we may receive lower
reimbursement from Medicare or Medicaid or we may not be reimbursed for a
portion of our Medicare and Medicaid related testing.
In addition, Medicare and Medicaid recently have been denying reimbursement
in some cases for tests developed internally by laboratory companies that are
not subject to review by and therefore do not receive marketing clearance from
U. S. Food and Drug Administration. If these occurrences continue or increase,
we may receive lower reimbursement from or not be reimbursed by Medicare or
Medicaid for a portion of our testing services using our internally-developed
tests.
If we do not comply with the strict fraud and abuse laws applicable to our
business, we will be subject to significant penalties and potential
disqualification or exclusion from reimbursement programs which would seriously
harm our business.
Existing federal laws governing Medicare and Medicaid, as well as similar
state laws, impose a variety of broadly described fraud and abuse prohibitions
on healthcare providers, including clinical laboratories. These laws are
interpreted liberally and enforced aggressively by multiple government
agencies, including the U.S. Department of Justice, the U.S. Department of
Health and Human Services Office of the Inspector General, or Inspector
General, and the states. Over the last several years, the clinical laboratory
industry has been the focus of major governmental enforcement initiatives.
In fact, Dianon has received a subpoena dated November 14, 2000, issued by
the United States Attorney's Office for Connecticut, requesting the production
of a variety of documents, with a particular focus on documents relating to
billing for tumor biomarkers, DNA testing and screening tests. Dianon is
cooperating with the United States Attorney's Office regarding this matter,
which is in a very preliminary stage.
Also, UroCor announced on June 29, 2001, that it had received final judicial
and governmental approvals of a tentative settlement agreement with the United
States Department of Justice ("DOJ") previously announced on February 16, 2001
concerning matters covered by the DOJ's investigation into actions of UroCor
during 1992 through 1998 in connection with billing claims submitted by UroCor
to Medicare and other federal and state insurance programs for its diagnostics
testing services. Under the final settlement agreement, UroCor refunded the
various programs a total of $9.0 million.
Depending upon the nature of any regulatory or enforcement action taken or
the content of legislation, which might be initiated to address practices in
our industry such as discounting arrangements, we could experience a
significant decrease in revenue which could have a material adverse effect on
our business. The law provides for civil or criminal penalties or exclusion
from participation in Medicare and Medicaid. We are unable to predict at this
time whether any further regulatory, enforcement, or legislative action will be
taken.
We seek to structure our arrangements with physicians and other customers to
be in compliance with the applicable laws and regulations and to keep
up-to-date on developments concerning their application by various means,
including consultation with legal counsel. We also have a compliance committee
which meets on a regular basis to review various operations and relationships
as well as adopt policies. However, we are unable to predict how these laws
will be applied in the future, and no assurances can be given that its
arrangements will not become subject to scrutiny under them.
If we do not comply with existing or additional regulations, or if we incur
penalties, it could increase our expenses, prevent us from increasing net
revenue, or hinder our ability to conduct our business. In addition, changes in
existing regulations or new regulations may delay or prevent us from marketing
our products or cause us to reduce our pricing.
I-20
The clinical laboratory industry is intensely competitive. If we are unable to
successfully compete, we may lose market share.
The clinical laboratory industry is highly competitive. This industry is
dominated by several national independent laboratories, but includes many
smaller niche and regional independent laboratories as well. Our primary
competitors include:
. large commercial enterprises, such as Quest Diagnostics, that offer a wide
test and product menu on a national scale in both clinical chemistry and
anatomic pathology;
. specialized anatomic pathology laboratories like Impath and Ameripath that
focus on a narrow segment of the cancer diagnostic market; and
. local pathology practices that are affiliated with medical centers,
universities or free-standing providers.
Our actual and potential competitors include large clinical laboratories
that have substantially greater financial, marketing, logistical and laboratory
resources than available to us, special purpose clinical laboratories that have
limited test offerings and a highly focused data product and marketing strategy
similar to ours, as well as companies that manufacture test kits and other
diagnostic tools. In addition, hospitals often compete with us by providing
routine testing services to physicians. Our estimate is that there are over
11,500 laboratories in the United States that could be considered actual or
potential competitors for the testing business of cancer-treating or
cancer-diagnosing physicians. We anticipate that competition will continue to
increase due to factors such as the potential for commercial applications of
biotechnology and the continued availability of investment capital and
government funding of cancer related research. If we are not be able to compete
successfully with our existing and potential competitors, our business may
suffer.
If we lose our competitive position in providing valuable information
technology solutions as an ancillary service to our customers, we may not be
able to maintain or grow our market share.
Over the past five years, we have made a substantial investment in our
information technology solutions, such as remote reporting and physician office
system interfacing, to facilitate electronic test ordering and results
reporting as a value added service for our customers. Based on management's
experience in the industry and discussions with our customers, we believe that
our competitors have not yet implemented similar information technology tools.
We further believe that these solutions are one factor considered by our
customers when selecting a reference laboratory. In the future, our competitors
may offer similar or better information technology solutions to our existing
and potential customer base. Under these circumstances we will lose this
competitive advantage, and, as a result, may be unable to maintain or increase
our market share.
We may be subject to professional liability litigation, which may be costly to
defend and result in significant monetary damages.
The development, marketing, sale and performance of healthcare services
exposes us to the risk of litigation, including medical malpractice. Damages
assessed in connection with, and the costs of defending, any legal action could
be substantial. We currently maintain professional liability insurance in the
amounts of $1 million per incident and $3 million in the aggregate and general
liability insurance in the amounts of $1 million per incident and $2 million in
the aggregate, as well as an umbrella coverage of up to $20 million for all
losses. We believe this insurance to be adequate to cover our exposure in any
professional liability claims and employee-related matters which are incurred
in the ordinary course of business. However, we may be faced with litigation
claims which exceed our insurance coverage or are not covered under our
insurance policy. In addition, litigation could have a material adverse effect
on our business if it impacts our existing and potential customer
relationships, creates adverse public relations, diverts management resources
from the operation of the business or hampers our ability to perform tests or
otherwise conduct our business.
I-21
If we do not comply with laws and regulations governing the confidentiality of
medical information, it will adversely affect our business.
The Health Insurance Portability and Accountability Act of 1996 ("HIPAA"),
or the Act, includes provisions that affect how electronically transmitted
patient information and claims are to be handled. The reach of these provisions
is quite broad because they apply to all health information that is or ever has
been electronically transmitted or electronically maintained by a health plan,
health care provider or health care data clearinghouse. Pursuant to the Act,
rules have been published addressing standards for electronic data formatting,
the security of electronic transmission and maintenance of health information,
and protecting the privacy of health information. Failure to comply with these
rules could result in significant civil and/or criminal penalties.
Implementation by us of the various Act requirements may take several years and
may require significant capital and internal labor expenditures by us. As the
final regulations implementing the Act are currently being reviewed by the Bush
administration, we cannot accurately estimate our total cost of compliance at
this time.
In addition to the HIPAA provisions described above, there are a number of
state laws regarding the confidentiality of medical information, some of which
apply to clinical laboratories. These laws vary widely, and new laws in this
area are pending, but they most commonly restrict the use and disclosure of
medical information without patient consent. Penalties for violation of these
laws include sanctions against a laboratory's state licensure, as well as civil
and/or criminal penalties. While we believe that we are in substantial
compliance with applicable state laws concerning confidentiality of medical
information, any noncompliance by us could subject us to significant fines
and/or cause us to lose one or more of our state licenses.
Our business is subject to stringent laws and regulations governing clinical
laboratories, and if we are not able to comply, our business may suffer.
The Clinical Laboratory Improvement Amendments of 1988 ("CLIA") extends
federal oversight to virtually all clinical laboratories by requiring that they
be certified by the federal government or by a federally-approved accreditation
agency. Pursuant to CLIA, clinical laboratories must meet quality assurance,
quality control and personnel standards. Laboratories also must undergo
proficiency testing and are subject to inspections.
The sanction for failure to comply with CLIA requirements may be suspension,
revocation or limitation of a laboratory's CLIA certificate, which certificate
is necessary to conduct business, as well as significant fines and/or criminal
penalties. The loss or suspension of a license, imposition of a fine or other
penalties, or future changes in the CLIA law or regulations (or interpretation
of the law or regulations) could have a material adverse effect on our
business.
We are also subject to state regulation in some states. CLIA provides that a
state may adopt regulations different from or more stringent than those under
federal law, and a number of states do have their own lab regulatory schemes.
State laws may require that laboratory personnel meet certain qualifications,
specify certain quality controls, or require maintenance of certain records. We
believe that we are in compliance with federal and state laboratory
requirements, and our laboratories have continuing programs to ensure that
their operations meet all applicable regulatory requirements, but no assurances
can be given that our laboratories will pass all future licensure or
certification inspections.
Failure in our information technology systems could significantly increase
turnaround time, reduce our production capacity, and otherwise disrupt our
operations, which may reduce our customer base and result in reduced revenue.
Our success depends, in part, on the continued and uninterrupted performance
of our information technology systems. Sustained or repeated system failures
that interrupt our ability to process test orders, deliver test results or
perform tests in a timely manner would reduce significantly the attractiveness
of our services to our customers. Our business, results of operations and
financial condition could be materially and adversely affected by any damage or
failure that interrupts or delays our operations.
I-22
Our computer systems are vulnerable to damage from a variety of sources,
including telecommunications failures, malicious human acts and natural
disasters. Moreover, despite network security measures, some of our servers are
potentially vulnerable to physical or electronic break-ins, computer viruses
and similar disruptive problems. Despite the precautions we have taken,
unanticipated problems affecting our systems could cause interruptions in our
information technology systems. Our insurance policies may not adequately
compensate us for any losses that may occur due to any failures in our systems.
If we fail to develop or acquire licenses for new or improved testing
technologies, or if our customers use new technologies to perform their own
tests, we may not be able to successfully achieve our core business strategy.
Our ability to grow our cancer diagnostic business will depend, in part, on
our ability to license new or improved testing technologies on favorable terms.
We may not be able to negotiate acceptable licensing arrangements and we cannot
be certain that such arrangements will yield commercially successful diagnostic
tests. If we are unable to license these testing technologies at competitive
rates, our research and development costs may increase as a result. In
addition, if we are unable to license new or improved testing methods, our
methods may be outdated when compared with our competition and our testing
volume and revenue may be materially and adversely affected. Finally, advancing
technology may enable other clinical laboratories, hospitals, physicians or
other medical providers to perform tests in their offices or hospitals without
requiring the services of outside laboratories. If these or other advances in
technology result in a decreased demand for our services, our testing volume
and revenue would decrease.
If protection of the intellectual property underlying our technology and trade
secrets is inadequate, then third parties may be able to use our technology or
similar technologies, thus reducing our ability to compete.
Dianon currently owns five patents and has three patents pending and UroCor
currently owns 16 patents and has 24 patents pending. However, we also rely on
certain technologies for which we believe patents are not economically feasible
and therefore may be developed independently or copied by our competitors.
Furthermore, we rely on certain proprietary trade secrets and know-how, which
we have not patented. Although we have taken steps to protect our unpatented
trade secrets and know-how, principally through the use of confidentiality
agreements with our employees, there can be no assurance that these agreements
will not be breached, that we would have adequate remedies for any breach, or
that our trade secrets will not otherwise become known or be independently
developed or discovered by competitors. If our trade secrets become known or
are independently developed or discovered by competitors, it could have a
material adverse effect on our ability to compete.
Infringement on the intellectual property rights of others may give rise to
costly litigation, which may cause us to pay substantial damages or prohibit us
from performing certain tests.
Other companies or individuals, including our competitors, may obtain
patents or other proprietary rights that would prevent, limit or interfere with
our ability to develop, perform or sell our tests. As a result, we may be found
to infringe on the proprietary rights of others. We could incur substantial
costs in defending any litigation. An adverse result in an intellectual
property litigation could force us to do any of the following:
. cease developing, performing, or selling products or services that
incorporate the challenged intellectual property;
. obtain and pay for licenses from the holder of the infringed intellectual
property right;
. redesign or reengineer our tests; or
. pay substantial damages.
In the event that there is a successful infringement claim against us and we
fail to obtain the necessary licenses on commercially reasonable terms, we may
be required to reengineer our tests. Any efforts to reengineer our tests could
substantially increase our costs, force us to interrupt product sales or delay
new test releases.
I-23
Our operations may be adversely affected by the increasing role and pricing
structure of managed-cost health care organizations.
We may experience declines in average revenue per test processed as managed
care organizations maintain or strengthen their significant role in the health
care insurance market.
Traditionally, laboratory service agreements with managed care organizations
have been competitively priced due to the volume of testing involved and the
expectation that a laboratory would capture not only the volume of testing to
be covered under the contract, but also the additional fee-for-service business
from patients of participating physicians who are not covered by the managed
care plan. However, if the number of patients covered under managed care plans
continues to increase, there will be less fee-for-service business and,
accordingly, less higher margin business to offset the lower margin managed
care business. Furthermore, physicians increasingly are affiliated with more
than one managed care organization, which may decrease the likelihood of any
particular independent laboratory capturing their fee-for-service business.
As a participating provider in managed care plans, a physician may be
required to refer laboratory tests to specific laboratories, depending on the
plan in which each covered patient is enrolled. Laboratories that are not
authorized to perform tests under a given physician's managed care plan or
plans may also fail to capture that physician's fee-for-service business. The
increase in managed care has also slowed the growth in utilization of routine
laboratory testing services.
The complexities of billing may affect our revenue and cash flow.
Billing for laboratory services is complicated. Laboratories have a mix of
various payors, such as individual patients, insurance companies, Medicare,
Medicaid, doctors, hospitals, laboratories and employer groups. All of these
payors have different billing requirements. Most of our bad debt expense is the
result of the inability to collect from financially impaired clients and
individual patients.
Billing complications include, but are not limited to, the following:
. disputes between payors as to which party is responsible for payment;
. disparity in coverage among various payors;
. assuring adherence to specific billing requirements;
. complexity of billing information systems;
. disparity in information requirements among payors; and
. high volume/low dollar claims.
We may experience some or all of these billing complications and do not know
what impact, if any, they would have on our financial condition and results of
operations.
We rely on a few tests for a significant portion of our net revenue. If demand
for these tests were to weaken for any reason, our net revenue would decrease.
A significant portion of Dianon's net revenue is derived from 10 diagnostic
tests. Net revenue from these 10 tests comprised approximately 80% of Dianon's
total net revenue for the quarter ended March 31, 2001. In fact, for the
quarter ended March 31, 2001, over 40% of Dianon's net revenue had been derived
from one test, its surgical biopsy. As a result, a significant portion of
Dianon's net revenue is concentrated among these tests and in its surgical
biopsy in particular. If competing tests are introduced by competitors or
demand for these tests otherwise decreases, Dianon's net revenue would
decrease.
I-24
FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this document, and in documents
that are incorporated by reference in this document, that are subject to risks
and uncertainties. These statements are based on the beliefs and assumptions of
each company's management. Generally, forward-looking statements include
information concerning possible or assumed future actions, events or results of
operations of Dianon, UroCor and the combined company. Forward-looking
statements include the information in this document, specifically, regarding:
.projections .the economy
.efficiencies/cost avoidance .future economic performance
.cost savings revenue synergies .conditions to, and the timetable for,
completing the merger
.income and margins .future acquisitions
.earnings per share .management's plans
.growth .business portfolios
.economies of scale .merger and integration-related expenses
.combined operations
These statements may be preceded by, followed by or include the words
"believes," "expects," "anticipates," "intends," "plans," "estimates" or
similar expressions.
We claim the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995 for all
forward-looking statements.
Forward-looking statements are not guarantees of performance. You should
understand that the following important factors, in addition to those discussed
in "Risk Factors" above and elsewhere in this document, and in the documents
which are incorporated by reference in this document, could affect the future
results of Dianon and UroCor, and of the combined company after the completion
of the merger, and could cause those results or other outcomes to differ
materially from those expressed or implied in our forward-looking statements:
Competitive Factors
. the intense competition in the clinical laboratory sector of the
healthcare industry;
. the timing of the introduction of new products and services;
. the financial resources of competitors;
. the ability to respond to price pressures imposed by managed care groups,
institutions and government agencies; and
. the ability to respond to technological advances attained by competitors
and patents granted to competitors.
Operating Factors
. the ability to attract and maintain new clients and commercialize
innovative and competitive products and services nationwide;
. the ability to obtain and maintain regulatory approvals for new products
and services in the United States;
. the effect of other regulatory developments;
I-25
. the ability to gain consumer acceptance for our new products and
technologies;
. the uncertainties in reimbursement rates and reimbursement coverage of
various tests sold by us to beneficiaries of the Medicare program;
. the uncertainties relating to states erecting barriers to the performance
of national anatomic laboratories, together with the competitive pressures
from small specialized laboratories and well established pathologists;
. the ability to secure and defend intellectual property rights and, when
appropriate, license required technology;
. the ability to generate cash flows or obtain financing to fund growth;
. the ability to complete and integrate appropriate acquisitions, strategic
alliances and joint ventures; and
. the ability to respond to unexpected safety or efficacy concerns arising
with respect to marketed services and products, whether or not
scientifically justified, leading to product recalls, litigation,
withdrawals or declining sales.
Economic and Industry Conditions
. the effect of economic conditions, inflation and interest rates;
. the effect of changes in currency exchange rates and political and
economic conditions nationwide; and
. the effect of changes in laws and regulations, including changes in
accounting standards, trade, tax, price controls and other regulatory
matters.
I-26
THE PROPOSED MERGER
General
Dianon's board of directors is using this joint proxy statement/prospectus
to solicit proxies from the holders of Dianon common stock for use at the
Dianon annual meeting. UroCor's board of directors is also using this document
to solicit proxies from the holders of UroCor common stock for use at the
UroCor special meeting.
Dianon Proposals
At the Dianon annual meeting, holders of Dianon common stock are being asked
to vote upon:
. approval of the issuance of Dianon common stock in connection with the
merger;
. election of eight directors to the Dianon board of directors;
. approval and adoption of the Dianon 2001 Stock Incentive Plan; and
. approval of Arthur Andersen LLP as the independent public accountants of
Dianon for the fiscal year ending December 31, 2001.
The merger will not be completed unless Dianon's stockholders approve the
issuance of shares of Dianon common stock in the merger. However, approval of
any other matter to be voted upon at the Dianon annual meeting is not a
condition to completion of the merger.
UroCor Proposal
At the UroCor meeting, holders of UroCor common stock will be asked to vote
upon adoption of the merger agreement and approval of the merger.
The merger will not be completed unless UroCor's stockholders adopt the merger
agreement and approve the merger.
Background of the Merger
In September 1995, November 1997 and February 1998, Dianon and UroCor
executed mutual confidentiality agreements pursuant to which each party agreed
to hold in confidence information received concerning the other party in
connection with discussions between the parties concerning potential business
combination transactions. In March 1998 and April 1998, UroCor sent to Dianon
letters in which UroCor expressed preliminary interest in pursuing a business
combination with Dianon pursuant to an exchange of shares. Subsequent to
Dianon's receipt of these letters, representatives of our companies discussed
these matters. In August 1998, Dianon sent a letter to UroCor and made a public
announcement in which Dianon expressed its preliminary interest in pursuing a
business combination with UroCor pursuant to a cash purchase by Dianon of
UroCor common stock for $7.50 per share. Subsequent to UroCor's receipt of that
letter, our companies held various discussions and exchanged correspondence
regarding these matters. In November 1998, after each company determined
independently that we did not have sufficient mutual interest in pursuing a
business combination transaction, we ceased these discussions.
At a UroCor board meeting on June 20, 2000, Michael W. George, UroCor's
president and chief executive officer, presented to the UroCor board an
overview of the company's historical, current and projected future plans for
growth and various factors enhancing and inhibiting the company's future
growth. In connection with that discussion Mr. George noted that factors
enhancing the company's future growth included UroCor's sole focus in the
diagnostics market on urology, the potential for continuing to grow the
business internally through increases in the company's diagnostics business and
the potential for continuing to find growth
I-27
opportunities in the company's therapeutics business through selective
acquisition of complementary technologies or businesses. Also in connection
with that discussion, Mr. George noted the significant constraints on UroCor's
ability to achieve future growth including the company's difficulties in
securing a significant portion of business for managed care organizations
arising out of the company's specialized focus in urology, the need to increase
significantly the acquisition of diagnostics and therapeutics businesses and
technologies to augment earnings growth and the company's lack of capital
resources for such purposes. In connection with that discussion, Mr. George
advised the UroCor board that the company's executive management recommended
that the company engage an investment banking firm to assist it in reviewing
the company's strategic plans for future growth. The UroCor board authorized
the company's management to continue to review these matters with the board and
to engage an investment banking firm to assist the company in the review.
After discussion with the UroCor board members, pursuant to a unanimous
written consent of the UroCor board dated July 18, 2000, the UroCor board
engaged U.S. Bancorp Piper Jaffray to assist the company in connection with its
review of its strategic plan for future growth.
At a UroCor board meeting held August 15, 2000, Mr. George and the other
members of UroCor management discussed with the UroCor board the company's
review of its strategic plan. At that board meeting, representatives of U.S.
Bancorp Piper Jaffray made a preliminary presentation to the UroCor board
regarding UroCor and other companies in UroCor's industry. The U.S. Bancorp
Piper Jaffray representatives also discussed with the UroCor board the
potential for pursuing a business combination transaction as an alternative for
maximizing stockholder value. At the meeting, the UroCor board authorized
UroCor management and U.S. Bancorp Piper Jaffray to continue to review
strategic alternatives including potential business combination transactions
with other companies.
During the latter half of August 2000, UroCor management and U.S. Bancorp
Piper Jaffray prepared a confidential offering memorandum describing UroCor and
its business for purposes of soliciting preliminary indications of interest
from potential acquirors. U.S. Bancorp Piper Jaffray and UroCor concurrently
identified a list of several companies, including Dianon, that might be
interested in pursuing a transaction with UroCor. These companies included
companies engaged in the diagnostic laboratory industry with market
capitalizations ranging from $250 million to $5.5 billion. During the period
from August 2000, through October 2000, U.S. Bancorp Piper Jaffray subsequently
contacted these potential acquirors. Six of the potential acquirors, including
Dianon, reviewed and executed a confidentiality agreement and subsequently
received a copy of the confidential offering memorandum.
On September 22, 2000, representatives of Dianon and UroCor had a conference
call which involved a preliminary discussion about UroCor's business.
On September 29, 2000 representatives of UroCor made a presentation to
representatives of Dianon, which described certain strategic, operational and
financial information about UroCor.
On October 13, 2000, Lazard made a presentation to the Dianon board which
reviewed a preliminary valuation analysis in connection with a potential
acquisition of UroCor.
At a special meeting of the Dianon board on October 13, 2000, the Dianon
board authorized Kevin C. Johnson, Dianon's president and chief executive
officer, to negotiate a letter of preliminary interest in pursuing a business
combination with UroCor.
On October 16, 2000, Mr. Johnson sent a letter to U.S. Bancorp Piper Jaffray
in which Dianon expressed its preliminary interest in pursuing a business
combination with UroCor. In the October 16, 2000 letter, Dianon proposed a
price of $9.50 for each share of UroCor common stock in a pooling of interests
transaction. The October 16, 2000 letter stated that any transaction would be
conditioned on the settlement of the pending investigation of UroCor by the
Department of Justice in a manner that would not be deemed to have a material
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adverse effect on UroCor. The October 16, 2000 letter also stated that any
transaction would be conditioned on UroCor's share price immediately prior to
announcement of a transaction not being materially different from its October
13, 2000 closing price of $7.00. Finally, the October 16, 2000 letter provided
for UroCor to grant Dianon an exclusive period of 30 days to conduct due
diligence on UroCor.
On October 17, 2000, U.S. Bancorp Piper Jaffray discussed with the UroCor
board its review of the company's strategic plan, including the status of
discussions with various parties regarding the potential for pursuing a
business combination transaction. The UroCor board also reviewed the October
16, 2000 letter from Dianon and discussed with UroCor's management and U.S.
Bancorp Piper Jaffray the Dianon letter and the timing and scope of U.S.
Bancorp Piper Jaffray's discussions with other companies compared to the status
of the discussions with Dianon. U.S. Bancorp Piper Jaffray communicated that
due primarily to UroCor's pending DOJ investigation, none of the other
companies contacted were interested in pursuing a potential business
combination transaction. Following that discussion, the UroCor board authorized
UroCor's management and U.S. Bancorp Piper Jaffray to communicate to Dianon and
its investment bankers that UroCor would be interested in discussing a
potential business combination transaction with Dianon subject to further
discussion of an appropriate purchase price for UroCor's shares of common
stock, clarification of certain provisions in the Dianon letter regarding
resolution of the Department of Justice matter and the removal of any
conditions linking the proposed acquisition price to changes in UroCor's common
stock trading price.
On October 20, 2000, Mr. Johnson sent a letter to U.S. Bancorp Piper Jaffray
in which Dianon again expressed its preliminary interest in pursuing a business
combination with UroCor. The October 20, 2000 letter superseded the October 16,
2000 letter. In the October 20, 2000 letter, Dianon proposed a fixed exchange
ratio of 0.3038 Dianon shares for each share of UroCor common stock in a
pooling of interests transaction. This equated to a price of $11.00 per share
based on Dianon's average closing share price over the prior 30 trading days.
The October 20, 2000 letter stated that any transaction would be conditioned on
settlement of the pending investigation of UroCor by the Department of Justice
in a manner that would not have a material adverse effect on UroCor or the
combined company, as determined in Dianon's sole discretion. Finally, the
October 20, 2000 letter provided for UroCor to grant Dianon an exclusive period
of 30 days to conduct due diligence of UroCor.
Subsequent to UroCor's receipt of Dianon's October 20, 2000 letter, UroCor's
management and U.S. Bancorp Piper Jaffray and Dianon's management and Lazard
engaged in various discussions regarding the provisions of that letter.
On October 29, 2000, members of Dianon's management and several directors of
Dianon held a telephonic meeting in which Lazard presented an updated
preliminary valuation analysis of UroCor.
On October 30, 2000, Mr. Johnson sent a letter to U.S. Bancorp Piper Jaffray
in which Dianon again expressed its preliminary interest in pursuing a business
combination with UroCor. The October 30, 2000 letter superseded the October 20,
2000 letter. The terms of Dianon's proposal were the same as in the October 20,
2000 letter, except that the October 30, 2000 letter defined with greater
specificity the term "material adverse effect" and the circumstances under
which Dianon could conclude that settlement of UroCor's DOJ investigation could
have a material adverse effect on UroCor or the combined company. The October
30, 2000 letter also provided for a thirty-day renewal of the exclusivity
period for Dianon to conduct due diligence of UroCor if UroCor had not settled
with the DOJ and Dianon continued in good faith to negotiate a purchase of
UroCor.
Following UroCor's receipt of Dianon's October 30, 2000 letter, UroCor's
management and U.S. Bancorp Piper Jaffray and Dianon's management and Lazard
engaged in various discussions regarding the terms of that letter.
On November 2, 2000, Mr. Johnson sent a letter to U.S. Bancorp Piper Jaffray
in which Dianon again expressed its preliminary interest in pursuing a business
combination with UroCor. The November 2, 2000 letter superseded the October 30,
2000 letter. The terms of Dianon's proposal were the same as in the October 30,
2000
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letter, except that Dianon agreed to notify UroCor if prior to the end of the
30 day exclusivity period Dianon had determined not to proceed with the
transaction. After careful consideration of the Dianon letter compared to the
interests of other potential acquirors, on behalf of UroCor, Mr. George
executed the Dianon November 2, 2000 letter.
During the week of November 6, 2000, Dianon, Lazard and Dianon's legal
counsel, Cadwalader, Wickersham & Taft, delivered requests for documents to be
reviewed in connection with Dianon's due diligence review of UroCor.
During the week of November 13, 2000, representatives of Dianon, Lazard and
Cadwalader, conducted a due diligence review of UroCor in Oklahoma City.
During the week of November 20, 2000, Dianon and representatives of Lazard
contacted UroCor and representatives of UroCor to inform UroCor of Dianon's
preliminary due diligence findings, including that any transaction would likely
not qualify for pooling of interests accounting and that the DOJ's
investigation of UroCor had not been concluded to the satisfaction of Dianon.
On December 6, 2000, the Dianon board met and management presented the
findings of its due diligence investigation of UroCor, including that any
transaction would likely not qualify for pooling of interests accounting and
that the DOJ's investigation of UroCor had not been concluded to the
satisfaction of Dianon. Based on the recommendation of management, the Dianon
board concluded that the UroCor acquisition should not be pursued.
On December 6, 2000, Mr. Johnson sent a letter to U.S. Bancorp Piper Jaffray
in which Dianon confirmed that Dianon and UroCor were no longer in negotiations
regarding a business combination.
On February 16, 2001, UroCor announced that it had reached a tentative
settlement with the Department of Justice regarding the DOJ's investigation
into certain billing claims submitted by UroCor to Medicare and other federal
and state insurance programs. The settlement was subject to certain judicial
and governmental approvals.
On February 20, 2001, the UroCor board met and management reviewed the
status of the company's evaluation of its strategic plan. During the meeting,
representatives of U.S. Bancorp Piper Jaffray updated the board regarding the
review of the strategic plan including the review of any potential business
combination transactions.
During March 2001, representatives of UroCor and U.S. Bancorp Piper Jaffray
identified another list of potential acquirors that might be interested in a
business combination transaction with UroCor. During the period from March
2001, through April 2001, U.S. Bancorp Piper Jaffray subsequently contacted
these companies. These companies included companies engaged in the diagnostic
laboratories, life sciences and hospital industries with market capitalizations
ranging from $100 million to $21 billion. Ten of the companies contacted either
executed or were already bound by an existing confidentiality agreement. These
parties, including Dianon, were subsequently provided with updated financial
and operation information regarding UroCor.
On April 3, 2001, UroCor received a preliminary, non-binding indication of
interest from another potential strategic acquiror interested in pursuing a
transaction with UroCor.
On April 6, 2001, representatives of Dianon, UroCor, Lazard and U.S. Bancorp
Piper Jaffray held a conference call in which UroCor discussed the status of
the DOJ's investigation of UroCor and updated Dianon on UroCor's therapeutic
and diagnostic businesses.
During the week of April 16, 2001, the other potential strategic acquiror
conducted a due diligence review of UroCor in Oklahoma City.
I-30
On April 17, 2001, Lazard made a presentation to the Dianon board of
directors which reviewed a preliminary valuation analysis in connection with a
potential acquisition of UroCor. The board authorized Mr. Johnson to negotiate
a letter of preliminary interest in pursuing a business combination with UroCor
for a price of up to $13.00 per UroCor share.
On April 19, 2001, the UroCor board met and U.S. Bancorp Piper Jaffray
discussed with the board the current status of its work on behalf of UroCor,
including review of potential business combination transactions. U.S. Bancorp
Piper Jaffray reported to UroCor's board that due primarily to a lack of
strategic fit and UroCor's market value at the time, none of the other
companies contacted were interested in pursuing a potential business
combination transaction. Subsequent to that discussion, management discussed
with the UroCor board alternatives for UroCor's strategic plan including the
review of potential business combination transactions and other alternatives
for growth including initiating an acquisition strategy for both the company's
diagnostic and therapeutics businesses. In connection with that discussion, Mr.
George noted current limitations on UroCor with respect to pursuing those
strategies, the need for financing resources in connection with any such
strategy and related matters.
On April 20, 2001, Mr. Johnson sent a letter to U.S. Bancorp Piper Jaffray
in which Dianon expressed its preliminary interest in again pursuing a business
combination with UroCor. In the April 20, 2001, letter Dianon proposed an
acquisition price of between $12.00 and $13.00 per share and that approximately
50% of the consideration would be paid in Dianon common stock and the remainder
would be paid in cash. Finally, the April 20, 2001 letter provided for UroCor
to grant Dianon an exclusive period of 60 days to conduct due diligence of
UroCor.
After UroCor's receipt of Dianon's April 20, 2001 letter, UroCor's
management and U.S. Bancorp Piper Jaffray and Dianon's management and Lazard
engaged in various discussions regarding the provisions of that letter.
On April 26, 2001, Mr. Johnson sent a letter to U.S. Bancorp Piper Jaffray
in which Dianon again expressed its preliminary interest in pursuing a business
combination with UroCor. The April 26, 2001 letter superseded the April 20,
2001 letter. In the April 26, 2001 letter, Dianon proposed to acquire UroCor at
a price of $13.00 per share. Dianon proposed that 60% of the consideration
would be in the form of Dianon common stock based on an exchange ratio of
0.3662 and 40% of the consideration would be in the form of cash. Dianon also
stated in the letter that it was prepared to discuss an all-stock transaction.
Finally, in the April 26, 2001 letter, Dianon reduced the exclusive period for
due diligence to 30 days and agreed to permit UroCor to conduct due diligence
on Dianon.
On May 1, 2001, the UroCor board met and discussed the Dianon letter dated
April 26, 2001. At that meeting, U.S. Bancorp Piper Jaffray led a discussion
with the UroCor board regarding a potential business combination with Dianon
and the other potential strategic acquiror. During the meeting, U.S. Bancorp
Piper Jaffray reported to the UroCor board that it had received an updated
letter from the other potential strategic acquiror indicating interest in
pursuing a business combination transaction at a price that was higher than its
initial indication, but still below UroCor's current market price. The UroCor
board discussed this letter with Piper Jaffray and UroCor management and, based
on an evaluation of lesser potential synergies from a combination with that
company, the lower price offered, and the other party's unwillingness to
improve upon its indication, decided not to pursue a transaction with that
company at that time. The UroCor board subsequently discussed with U.S. Bancorp
Piper Jaffray and UroCor's management the materials presented regarding a
combination transaction with Dianon, a due diligence investigation of Dianon's
business and other matters. Following these discussions, the board authorized
management to execute the Dianon April 26, 2001 letter and to conduct a due
diligence review of Dianon. The UroCor board also directed management to review
and report to the board at the next meeting regarding the results of Dianon's
due diligence review of UroCor, the results of UroCor's due diligence review of
Dianon and to discuss further with the UroCor board the proposed business
combination transaction and other alternatives for pursuing growth of the
company and enhancing stockholder value. Following this UroCor board meeting,
on behalf of UroCor, Mr. George executed the Dianon letter dated April 26,
2001.
I-31
During the weeks of May 1, 2001 and May 7, 2001, representatives of Dianon,
Lazard and Cadwalader conducted a due diligence review of UroCor in Oklahoma
City. Also during this time, U.S. Bancorp Piper Jaffray communicated to Lazard
UroCor's concerns regarding Dianon's proposed acquisition price relative to
UroCor's current stock price.
On May 25, 2001, the Dianon board met and discussed the potential
acquisition of UroCor. During the meeting, representatives of Lazard updated
the board on Lazard's financial analysis of UroCor. The board of directors of
Dianon authorized Mr. Johnson to increase the offer price in the preliminary
indication of interest up to $15.00 per UroCor share if necessary to continue
the exclusive period for Dianon to negotiate with UroCor.
During the week of May 28, 2001, representatives of UroCor and U.S. Bancorp
Piper Jaffray conducted a due diligence review of Dianon at the offices of
Cadwalader in New York City. On May 31, 2001, Dianon's legal counsel met with
UroCor's legal counsel in Stamford, Connecticut, to discuss the Department of
Justice's investigation of Dianon.
On June 1, 2001, Mr. Johnson sent a letter to UroCor in which Dianon again
expressed its preliminary interest in pursuing a business combination with
UroCor. The June 1, 2001 letter superseded Dianon's April 26, 2001 letter. In
the June 1, 2001 letter, Dianon offered a fixed exchange ratio of 0.3503 Dianon
shares for each UroCor share, which implied a price of $15.00 per share based
on Dianon's closing price on May 24, 2001. The June 1, 2001 letter provided for
UroCor to extend the exclusive period to June 8, 2001. On behalf of UroCor, Mr.
George executed Dianon's June 1, 2001 letter.
On June 1, 2001, Cadwalader distributed a draft merger agreement to
representatives of UroCor, U.S. Bancorp Piper Jaffray and UroCor's counsel,
Fulbright & Jaworski L.L.P.
On June 5, 2001, the UroCor board met and management reported to the board
regarding the current developments in connection with UroCor's discussions with
Dianon regarding a potential business combination transaction. Management also
reported to the UroCor board regarding UroCor's due diligence investigation of
Dianon including a review of financial matters and the current DOJ
investigation of Dianon and Dianon's regulatory compliance program. Management
also reported to the UroCor board that management continued to develop
strategic plan alternatives in the event a potential business combination
transaction was determined not to be an appropriate course of action. Following
these discussions, the UroCor board authorized management to grant Dianon the
exclusive right to continue to conduct a due diligence review of UroCor through
June 21, 2001 and to continue to conduct a due diligence review of Dianon and
to negotiate the proposed definitive terms of a business combination agreement.
On June 6, 2001, Mr. Johnson sent a letter to UroCor in which Dianon again
expressed its interest in pursuing a business combination with UroCor. The June
6, 2001 letter superseded Dianon's June 1, 2001 letter. The terms of Dianon's
proposal were the same as in the June 1, 2001 letter, except that the June 6,
2001 letter provided for an exclusive period until June 15, 2001. On behalf of
UroCor, Mr. George executed Dianon's June 6, 2001 letter.
From June 8, 2001 through the week of June 11, 2001, management of Dianon
and UroCor negotiated the terms of the merger agreement and worked with
representatives of Lazard, U.S. Bancorp Piper Jaffray, Cadwalader and Fulbright
to prepare revised drafts of the merger agreement.
On June 15, 2001, Cadwalader distributed to the Dianon board the current
draft of the merger agreement and a memo summarizing the terms of the
transaction.
On June 16, 2001, at 7:30 a.m. E.D.T., the Dianon board held a telephonic
meeting during which the UroCor merger was discussed. During the board meeting,
(a) Dianon management updated the Board on the status of the negotiations with
UroCor, (b) representatives of Lazard made a presentation regarding the
financial terms of the
I-32
merger and gave their preliminary oral opinion that the exchange ratio (as
defined in the draft merger agreement) was fair to Dianon from a financial
point of view, (c) Cadwalader summarized the terms of the current draft of the
merger agreement, (d) extensive discussion occurred among the directors,
management and Dianon's advisors regarding the potential transaction, and (e)
after such discussion, the Board authorized management to finalize the exchange
ratio being offered to UroCor's stockholders, and to potentially increase such
exchange ratio if (i) necessary to finalize the agreement and (ii) management
was able to negotiate a limit on the exchange ratio such that the maximum price
paid for each UroCor share would not exceed $17.00 per share.
During the weekend of June 16, 2001, management of Dianon and UroCor
negotiated the terms of the merger agreement and worked with representatives of
Lazard, U.S. Bancorp Piper Jaffray, Cadwalader and Fulbright to prepare revised
drafts of the merger agreement and the schedules and exhibits thereto.
On June 17, 2001 at 8:00 a.m., C.D.T., the UroCor board held a special
telephonic meeting during which the Dianon merger was discussed. During the
board meeting, (a) UroCor management and representatives of U.S. Bancorp Piper
Jaffray updated the board on the status of the negotiations with Dianon, (b)
Fulbright summarized the terms of the current draft of the merger agreement and
(c) representatives of U.S. Bancorp Piper Jaffray made a presentation regarding
the financial terms of the merger and gave its oral opinion that, as of such
date, the exchange ratio (as defined in the draft merger agreement) was fair to
the UroCor stockholders from a financial point of view. UroCor management also
reported to the board regarding alternative strategic options for enhancing
stockholder value and compared these alternatives with the alternative
represented by the potential Dianon merger. In connection with that report,
UroCor management and the UroCor board discussed the company's attempts to
achieve future growth and enhance stockholder value through continuing to grow
internally the company's established diagnostic services business in urology,
attempting to accelerate the growth of that business through acquisitions of
technologies and other businesses and attempts to accelerate the growth of the
company's small therapeutics business through acquisitions of selective
technologies and businesses. As part of these discussions, UroCor management
and the UroCor board noted that the company's ability to continue to achieve
internal growth of its diagnostics business was limited by its inability to
increase significantly the amount of business from managed care organizations
arising primarily out of the company's specialized focus in urology. The UroCor
management and the UroCor board also discussed the potential limitations on
conducting an acquisition policy for its diagnostics and therapeutics business,
including the need for capital resources to fund that strategy and the
company's current lack of access to such capital resources including lack of
cash and other financial resources. The UroCor board and management further
discussed that in order to raise sufficient capital resources, the company
would need to incur debt and therefore would become subject to the risk that
the potential returns from acquisitions may not be sufficient to service any
such debt and could decrease the company's growth from its
currently-established businesses. The UroCor board and the UroCor management
contrasted these potential alternative growth strategies with the Dianon
transaction which potentially could provide a complementary, strategic fit that
avoided the current limitations and future risks involved in pursuing the
alternative strategies. The UroCor Board, management and advisors discussed
extensively the potential transaction and the alternative options. After these
discussions, the UroCor board appointed directors Michael R. Miller, and
Michael W. George, and senior vice president and chief financial officer, Bruce
C. Hayden, as a special negotiating committee to negotiate with Dianon with
respect to the provisions in the draft merger agreement regarding the treatment
of the UroCor employee stock options and the proposed maximum consideration of
$17.00 per share.
On June 17, 2001, at 7:00 p.m., E.D.T., the Dianon board held a special
telephonic meeting during which the UroCor merger was discussed. During the
board meeting, (a) Dianon management and representatives of Lazard updated the
board on the status of the negotiations with UroCor, including the proposed
"agreement in principle" that management had reached with UroCor management
regarding an exchange ratio of 0.4064, limited to a maximum value of $17.00 per
share, (b) representatives of Lazard gave their oral opinion that the exchange
ratio of 0.4064 as defined in the merger agreement distributed to the Dianon
board on June 17, 2001 by Cadwalader is fair to Dianon's stockholders from a
financial point of view, (c) discussion occurred among the directors,
management and the Company's advisors regarding the potential transaction, and
(d) the Board
I-33
authorized management to enter into the merger agreement substantially in the
form distributed to the Board on June 17, 2001 by Cadwalader, with such changes
as management may approve.
On the evening of June 17, 2001, following the Dianon board meeting, Dianon
management determined not to proceed with the merger based on its review of the
estimates provided by UroCor of the transaction fees and bonuses that UroCor
would pay in conjunction with the merger.
On June 17, 2001 at 9:00 p.m., C.D.T., the UroCor board held a special
telephonic meeting during which the special negotiating committee appointed at
the meeting earlier that morning reported with respect to resolution of the
stock option matters and the review of the appropriateness of the proposed
maximum exchange ratio value of $17.00 per share. UroCor management also
reported to the board that subsequent to the meeting held earlier that morning
Dianon had notified UroCor's management of Dianon's concern regarding the
estimated amount of the potential transaction fees payable by UroCor in
conjunction with the merger, and the amounts payable after the closing of the
transaction in connection with the change in control agreements entered into
between UroCor and certain employees of the company. The UroCor board discussed
these matters extensively. After that discussion, representatives of U.S.
Bancorp Piper Jaffray reaffirmed to the UroCor board its oral opinion that, as
of such date, the exchange ratio (as defined in the draft merger agreement) was
fair to the UroCor stockholders from a financial point of view. Thereafter, the
UroCor board appointed Messrs. Miller and George as a special committee of the
UroCor board to act on behalf of the board with respect to any negotiation for
resolution of the issues identified by Dianon with respect to the transaction
fees and the estimated change in control agreement payments. Subject to the
approval of the special committee of the resolution of these issues, the UroCor
board authorized management to finalize and execute the merger agreement
substantially in the form distributed to the board on June 17, 2001, with such
changes as UroCor's management may approve.
During the week of June 18, 2001, representatives of Dianon, UroCor, Lazard,
U.S. Bancorp Piper Jaffray, Cadwalader and Fulbright discussed the issues
regarding the transaction fees and employee bonuses that UroCor would pay in
conjunction with the merger.
On June 21, 2001, the UroCor board met and discussed current developments
with respect to the Dianon transaction. At that meeting, representatives of
U.S. Bancorp Piper Jaffray reported to the board regarding its discussions with
Lazard who informed U.S. Bancorp Piper Jaffray that Dianon was continuing to
review various issues with respect to UroCor and intended to communicate with
UroCor at the conclusion of their review. Also at such meeting, UroCor
management presented to the UroCor board an overview of UroCor's historical,
current and projected future plans for growth and various factors enhancing and
inhibiting the company's abilities and outlook for future growth. In connection
with that discussion, UroCor's management discussed a potential approach
pursuant to which, in the absence of a business combination transaction with
Dianon, UroCor would attempt to achieve growth by conducting an acquisition
program with respect to both its diagnostics and therapeutics business. After
the discussion, the UroCor directors authorized UroCor's management to proceed
to develop in further detail the proposed acquisition strategy for further
review by the directors pending resolution of the current discussions with
Dianon.
On June 25, 2001, representatives of UroCor and U.S. Bancorp Piper Jaffray
and Dianon and Lazard agreed on the amount of certain transaction fees and
employee bonuses that would be paid by UroCor in conjunction with the merger.
UroCor's representatives also asked for an increase in the limit on the maximum
value of the exchange ratio such that the maximum price per UroCor share would
be valued at greater than $17.00.
On June 26, 2001, at 12:05 p.m., E.D.T., the Dianon board held a special
telephonic meeting during which the UroCor merger was discussed. During the
Board meeting, (a) Dianon management updated the Board on the status of the
negotiations with UroCor, including UroCor's agreement to reduce certain
transaction fees and bonuses and UroCor's request to increase the maximum limit
on the exchange ratio, (b) discussion occurred among the directors, management
and the Company's advisors regarding the potential transaction and (c) the
Board authorized management to increase the maximum limit on the exchange ratio
to $18.00, and otherwise to finalize and execute the merger agreement
substantially in the form distributed to the Board on June 17, 2001 by
Cadwalader, with such changes as management may approve.
I-34
On June 27, 2001 at 9:00 p.m., C.D.T., the UroCor board held a special
telephonic meeting during which the Dianon transaction was discussed. During
the meeting, (a) UroCor management updated the board on the status of the
negotiations with Dianon subsequent to the UroCor board meeting on June 21,
2001, (b) representatives of U.S. Bancorp Piper Jaffray discussed the changes
in the financial terms of the transaction since the prior meetings of the
UroCor board, including the exchange ratio of 0.4064 and an increase in the
maximum limit on the exchange ratio to $18.00 per share, (c) representatives of
U.S. Bancorp Piper Jaffray made a presentation regarding the proposed financial
terms of the merger and gave its oral opinion that, as of such date, the
increased exchange ratio was fair to the stockholders of UroCor from a
financial point of view, (d) Fulbright summarized the terms of the revised
merger agreement, (e) extensive discussion occurred among the directors,
management and UroCor's advisors regarding the revised terms of the potential
transaction and (f) the UroCor board authorized UroCor management to enter into
the merger agreement substantially in the form that had been forwarded by
Dianon's counsel, with such changes as management may approve.
During the day and evening of June 27, 2001, representatives of Dianon,
UroCor, Lazard, U.S. Bancorp Piper Jaffray, Cadwalader and Fulbright negotiated
the final form of the merger agreement. Dianon and UroCor signed the merger
agreement in the early morning hours of June 28, 2001 and a press release
announcing the transaction was issued on the morning of June 28, 2001.
On June 29, 2001, UroCor announced that it had received judicial and
governmental approvals of its tentative settlement with the Department of
Justice. Pursuant to the final settlement agreement, UroCor refunded Medicare
and other federal and state insurance programs $9 million and agreed to operate
under a corporate integrity agreement for a period of up to five years.
Dianon's Reasons for the Merger
The following discussion of Dianon's reasons for the merger contains a
number of forward-looking statements that reflect the current views of Dianon
with respect to future events that may have an effect on the future financial
performance of the combined company. Forward-looking statements are subject to
risks and uncertainties. Actual results and outcomes may differ materially from
the results and outcomes discussed in the forward-looking statements.
Cautionary statements that identify important factors that could cause or
contribute to differences in results and outcomes include those discussed in
"Forward Looking Information" and "Risk Factors."
Dianon believes that a combination of Dianon and UroCor will create a
leading national full-service cancer diagnostics company, with a leading market
share in the urology segment of this market, and with greater diversity,
breadth and financial resources, that will have the opportunity to enhance
stockholder value in ways that are unlikely to be achieved by Dianon or UroCor
alone. Specifically, Dianon believes that the combined company would be
uniquely positioned to realize:
. enhanced revenue potential;
. significant cost savings;
. more comprehensive customer base and strengthened relationship with
managed care customers;
. enhanced technological capabilities;
. the benefits of combining Dianon's and UroCor's complementary services and
products;
. Dianon's long term business strategy of adding complementary businesses
that broaden Dianon's leading laboratory services, technology and market
presence; and
. greater stockholder value.
Dianon believes that the acquisition of UroCor by Dianon will result in the
combined company becoming a leader in the growing field of cancer diagnostics
in the country, with more than $180 million of annual revenues, EBITDA
potentially exceeding $45 million, no debt and approximately 12 million
outstanding shares, in each case on a pro forma basis in 2002.
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First Call consensus estimates for the combined company for the base
business and the expected long-term earnings per share growth rate is 30% per
annum. The Dianon board believes that the inherent operating leverage in
Dianon's business will allow for significant selling, general and
administrative ("SG&A") synergies to be realized with the acquisition of
UroCor. Dianon expects the cost synergies to be completed during the second
quarter of 2002, providing $0.07 to $0.12 earnings per share accretion in 2002.
Further, Dianon anticipates $0.15 to $0.25 earnings per share accretion in
2003. Dianon expects its cash flow to significantly strengthen in the near
future, with 2002 EBITDA potentially exceeding $45 million.
Dianon and UroCor share common operating philosophies, including the same
strong commitment to technological innovation, diagnostic excellence and
customer service. In addition, both companies have effective marketing programs
focused on the urology community that, together with Dianon's comprehensive
suite of services to other physician specialties, will strengthen the merged
company's position as a leader in the area of cancer diagnostics. Dianon
believes that the combined sales teams, comprised of highly experienced,
technically trained representatives, will play a key role in growing the
combined company's business and serving their customers. Moreover, this
combination will provide synergistic opportunities that will strengthen
Dianon's strategic position and earnings growth opportunity going forward.
After the transaction, Dianon will have a more extensive network of
laboratories and a direct sales and marketing presence in its key markets
nationwide. The senior management of Dianon will continue to lead the new
combined company. Corporate headquarters, as well as most sales, general and
administrative functions will be based in Connecticut. Dianon expects to
generate significant net cost savings through elimination of redundancies
between Dianon and UroCor, such as the elimination of most administrative
functions currently performed at UroCor's headquarters, and sharing of
competencies in core areas. Thus, billing, accounting, human resources, legal,
purchasing, accounts payable and senior management will be centralized in
Connecticut. Sales, marketing and research and development will also be reduced
in total, with an overall headcount reduction of over 100 full time employees.
Dianon's management anticipates that these actions will yield cost savings in
excess of $10 million for calendar year 2002.
In addition, Dianon believes that the acquisition of UroCor will:
. create a company with a leadership position in cancer diagnostics;
. provide Dianon with a complementary market share and geographical reach in
the urology segment of the diagnostic laboratory market, as well as access
to more than 5,000 urologists nationwide;
. broaden and deepen Dianon's product portfolio;
. leverage SG&A infrastructure to drive Dianon's earnings growth;
. provide strong cash flow to reinvest in growth opportunities;
. increase Dianon's outstanding shares by approximately 50%, promoting
improved liquidity;
. provide Dianon with a competitive advantage in managed care contracting
environment;
. enhance Dianon's growth prospects; and
. create one of the largest cancer diagnostic databases.
Factors Considered by, and Recommendation of, the Board of Directors of Dianon
At its meeting on June 26, 2001, Dianon's board of directors:
. determined that the merger agreement and the merger are advisable and fair
to, and in the best interests of, Dianon and its stockholders; and
. recommended that the Dianon stockholders vote FOR the approval of the
issuance of Dianon common stock in the merger.
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In the course of reaching its decision to approve the merger agreement,
Dianon's board of directors consulted with Dianon's management, as well as its
outside legal counsel and its financial advisors, and considered the following
material factors, which were all of the material factors, both positive and
negative, considered by the board of directors:
(1) information concerning the financial performance and condition,
results of operations, asset quality, prospects and businesses of each of
Dianon and UroCor as separate entities and on a combined basis, including:
. the revenues of the companies, their complementary businesses and the
potential for cost savings and revenue enhancement;
. the recent and historical stock price performance of Dianon common
stock and UroCor common stock; and
. the percentage of the combined company Dianon's stockholders would own
following the merger.
(2) the importance of market position, significant scale and scope and
financial resources to a company's ability to compete effectively in the
changing environment in the anatomic pathology testing market, and the fact
that the strategic combination of Dianon's and UroCor's businesses would
create one of the nation's leading cancer diagnostics companies,
particularly in the urology segment of the this market;
(3) the strategic nature of the transaction, which combines Dianon's and
UroCor's complementary businesses, and creates a broader company with
enhanced national reach and greater resources, enhanced future operating
flexibility and increased opportunity for growth;
(4) the potential benefits to be derived from a combination of the two
companies as described under "The Proposed Merger--Our Reasons for the
Merger", including potential cost savings and efficiencies that would result
from the merger;
(5) the current industry, economic and market conditions and trends,
including the likelihood of continuing consolidation and increasing
competition in the medical laboratory industry;
(6) the nature of existing services and products to be sold by the
combined company and the fact that the customer base to be served will be
broader and more diverse;
(7) the merger will present the opportunity for the stockholders of
Dianon to participate in a larger company with a more diversified product
line and, as stockholders of the combined company, benefit from future
growth of the combined company;
(8) the exchange ratio will enable Dianon stockholders to own
approximately 65% of the outstanding stock of the combined company;
(9) the analyses, presentations and opinion of Lazard to the effect that,
as of the date of the opinion and subject to the matters set out in its
opinion, the exchange ratio was fair from a financial point of view to
Dianon, which is described below, under "Opinions of Financial
Advisors--Opinion of Dianon's Financial Advisor";
(10) the structure of the transaction as a tax-free reorganization for
United States federal income tax purposes;
(11) the terms of the merger agreement regarding third party proposals,
including the potential payment by UroCor of a termination fee to Dianon,
and that the merger is conditioned on certain government proceedings
relating to UroCor being fully and completely resolved, which is discussed
under "The Proposed Merger--Certain Litigation";
(12) the ability to consummate the merger, including the conditions to
the merger requiring receipt of necessary regulatory approvals in accordance
with the terms of the merger agreement;
(13) the challenges of combining the businesses of two public companies
and the risks of diverting management resources for an extended period of
time;
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(14) the board of directors' continuing belief in the stockholder value
opportunity represented by the strategic path the board had previously
chosen and the unique implementation opportunity presented by the definitive
transaction terms with UroCor; and
(15) the opportunity for Dianon stockholders to vote on the share
issuance with UroCor.
In view of the variety of factors and the amount of information considered,
Dianon's board of directors did not find it practicable to and did not
quantify, rank or otherwise assign relative weights to the specific factors it
considered in reaching its decision. The determination was made after
consideration of all of the factors as a whole. In addition, individual members
of Dianon's board of directors may have given different weights to different
factors.
Dianon's board of directors considered all these factors in reaching the
conclusions and recommendations described above. These factors generally
figured positively, as advantages or opportunities, with the following
exceptions:
. the factors described in (11), which figured negatively as a drawback, but
which the Dianon board of directors felt was outweighed by the other
benefits of the transaction; and
. the factor described in (13), which figured negatively as a risk, although
one which the Dianon board of directors felt could be managed successfully
by Dianon management.
For additional information concerning the matters discussed, and the
conclusions reached, at various meetings of Dianon's board of directors held
between October 13, 2000 and June 26, 2001, see "The Proposed
Merger--Background of the Merger".
THE DIANON BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT,
THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED THEREBY AND BELIEVES THAT
THE TERMS OF THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, DIANON AND
ITS STOCKHOLDERS. THE DIANON BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL
OF THE STOCK ISSUANCE PROPOSAL.
Factors Considered by, and Recommendation of, the Board of Directors of UroCor
At its meeting on June 27, 2001, the UroCor board of directors:
. determined that the merger agreement and the merger with Dianon are
advisable and fair to, and in the best interests of, UroCor and its
stockholders;
. approved the merger agreement with Dianon;
. directed that the proposed transaction be submitted for consideration by
the UroCor stockholders; and
. recommended that the UroCor stockholders vote FOR adoption of the merger
and approval of the merger agreement.
In the course of reaching its decision to approve the merger agreement, the
UroCor board of directors consulted with UroCor's management, as well as its
legal counsel and financial advisors, and considered the following material
factors, which were all of the material factors, both positive and negative,
considered by the board of directors:
(1) information concerning the financial performance and condition,
results of operations, asset quality, prospects and businesses of each of
Dianon and UroCor as separate entities and on a combined basis, including:
. the revenues of the companies, their complementary businesses and the
potential for cost savings and revenue enhancement;
. the recent and historical stock price performance of Dianon common
stock and UroCor common stock; and
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. the percentage of the common stock of Dianon that UroCor stockholders
would own following the merger.
(2) the importance of market position, significant scale and scope and
financial resources to a company's ability to compete effectively in the
changing environment in the anatomic pathology testing market;
(3) the strategic nature of the transaction, which combines Dianon's and
UroCor's complementary businesses, and creates a broader company with
enhanced national reach and greater resources, enhanced future operating
flexibility and increased opportunity for growth;
(4) the potential limitations for future growth arising from UroCor's
focus solely in urology, specifically with respect to the industry trend for
diagnostic services payors to contract with more broad-based providers of
these services and the concomitant restrictions on UroCor's ability to
obtain preferred or exclusive contracts with such payors;
(5) UroCor's determination that in the absence of a business combination
transaction, the company's ability to achieve long-term growth would require
expansion of its business into different disease states, such as those in
which Dianon already conducts business, and that UroCor's ability to achieve
such growth would require significant capital costs and incurrence of
significant financial resources;
(6) UroCor's assessment of risks in achieving growth through expanding
its therapeutic products business;
(7) the current industry, economic and market conditions and trends,
including the likelihood of continuing consolidation and increasing
competition in the medical laboratory industry;
(8) the nature of existing services and products to be sold by the
combined company and the fact that the customer base to be served will be
broader and more diverse;
(9) the merger will present the opportunity for the stockholders of
UroCor to participate in a larger company with a more diversified product
line and, as stockholders of the combined company, benefit from future
growth of the combined company;
(10) the fact that the exchange ratio (based on Dianon's trading price at
the close of business on June 27, 2001, the last trading day before the
execution of the merger agreement was announced) represented a premium of
32% over UroCor's 90-day average stock price.
(11) the exchange ratio will enable UroCor stockholders to own
approximately 35% of the outstanding stock of the combined company;
(12) the analyses, presentations and opinion of U.S. Bancorp Piper
Jaffray to the effect that, as of the date of the opinion and subject to the
matters set out in its opinion, the exchange ratio was fair from a financial
point of view to the stockholders of UroCor, which is described below, under
"Opinion of Financial Advisors--Opinion of UroCor's Financial Advisor";
(13) the structure of the transaction as a tax-free reorganization for
United States federal income tax purposes;
(14) the terms of the merger agreement regarding third party proposals,
including the potential payment by UroCor of a termination fee to Dianon,
and that the merger is conditioned on certain government proceedings
relating to UroCor being fully and completely resolved;
(15) the headquarters of the combined company will remain at Stratford,
Connecticut and Dianon shall maintain a facility at UroCor's former
headquarters in Oklahoma City, Oklahoma;
(16) the ability to consummate the merger, including the conditions to
the merger requiring receipt of necessary regulatory approvals in accordance
with the terms of the merger agreement;
(17) the opportunity for UroCor stockholders to vote on the proposed
merger with Dianon.
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In determining that the merger was in the best interests of UroCor
stockholders, the UroCor board of directors considered the factors discussed
above as a whole and did not assign specific or relative weights to those
factors. In making such determination, the UroCor board took no special steps
to minimize the effect of any conflict of interests of UroCor's management
primarily because only one of the seven UroCor directors is an executive
officer of UroCor, UroCor management as a whole owns a relatively small
percentage of the outstanding shares of UroCor common stock and, in connection
with its decision-making process, the UroCor board also consulted with UroCor's
outside legal counsel and financial advisors.
THE UROCOR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT,
THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED THEREBY AND BELIEVES THAT
THE TERMS OF THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, UROCOR AND
ITS STOCKHOLDERS. THE UROCOR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION
OF THE AGREEMENT AND PLAN OF MERGER AND APPROVAL OF THE MERGER CONTEMPLATED BY
THE AGREEMENT.
Accounting Treatment
The merger will be accounted for using the purchase method of accounting.
This method accounts for a business combination as the acquisition of one
entity by another. The acquiring company records the acquired assets less
liabilities assumed at fair value. Any difference between acquisition cost and
the sum of the fair values of the target's identifiable assets and liabilities
is recorded as goodwill.
Material Federal Income Tax Consequences of the Merger
The following are the material United States federal income tax consequences
of the merger. This discussion is based on the Internal Revenue Code of 1986,
as amended, applicable Treasury regulations, administrative interpretations and
court decisions as in effect as of the date of this joint proxy
statement/prospectus, all of which may change, possibly with retroactive
effect.
This discussion only addresses shares of UroCor common stock held as capital
assets. It does not address all aspects of federal income taxation that may be
relevant to a stockholder of UroCor in light of that stockholder's particular
circumstances or to a UroCor stockholder subject to special rules, such as:
. a stockholder who is not a citizen or resident of the United States;
. a stockholder that is a foreign corporation, foreign estate or foreign
trust;
. a financial institution or insurance company;
. a tax-exempt organization;
. a dealer or broker in securities;
. a stockholder that holds its UroCor common stock as part of a hedge,
appreciated financial position, straddle or conversion transaction; or
. a stockholder that acquired its UroCor common stock pursuant to the
exercise of options or otherwise as compensation.
Tax Opinions. Dianon has received an opinion of Cadwalader, Wickersham &
Taft, and UroCor has received an opinion of Fulbright & Jaworski L.L.P.
(together with Cadwalader, Wickersham & Taft, "outside tax counsel"), that the
merger will be treated for United States federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code and that Dianon, Dianon merger subsidiary and UroCor will each be a party
to that reorganization within the meaning of Section 368(b) of the Internal
Revenue
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Code. It is a condition to the obligation of each of Dianon and UroCor to
complete the merger that the relevant outside tax counsel confirm its opinion
as of the closing date. Neither Dianon nor UroCor intends to waive this
condition.
The opinions of outside tax counsel regarding the merger have relied, and
the opinions regarding the merger as of the closing date (the "closing date
opinions") will each rely, on (1) representations and covenants made by Dianon,
the Dianon merger subsidiary and UroCor, including those contained in
certificates of officers of Dianon, the Dianon merger subsidiary and UroCor,
and (2) specified assumptions, including an assumption regarding the completion
of the merger in the manner contemplated by the merger agreement. In addition,
the opinions of outside tax counsel have assumed, and outside tax counsel's
ability to provide the closing date opinions will depend on, the absence of
changes in existing facts or in law between the date of this joint proxy
statement/prospectus and the closing date. If any of those representations,
covenants or assumptions is inaccurate, either or both outside tax counsel may
not be able to render the required closing date opinions or the tax
consequences of the merger could differ from those discussed here or described
in the opinions that outside tax counsel have delivered. Opinions of outside
tax counsel neither bind the IRS nor preclude the IRS or the courts from
adopting a contrary position. Dianon and UroCor do not intend to obtain a
ruling from the IRS on the tax consequences of the merger.
Federal Income Tax Treatment of the Merger. The merger will be treated for
federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code, and Dianon, UroCor and the Dianon merger
subsidiary will each be a party to that reorganization within the meaning of
Section 368(b) of the Internal Revenue Code. None of Dianon, the Dianon merger
subsidiary and UroCor will recognize any gain or loss for federal income tax
purposes as a result of the merger.
Federal Income Tax Consequences to UroCor Stockholders. For federal income
tax purposes:
. A holder of UroCor common stock will not recognize any gain or loss upon
the exchange of that stockholder's shares of UroCor common stock for
shares of Dianon common stock in the merger.
. To the extent that a holder of UroCor common stock receives cash instead
of a fractional share of Dianon common stock, the holder will be required
to recognize gain or loss, measured by the difference between the amount
of cash received and the portion of the tax basis of that holder's shares
of UroCor common stock allocable to that fractional share of Dianon common
stock. This gain or loss will be capital gain or loss and will be
long-term capital gain or loss if the holding period for the share of
UroCor common stock exchanged for the fractional share of Dianon common
stock was more than one year at the effective time of the merger.
. A holder of UroCor common stock will have a tax basis in the Dianon common
stock received in the merger equal to (1) the tax basis of the UroCor
common stock surrendered by that holder in the merger, less (2) any tax
basis of the UroCor common stock surrendered that is allocable to a
fractional share of Dianon common stock for which cash is received.
. The holding period for shares of Dianon common stock received in exchange
for shares of UroCor common stock in the merger will include the holding
period for the shares of UroCor common stock surrendered in the merger.
Federal Income Tax Consequences to Dianon Stockholders. There will be no
federal income tax consequences to a holder of Dianon capital stock as a result
of the merger.
This discussion is intended to provide only a general summary of the
material federal income tax consequences of the merger, and is not a complete
analysis or description of all potential federal income tax consequences of the
merger. This discussion does not address tax consequences that may vary with,
or are contingent on, individual circumstances. In addition, it does not
address any non-income tax or any foreign, state or local tax consequences of
the merger. Accordingly, we strongly urge each stockholder of UroCor to consult
his or her tax advisor to determine the particular United States federal,
state, local or foreign income or other tax consequences to that stockholder of
the merger.
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Regulatory Matters Relating to the Merger
Neither Dianon nor UroCor are required to obtain any material regulatory
consents or approvals to conclude the merger. Although Dianon and UroCor are
not required to file notification and report forms under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, with the Federal Trade
Commission and the Antitrust Division of the United States Department of
Justice, there can be no assurance that a challenge to the merger on antitrust
grounds will not be made or, if a challenge is made, that it would not be
successful. Federal and state antitrust authorities and private parties in
certain circumstances may bring legal action under the antitrust laws seeking
to enjoin the merger or seeking conditions.
No Appraisal Rights
Holders of UroCor common stock do not have dissenters' appraisal rights
under Delaware law that would give them the right to obtain the payment of cash
in exchange for their UroCor common stock as a result of the merger. Holders of
Dianon common stock are also not entitled to dissenters' appraisal rights under
Delaware law in connection with the merger.
Certain Litigation
UroCor announced on June 29, 2001, that it had received final judicial and
governmental approvals of a tentative settlement agreement with the United
States Department of Justice ("DOJ") previously announced on February 16, 2001
concerning matters covered by the DOJ's investigation into actions of UroCor
during 1992 through 1998 in connection with billing claims submitted by UroCor
to Medicare and other federal and state insurance programs for its diagnostics
testing services. Under the final settlement agreement, UroCor refunded the
various programs a total of $9.0 million. The settlement covers UroCor
liabilities to the federal government and state insurance programs with respect
to the matters under investigation through December 31, 2000. Under the terms
of the settlement, there was no admission by UroCor of any wrongdoing in
connection with matters covered by the investigation. UroCor also has agreed to
operate under a corporate integrity agreement for a period of up to five years.
Among other things, the corporate integrity agreement requires UroCor to
cooperate with the United States Attorney's Office for the Western District of
Oklahoma in connection with a criminal investigation of others related to the
DOJ investigation. In addition, UroCor has incurred and expects to continue to
incur expenses relating to the DOJ investigation, including without limitation,
the administration of the DOJ settlement (including compliance with the
corporate integrity agreement), and may incur additional expenses in connection
with any related governmental investigations or proceedings (including the
criminal investigation) and any potential indemnification of legal and other
fees and costs for current and past directors, officers and employees of
UroCor. UroCor currently estimates that it could incur up to $6 million in
potential indemnification expenses.
Federal Securities Laws Consequences; Stock Transfer Restriction Agreements
This joint proxy statement/prospectus does not cover any resales of the
Dianon common stock to be received by the stockholders of UroCor upon
completion of the merger, and no person is authorized to make any use of this
joint proxy statement/prospectus in connection with any such resale.
All shares of Dianon common stock received by UroCor stockholders in the
merger will be freely transferable, except that shares of Dianon common stock
received by persons who are deemed to be "affiliates" of UroCor under the
Securities Act of 1933, as amended, at the time of the UroCor special meeting
may be resold by them only in transactions permitted by Rule 145 under the 1933
Act or as otherwise permitted under the 1933 Act. Persons who may be deemed to
be affiliates of UroCor for such purposes generally include individuals or
entities that control, are controlled by or are under common control with
UroCor, as the case may be, and include directors and executive officers of
UroCor. The merger agreement requires that UroCor use reasonable efforts to
cause each of such affiliates to execute a written agreement to the effect that
such persons will not offer, sell or otherwise dispose of any of the shares of
Dianon common stock issued to them in the merger in violation of the 1933 Act
or the related SEC rules.
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OPINIONS OF FINANCIAL ADVISORS
Opinion of Dianon's Financial Advisor
Lazard Freres & Co., Dianon's financial advisor, has rendered a written
opinion, dated as of June 28, 2001 to the Dianon board of directors as to the
fairness, from a financial point of view, to Dianon of the exchange ratio in
the merger. The full text of the written opinion of Lazard Freres is attached
to this document as Annex B. We encourage you to read the opinion carefully in
its entirety to understand the procedures followed, assumptions made, matters
considered and limitations on the review undertaken by Lazard Freres in
providing their opinions. The opinion of Lazard Freres is directed to the
Dianon board of directors and does not constitute recommendations to any
stockholder with respect to any matter relating to the merger.
Under a letter agreement, dated November 17, 2000, Dianon retained Lazard
Freres & Co. LLC to act as its financial advisor. As part of this engagement,
the board of directors of Dianon requested that Lazard evaluate the fairness,
from a financial point of view, to Dianon of the exchange ratio to be offered
in the merger. Lazard has delivered to the board of directors of Dianon a
written opinion dated June 28, 2001 that, as of that date, the exchange ratio
to be offered in the merger was fair from a financial point of view to Dianon.
THE FULL TEXT OF THE LAZARD OPINION IS ATTACHED HERETO AS ANNEX B AND IS
INCORPORATED HEREIN BY REFERENCE. THE DESCRIPTION OF THE LAZARD OPINION SET
FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
LAZARD OPINION SET FORTH IN ANNEX B. DIANON STOCKHOLDERS ARE URGED TO READ THE
LAZARD OPINION IN ITS ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES FOLLOWED,
ASSUMPTIONS MADE, MATTERS CONSIDERED AND QUALIFICATIONS AND LIMITATIONS ON THE
REVIEW UNDERTAKEN BY LAZARD IN CONNECTION THEREWITH. LAZARD'S WRITTEN OPINION
IS DIRECTED TO THE DIANON BOARD AND ONLY ADDRESSES THE FAIRNESS OF THE EXCHANGE
RATIO FROM A FINANCIAL POINT OF VIEW AS OF THE DATE OF THE OPINION. LAZARD'S
WRITTEN OPINION DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY DIANON STOCKHOLDER AS TO HOW THE STOCKHOLDER
SHOULD VOTE ON ANY MATTER RELATING TO THE MERGER. THE FOLLOWING IS ONLY A
SUMMARY OF THE LAZARD OPINION. STOCKHOLDERS ARE URGED TO READ THE ENTIRE
OPINION.
In the course of performing its review and analysis for rendering its
opinion, Lazard, among other things:
--reviewed the financial terms and conditions of the Merger Agreement;
--analyzed certain historical business and financial information relating to
Dianon and UroCor;
--reviewed financial projections for Dianon that were not provided by Dianon
but were contained in certain securities analysts' research reports that
were recommended for review by management of Dianon;
--reviewed various financial forecasts and other data relating to UroCor's
business provided to us by management of UroCor and by management of
Dianon;
--held discussions with members of the senior management of Dianon and
UroCor with respect to the businesses and prospects of Dianon and UroCor,
respectively, the strategic objectives of each, and possible benefits
which might be realized following the merger;
--reviewed the synergistic savings and benefits and the timing of their
occurrence as projected by Dianon to be realized by the combined entities
in connection with the merger;
--reviewed public information with respect to certain other companies in
lines of business Lazard believed to be generally comparable to the
business of Dianon and UroCor;
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--reviewed the historical stock prices and trading volumes of Dianon common
stock and UroCor common stock; and
--conducted such other financial studies, analyses and investigations as
were deemed appropriate.
Lazard relied upon the accuracy and completeness of all information publicly
available or reviewed by or discussed with Lazard. Lazard did not assume any
responsibility for any independent verification of such information or any
independent valuation or appraisal of any assets or liabilities of Dianon or
UroCor, or concerning the solvency of, or issues relating to solvency
concerning, Dianon or UroCor. With respect to financial forecasts, including
the synergistic savings and benefits projected to be realized following the
merger and the timing thereof, and other information that were provided to or
discussed with Lazard, Lazard assumed that they were reasonably prepared based
on the best currently available estimates and judgments of Dianon and UroCor as
to the future financial performance of Dianon and UroCor. Lazard assumed no
responsibility for and expressed no view as to such forecasts or the
assumptions on which they were based.
Lazard also assumed, with Dianon's consent, that the merger would be
completed according to the terms of the merger agreement, without waiver of any
material term or condition contained in that agreement, and that the merger
would be accounted for as a purchase under U.S. generally accepted accounting
principles and would qualify as a tax-free reorganization for U.S. federal
income tax purposes. Lazard also assumed that the synergistic savings and
benefits of the merger projected by the management of Dianon would be realized
both in scope and timing and that the governmental investigation of UroCor (and
all related claims) relating to claims submitted by UroCor to Medicare and
other federal health care programs had been resolved on terms that would not
adversely effect the value of UroCor. In addition, Lazard assumed that
obtaining the necessary regulatory approvals for the merger would not have an
adverse effect on Dianon and UroCor.
Lazard was not asked to consider, and Lazard's opinion did not address, the
relative merits of the merger, any alternative potential transactions or the
company's underlying decision to effect the merger. Lazard also noted that its
opinion was necessarily based upon information available, and economic,
monetary, stock market and other conditions existing and disclosed, to Lazard
as of the date of its opinion.
The following is a brief summary of the material financial and comparative
analyses which Lazard deemed to be appropriate for this type of transaction and
that were performed by Lazard in connection with rendering its opinion.
Contribution Analysis. Lazard performed a contribution analysis in order to
evaluate the percentage contribution of each of Dianon and UroCor to the
combined company on a pro forma basis. Lazard calculated the relative
contribution by both Dianon and UroCor to the combined company with respect to
certain projected financial data for Dianon and UroCor, including revenues,
EBITDA, earnings before interest and taxes (EBIT) and net income, as set forth
below. Lazard performed two separate contribution analyses, one of which was
based on the projected financial data for UroCor provided by management of
UroCor and the other was based on the projected financial data for UroCor
provided by management of Dianon taking into account the synergies projected by
Dianon's management to result from the merger.
I-44
Percentage Contribution
(based on projected
financial data for
UroCor provided by
UroCor management)
-----------------------
Dianon UroCor
------ ------
Revenues
2001E........ 65.6% 34.4%
2002E........ 65.9% 34.1%
EBITDA
2001E........ 65.9% 34.1%
2002E........ 63.2% 36.8%
EBIT
2001E........ 71.5% 28.5%
2002E........ 66.5% 33.5%
Net Income
2001E........ 58.5% 41.5%
2002E........ 65.4% 34.6%
Market Value.... 64.5% 35.5%
Enterprise Value 66.1% 33.9%
Percentage Contribution
(based on projected
financial data for
UroCor provided by
Diano management and
taking into account
projected synergies)
----------------------
Dianon UroCor
------ ------
Revenues
2001E........ 69.3% 30.7%
2002E........ 71.8% 28.2%
EBITDA
2001E........ 47.4% 52.6%
2002E........ 51.1% 48.9%
EBIT
2001E........ 45.7% 54.3%
2002E........ 49.9% 50.1%
Net Income
2001E........ 46.6% 53.4%
2002E........ 51.1% 48.9%
Market Value.... 64.5% 35.5%
Enterprise Value 66.1% 33.9%
Discounted Cash Flow Analysis. Lazard performed three separate discounted
cash flow analyses in order to derive ranges of implied per share values for
UroCor common stock based on the present value of expected future cash flows of
UroCor. The first discounted cash flow analysis was based on financial
forecasts for UroCor as a stand-alone entity provided by the management of
UroCor. This analysis, which did not take into account potential synergies, was
based on a range of terminal multiples of EBITDA of 12.0x to 16.0x and a range
of discount rates from 10% to 12% for UroCor's diagnostic business and a range
of terminal multiples of EBITDA of 7.0x to 11.0x and a range of discount rates
of 10% to 12% for UroCor's therapeutics business. Using this analysis, Lazard
derived a range of implied per share values of $22.13 to $31.39 for UroCor
common stock. The second discounted cash flow analysis was based on financial
forecasts for UroCor as a stand-alone entity
I-45
provided by management of Dianon. This analysis, which did not take into
account potential synergies, was based on a range of terminal multiples of
EBITDA of 12.0x to 16.0x and a range of discount rates of 10% to 12%. Using
this analysis, Lazard derived a range of implied per share values of $9.53 to
$12.70 for UroCor common stock. The third discounted cash flow analysis was
based on the information derived in the second analysis but also took into
account the potential synergies estimated by Dianon's management to result from
the merger. The discounted cash flow analysis of the synergies was based on a
range of perpetual growth rates of -2.5% to 2.5% and a range of discount rates
of 10% to 12%. The forecasts for synergies assumed net synergies, including
costs to achieve such synergies, of $-8.5 million in 2001, $16.8 million in
2002 and $17.7 million thereafter. Using this analysis, Lazard derived a range
of implied per share values, including the value of net synergies, of $15.84 to
$23.90 for UroCor common stock.
Premiums Paid Analysis. Lazard performed a premiums paid analysis based on
premiums paid in the following transactions that involved U.S. healthcare
companies and that had transaction values that ranged from $100 million to $500
million and were announced during the two year period prior to the announcement
of the merger:
Acquiror Name Target Name
- ------------- -----------
Celera Genomics AXYS Pharmaceuticals Inc.
Inveresk Research International Ltd. Clintrials Research Inc.
Philips Medical Systems International ADAC Laboratories Inc.
Investor Group Sunrise Medical Inc.
Tyco International Ltd. InnerDyne Inc.
Jomed N.V. EndoSonics Corp.
Cephalon Inc. Anesta Corp.
Molecular Devices Corp. LJL Biosystems Inc.
GE Medical Systems Lunar Corp.
Welch Allyn Inc. Protocol Systems Inc.
Invivo Corp. Protocol Systems Inc.
King Pharmaceuticals Inc. Medco Research Inc.
Baxter International Inc. North American Vaccine Inc.
MedImmune Inc. US Bioscience Inc.
Schering Berlin Inc. Diatide Inc.
Guidant Corp. Cardio Thoracic Systems Inc.
Tyco International Ltd. General Surgical Innovations Inc.
Teva Pharmaceuticals USA Copley Pharmaceutical Inc.
Inamed Corp. Collagen Aesthetics Inc.
Investor Group Maxxim Medical Inc.
TA Associates Inc. Physicians Specialty Corp.
Solvay SA Unimed Pharmaceuticals Inc.
Meggitt PLC Whittaker Corp.
Using publicly available data, Lazard calculated the following premium
percentages paid in the foregoing precedent transactions:
Percent Stock Premium Before Transaction
Announcement Date
----------------------------------------
Low Medium Mean High
----- ------ ----- -----
1 Day Before.. 2.1% 25.2% 28.4% 71.4%
1 Week Before. 0.6% 27.7% 32.6% 74.6%
1 Month Before (6.8%) 43.1% 40.0% 73.5%
Using the range of premiums paid in the foregoing precedent transactions,
Lazard derived a range of implied per share values of $14.90 to $26.17 for the
UroCor common stock.
I-46
Comparable Publicly Traded Companies Analysis. Lazard performed a comparable
public companies analysis based on financial multiples of selected comparable
companies in the diagnostic laboratories industry in order to derive a range of
implied per share values for UroCor common stock. In performing this analysis,
Lazard reviewed certain financial information for UroCor and compared such
information to corresponding financial information, ratios and public market
multiples for four (4) other diagnostic laboratory companies Lazard deemed to
be comparable to UroCor, based on similarities in diagnostic services provided,
information services provided, customer base, payer mix, geographic presence
and technology. The companies included in this analysis were:
. Ameripath, Inc.
. Impath, Inc.
. Laboratory Corporation of America
. Quest Diagnostics, Inc.
Using publicly available information, Lazard calculated the enterprise value
of each of these comparable companies as a multiple of their respective
calendar 2001 estimated earnings before interest, income taxes, depreciation
and amortization (EBITDA):
Low Median Mean High
----- ------ ----- -----
Enterprise value as a multiple of 2001E EBITDA 12.7x 13.3x 13.7x 14.9x
Using the multiples calculated in the comparable publicly traded companies'
analysis and based on the financial forecasts for UroCor prepared by management
of Dianon, Lazard derived a range of implied per share values of $6.45 to $7.30
for UroCor common stock.
Historical Exchange Ratio Analysis. Lazard reviewed the implied exchange
ratio of shares of UroCor Common Stock to shares of Dianon Common Stock based
on the closing prices of the shares from June 15, 2000 to June 15, 2001.
The following table illustrates the implied exchange ratio on the dates or
for the periods indicated:
Implied Exchange
Ratio as of Average Implied Exchange Ratio From
---------------- --------------------------------------
6/15/01 5/15/01 4/15/01 3/15/01 6/15/00
(30 days) (60 days) (90 days) (1 year)
---------------- --------- --------- --------- --------
Exchange Ratio 0.4064x 0.3852x 0.3485x 0.3316x 0.2388x
Lazard performed a variety of financial and comparative analyses solely for
the purpose of providing its opinion to the Dianon board of directors that the
exchange ratio to be offered in the merger is fair to Dianon from a financial
point of view. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to a partial
analysis or summary description. Accordingly, notwithstanding the separate
analyses summarized above, Lazard believes that its analyses must be considered
as a whole and that selecting portions of the analyses or factors considered by
it, without considering all such factors or analyses, or attempting to ascribe
relative weights to some or all such analyses and factors could create an
incomplete view of the evaluation process underlying the Lazard opinion.
In its analyses, Lazard made numerous assumptions with respect to industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of Dianon and UroCor. The
estimates contained in these analyses and the valuation ranges resulting from
any particular analysis do not necessarily indicate actual values or predict
future results or values, which may be significantly more or less favorable
than those suggested by these analyses. Lazard did not assign any specific
weight to any
I-47
of the analyses described above and did not draw any specific conclusions from
or with regard to any one method of analysis. In addition, analyses relating to
the value of the businesses or securities are not appraisals and do not reflect
the prices at which the businesses or securities may actually be sold or the
prices at which their securities may trade. As a result, these analyses and
estimates are inherently subject to substantial uncertainty.
No company or transaction used in any of the analyses is identical to
Dianon, UroCor, or the merger. Accordingly, an analysis of the results of the
foregoing necessarily involves complex considerations and judgments concerning
financial and operating characteristics of Dianon and UroCor and other factors
that could affect the public trading values or the announced merger transaction
values, as the case may be, of the companies to which they are being compared.
Mathematical analysis (such as determining the mean or median) is not in itself
a meaningful method of using comparable transaction data or comparable company
data.
Lazard's opinion and financial analyses were not the only factors considered
by the Dianon board of directors in its evaluation of the merger and should not
be viewed as determinative of the views of the Dianon board of directors or
Dianon's management. Lazard has consented to the inclusion of and references to
its opinion in this joint proxy statement/prospectus.
Under the terms of Lazard's engagement, Dianon has agreed to pay Lazard an
advisory fee of approximately $4 million. A substantial portion of this fee
will not be paid unless and until the merger is completed. Dianon has agreed to
reimburse Lazard for travel and other out-of-pocket expenses incurred in
performing its services, including the fees and expenses of its legal counsel.
In addition, Dianon agreed to indemnify Lazard against certain liabilities,
including liabilities under the federal securities laws relating to or arising
out of Lazard's engagement.
Lazard is an internationally recognized investment banking firm and is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements, leveraged
buyouts, and valuations for real estate, corporate and other purposes. In the
ordinary course of its business, Lazard and its affiliates may from time to
time effect transactions and hold securities, including derivative securities,
of Dianon or UroCor for its own account and for the account of Lazard's
customers. Lazard was selected to act as investment banker to Dianon because of
its expertise and its reputation in investment banking and mergers and
acquisitions and a strong presence in the healthcare industry.
Opinion of UroCor's Financial Advisor
U.S. Bancorp Piper Jaffray Inc., UroCor's financial advisor, has rendered a
written opinion, dated June 27, 2001, to the UroCor board of directors as to
the fairness, from a financial point of view, to holders of UroCor common stock
of the exchange ratio in the merger. The full text of the written opinion of
U.S. Bancorp Piper Jaffray is attached to this document as Annex C and U.S.
Bancorp Piper Jaffray has consented to the use of its opinion in this joint
proxy statement/prospectus. We encourage you to read the opinion carefully in
its entirety to understand the procedures followed, assumptions made, matters
considered and limitations on the review undertaken by U.S. Bancorp Piper
Jaffray in providing their opinion. The opinion of U.S. Bancorp Piper Jaffray
is directed to the UroCor board of directors and does not constitute
recommendations to any stockholder with respect to any matter relating to the
merger.
UroCor retained U.S. Bancorp Piper Jaffray to act as the exclusive financial
advisor of the UroCor board of directors in connection with the merger and to
render to the UroCor board of directors an opinion as to the fairness, from a
financial point of view, to the holders of common stock of UroCor of the
exchange ratio set forth in the merger agreement.
On June 27, 2001, U.S. Bancorp Piper Jaffray rendered to the UroCor board of
directors its oral opinion, subsequently confirmed in writing, as of that date
and based upon and subject to the assumptions, factors, and limitations stated
in the written opinion and described below, that the exchange ratio set forth
in the merger
I-48
agreement was fair, from a financial point of view, to the holders of common
stock of UroCor. A copy of U.S. Bancorp Piper Jaffray's written opinion is
attached to this proxy statement/prospectus as Annex C and is incorporated into
this proxy statement/prospectus by reference. The UroCor stockholders should
read the opinion carefully in its entirety in conjunction with the proxy
statement/prospectus and should carefully consider the assumptions made,
matters considered and the limits of the review undertaken by U.S. Bancorp
Piper Jaffray. U.S. Bancorp Piper Jaffray's written opinion, which was directed
to the UroCor board of directors, addresses only the fairness, from a financial
point of view, to the holders of UroCor common stock of the proposed exchange
ratio. The opinion does not address UroCor's underlying business decision to
participate in the merger and does not constitute a recommendation to any
UroCor stockholder as to how a stockholder should vote with respect to the
merger at UroCor's special meeting of stockholders.
In addition, U.S. Bancorp Piper Jaffray's opinion was one of many factors
taken into consideration by the UroCor board of directors in its evaluation of
the proposed merger. Consequently, the analyses of U.S. Bancorp Piper Jaffray
described below should not be viewed as determinative of the views of UroCor's
management with respect to the proposed exchange ratio or the merger. U.S.
Bancorp Piper Jaffray assumed that the structure, the amount of consideration,
and other terms of the merger are the most beneficial terms from UroCor's
perspective that could, under the circumstances, be negotiated among the
parties, and expressed no opinion as to whether any alternative transaction
might be more favorable to UroCor.
In arriving at its opinion, U.S. Bancorp Piper Jaffray reviewed, among other
things:
. a draft of the merger agreement dated June 27, 2001 and drafts of other
documents related to the merger;
. selected publicly available financial, operating and business information
related to UroCor and Dianon;
. publicly available market and securities data of UroCor and Dianon and
selected public companies deemed comparable to UroCor and Dianon;
. to the extent publicly available, financial information relating to
selected merger and acquisition transactions deemed comparable to the
proposed merger; and
. internal financial information of UroCor and Dianon prepared for financial
planning purposes and furnished to U.S. Bancorp Piper Jaffray by
management of UroCor and Dianon.
In addition, U.S. Bancorp Piper Jaffray engaged in discussions with members
of the senior management of UroCor and Dianon regarding the business and
prospects of their respective companies and the joint prospects of a combined
company.
For purposes of its opinion, U.S. Bancorp Piper Jaffray relied upon and
assumed the accuracy, completeness and fairness of the financial statements and
other information provided to it by UroCor and Dianon or otherwise made
available to it and did not assume responsibility for the independent
verification of that information. Information prepared for financial planning
purposes was not prepared with the expectation of public disclosure. U.S.
Bancorp Piper Jaffray relied upon the assurances of the management of UroCor
and Dianon that the information provided to it by UroCor and Dianon was
prepared on a reasonable basis, the financial planning data and other business
outlook information reflect the best currently available estimates of
management, and management was not aware of any information or facts that would
make the information provided to U.S. Bancorp Piper Jaffray incomplete or
misleading. U.S. Bancorp Piper Jaffray also assumed that there had been no
material changes in UroCor's and Dianon's assets, financial condition, results
of operations, business or prospects since the respective dates of their last
financial statements made available to U.S. Bancorp Piper Jaffray.
In delivering its opinion to the UroCor board of directors on June 27, 2001,
U.S. Bancorp Piper Jaffray presented to the UroCor board of directors various
analyses and other information material to the opinion. The following is a
summary of these analyses:
I-49
UroCor Stock Trading Analysis. U.S. Bancorp Piper Jaffray reviewed the stock
trading history of UroCor. U.S. Bancorp Piper Jaffray presented the recent
common stock trading information contained in the following table:
UroCor Stock
Price
------------
Closing price on June 27, 2001.. $16.95
30 calendar day closing average. 16.08
90 calendar day closing average. 13.32
120 calendar day closing average 12.34
52 week high trade.............. 17.40
52 week low trade............... 4.13
U.S. Bancorp Piper Jaffray also presented graphs illustrating UroCor's daily
and weekly stock price and volume performance over the prior 12 month period,
daily stock price and volume performance over the prior six month period and
quarterly stock price and volume performance over the prior 18 month period.
Exchange Ratio Analysis. U.S. Bancorp Piper Jaffray analyzed the exchange
ratio against the "implied" exchange ratio based on historical stock prices for
UroCor and Dianon. U.S. Bancorp Piper Jaffray examined the exchange ratios
implied by the stock prices of UroCor and Dianon on June 27, 2001 and one
month, three months, six months and one year prior to such date, and determined
the 52 week high and low implied exchange ratios.
Ratios
-------
Merger exchange ratio 0.4064x
June 27, 2001........ 0.4236x
1 month.............. 0.4048x
3 month.............. 0.3817x
6 month.............. 0.1813x
1 year............... 0.1891x
52 week high......... 0.4805x
52 week low.......... 0.1259x
U.S. Bancorp Piper Jaffray also presented a graph illustrating the implied
exchange ratio based on historical stock prices for UroCor and Dianon over the
past year.
Analysis of Selected Public Companies. U.S. Bancorp Piper Jaffray compared
certain publicly available financial, operating and stock market information
for UroCor with similar information for the following selected publicly held
companies, each of which is involved in the clinical diagnostic and anatomic
pathology laboratory segments of the health care services market:
. AmeriPath, Inc.;
. DIANON Systems, Inc.;
. Dynacare, Inc.;
. IMPATH, Inc.;
. Laboratory Corporation of America Holdings;
. Quest Diagnostics, Inc;
. Specialty Laboratories, Inc.; and
. UNILAB Corporation.
I-50
U.S. Bancorp Piper Jaffray calculated enterprise value, which it defined as
equity market value plus debt, less cash and cash equivalents, relative to each
company's latest 12 months revenue, earnings before interest, taxes,
depreciation and amortization, commonly referred to as EBITDA, and earnings
before interest and taxes, commonly referred to as EBIT. U.S. Bancorp Piper
Jaffray also calculated share price relative to each company's latest 12 months
earnings per share and estimated calendar year 2001 and 2002 earnings per
share, commonly referred to as EPS, estimates. All multiples were based on
closing stock prices on June 27, 2001. EPS estimates for the selected companies
were based on estimates as reported by the Institutional Brokers Estimate
System, commonly referred to as IBES, and EPS estimates for UroCor were based
on the internal estimates of the management of UroCor. U.S. Bancorp Piper
Jaffray then compared the multiples for the selected companies to the multiples
for UroCor assuming a UroCor common stock price of $16.26 in the merger. This
analysis indicated multiples of selected valuation data as follows:
UroCor Selected Companies
------ ------------------------
$16.26 Median Mean High Low
------ ------ ----- ----- -----
Enterprise value to:
Latest 12 months revenue. 3.1x 2.8x 3.0x 4.6x 1.0x
Latest 12 months EBITDA.. 21.5x 15.9x 16.9x 31.9x 7.9x
Latest 12 months EBIT.... 34.6x 21.6x 23.4x 43.5x 12.4x
Latest twelve months
price/earnings ratio........ 46.5x 43.8x 43.0x 65.3x 23.9x
2001 price/earnings ratio... 39.7x 34.8x 35.3x 59.2x 20.9x
2002 price/earnings ratio... 25.4x 26.7x 28.0x 49.3x 17.9x
Analysis of Selected Mergers and Acquisitions. U.S. Bancorp Piper Jaffray
reviewed multiples of revenue, EBITDA, EBIT, and net income paid in the
following eight transactions:
Date Acquiror Target
---- ------------------------- ---------------------------
June 1, 2001 Laboratory Corporation of ViroMed Laboratories
America
March 26, 2001 Laboratory Corporation of Path Lab Holdings
America
November 20, 2000 AmeriPath Inform DX
June 20, 2000 Laboratory Corporation of National Genetics Institute
America
May 25, 1999 Kelso & Company Unilab Corporation
April 6, 1999 Unilab Corporation Physicians Clinical
February 9, 1999 Quest Diagnostics SmithKline Beecham Plc
October 22, 1998 Kroll-O'Gara Company Lab Specialists of America
The selected transactions were chosen because the target companies were
companies in the clinical diagnostic and anatomic pathology laboratory industry
that, for purposes of this analysis, U.S. Bancorp Piper Jaffray considered
generally comparable to UroCor. Each transaction had a transaction value of
greater than $25 million and involved a purchase of a majority interest in the
target company with cash, stock, or a combination of cash and stock. No
transaction used in the selected transaction analysis is identical to the
merger. All multiples were based on available information at the time of
announcement of the relevant transaction.
I-51
UroCor Selected Transactions
------ ------------------------
$16.26 Median Mean High Low
------ ------ ----- ----- -----
Enterprise Value to:
Latest 12 months revenue.... 3.1x 1.7x 1.5x 2.0x 0.6x
Latest 12 months EBITDA..... 21.5x 8.6x 9.9x 14.6x 6.4x
Latest 12 months EBIT....... 34.6x 13.1x 14.5x 21.9x 10.1x
Equity Value to:
Latest 12 months net income. 51.9x 20.5x 29.2x 49.6x 17.6x
Premium Paid Analysis. U.S. Bancorp Piper Jaffray reviewed the range of
premiums paid in 30 change-of-control transactions of healthcare services
companies with transaction values greater than $25 million completed from
January 1, 1998 to June 27, 2001. These transactions indicated a range of
premiums based on the target company's stock price one week prior and a four
weeks prior to announcement of the transaction. The following table sets forth
the median, mean, high and low premiums paid in these transactions as compared
to the premium to be paid in the merger based on a UroCor common stock price of
$16.26.
UroCor Selected Premiums
------ ------------------------
$16.26 Median Mean High Low
------ ------ ---- ----- ----
Premium to stock price:
One week prior to announcement... 0.7% 31.5% 33.1% 85.3% (2.8)%
Four weeks prior to announcement. 2.1% 33.1% 40.4% 116.7% (0.3)%
This analysis also noted that the premium paid in the merger represented a
30.0% premium over UroCor's stock price on May 1, 2001, three days after UroCor
announced its first quarter financial results, and an 85.8% premium over
UroCor's stock price on February 21, 2001, three days after UroCor announced
its tentative settlement with the Department of Justice.
Discounted Cash Flow Analysis. U.S. Bancorp Piper Jaffray performed a
discounted cash flow analysis for UroCor to estimate the present value of the
stand-alone, unleveraged, after-tax free cash flows that UroCor could generate
through December 31, 2005 based on estimates provided by the management of
UroCor. The stand-alone discounted cash flow analysis was determined by adding
the present value at June 30, 2001 of the projected free cash flows generated
by UroCor over the period from July 1, 2001 through December 31, 2005, the
present value of UroCor's estimated terminal value in 2005 and UroCor's cash at
March 31, 2001, and subtracting UroCor's total debt, including accruals for the
cost of UroCor's settlement with the Department of Justice, on March 31, 2001.
The range of estimated terminal values for UroCor was calculated by applying
terminal value multiples ranging from 8.0x to 10.0x to the projected 2005
EBITDA of UroCor. The cash flows and terminal values were discounted to present
value using discount rates ranging from 20.0% to 30.0%. This analysis yielded
an implied equity reference range for UroCor common stock of $10.15 to $16.03
per share, as compared to a UroCor common stock price of $16.26 in the merger.
Contribution Analysis. U.S. Bancorp Piper Jaffray analyzed the pro forma
relative contribution of UroCor to the estimated revenues, EBITDA and pre-tax
income of the combined company in calendar years 2000, 2001 and 2002 based on
estimates provided by the management of UroCor and, with respect to and as
directed by Dianon, estimates from a CS First Boston research report. This
analysis indicated the following:
. for calendar year 2000, UroCor would have contributed approximately 35.5%
of the revenues, 31.1% of the EBITDA and 28.0% of the pre-tax income of
the pro forma combined company;
. in calendar year 2001, UroCor would have contributed approximately 34.7%
of the revenues, 35.3% of the EBITDA and 31.3% of the pre-tax income of
the pro forma combined company; and
. in calendar year 2002, UroCor would have contributed approximately 34.1%
of the revenues, 36.9% of the EBITDA and 34.3% of the pre-tax income of
the pro forma combined company.
I-52
Based on the exchange ratio and Dianon's stock price on June 27, 2001,
current holders of UroCor common stock would own approximately 35.4% of the
equity of the pro forma combined company upon completion of the merger.
Dianon Stock Trading Analysis. U.S. Bancorp Piper Jaffray reviewed the stock
trading history of Dianon. U.S. Bancorp Piper Jaffray presented the recent
common stock trading information contained in the following table:
Dianon
Stock Price
-----------
Closing price on June 27, 2001.. $40.01
30 calendar day closing average. 37.50
90 calendar day closing average. 37.18
120 calendar day closing average 35.46
52 week high trade.............. 47.50
52 week low trade............... 20.50
U.S. Bancorp Piper Jaffray also presented graphs illustrating Dianon' daily
and weekly stock price and volume performance of Dianon over the prior 12 month
and three year period.
The summary set forth above does not purport to be a complete description of
the opinion of U.S. Bancorp Piper Jaffray to the UroCor board of directors or
the financial analyses performed and factors considered by U.S. Bancorp Piper
Jaffray in connection with its opinion. In reaching its conclusion as to the
fairness of the exchange ratio, U.S. Bancorp Piper Jaffray did not rely on any
single analysis or factor described above, assign relative weights to the
analyses or factors considered by it, or make any conclusion as to how the
results of any given analysis, taken alone, supported its opinion. The
preparation of a fairness opinion is a complex analytical process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances, and, therefore, fairness opinions are not readily susceptible to
summary description. U.S. Bancorp Piper Jaffray believes that its analyses and
the summary set forth above must be considered as a whole and that selecting
portions of its analyses, without considering all analyses, or selecting
portions of the above summary, without considering all factors and analyses,
could create a misleading or incomplete view of the processes underlying its
analyses and opinion.
In performing its analyses, U.S. Bancorp Piper Jaffray made numerous
assumptions with respect to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of UroCor and Dianon. No company, transaction or business used in the
analyses as a comparison is identical to UroCor, the pro forma combined company
or the proposed merger, nor is an evaluation of the results of the analyses
entirely mathematical. Rather, the analyses involve complex considerations and
judgments concerning financial and operating characteristics and other factors
that could affect the acquisition, public trading or other values of the
companies, businesses or transactions being analyzed. The estimates contained
in the analyses and the ranges of valuations resulting from any particular
analysis are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than those suggested by the
analyses. In addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, the analyses and
estimates are inherently subject to substantial uncertainty.
For purposes of rendering its opinion, U.S. Bancorp Piper Jaffray assumed,
in all respects material to its analysis, that:
. the final form of the merger agreement would be substantially similar to
the last draft it reviewed, without modification or waiver of material
terms or conditions by UroCor or Dianon;
I-53
. the representations and warranties of UroCor, Dianon and UroCor
Acquisition Corp. contained in the merger agreement are true and correct;
. UroCor, Dianon and UroCor Acquisition Corp. will each perform all of the
covenants and agreements to be performed by it under the merger agreement;
and
. all conditions to the obligations of each of UroCor, Dianon and UroCor
Acquisition Corp. to complete the merger will be satisfied without waiver
of any of these conditions.
U.S. Bancorp Piper Jaffray also assumed that all regulatory approvals and
consents required in connection with the completion of the merger will be
obtained in a manner that will not adversely affect UroCor or Dianon. U.S.
Bancorp Piper Jaffray further assumed that neither UroCor nor Dianon is party
to any pending transactions, including any external financing,
recapitalization, acquisition or merger, other than the merger or in the
ordinary course of business. U.S. Bancorp Piper Jaffray further assumed that no
transactions in securities of UroCor or Dianon will occur before the closing
date of the merger or as a result of the merger. In addition, U.S. Bancorp
Piper Jaffray assumed that the merger will constitute a reorganization for
federal income tax purposes and will be treated as a purchase for accounting
purposes.
In arriving at its opinion, U.S. Bancorp Piper Jaffray did not perform any
appraisals or valuations of any specific assets or liabilities of UroCor or
Dianon, and was not furnished with any such appraisals or valuations. U.S.
Bancorp Piper Jaffray expressed no opinion as to the liquidation value of any
entity. U.S. Bancorp Piper Jaffray expressed no opinion as to the price at
which shares of UroCor or Dianon common stock have traded or at which the
shares of UroCor, Dianon or the combined company may trade at any future time.
The opinion is based on information available to U.S. Bancorp Piper Jaffray and
the facts and circumstances as they existed and were subject to evaluation on
the date of the opinion. Events occurring after that date could materially
affect the assumptions used in preparing the opinion. U.S. Bancorp Piper
Jaffray has not undertaken to and is not obligated to affirm or revise its
opinion or otherwise comment on any events occurring after the date it was
given.
U.S. Bancorp Piper Jaffray is an internationally recognized investment
banking firm and, as a customary part of its investment banking business, is
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, private placements and
valuations for estate, corporate and other purposes. UroCor selected U.S.
Bancorp Piper Jaffray to serve as its exclusive financial advisor based on U.S.
Bancorp Piper Jaffray's reputation, expertise and experience in similar
transactions. U.S. Bancorp Piper Jaffray regularly publishes research reports
regarding the health care industry and publicly owned companies in the health
care industry. In the ordinary course of business, U.S. Bancorp Piper Jaffray
may actively trade or hold the securities and other instruments and obligations
of UroCor or Dianon for its own account and the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities,
instruments or obligations.
Pursuant to a letter agreement, dated July 13, 2000, as amended as of June
28, 2001, between UroCor and U.S. Bancorp Piper Jaffray, UroCor agreed to pay
U.S. Bancorp Piper Jaffray a retainer fee of $100,000 and $500,000 for
rendering its opinion, both of which amounts will be credited against a
$4,000,000 transaction fee payable upon completion of the merger. In addition,
UroCor has agreed to reimburse U.S. Bancorp Piper Jaffray for its reasonable
out-of-pocket expenses, including reasonable fees and disbursements of counsel,
and to indemnify U.S. Bancorp Piper Jaffray and certain related parties against
certain liabilities incurred, including certain liabilities under the federal
securities laws, relating to, or arising out of the engagement of U.S. Bancorp
Piper Jaffray by the UroCor board of directors.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of UroCor's board of directors with
respect to the merger, stockholders should be aware that some officers of
UroCor, including one officer who also is a director, have some interests in
the merger that may be different from, or in addition to, the interests of
stockholders of UroCor. The board of directors of UroCor was aware of these
interests and considered them, among other matters, in making their
recommendation. See Chapter Five, entitled "Other Dianon Annual Meeting
Proposals," for a discussion of the compensation, including unvested options,
none of which vest upon completion of the merger, and security ownership of the
executive officers and directors of Dianon.
UroCor's Arrangements With Executive Officers and Key Employees
Change In Control Agreements. Michael W. George and the other executive
officers and key employees listed in the table below, have executed
substantially identical Change in Control Agreements with UroCor, which provide
certain benefits in the event of a change in control of UroCor. Stockholder
approval of the merger will constitute a "change in control" under these Change
in Control Agreements.
Under the terms of these Change in Control Agreements, in the event the
employee is terminated at any time after a change in control transaction has
occurred, and termination is not voluntary or the result of death, permanent
disability, retirement or certain other defined circumstances, the employee
would be entitled to receive (a) payment of accrued but unpaid base salary and
earned but unused vacation time through the date of termination, (b) a lump sum
cash payment equal to either one or one and one-half times the sum of the
annual base salary of the employee in effect at any time since the effective
date of the agreement plus the amount of the highest annual bonus received by
the employee at any time after the effective date of the agreement (excluding
any bonus received under the UroCor 2001 Bonus Plan discussed below) and (c)
the continuation of life, disability and health insurance coverages for either
12 or 18 months. The Change in Control Agreements also provide special payments
to the employees to reimburse them, if necessary, for any federal excise tax or
similar state or local tax that may be imposed on payments following a change
in control.
As of August 31, 2001, the approximate value of the lump sum cash payments
described in (b) above plus earned but unused vacation time described in (a)
above due under these change in control agreements to each employee upon a
qualifying termination of employment following a change in control, not
including any payments that may be made with respect to any excise tax, would
be as follows:
UroCor Employee Amount
- --------------- ----------
John L. Armstrong...................................................... $ 267,176
Ronald J. Morris....................................................... 253,458
Bruce C. Hayden........................................................ 320,770
Melissa A. Walker...................................................... 240,308
Karl K. Nigg........................................................... 326,225
Robert W. Veltri....................................................... 319,568
Michael W. George...................................................... 450,567
Stanley L. Mills....................................................... 242,048
Gerard J. O'Dowd....................................................... 398,946
Joseph R. McNeil....................................................... 92,596
----------
All UroCor executive officers and key employees as a group (10 persons) $2,911,662
==========
Equity-Based Awards. Pursuant to the terms of UroCor's equity-based
compensation plans, all unvested options to purchase UroCor stock held by
UroCor's employees, including executive officers, will become vested and
exercisable upon completion of the merger.
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As of August 31, 2001, the number of unvested options held by executive
officers and other key employees of UroCor that will become vested in this
manner is as follows:
Number of Weighted Avg.
UroCor Employee Unvested Options Exercise Price
- --------------- ---------------- --------------
John L. Armstrong......................................... 87,000 3.69
Ronald J. Morris.......................................... 57,500 7.87
Bruce C. Hayden........................................... 60,000 4.22
Melissa A. Walker......................................... 60,250 9.38
Karl K. Nigg.............................................. 51,250 5.28
Robert W. Veltri.......................................... 1,875 4.63
Michael W. George......................................... 171,756 4.06
Stanley L. Mills.......................................... 3,750 4.63
Gerard J. O'Dowd.......................................... 3,000 4.63
Joseph R. McNeil.......................................... 10,000 8.00
-------
All UroCor executive officers and key employees as a group
(10 persons)............................................ 506,381
=======
UroCor 2001 Bonus Plan. Under the terms of the merger agreement, UroCor may
pay up to a total of $1,200,000 under the UroCor 2001 Bonus Plan to executive
officers and other employees as follows:
UroCor Employee/Group of Employees Amount
- ---------------------------------- ----------
Michael W. George................................. $ 113,930
Bruce C. Hayden................................... 62,852
Karl K. Nigg...................................... 71,884
John L. Armstrong................................. 51,041
Robert W. Veltri.................................. 45,916
Stanley L. Mills.................................. 26,827
Ronald J. Morris.................................. 28,984
All other employees............................... 798,566
----------
All UroCor key executives and employees as a group $1,200,000
==========
Ownership of Common Stock; Stock Options
As of August 29, 2001, directors and executive officers of Dianon
beneficially owned an aggregate of 2,313,869 shares of Dianon common stock,
including options to purchase 430,972 shares of Dianon common stock exercisable
within 60 days.
As of August 31, 2001, directors and executive officers of UroCor owned an
aggregate of 1,336,722 shares of UroCor common stock, plus options to purchase
658,805 shares of UroCor common stock exercisable within 60 days.
Indemnification; Directors' And Officers' Insurance
Dianon is obligated, for six years after the merger, to maintain in effect
UroCor's current directors' and officers' liability insurance (but the annual
premiums for such insurance may not exceed $240,000) covering acts or omissions
occurring prior to the effective time of the merger.
Dianon will cause the surviving corporation in the merger to maintain in its
certificate of incorporation or by-laws for a period of 6 years the current
provisions regarding indemnification of officers, directors and employees.
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THE MERGER AGREEMENT
The following is a summary of the material terms of the merger agreement.
This summary does not purport to describe all the terms of the merger agreement
and is qualified by the complete merger agreement which is attached as Annex A
to this joint proxy statement/prospectus and incorporated by reference. All
stockholders of Dianon and UroCor are urged to read the merger agreement
carefully and in its entirety.
General
Under the merger agreement, a wholly-owned subsidiary of Dianon will merge
with and into UroCor, with UroCor continuing as the surviving corporation. The
merger will be accounted for as a purchase transaction and is structured to
qualify as a tax-free reorganization.
Closing Matters
Closing. Unless the parties agree otherwise, the closing of the merger will
take place on the first business day after all closing conditions have been
satisfied or waived, unless the merger agreement has been terminated or another
time or date is agreed to in writing by the parties. See "--Conditions" below
for a more complete description of the conditions that must be satisfied prior
to closing.
Effective Time. As soon as practicable after the satisfaction or waiver of
the conditions to the merger, Dianon and UroCor will file a certificate of
merger in such form as is required by and executed in accordance with the
relevant provisions of the Delaware General Corporation Law and make all other
required filings or recordings. The merger will become effective when the
certificate of merger is filed with the Delaware Secretary of State or at such
subsequent time as Dianon and UroCor agree and specify in the certificate of
merger.
Consideration to be Received in the Merger
The merger agreement provides that, at the effective time of the merger,
each share of UroCor common stock issued and outstanding immediately prior to
the effective time of the merger, together with the associated rights issued
under the UroCor stockholder rights plan, will be converted into the right to
receive the shares of Dianon common stock and associated rights at the
following exchange ratio:
. If the Dianon "market price" is less than or equal to $44.29, the exchange
ratio shall equal 0.4064; and
. If the Dianon "market price" is greater than $44.29, the exchange ratio
shall equal a quotient (rounded to four decimal points), the numerator of
which is $18.00, and the denominator of which is the Dianon market price
The Dianon "market price" shall mean the average daily closing price per
share of Dianon common stock as reported on the Nasdaq for the "random trading
days." "Random trading days" means the five trading days selected by lot out of
the fifteen trading days ending on and including the "determination date" (with
"random trading days" selected by lot by Dianon and UroCor at 5:00 p.m. New
York time on the "determination date"), and "determination date" means the
third Nasdaq trading day preceding the closing date of the merger.
In addition, any shares of UroCor common stock owned by Dianon, held by
UroCor as treasury stock or owned by any of their respective subsidiaries will
be automatically canceled, and will not be exchanged for any shares of Dianon
common stock or other consideration.
Each share of Dianon common stock will remain outstanding following the
merger and will continue to represent one share of common stock of Dianon after
the merger.
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Treatment of Stock Options
The merger agreement provides that, at the effective time of the merger,
each outstanding and unexercised option or right to purchase shares of UroCor
common stock granted under the UroCor stock plans will be assumed by Dianon and
converted into an option or a right to purchase shares of Dianon common stock
under the same terms and conditions as were applicable to the options as
granted under the UroCor stock plans. Options or rights to purchase shares of
UroCor common stock granted under the UroCor 1992 stock plan, whether vested or
unvested, will be assumed by Dianon and converted into fully vested options or
rights to purchase shares of Dianon common stock under the same terms and
conditions as were applicable to the options as granted under the UroCor stock
plans. The number of shares of Dianon common stock that the converted options
will be exercisable for, and the exercise price of the option, will be adjusted
to reflect the exchange ratio.
To the extent permitted by law, Dianon will comply with the terms of the
UroCor stock plans and will take reasonable steps to ensure that the stock
options which qualified as incentive stock options prior to the completion of
the merger continue to qualify as incentive stock options of Dianon after the
merger.
For a further discussion of the treatment of UroCor stock options and other
employee benefit plans under the merger agreement, see "The Merger
Agreement--Covenants" and "Interests of Certain Persons in the Merger".
Exchange of Certificates in the Merger
Before the closing of the merger, Dianon will appoint an exchange agent to
handle the exchange of UroCor stock certificates for stock certificates of
Dianon and the payment of cash for fractional shares. Soon after the closing of
the merger, the exchange agent will send a letter of transmittal, which is to
be used to exchange UroCor stock certificates for stock certificates of Dianon,
to each former UroCor stockholder. The letter of transmittal will contain
instructions explaining the procedure for surrendering UroCor stock
certificates. You should not return certificates with the enclosed proxy card.
UroCor stockholders who surrender their stock certificates, together with a
properly completed letter of transmittal, will receive uncertificated,
book-entry shares of Dianon common stock into which the shares of UroCor common
stock were converted in the merger.
After the merger, each certificate that previously represented shares of
UroCor stock will only represent the right to receive the shares of Dianon
common stock into which those shares of UroCor common stock have been
converted.
Dianon will not pay any dividends or any other distributions to holders of
any UroCor stock certificates until the UroCor stock certificates are
surrendered to the exchange agent. However, once those certificates are
surrendered, Dianon will pay to the holder, without interest, any dividends
that have been declared after the effective date of the merger on the shares
into which those UroCor shares have been converted.
After the effective time of the merger, UroCor will not register any
transfers of the shares of UroCor common stock.
Dianon stockholders do not need to exchange their stock certificates.
Fractional Shares
No fractional shares of Dianon common stock will be issued in the merger.
Instead, the exchange agent will pay each of those stockholders who would have
otherwise been entitled to a fractional share of Dianon common stock an amount
in cash determined by multiplying the fractional share interest by the closing
price for a share of Dianon stock on the Nasdaq on the date of the effective
time of the merger or, if such date is not a business day, on the business day
immediately following the date on which the effective time of the merger
occurs.
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Listing of Dianon Stock
Dianon has agreed to use its reasonable efforts to cause the shares of
Dianon common stock to be issued in the merger and the shares of Dianon common
stock to be reserved for issuance upon exercise of the UroCor stock options to
be approved for quotation on the Nasdaq, prior to the closing date.
Covenants
We have each undertaken certain covenants in the merger agreement concerning
the conduct of our respective businesses between the date the merger agreement
was signed and the completion of the merger. The following summarizes the more
significant of these covenants:
No Solicitation. UroCor has agreed that neither it nor any of its
subsidiaries nor any of the officers and directors of UroCor or its
subsidiaries shall, (and UroCor shall cause its employees, agents and
representatives not to), directly or indirectly:
. initiate, solicit, encourage or knowingly facilitate, including by way of
furnishing information, any inquiries or the making of any proposal or
offer with respect to a third party "acquisition proposal" of the type
described below;
. have any discussion with or provide any confidential information or data
to any person relating to an acquisition proposal;
. engage in negotiations concerning an acquisition proposal;
. knowingly facilitate any effort or attempt to make or implement an
acquisition proposal; or
. accept an acquisition proposal.
However, UroCor is permitted, as is contemplated under the federal
securities laws, to take and disclose to its stockholders its position with
respect to any acquisition proposal.
In addition, UroCor is permitted to provide information to or enter into
negotiations with a third party in response to an acquisition proposal that the
UroCor board of directors determines is reasonably likely to result in a
"superior proposal," if, prior to the UroCor stockholder meeting, a majority of
the UroCor board of directors determines in good faith that a failure to do so
would result in a breach of the directors' fiduciary duties under applicable
law. In addition, before UroCor provides information to, or enters into
negotiations with, a third party, it must provide notice to Dianon and enter
into a customary confidentiality agreement with the person making the
acquisition proposal.
An "acquisition proposal" means any inquiry, proposal or offer from any
person or entity other than Dianon relating to any direct or indirect
acquisition or purchase of more than 10% of the total assets (including without
limitation stock of any subsidiaries) of UroCor and its subsidiaries, taken as
a whole, or any shares of any class or series of equity securities of UroCor or
any of its subsidiaries constituting more than 10% of the outstanding shares of
UroCor common stock, any tender offer or exchange offer involving more than 10%
of the outstanding shares of UroCor common stock, or any merger,
reorganization, consolidation, share exchange, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
UroCor or any of its subsidiaries, other than the transactions contemplated by
the merger agreement.
A "superior proposal" means any written proposal not solicited in breach of
the "no-solicitation" provisions of the merger agreement by UroCor made by a
third party to consummate a tender offer, exchange offer, merger, consolidation
or similar transaction which would result in such third party (or its
stockholders) owning, directly or indirectly, all or substantially all of the
shares of UroCor common stock then outstanding (or of the surviving entity in a
merger) or all or substantially all of the assets of UroCor and its
subsidiaries and otherwise on terms which a majority of the members of the
board of directors of UroCor determines in good faith (after consultation
I-59
with outside counsel and taking into consideration the advice of a financial
advisor of nationally recognized reputation) to be more favorable to UroCor's
stockholders, from a financial point of view, than the merger. In reaching such
good faith determination, the board of directors of UroCor shall give
significant consideration to whether such third party proposal includes
definitive financing and is reasonably capable of being consummated.
UroCor Board of Directors' Covenant to Recommend.
UroCor's board will recommend that its stockholders approve the transaction
and will not withdraw or modify its recommendation. However, prior to the
UroCor stockholder meeting, the UroCor board may, subject to payment of the
"termination fee" (See "The Merger Agreement--Termination of Merger Agreement"
for a discussion of the termination fee), change its recommendation and/or
approve another transaction if an unsolicited superior proposal is made to
UroCor, and a majority of the UroCor board determines in good faith (after
consultation with outside counsel) that a failure to do so would result in a
breach of the directors' fiduciary duties to UroCor's stockholders under
applicable law.
UroCor is obligated to notify Dianon within 72 hours prior to any change in
recommendation or approval of another transaction by UroCor board. UroCor may
not enter into a binding agreement for another transaction prior to the third
business day following Dianon's receipt of such written notification.
Operations of Dianon and UroCor Pending Closing. We have each undertaken a
separate covenant that places restrictions on ourselves and our respective
subsidiaries until either the effective time of the merger or the termination
of the merger agreement. In general, we and our respective subsidiaries are
required to conduct our business in the usual, regular and ordinary course in
all material respects substantially in the same manner as previously conducted
and to use our reasonable efforts to preserve intact our present lines of
business and relationships with third parties.
In addition to these mutual covenants, Dianon has certain other interim
covenants, including:
. restrictions with respect to the paying or declaring of any dividends
(other than from a subsidiary to its parent);
. restrictions on Dianon issuing any securities or options;
. restrictions with respect to amending its governing documents;
. actions which would cause its representations and warranties to be no
longer true;
. that Dianon will not and will not permit any of its subsidiaries to commit
or authorize any of the foregoing actions; and
. that Dianon will not take any action that would prevent the merger from
qualifying as a reorganization under section 368(a).
In addition to the mutual covenants described above, UroCor has certain
other interim covenants, including:
. restrictions with respect to the paying or declaring of any dividends
(other than from a subsidiary to its parent);
. restrictions with respect to the issuance of securities and options;
. restrictions with respect to amending its governing documents;
. restrictions with respect to acquisitions, dispositions, investments, or
indebtedness;
. a requirement that UroCor not incur or commit capital expenditures above
agreed-upon levels;
. that UroCor will not pay or discharge any claims or liabilities, or waive
any benefits of or fail to enforce any agreement;
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. that UroCor will not establish, amend or modify any benefit plans or
agreements;
. that UroCor shall not increase the compensation of any directors,
executive officers or employees; however, UroCor may pay up to an
aggregate of $1,200,000 under the UroCor 2001 Bonus Plan prior to the
effective time;
. restrictions on transfer or license of any intellectual property;
. that UroCor will not enter or amend any of the specified contracts and
obligations;
. that UroCor will not obtain any real property;
. that UroCor will not increase the headcount of employees;
. that UroCor shall not change its accounting methods;
. that UroCor will not take actions which would cause its representations
and warranties to be no longer true;
. that UroCor shall not make material tax elections or take any action that
would prevent the merger from qualifying as a reorganization under section
368(a); and
. that UroCor will not and will not permit any of its subsidiaries from
committing or authorizing any of the foregoing actions.
Reasonable Efforts Covenant. We have agreed to cooperate with each other and
to use our reasonable efforts to take all actions and do all things advisable
or necessary under the merger agreement and applicable laws to complete the
merger and the other transactions contemplated by the merger agreement.
However, neither of us will be required for any reason to sell, hold separate
or otherwise dispose of assets, or to conduct our business in a specified
manner.
Employee Matters.
. Prior to the effective time, UroCor may pay up to an aggregate of
$1,200,000 under the UroCor 2001 Bonus Plan solely to the employees
specified in the merger agreement and thereafter shall, prior to the
effective time, terminate such plan. Dianon may pay such bonus amounts to
UroCor employees who continue to be employed by Dianon following the
effective time].
. On or before July 1, 2001, UroCor shall take such actions as are necessary
to amend the UroCor 1997 Employee Stock Purchase Plan to provide that (a)
at the effective time, the offering period under such plan in which the
effective time occurs shall expire, (b) no shares of UroCor common stock
shall be purchased with respect to such offering period and (c) at the
effective time, UroCor shall pay to each participant in such plan in cash
an amount equal to the aggregate amount of such participant's payroll
deduction contributions accumulated during such offering period through
the effective time.
Other Covenants and Agreements
Meeting of Stockholders. The merger agreement contains a covenant that we
will each convene a meeting of our stockholders to consider and vote upon the
merger and related transactions as soon as reasonably practicable.
Insurance and Indemnification. Dianon is obligated, for six years after the
merger, to maintain in effect UroCor's current directors' and officers'
liability insurance (but the annual premiums for such insurance may not exceed
$240,000) covering acts or omissions occurring prior to the effective time of
the merger. Dianon will cause the surviving corporation in the merger to
maintain in its certificate of incorporation or by-laws for a period of 6 years
the current provisions regarding indemnification of officers, directors and
employees.
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S-8 Registration Statement. Dianon will prepare and file with the SEC a
Registration Statement on Form S-8 registering the issuance of Dianon common
stock issuable on exercise of the UroCor stock options which shall be converted
into options to purchase Dianon common stock, and Dianon shall use its best
efforts to cause the such Registration Statement to become effective on or
prior to the effective time.
Expenses. We have each agreed to pay our own costs and expenses incurred in
connection with the merger and the merger agreement, subject to termination of
the merger agreement. See "The Merger Agreement--Termination of Merger
Agreement".
Accountants' Letters. We have each agreed to use our reasonable efforts to
deliver to each other copies of two comfort letters from our independent public
accountants, one dated as of the date the registration statement containing
this joint proxy statement/prospectus is declared effective by the SEC and one
dated as of the closing date of the merger, in form reasonably satisfactory to
the other party and customary in scope for comfort letters delivered by
independent accountants.
Other Covenants. The merger agreement contains covenants relating to the
cooperation between Dianon and UroCor in the preparation of this joint proxy
statement/prospectus and other governmental filings. The merger agreement also
contains additional agreements relating to, among other things, public
announcements, mutual notice of certain matters and access to information.
Representations and Warranties
The merger agreement contains substantially reciprocal representations and
warranties of Dianon and UroCor as to, among other things:
. due organization, standing and power of each party and their subsidiaries;
. capital structure;
. authority to enter into the merger agreement, no conflicts;
. timely filing of reports and financial statements;
. accuracy of information supplied;
. respective board approvals;
. stockholder vote required;
. disclosure of material litigation;
. compliance with laws;
. absence of material adverse changes or events;
. disclosure of environmental matters;
. intellectual property;
. brokers or finders;
. opinions of financial advisor;
. taxes;
. certain contracts;
. related party transactions;
. absence of changes in employee benefit plans;
I-62
. ERISA compliance; and
. labor matters.
In addition, UroCor makes the following representations and warranties:
. actions with respect to UroCor Rights Agreement;
. accounts receivable and accruals; and
. limitation on certain transaction fees.
The merger agreement also contains certain representations and warranties of
Dianon and its wholly-owned merger subsidiary regarding such subsidiary,
including organization, corporate authorization, non-contravention and no prior
business activities.
The representations and warranties contained in the merger agreement do not
survive the effective time of the merger.
Conditions
Our respective obligations to complete the merger are subject to the
satisfaction or, to the extent legally permissible, the waiver of various
conditions which include, in addition to other customary closing conditions:
. the adoption and approval of the merger agreement and the merger by the
UroCor stockholders, and the approval of the share issuance by the Dianon
stockholders;
. the absence of any law, order or injunction prohibiting completion of the
merger or which would have a material adverse effect on the combined
company;
. the approval for listing by Nasdaq of the Dianon stock to be issued in the
merger, subject to official notice of issuance;
. the receipt of all other governmental and regulatory consents, approvals
and authorizations necessary for the merger unless not obtaining those
consents or approvals would not reasonably be expected to have a material
adverse effect on the combined company, taken as a whole;
. the SEC having declared effective the Dianon registration statement, of
which this joint proxy statement/prospectus forms a part; and
. that there not be pending or threatened any suit, action or proceeding by
any governmental entity, challenging the acquisition by Dianon or its
merger subsidiary of any shares of UroCor common stock, seeking to
restrain or prohibit consummation of the merger, seeking to place
limitations on the ownership of shares of UroCor common stock by Dianon,
seeking to prohibit or limit the ownership or operation by UroCor or
Dianon and their respective subsidiaries of any material portion of the
business or assets of UroCor or Dianon and their respective subsidiaries
taken as a whole, or to compel UroCor or Dianon and their respective
subsidiaries to dispose of or hold separate any material portion of the
business or assets of UroCor or Dianon and their respective subsidiaries
taken as a whole, as a result of the merger or any of the other
transactions contemplated by the merger agreement or seeking to prohibit
Dianon or any of its subsidiaries from effectively controlling in any
material respect the business or operations of UroCor or Dianon and their
respective subsidiaries taken as a whole.
In addition, individually, our respective obligations to effect the merger
are subject to the satisfaction or, to the extent legally permissible, the
waiver of the following additional conditions:
. the representations and warranties of the other company contained in the
merger agreement being true and correct in all material respects on the
closing date of the merger as if they were made on that date, unless they
were by their express provisions made as of another particular date, in
which case the statement must be true and correct in all material respects
as of that date;
I-63
. each party having performed or complied in all material respects with its
obligations and covenants contained in the merger agreement;
. the receipt of an opinion of each company's counsel to the effect that the
merger will qualify as a reorganization under the Internal Revenue Code
and that each of Dianon, UroCor and the Dianon merger subsidiary will be a
party to the reorganization;
. no event having occurred which would trigger a distribution under the
other company's stockholder rights plan; and
. no event or circumstance shall have occurred relating to any governmental
review or inquiry concerning any product or business practice which is
likely to result in a material adverse effect on each company or its
prospects.
Termination of Merger Agreement
Right to Terminate. Dianon and UroCor can mutually agree to terminate the
merger agreement without completing the merger, and either party can terminate
the merger agreement if any of the following occurs:
. the merger has not been completed by December 31, 2001 for reasons other
than relating to regulatory approval, and, in such event, no later than
March 31, 2002;
. a governmental authority or a court order permanently prohibits the
completion of the merger;
. either Dianon's or UroCor's stockholders do not give the required
approvals necessary to complete the merger; or
. the board of directors of UroCor authorizes UroCor to enter into an
agreement with a third party with respect to an acquisition proposal that
the board determined is a superior proposal.
Dianon may terminate the merger agreement if any of the following occurs:
. UroCor's board of directors either fails to recommend the merger to its
stockholders, changes its recommendation, or fails to call the UroCor
special meeting to vote on the merger;
. UroCor or any of its directors, employees or agents breaches the
"no-solicitation" provision of the merger agreement;
. UroCor's board of directors authorizes UroCor to accept an acquisition
proposal, or, after an acqusition proposal is made public, UroCor's board
fails to affirm its recommendation of the merger with Dianon as soon as
practicable and no later than 3 business days after requested by Dianon;
. A tender or exchange offer is commenced and the UroCor board fails to
recommend against such offer; or
. UroCor breaches any of its representations, warranties or covenants
contained in the merger agreement, resulting in its failure to satisfy one
of the closing conditions to the merger, and, if curable, that breach
remains uncured for 30 days.
UroCor may terminate the merger agreement if any of the following occurs:
. Dianon breaches any of its representations, warranties or covenants
contained in the merger agreement, resulting in its failure to satisfy one
of the closing conditions to the merger, and, if curable, that breach
remains uncured for 30 days.
Termination Fees and Expenses Payable by UroCor. UroCor has agreed to pay
Dianon a termination fee of $5,128,000 and up to $1,000,000 of Dianon's
expenses if one of the following occurs:
. Dianon or UroCor terminates because the UroCor stockholder approval was
not obtained and prior to the UroCor stockholders meeting any person shall
have made or announced an intention to make an acquisition proposal with
respect to UroCor;
I-64
. if Dianon or UroCor terminate because UroCor enters into an agreement with
respect to an acquisition proposal that the UroCor Board concludes is a
superior proposal;
. Dianon terminates the merger agreement because:
i.the UroCor board fails to recommend the merger agreement, withdraws or
changes its recommendation or fails to call the stockholder meeting;
ii.UroCor breaches the "no solicitation" clause in the merger agreement;
iii.the UroCor board approves or recommends an acquisition proposal or
fails to affirm its recommendation of the merger with Dianon;
iv.the UroCor board fails to recommend against a tender offer; or
v.UroCor breaches the merger agreement and within 12 months enters into
an agreement with a third party with respect to an acquisition
proposal; or
. Dianon terminates because any person consummates a tender offer or
exchange offer for UroCor.
Amendments, Extensions and Waivers
The merger agreement may be amended by the parties at any time, provided
that if the merger agreement is amendment after the stockholder meetings then
approval of such amendment by the stockholders may be required under applicable
law or stock exchange rules. All amendments to the merger agreement must be in
a writing signed by each party.
At any time prior to the effective time of the merger, any party to the
merger agreement may, to the extent legally allowed:
. extend the time for the performance of any of the obligations or other
acts of the other parties to the merger agreement;
. waive any inaccuracies in the representations and warranties of the other
parties contained in the merger agreement; and
. waive compliance by the other parties with any of the agreements or
conditions contained in the merger agreement.
All extensions and waivers must be in writing and signed by the party
against whom the waiver is to be effective.
I-65
CHAPTER TWO
SELECTED FINANCIAL DATA
The following tables include financial results actually achieved by Dianon
and UroCor ("historical" amounts) as well as results assuming that the
companies had been combined for the periods shown (the "pro forma combined"
amounts) under the purchase method of accounting.
The historical information is derived from:
. the audited financial statements of Dianon as of and for the years ended
December 31, 1996 through December 31, 2000 and the unaudited financial
statements as of and for the six months ended June 30, 2001 and June 30,
2000; and
. the audited financial statements of UroCor as of and for the years ended
December 31, 1996 through December 31, 2000 and the unaudited financial
statements as of and for the six months ended June 30, 2001 and June 30,
2000.
The pro forma information is derived from the Unaudited Pro Forma Condensed
Combined Financial Statements, appearing elsewhere herein, which combine the
historical consolidated financial statements of Dianon and UroCor and give
effect to the merger as if it had been consummated on June 30, 2001 for the
balance sheet and on January 1, 2000 for the income statement when presented
for the six months ended June 30, 2001 and for the year ended December 31,
2000.
You should not assume that Dianon and UroCor would have achieved the
combined pro forma results if they had actually been combined during the
periods shown. The selected financial data included in this section should be
read in conjunction with the historical Consolidated Financial Statements of
Dianon and UroCor and the Unaudited Pro Forma Condensed Combined Financial
Statements, including the notes thereto, included in this joint proxy
statement/prospectus.
II-1
CONSOLIDATED SELECTED FINANCIAL DATA OF
DIANON SYSTEMS, INC. -- Historical
As of and As of and
for the for the
Six Months Six Months As of and for the
Ended Ended Year Ended December 31,
June 30, June 30, ------------------------------------
2001 2000 2000 1999 1998 1997 1996
----------- ----------- ----- ----- ----- ----- -----
(unaudited) (unaudited) (in millions, except per share data)
Net revenues.............................. $55.5 $46.5 $95.7 $76.1 $62.2 $60.9 $56.0
Net income................................ 4.4 2.8 6.6 4.1 3.0 3.3 2.2
Depreciation.............................. 1.7 1.5 3.2 2.8 2.6 2.9 2.1
Cash dividends paid....................... -- -- -- -- -- -- --
Working capital........................... 36.6 27.5 32.6 25.3 24.3 21.4 18.1
Total assets.............................. 65.3 54.9 61.8 52.1 36.7 36.9 34.5
Long-term obligations..................... .2 4.8 2.7 6.4 .1 .1 .3
Stockholders' equity...................... 57.6 42.5 52.3 38.8 31.4 29.1 26.6
Per common share data:
Basic:
Net income............................. .60 .40 .92 .61 .44 .51 .35
Diluted:
Net income............................. .55 .37 .84 .59 .43 .48 .35
Cash dividends paid per share............. -- -- -- -- -- -- --
Weighted average shares used to calculate:
Basic earnings per share amounts........ 7.4 7.1 7.2 6.8 6.7 6.4 6.2
Diluted earnings per share amounts...... 8.0 7.7 7.8 7.1 6.9 6.8 6.3
II-2
CONSOLIDATED SELECTED FINANCIAL DATA OF
UROCOR, INC. AND SUBSIDIARIES -- Historical
As of and As of and
for the for the
Six Six
Months Months As of and for the
Ended Ended Year Ended December 31,
June 30, June 30, ------------------------------------
2001 2000 2000 1999 1998 1997 1996
----------- ----------- ----- ----- ----- ----- -----
(unaudited) (unaudited) (in millions, except per share data)
Net revenues................................ $31.3 $24.4 $52.6 $45.5 $47.6 $33.0 $26.5
Net income (loss)........................... 4.7 .9 (4.8) (4.1) (2.5) 4.3 2.4
Depreciation and non-intangible amortization 1.3 1.4 2.6 2.9 2.6 1.6 1.1
Cash dividends paid......................... -- -- -- -- -- -- --
Working capital............................. 23.2 21.7 13.4 21.6 34.5 37.4 34.9
Total assets................................ 47.6 46.1 51.3 42.2 53.3 54.5 50.3
Long-term obligations....................... 1.1 .6 1.2 .3 -- .2 .7
Stockholders' equity........................ 40.6 40.7 35.1 37.9 48.8 50.8 45.7
Per common share data:
Basic..................................... .48 .09 (.50) (.41) (.24) .42 .27
Diluted................................... .44 .09 (.50) (.41) (.24) .38 .24
Cash dividends paid per share............... -- -- -- -- -- -- --
Weighted average shares used to calculate:
Basic earnings per share amounts.......... 9.9 9.6 9.7 9.9 10.4 10.2 8.7
Diluted earnings per share amounts........ 10.7 9.8 9.7 9.9 10.4 11.1 9.8
II-3
UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL DATA OF
DIANON AND UROCOR
As of and for the As of and for the
Six Months Year Ended
Ended June 30, December 31,
2001 2000
----------------- -----------------
(in millions, except per share data)
Net revenues................. $ 86.8 $148.2
Net income................... 8.9 1.3
Per common share data:
Net income:
Basic................. .80 .12
Diluted............... .75 .11
Cash dividends paid per share -- --
Total assets................. 279.3
Long-term obligations........ 3.8
The following scenarios illustrate the effects of differences in Dianon's
stock price, which impacts the exchange ratio, at the time of the transaction
as of and for the six months ended June 30, 2001 (in millions, except per share
data).
Assumed Dianon Price
Per Share
--------------------
$48.95 $44.29 $43.29
------ ------ ------
Net revenues........................ $ 86.8 $ 86.8 $ 86.8
Net income.......................... 8.9 8.9 8.9
Net income per common share--basic.. .80 .78 .78
Net income per common share--diluted .75 .72 .72
Cash dividends paid per share....... -- -- --
Total Assets........................ 279.3 279.3 274.6
Long term obligations............... 3.8 3.8 3.8
II-4
DIANON AND UROCOR
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Combined Balance Sheet combines the
historical consolidated balance sheet of Dianon and the historical consolidated
balance sheet of UroCor, giving effect to the merger as if it had been
consummated on June 30, 2001. The Unaudited Pro Forma Condensed Combined
Statements of Income for the six months ended June 30, 2001 and the year ended
December 31, 2000 combine the historical consolidated statements of income of
Dianon and UroCor, giving effect to the merger as if it had occurred on January
1, 2000. The unaudited pro forma financial statements give effect to the merger
using the purchase method of accounting.
This information should be read in conjunction with the:
. accompanying notes to the Unaudited Pro Forma Condensed Combined Financial
Statements; and
. separate historical financial statements of Dianon as of and for the six
months ended June 30, 2001 and 2000 and as of and for the three years
ended December 31, 2000, which are contained in Dianon's Quarterly and
Annual Reports on Form 10-Q dated August 13, 2001 and Form 10-K dated
March 12, 2001, respectively; and
. separate historical financial statements of UroCor as of and for the six
months ended June 30, 2001 and as of and for the three years ended
December 31, 2000, which are contained in UroCor's Quarterly and Annual
Reports on Form 10-Q dated August 14, 2001 and Form 10-K dated March 30,
2001, respectively.
The pro forma information is not necessarily indicative of the financial
position and results of operations that would have been achieved had the merger
been consummated on the dates indicated or of future operations of the combined
company.
II-5
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 2001
Pro Forma Pro Forma
Dianon UroCor Adjustments Notes Combined
------ ------ ----------- ----- ---------
(in millions)
Assets
Cash and cash equivalents............................. $18.5 $ 12.8 $(17.9) (1) $ 13.4
Accounts receivable, net.............................. 21.5 13.5 35.0
Deferred income tax asset............................. .8 1.0 1.8
Other current assets.................................. 3.4 1.8 (.2) (2) 5.0
----- ------ ------ ------
Total current assets........................... 44.2 29.1 (18.1) 55.2
Property and equipment, net........................... 5.0 9.6 (4.2) (3) 10.4
Intangible assets, net................................ 13.6 5.8 188.7 (4) 208.1
Deferred income tax asset............................. 1.8 2.6 4.4
Other long-term assets................................ .7 .5 1.2
----- ------ ------ ------
Total assets................................... $65.3 $ 47.6 $166.4 $279.3
===== ====== ====== ======
Liabilities and Stockholders' Equity
Accounts payable and accrued liabilities.............. $ 7.5 $ 5.9 $ (1.9) (5) $ 11.5
----- ------ ------ ------
Total current liabilities...................... 7.5 5.9 (1.9) 11.5
Long-term portion of capitalized lease obligations.... -- .5 .5
Deferred income tax liabilities....................... .2 -- 2.5 (6) 2.7
Deferred compensation................................. -- .6 .6
----- ------ ------ ------
Total liabilities.............................. 7.7 7.0 .6 15.3
----- ------ ------ ------
Stockholders' Equity
Common stock.......................................... .1 .1 (.1) (7) .1
Additional paid-in capital............................ 36.8 60.2 146.2 (7) 243.2
Retained earnings..................................... 20.8 (14.4) 14.4 (7) 20.8
Treasury stock, at cost............................... (.1) (5.3) 5.3 (7) (.1)
----- ------ ------ ------
Total stockholders' equity..................... 57.6 40.6 165.8 264.0
----- ------ ------ ------
Total liabilities and stockholders' equity..... $65.3 $ 47.6 $166.4 $279.3
===== ====== ====== ======
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements which are an integral part of these statements.
II-6
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2001
Pro Forma Pro Forma
Dianon UroCor Adjustments Notes Combined
------ ------ ----------- ----- ---------
(in millions, except per share data)
Net revenues.......................................... $55.5 $31.3 $ $86.8
Costs and expenses:
Cost of sales...................................... 30.8 10.9 41.7
Selling, informational and administrative expenses. 16.9 16.1 .3 (8) 33.3
Research and development........................... .7 .6 1.3
----- ----- ---- -----
Income (loss) from operations......................... 7.1 3.7 (.3) 10.5
----- ----- ---- -----
Gain on termination of therapeutic agreement.......... -- 4.6 4.6
Net interest income................................... .3 .2 .5
Other................................................. -- (.8) (.8)
----- ----- ---- -----
Income before provision for income taxes.............. 7.4 7.7 (.3) 14.8
Provision for income taxes............................ 3.0 3.0 (.1) (9) 5.9
----- ----- ---- -----
Net income............................................ $ 4.4 $ 4.7 $(.2) $ 8.9
===== ===== ==== =====
Net income per common share -- basic.................. $ .60 $ .48 $ .80
Net income per common share -- diluted................ $ .55 $ .44 $ .75
Weighted average shares used to calculate earnings per
common share amounts
Basic.............................................. 7.4 9.9 11.1
Diluted............................................ 8.0 10.7 11.9
Cash dividends paid per common share.................. $ -- $ -- $ --
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements which are an integral part of these statements.
II-7
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2000
Pro Forma Pro Forma
Dianon UroCor Adjustments Notes Combined
------ ------ ----------- ----- ---------
(in millions, except per share data)
Net revenues.......................................... $95.6 $52.6 $ $148.2
Costs and expenses:
Cost of sales...................................... 54.1 19.8 73.9
Selling, informational and administrative expenses. 29.8 27.8 .8 (8) 58.4
Research and development........................... 1.0 1.4 2.4
Special charges.................................... -- 10.3 10.3
----- ----- ---- ------
Income (loss) from operations......................... 10.7 (6.7) (.8) 3.2
----- ----- ---- ------
Net interest income................................... .4 .7 1.1
----- ----- ---- ------
Income (loss) before provision for income taxes....... 11.1 (6.0) (.8) 4.3
Provision for income taxes (benefit).................. 4.5 (1.2) (.3) (9) 3.0
----- ----- ---- ------
Net income (loss)..................................... $ 6.6 $(4.8) $(.5) $ 1.3
===== ===== ==== ======
Net income per common share -- basic.................. $ .92 $(.50) $ .12
Net income per common share -- diluted................ $ .84 $(.50) $ .11
Weighted average shares used to calculate earnings per
common share amounts
Basic.............................................. 7.2 9.7 10.8
Diluted............................................ 7.8 9.7 11.7
Cash dividends paid per common share.................. $ -- $ -- $ --
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements which are an integral part of these statements.
II-8
NOTES TO PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
DIANON Systems, Inc. ("Dianon") and UroCor, Inc. ("UroCor") entered into an
agreement and plan of merger pursuant to the Merger Agreement dated June 28,
2001, whereby UroCor will become a wholly owned subsidiary of Dianon. The
Merger Agreement provides that at the effective time of the merger each UroCor
share issued and outstanding will be converted into Dianon common stock at an
exchange ratio of .4064 if the Dianon stock price is less than or equal to
$44.29. If the Dianon stock price is greater than $44.29, the exchange ratio
will equal a quotient, the numerator of which is $18.00 and the denominator of
which is the Dianon stock price. Based on a Dianon closing price of $48.95 on
August 31, 2001, UroCor, shareholders would receive .3677 shares of Dianon's
common stock for each of their shares of UroCor's common stock. (See Note 10
for alternate pro forma information based on various Dianon stock prices). The
merger will be accounted for using the purchase method of accounting. Under
this method, the acquiring company records the acquired assets less assumed
liabilities at fair value. Any difference between the acquisition cost and the
sum of the fair values of the acquired company's identifiable assets and
liabilities is recorded as goodwill.
Following is the unaudited pro forma purchase price and unaudited pro forma
purchase price allocation based on the UroCor unaudited June 30, 2001 balance
sheet and assumes the issuance of Dianon shares as of the August 31, 2001
closing price.
The amount and components of the estimated pro forma purchase price along
with the preliminary allocation of such purchase price are as follows (in
thousands, except shares and share price):
Dianon shares to be issued................................................. 3,681,644
Closing price on August 31, 2001........................................... $ 48.95
----------
$ 180,216
Fair value of Dianon options to be issued in exchange for UroCor options... 26,221
Estimated transaction costs and assumed liabilities........................ 18,500
----------
Total consideration and costs....................................... $ 224,937
==========
Pro forma purchase price allocation:
Historical book value of net assets acquired............................ $ 40,600
Pro forma adjustments:
Write off of therapeutic inventory...................................... (200)
Write off of therapeutic fixed assets................................... (1,000)
Write off of capitalized software....................................... (3,200)
Write off of UroCor goodwill and other intangibles...................... (5,400)
Tax effect adjustments and expenses..................................... --
Fair value of identifiable intangible assets recorded upon consummation. 16,000
----------
Fair value of net assets acquired................................... 46,800
Goodwill................................................................... 178,137
----------
Total consideration and cost........................................ $ 224,937
==========
Merger related fees and expenses primarily consisting of SEC filing fees,
fees of investment bankers, attorneys and accountants, and financial printing
directly related to the transaction are estimated to be $12.3 million.
Integration related costs include severance of approximately 200 UroCor
employees currently estimated to be $6.2 million, of which $5.6 million will be
paid at the closing with the balance of $.6 million to be paid subsequent to
the consummation of the merger.
The final purchase price will be determined based on the actual value of the
Dianon shares and options issued as well as actual transaction costs and other
accruable costs. The purchase price will be allocated to the assets purchased
and liabilities assumed based on their fair values. Dianon has engaged a
nationally recognized accounting firm to assist in determining the fair values
of the assets and liabilities acquired. This valuation will be completed after
the merger is consummated.
II-9
The final purchase price allocation will reflect any other assets acquired
and liabilities assumed, including pre-acquisition contingencies as
appropriate. Such pre-acquisition contingencies may include expenses relating
to the UroCor DOJ investigation, including without limitation, the
administration of the UroCor DOJ settlement (including compliance with the
UroCor corporate integrity agreement), any related governmental investigations
or proceedings (including the criminal investigation referenced in the UroCor
corporate integrity agreement) and any potential indemnification of legal and
other fees and costs for current and past directors, officers and employees of
UroCor. Dianon currently estimates that these potential indemnification
expenses could amount to up to $6 million.
Subsequent to the consummation of the merger, Dianon will implement a plan
to integrate the UroCor business into Dianon. This will result in the
restructuring of, among other items, UroCor's current staffing levels and
billing systems. As a result, it is possible that certain accounts receivable
will not be collected. Dianon's management believes these amounts could be $3
to $5 million due to changes in the personnel and computer systems used to
collect accounts receivable after the transaction closes. Dianon anticipates
closing all UroCor billing operations and transferring these functions to
Dianon's corporate offices following the transaction. Any such adjustment to
the accounts receivable balances as a result of the merger and integration
activities will be charged to operations subsequent to the merger, and,
accordingly, no adjustment is reflected in the pro forma condensed combined
financial statements.
(1) Represents cash used at closing for merger related expenses including
transaction costs of $12.3 million and severance of $5.6 million discussed
above.
(2) Represents write off of inventory related to UroCor's therapeutic
business that will not be used once the merger takes place.
(3) Represents write-off of capitalized software primarily related to
UroCor's billing system ($3.2 million) and fixed assets related to UroCor's
therapeutic business ($1.0 million) that will not be used once the merger
takes place.
(4) Represents goodwill and other intangibles recorded upon consummation
of the transaction net of the elimination of UroCor intangibles. These
amounts consist of goodwill of $178.1 million with an indefinite
amortization period, tradename of $5.0 million with an indefinite
amortization period, technology of $4.0 million with a 7 year amortization
life and a customer list of $7.0 million with a 15 year amortization life.
The intangible assets of UroCor to be eliminated upon consummation include
goodwill of $3.8 million, distribution rights of $.8 million, patents and
trademarks of $.5 million and other intangibles of $.3 million.
(5) Represents accrual for severance to be paid after closing ($.6
million), net of current tax benefit ($2.5 million) on total severance
payments.
(6) Represents the net deferred tax liability related to $16 million of
identifiable intangible assets offset by the deferred tax effect of the
write-off of $5.4 million of UroCor intangible assets, $.2 million of
therapeutic inventory, $1.0 million of therapeutic fixed assets and $3.2
million of capitalized software using an effective tax rate of 41%. These
amounts are $(6.6) million, $2.3, million $.1 million, $.4 million and $1.3
million, respectively.
(7) Represents equity issued of $206.4 million to effect the transaction
offset by the elimination of UroCor equity of $40.6 million.
(8) Represents the amortization of the customer lists and other
identifiable intangibles acquired in the transaction which are being
amortized over a useful life ranging from 7 to 15 years. This amortization
of $1.0 million and $.5 million is offset by the elimination of UroCor
intangible amortization expense of $.2 million and $.2 million for the year
ended December 31, 2000 and for the six months ended June 30, 2001,
respectively.
(9) Represents tax effect of the amortization expense using an effective
tax rate of 41%.
II-10
(10) The following scenarios illustrate the effects of differences in
Dianon's stock price, which impacts the exchange ratio, at the time of the
transaction as of and for the six months ended June 30, 2001:
Assumed Dianon Price Per Share
- - ------------------------------
$48.95 $44.29 $43.29
- - -------- -------- --------
(Amounts in thousands,
except per share data)
Total consideration and costs..................... $180,216 $180,222 $176,153
Goodwill.......................................... 178,137 178,145 173,391
Total assets...................................... 279,338 279,345 274,591
Stockholders' equity.............................. 264,038 264,045 259,291
Net income........................................ 8,900 8,900 8,900
Net income per common share--basic................ .80 .78 .78
Net income per common share--diluted.............. .75 .72 .72
Weighted average shares used to calculate earnings
per common share amounts
Basic.......................................... 11,085 11,473 11,473
Diluted........................................ 11,934 12,367 12,367
At the time of the closing, the exchange ratio will be determined based on
the formula provided in the Merger Agreement. The actual Dianon stock price
used to determine the purchase price will be computed based on market prices a
few days before and after the measurement date. The measurement date is the
date that subsequent applications of the formula in the Merger Agreement do not
result in a change in the number of shares Dianon will issue.
II-11
CHAPTER THREE
INFORMATION ABOUT THE MEETINGS AND VOTING
Dianon's board of directors is using this joint proxy statement/prospectus
to solicit proxies from the holders of Dianon common stock for use at the
annual meeting of Dianon's stockholders. The UroCor board of directors is also
using this document to solicit proxies from the holders of UroCor common stock
for use at the UroCor special meeting. We are first mailing this joint proxy
statement/prospectus and accompanying form of proxy to Dianon and UroCor
stockholders on or about September [ ], 2001.
Matters Relating to the Meetings
Dianon Meeting UroCor Meeting
-------------- --------------
Time and Place: October [ ], 2001 at 10:00 a.m. October [ ], 2001 at 11:00 a.m.
at Dianon's headquarters at 200 local time, at the Renaissance
Watson Boulevard, Stratford, Hotel, 10 Broadway, Oklahoma
Connecticut. City, Oklahoma.
Purpose of Meeting is to Vote on the 1.To authorize the issuance of 1.The proposal to adopt the
Following Items: Dianon common stock in the merger agreement and
merger as described in approve the merger as
"Chapter One--The Merger"; described in "Chapter One--
The Merger"; and
2.To elect eight members to the 2.To transact such other
Dianon board of directors to business as may properly
serve until the next annual come before the UroCor
meeting, as described in meeting, any adjournment or
"Chapter Five-Other Dianon postponement of the meeting.
Annual Meeting Proposals";
3.To approve Arthur Andersen
LLP as our independent
public accountants for the
2001 fiscal year as described
in "Chapter Five--Other
Dianon Annual Meeting
Proposals";
4.To approve and adopt the
2001 Stock Incentive Plan as
described in "Chapter Five--
Other Dianon Annual
Meeting Proposals"; and
5.To transact such other
business as may properly
come before the meeting and
any adjournment or
postponement.
Record Date: The record date for shares The record date for shares
entitled to vote is August 29, entitled to vote is August 29,
2001. 2001.
III-1
Dianon Meeting UroCor Meeting
-------------- --------------
Outstanding Shares Held on Record As of August 29, 2001, there As of August 29, 2001, there
Date: were approximately [ ] shares were approximately [ ] shares
of Dianon common stock of UroCor common stock
outstanding. outstanding.
Shares Entitled to Vote: Shares entitled to vote are the Shares entitled to vote are the
Dianon common stock held at UroCor common stock held at
the close of business on the the close of business on the
record date, August 29, 2001. record date, August 29, 2001.
Each share of Dianon common Each share of UroCor common
stock that you own entitles you stock that you own entitles you
to one vote. Shares held by to one vote. Shares held by
Dianon in its treasury are not UroCor in its treasury are not
voted. voted.
Quorum Requirement: A quorum of stockholders is A quorum of stockholders is
necessary to hold a valid necessary to hold a valid
meeting. meeting.
The presence in person or by The presence in person or by
proxy at the meeting of holders proxy at the meeting of holders
of a majority of the outstanding of a majority of the outstanding
shares of Dianon common stock shares of UroCor common stock
entitled to vote at the meeting is entitled to vote at the meeting is
a quorum. Abstentions and a quorum. Abstentions and
broker "non-votes" count as broker "non-votes" count as
present for establishing a present for establishing a
quorum. Shares held by Dianon quorum. Shares held by UroCor
in its treasury do not count in its treasury do not count
toward a quorum. toward a quorum.
A broker non-vote occurs on an A broker non-vote occurs on an
item when a broker is not item when a broker is not
permitted to vote on that item permitted to vote on that item
without instruction from the without instruction from the
beneficial owner of the shares beneficial owner of the shares
and no instruction is given. and no instruction is given.
Shares Beneficially Owned by Dianon 2,313,869 shares of Dianon 1,995,527 shares of UroCor
and UroCor Directors and Executive common stock, including common stock, including
Officers as of August 29, 2001: exercisable options. These exercisable options. These
shares represent in total shares represent in total
approximately [ ]% of the approximately [ ]% of the
outstanding shares of Dianon outstanding shares of UroCor
common stock. common stock.
III-2
Vote Necessary to Approve Dianon and UroCor Proposals
Company Vote Necessary
- ------- --------------
Dianon: 1.Approval of the proposal to authorize the issuance of Dianon
common stock for completion of the merger requires the
affirmative vote of at least a majority of the votes cast by the
holders of Dianon common stock provided that the total votes cast
represent a majority of the outstanding shares of Dianon common
stock. Abstentions and broker non-votes have the same effect as a
vote against the proposal.
2.A plurality of the vote cast is required for the election of directors.
This means that the director nominee with the most votes for a
particular slot is elected for that slot. Abstentions and broker non-
votes count as present for establishing a quorum but are not
counted for purposes of election of directors.
3.The affirmative vote of a majority of shares present in person or
represented by proxy and entitled to vote is required to approve
the appointment of Arthur Andersen LLP as Dianon's independent
public accountants for the 2001 fiscal year. Abstentions and
broker non-votes are not counted as votes "for" or "against" the
proposals, but are counted in determining the number of shares
present or represented on each of the proposals.
4.The affirmative vote of a majority of shares present in person or
represented by proxy and entitled to vote is required to approve
the 2001 Stock Incentive Plan. Abstentions and broker non-votes
are not counted as votes "for" or "against" the proposals, but are
counted in determining the number of shares present or
represented on each of the proposals and thus are effectively votes
against the proposals.
UroCor: 1.Adoption of the merger agreement and approval of the merger
requires the affirmative vote of at least a majority of the
outstanding shares of UroCor common stock. Abstentions and
broker non-votes have the same effect as a vote against the
proposal.
- --------
* Under Nasdaq rules, if your broker holds your shares in its name, your broker
is permitted to vote your shares on the election of directors, the proposal
to approve the appointment of the independent public accountants and the 2001
Stock Incentive Plan even if it does not receive voting instructions from
you. Your broker may not vote your shares on any proposal concerning the
merger transaction, absent instruction from you. Without your voting
instructions, a broker non-vote will occur on those items and will not be
counted as voted or as present or represented on these proposals.
Proxies
Voting Your Proxy. You may vote in person at your meeting or by proxy. We
recommend you vote by proxy even if you plan to attend your meeting. You can
always change your vote at the meeting.
Voting instructions are included on your proxy card. If you properly give
your proxy and submit it to us in time to vote, one of the individuals named as
your proxy will vote your shares as you have directed. You may vote for or
against the proposals or abstain from voting.
III-3
How to Vote by Proxy
Dianon Stockholders. Mark your proxy, date and sign it, and return it to [
] in the postage-paid envelope provided. If the envelope is missing, please
address your completed proxy card to DIANON Systems, Inc., 200 Watson
Boulevard, Startford, Connecticut 06615, Attention: David R. Schreiber, Chief
Financial Officer.
UroCor Stockholders. Mark your proxy, date and sign it, and return it to [
] in the postage-paid envelope provided. If the envelope is missing, please
address your completed proxy card to UroCor, Inc. 840 Research Parkway,
Oklahoma City, Oklahoma 73104, Attention: Bruce C. Hayden, Chief Financial
Officer.
If you submit your proxy but do not make specific choices, your proxy will
follow the respective board of director recommendations and vote your shares:
Dianon UroCor
------ ------
."FOR" the share issuance proposal ."FOR" adoption of the merger agreement and
approval of the merger
."FOR" election of the director nominees ."FOR" any proposal to adjourn the UroCor
meeting
."FOR" approval of Arthur Andersen LLP as independent .In its discretion as to any other business as may
public accountants properly come before the UroCor meeting
."FOR" the 2001 Stock Incentive Plan
."FOR" any proposal to adjourn the Dianon meeting
.In its discretion as to any other business as may properly
come before the Dianon meeting
Revoking Your Proxy. You may revoke your proxy at any time before it is
voted by:
. timely delivery of a valid, later-dated proxy;
. written notice to your company's Secretary before the meeting that you
have revoked your proxy; or
. voting by ballot at either the Dianon annual meeting or UroCor special
meeting.
Voting in Person. If you plan to attend a meeting and wish to vote in
person, we will give you a ballot at the meeting. However, if your shares are
held in the name of your broker, bank or other nominee, you must bring an
account statement or letter from the nominee indicating that you are the
beneficial owner of the shares on August 29, 2001, the record date for voting.
Proxy Solicitation. We will pay our own costs of soliciting proxies.
In addition to this mailing, proxies may be solicited by directors, officers
or employees of Dianon and UroCor in person or by telephone or electronic
transmission. Dianon has hired American Stock Transfer & Trust Co. to assist it
in the distribution and solicitation of proxies. Dianon will pay American Stock
Transfer & Trust Co. a fee of approximately $5,000, plus reasonable expenses
for these services. UroCor has hired D.F. King, Inc. to assist it in the
distribution and solicitation of proxies. UroCor will pay D.F. King, Inc. a fee
of approximately $7,500, plus expenses, to help with the solicitation.
The extent to which these proxy soliciting efforts will be necessary depends
entirely upon how promptly proxies are submitted. You should send in your proxy
without delay by mail. We also reimburse brokers and other nominees for their
expenses in sending these materials to you and getting your voting
instructions.
III-4
Do not send in any stock certificates with your proxy cards. The exchange
agent will mail transmittal forms with instructions for the surrender of stock
certificates for UroCor common stock to former UroCor stockholders as soon as
practicable after the completion of the merger.
Other Business; Adjournments
We are not currently aware of any other business to be acted upon at either
meeting. If, however, other matters are properly brought before either meeting,
or any adjourned meeting, your proxies will have discretion to vote or act on
those matters according to their best judgment, including to adjourn the
meeting.
Adjournments may be made for the purpose of, among other things, soliciting
additional proxies. Any adjournment may be made from time to time by approval
of the holders of shares representing a majority of the votes present in person
or by proxy at the meeting, whether or not a quorum exists, without further
notice other than by an announcement made at the meeting. Neither of us
currently intends to seek an adjournment of our meeting.
Dianon and UroCor Stockholder Account Maintenance
Dianon's and UroCor's transfer agent is American Stock Transfer & Trust
Company. All communications concerning accounts of Dianon and UroCor's
stockholders of record, including address changes, name changes, inquiries as
to requirements to transfer shares of common stock and similar issues can be
handled by calling American Stock Transfer & Trust Co. at (718) 921-8200.
III-5
CHAPTER FOUR
CERTAIN LEGAL INFORMATION
COMPARISON OF DIANON/UROCOR STOCKHOLDER RIGHTS
The rights of UroCor stockholders under the Delaware General Corporation
Law, the UroCor certificate of incorporation and the UroCor by-laws prior to
the completion of the merger differ from the rights that they will have as
Dianon stockholders following the completion of the merger under the Delaware
General Corporation Law, the Dianon certificate of incorporation and the Dianon
by-laws. The following is a summary of the material differences between the
current rights of UroCor stockholders and the rights those stockholders will
have as Dianon stockholders following the merger.
Copies of the UroCor certificate of incorporation, the UroCor by-laws, the
Dianon certificate of incorporation and the Dianon by-laws are incorporated by
reference and will be sent to holders of shares of UroCor common stock upon
request. See "Where You Can Find More Information". The summary contained in
the following chart is not intended to be complete or to identify all
differences that may, under given situations, be material to stockholders and
is subject in all respects, and is qualified by reference to the Delaware
General Corporation Law, the UroCor certificate of incorporation, the UroCor
by-laws, the Dianon certificate of incorporation and the Dianon by-laws.
Summary of Material Differences Between Current Rights of UroCor Stockholders
and Rights Those Stockholders Will Have as Dianon Stockholders Following the
Merger
UroCor Stockholder Rights Dianon Stockholder Rights
------------------------- -------------------------
Corporate Governance: Upon completion of the merger, Upon completion of the merger,
the rights of UroCor the rights of Dianon
stockholders who become stockholders will be governed
Dianon stockholders in the by the Delaware General
merger will be governed by the Corporation Law, Dianon's
Delaware General Corporation certificate of incorporation and
Law, Dianon's certificate of Dianon's by-laws. The
incorporation and Dianon's by- certificate of incorporation and
laws. The certificate of by-laws of Dianon after the
incorporation and by-laws of merger will be identical in all
Dianon after the merger will be respects to those of Dianon prior
identical in all respects to those to the merger.
of Dianon prior to the merger.
Authorized Capital Stock: The authorized capital stock of The authorized capital stock of
UroCor consists of 20 million Dianon is set forth under
shares of common stock, par "Description of Dianon Capital
value $0.01 per share, and 6 Stock--Authorized Capital
million shares of preferred Stock" below.
stock, par value $0.01 per share.
No shares of preferred stock are
outstanding and the holders of
UroCor common stock do not
have any preemptive rights.
Number of Directors: UroCor's board of directors Dianon's board of directors
currently consists of 7 directors. currently consists of 8 directors.
IV-1
UroCor Stockholder Rights Dianon Stockholder Rights
------------------------- -------------------------
Classification of Board of Directors: UroCor's board of directors is Dianon does not have a
divided into three classes, with classified board. Dianon's by-
each class serving a staggered laws require that all directors be
three-year term. elected at each annual meeting
of stockholders to serve until the
next annual meeting of
stockholders.
Removal of Directors: Delaware law provides that Dianon's by-laws provide that
when the board of directors is directors may be removed from
classified, a directors may be office, with or without cause, by
removed only for cause by the the affirmative vote of a
holders of a majority of majority of the outstanding
outstanding shares. stock entitled to vote.
Stockholder Action by Written Consent: UroCor stockholders may act by Dianon stockholders may not act
written consent in lieu of a by written consent in lieu of a
meeting of stockholders. meeting of stockholders.
Call of Special Meetings of Stockholders: UroCor's by-laws provide that a Dianon's by-laws provide that a
special meeting of stockholders special meeting of stockholders
may be called for any purpose or may be called for any purpose or
purposes only by (i) the purposes only by (i) the
president or (ii) the board of chairman of the board of
directors. directors or (ii) a majority of the
entire board of directors.
Amendment of Certificate of UroCor's by-laws may be Dianon's by-laws may only be
Incorporation and By-laws: amended by a vote of a majority amended by an affirmative vote
of the outstanding shares of of a supermajority (80%) of the
UroCor common stock, or by a outstanding shares of Dianon
majority of the number of common stock, or by a majority
directors then constituting the of the board of directors.
board of directors.
UroCor's certificate of Dianon's certificate of
incorporation generally may be incorporation generally may be
amended by the affirmative vote amended by the affirmative vote
of the holders of at least a of the majority of the
majority of the voting power of outstanding shares, however the
the outstanding shares. affirmative vote of a
supermajority (80%) of the
outstanding shares is necessary
to amend Articles Fifth,
Seventh, Eighths, Ninth and
Eleventh (or by at least 66 2/3 of
the combined voting power not
beneficially owned by an
Interested Stockholder).
IV-2
UroCor Stockholder Rights Dianon Stockholder Rights
------------------------- -------------------------
Stockholder Rights Plan: UroCor entered into a Rights Dianon entered into a Rights
Agreement, dated as of August Agreement, dated as of April 29,
17, 1998, as amended June 28, 1994, as amended as of October
2001, between UroCor and 4, 1995, between Dianon and
American Stock Transfer & American Stock Transfer &
Trust Company, as Rights Trust Company, as Rights
Agent, pursuant to which Agent, pursuant to which
UroCor has issued rights, Dianon has issued rights,
exercisable only upon the exercisable only upon the
occurrence of certain events, to occurrence of certain events, to
purchase its Series I Preferred purchase its Series A Junior
Stock. Participating Preferred Stock.
DESCRIPTION OF DIANON CAPITAL STOCK
The following summary of the terms of the capital stock of Dianon prior to,
and after completion of, the merger is not meant to be complete and is
qualified by reference to Dianon's certificate of incorporation and Dianon's
by-laws. Copies of Dianon's certificate of incorporation and Dianon's by-laws
are incorporated by reference and will be sent to holders of shares of Dianon
common stock and UroCor common stock upon request. See "Where You Can Find More
Information".
Authorized Capital Stock
Under Dianon's certificate of incorporation, Dianon's authorized capital
stock consists of 20 million shares of Dianon common stock, $0.01 par value,
and 5 million shares of preferred stock, $0.01 par value.
Dianon Common Stock
Dianon Common Stock Outstanding. The outstanding shares of Dianon common
stock are, and the shares of Dianon common stock issued pursuant to the merger
will be, duly authorized, validly issued, fully paid and nonassessable.
Voting Rights. Each holder of Dianon common stock is entitled to one vote
for each share of Dianon common stock held of record on the applicable record
date on all matters submitted to a vote of stockholders, except
Dividend Rights; Rights Upon Liquidation. The holders of Dianon common stock
are entitled to receive, from funds legally available for the payment thereof,
dividends when and as declared by resolution of Dianon's board of directors,
subject to any preferential dividend rights granted to the holders of any
outstanding Dianon preferred stock. In the event of liquidation, each share of
Dianon common stock is entitled to share pro rata in any distribution of
Dianon's assets after payment or providing for the payment of liabilities and
the liquidation preference of any outstanding Dianon preferred stock.
Preemptive Rights. Holders of Dianon common stock have no preemptive rights
to purchase, subscribe for or otherwise acquire any unissued or treasury shares
or other securities.
Preferred Stock Purchase Rights. Each holder of Dianon common stock is also
the holder of one preferred stock purchase right for each share of common stock
of Dianon. Each right represents the right to purchase one thousandth of a
share of Series A Junior Participating Preferred Stock of Dianon at a price of
$20 and is exercisable upon the occurrence of certain specified events.
IV-3
Dianon Preferred Stock
Dianon Preferred Stock Outstanding. As of August 29, 2001, no shares of
Dianon preferred stock were issued and outstanding.
Blank Check Preferred Stock. Under Dianon's certificate of incorporation,
Dianon's board of directors has the authority, without stockholder approval, to
create one or more classes or series within a class of preferred stock, to
issue shares of preferred stock in such class or series up to the maximum
number of shares of the relevant class or series of preferred stock authorized,
and to determine the preferences, rights, privileges and restrictions of any
such class or series, including the dividend rights, voting rights, the rights
and terms of redemption, the rights and terms of conversion, liquidation
preferences, the number of shares constituting any such class or series and the
designation of such class or series.
Transfer Agent and Registrar
American Stock Transfer and Trust Co. is the transfer agent and registrar
for the Dianon common stock.
Stock Exchange Listing; Delisting and Deregistration of UroCor Common Stock
It is a condition to the merger that the shares of Dianon common stock
issuable in the merger be approved for listing on the Nasdaq, subject to
official notice of issuance. If the merger is completed, UroCor common stock
will cease to be listed on the Nasdaq.
LEGAL MATTERS
The validity of the Dianon common stock to be issued to UroCor stockholders
in the merger will be passed upon by Cadwalader, Wickersham & Taft, counsel to
Dianon. It is a condition to the completion of the merger that each of Dianon
and UroCor receive an opinion from their respective counsel with respect to the
tax treatment of the merger.
EXPERTS
The audited financial statements and schedules of Dianon and UroCor included
or incorporated by reference in this joint proxy statement/prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon
the reports of such firm given upon their authority as experts in accounting
and auditing.
IV-4
CHAPTER FIVE
OTHER DIANON ANNUAL MEETING PROPOSALS
ELECTION OF DIRECTORS
Unless otherwise directed, the persons named in the accompanying form of
proxy intend to vote at the Annual Meeting "FOR" the election of the nominees
named below as directors of Dianon to serve until the next Annual Meeting and
until their successors are duly elected and qualified. The Board of Directors
recommends that stockholders vote "FOR" the election of such nominees.
If any nominee is unable to stand for election when the election takes
place, the shares represented by valid proxies will be voted in favor of the
remaining nominees and for such person, if any, as shall be designated by the
present Board of Directors to replace such nominee. The Board of Directors does
not presently anticipate that any nominee will be unable to stand for election.
Information Concerning Directors and Nominees
The following information with respect to the principal occupation or
employment, other affiliations and business experience of each nominee during
the last five years has been furnished to Dianon by such nominee. Except as
indicated, each of the nominees has had the same principal occupation for the
last five years.
Kevin C. Johnson, age 46, a Director since May 1996, is Chairman of the
Board, President and Chief Executive Officer of Dianon. Mr. Johnson joined
Dianon as President in May 1996, and was appointed to the additional position
of Chief Executive Officer in February 1997 and Chairman of the Board in August
2001. Formerly, Mr. Johnson was with Corning Inc., a manufacturer of specialty
materials and a provider of laboratory services, for 18 years, serving most
recently as Vice President and General Manager of Corning Clinical
Laboratories' Eastern region in Teterboro, New Jersey.
John P. Davis, age 59, a Director since 1984. Mr. Davis served as a
consultant to Dianon from October 1998 through August 2000. Mr. Davis was
President and Chief Executive Officer of Infant Advantage, Inc., a child
development company, from December 1997 through June 1998. From May 1995
through December 1997, Mr. Davis was President and Chief Executive Officer of
Calypte Biomedical Corp., a diagnostic products company. From 1984 to January
1995, Mr. Davis was an officer of Dianon. Mr. Davis joined Dianon in January
1984 as President and Chief Operating Officer, and subsequently became co-Chief
Executive Officer in 1992 and Chief Executive Officer in 1994. In January 1995,
Mr. Davis resigned as Chief Executive Officer of Dianon and became Vice
Chairman of the Board. From February 1997 to August 2001 Mr. Davis was
non-executive Chairman of the Board. Mr. Davis also serves as Chairman of the
Board of CytoLogix, Inc. and is on the Board of Directors of the Norwalk
Homeless Shelter.
Bruce K. Crowther, age 49, a Director since December 1997, is President and
Chief Executive Officer of Northwest Community Healthcare, Northwest Community
Hospital, in Arlington Heights, Illinois and certain of its affiliates. Mr.
Crowther is a Fellow of the American College of Healthcare Executives, Chairman
of the Board of the Illinois Hospital and HealthSystems Association and serves
on the Board of both Chicago Hospital Risk Pooling Program and Barrington Bank
and Trust. Mr. Crowther received an MBA from Virginia Commonwealth University
Medical College in Richmond, VA.
E. Timothy Geary, age 49, a Director since May 1997, had been Chairman,
President and Chief Executive Officer of National Surgery Centers, Inc. of
Chicago, Illinois, the leading independent owner and operator of ambulatory
surgery centers in the country, until its acquisition by HealthSouth
Corporation on July 22, 1998. Mr. Geary is currently a consultant to
HealthSouth Corporation. Prior to founding National Surgery Centers in 1987,
Mr. Geary served as a Vice President with Medical Care International. Mr. Geary
holds an MBA and AB from the University of Chicago.
V-1
G.S. Beckwith Gilbert, age 59, a Director since October 1995, is President,
Chief Executive Officer and a Director of Field Point Capital Management
Company in Greenwich, Connecticut, a merchant banking firm. Mr. Gilbert is also
a partner of Wolsey & Co., a merchant banking firm. In addition, Mr. Gilbert is
Chairman and Chief Executive Officer of Megadata Corporation as well as a
Director of Davidson Hubeny Brands, Inc. Mr. Gilbert is a graduate of Princeton
University and holds an MBA from New York University. In February 1997 the
Board elected Mr. Gilbert Chairman of the Executive Committee; Mr. Gilbert
retired from this position in August 2001.
David R. Schreiber, age 41, a Director since October 1999, has served as
Senior Vice President, Finance, Chief Financial Officer and Corporate Secretary
since November 1996 when he joined Dianon. Formerly, Mr. Schreiber was with
Corning Clinical Laboratories, a provider of laboratory services, for 10 years,
serving most recently as Vice President and General Manager of the laboratory's
Midwest region. Mr. Schreiber holds an MBA from Northern Illinois University.
Jeffrey L. Sklar, age 53, a Director since 1994, is Professor of Pathology,
Harvard Medical School, and Director, Divisions of Diagnostic Molecular Biology
and of Molecular Oncology, Department of Pathology, Brigham and Women's
Hospital. Dr. Sklar has served on numerous editorial boards and has consulted
widely to the biotechnology industry. In addition, Dr. Sklar serves on the
Scientific Advisory Committee for Clinical Science, The Fred Hutchinson Cancer
Center, Seattle, Washington; the Scientific Advisory Committee, New England
Primate Research Center, Harvard University; the External Review Committee,
Dana-Farber Cancer Institute, Boston, and the Pathology B Study Section,
National Institutes of Health. Dr. Sklar also serves as a Director of
Transgenomic, Inc. and holds an MD and Ph.D. from Yale University and an MA
(honorary) from Harvard University.
James T. Barry, age 40, was elected as a director on June 28, 2001. Mr.
Barry is Executive Vice President and Chief Operating Officer of Megadata
Corporation. Mr. Barry also serves as a director of Megadata Corporation. Mr.
Barry was a Vice President of Megadata from 1998 and was named Executive Vice
President in 2000. He is also a Senior Vice President of Field Point Capital
Management Company in Greenwich, Connecticut, a merchant banking firm. From
1989 to 1998 Mr. Barry was with Dianon, most recently as Vice President of
Marketing. Mr. Barry holds an MBA from the University of New Haven.
Committees of the Board
Dianon's Board of Directors presently has standing Audit and Compensation
Committees, the current membership and principal responsibilities of which are
described below. The Board of Directors does not have a Nominating Committee.
Compensation Committee
Members: Mr. Crowther, Mr. Gilbert, Dr. Sklar and Mr. Davis
The Compensation Committee's functions include setting compensation of the
directors and the executive officers. In addition, the Compensation Committee
has the authority to grant certain awards under the 1991, 1996, 1999, 2000 and
2001 (if approved) Stock Incentive Plans. Mr. Crowther serves as Chairman of
the Compensation Committee.
Audit Committee
Members: Mr. Gilbert, Mr. Crowther, Mr. Davis and Mr. Geary. Mr. Geary
serves as Chairman of the Audit Committee.
V-2
Report of the Audit Committee
The following report does not constitute solicitation material and is not
considered filed or incorporated by reference into any other Company filing
under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended, unless we state otherwise.
The Audit Committee, which met two times during fiscal 2000, oversees
Dianon's financial reporting process on behalf of the Board of Directors and
consists of three directors, all of whom are independent. Management has the
primary responsibility for the financial statements and the reporting process
including the systems of internal controls. In fulfilling its oversight
responsibilities, the committee reviewed and discussed with management the
audited financial statements in the annual report including the quality, not
just the acceptability, of the accounting principles, the reasonableness of
significant judgments, and the clarity of disclosures in the financial
statements.
The committee reviewed with the independent public accountants, who are
responsible for expressing an opinion on the conformity of those audited
financial statements with generally accepted accounting principles, their
judgments as to the quality, not just the acceptability, of Dianon's accounting
principles and such other matters as are required to be discussed with the
committee under generally accepted auditing standards. In addition, the
committee has discussed with the independent public accountants the
accountants' independence from management and Dianon including the matters in
the written disclosures required by the Independence Standards Board and
considered the compatibility of non-audit services with the accountants'
independence.
The committee discussed with Dianon's independent public accountants the
overall scope and plans for their respective audits. The committee meets with
the independent public accountants, with and without management present, to
discuss the results of their examinations, their evaluations of Dianon's
internal controls, and the overall quality of Dianon's financial reporting.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors (and the Board has approved)
that the audited financial statements be included in Dianon's Annual Report on
SEC Form 10-K for the fiscal year ended December 31, 2000, for the filing with
the Securities and Exchange Commission. The Audit Committee and the Board of
Directors have also recommended, subject to stockholder approval, the selection
of Arthur Andersen LLP as Dianon's independent public accountants for the 2001
fiscal year.
The Board of Directors of Dianon has approved a written charter which
governs the Audit Committee, which is included within this proxy statement as
Annex D.
Respectfully Submitted:
E. Timothy Geary, Chairman
Bruce K. Crowther
G.S. Beckwith Gilbert
John P. Davis
Attendance at Board and Committee Meetings
During the 2000 fiscal year the Board of Directors held three regular
meetings. In addition, the Audit Committee and the Compensation Committee each
met twice. During such fiscal year each director attended at least 75% of the
aggregate of (i) the regular meetings of the Board and (ii) the meetings of the
committees of the Board on which such director served.
V-3
Compensation of Directors
Until December 31, 2001, Directors who are not employees of Dianon are paid
$1,500 for each meeting of the Board of Directors attended in person and $500
for each meeting attended by telephone, and committee members are paid $500 for
each committee meeting attended which does not occur on the same day as a Board
meeting. Directors are also reimbursed for expenses to attend meetings of the
Board and its committees.
Commencing January 1, 2002, Directors who are not employees of Dianon will
receive an annual compensation of $25,000, payable in monthly installments of
$2,083. The annual compensation to the Directors will replace payments on a per
meeting basis. However, Directors will continue to be reimbursed for expenses
to attend meetings of the Board and its committees. Also commencing January 1,
2002, each Chairman of a Committee of the Board will receive an additional
payment of $2,500 per year.
From January 1, 1998 until August 1, 2001, Mr. Davis and Mr. Gilbert, in
connection with their capacities as non-Executive Chairman of the Board and
Chairman of the Executive Committee, respectively, also received $50,000
annually (payable monthly at $4,166) and an annual grant of 3,000 stock
options, at a price equal to the market value on the date of grant, pursuant to
Dianon's Stock Incentive Plans. They each also received a one-time grant of
13,000 stock options in December 1997 pursuant to Dianon's 1996 Stock Incentive
Plan, in connection with their services in the aforementioned positions during
1997.
In addition to his aforementioned duties, commencing October 1, 1998 Mr.
Davis began serving as a consultant to Dianon, providing approximately two days
per week of consulting services and maintaining an office at Dianon. He worked
closely with the sales and marketing functions of Dianon, and was involved in
the planning and development of sales training programs, recruiting,
compensation planning, market segmentation, pricing, and national and managed
care marketing programs. As compensation for these services, Mr. Davis received
$50,000 annually (payable monthly at $4,166), in addition to his director
compensation and in addition to the $50,000 he receives in his capacity as
non-Executive Chairman of the Board. In connection with his consulting
arrangement, Mr. Davis was also paid a relocation reimbursement of $123,667 in
February 1999, and received $84,079 in May 2000 for reimbursement of the tax
effect of this relocation payment. Effective August 31, 2000, the consulting
services provided by Mr. Davis were discontinued. The final consulting payment
to Mr. Davis was made in August 2000.
Pursuant to Dianon's Stock Incentive Plans prior to the effectiveness of the
2001 Stock Incentive Plan, Directors who are not employees of Dianon received
(i) automatic initial and quarterly grants of stock options with tandem limited
stock appreciation rights beginning July 1995, (ii) automatic quarterly grants
of shares of Common Stock beginning January 1997 and (iii) additional stock
options or other awards to the extent granted by the Board of Directors in its
discretion.
Each initial and quarterly stock option automatically granted under such
plan is exercisable for that number of shares obtained by dividing $5,000 by
the closing price of the Common Stock on the date of grant and is exercisable
at that price. Each such option has a 10-year term and vests with respect to
10% of the underlying shares on the date which is three months after the date
of grant, and an additional 10% at the end of each three-month period
thereafter. Each such option can be exercised for five years following a
director's termination of service to the extent it had vested prior to
termination. Each automatic quarterly stock grant is for the number of shares
obtained by dividing $2,000 by the closing price of the Common Stock on the
date of grant, and is fully vested at grant.
Upon adoption of the 2001 Stock Incentive Plan, all stock option grants will
be made according to the terms of that plan. See--Adoption of the 2001 Stock
Incentive Plan.
Messrs. Johnson and Schreiber, who are employees of Dianon, receive no
additional compensation for their services as Directors of Dianon.
V-4
Voting for Directors
Abstentions are included in the determination of the existence of a quorum.
Directors are elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors. An automated system administered by Dianon's transfer
agent tabulates the votes. Abstentions are not counted for purposes of election
of directors.
EXECUTIVE OFFICERS
For information with respect to Messrs. Johnson and Schreiber, who are also
Directors, see "Election of Directors--Information Concerning Directors and
Nominees."
Steven T. Clayton, age 34, is Vice President, Information Systems and Chief
Information Officer. Mr. Clayton joined Dianon in December 1996 as Vice
President, Information Systems, and was appointed to the additional position of
Chief Information Officer in January 2000. Prior to joining Dianon, Mr. Clayton
was with Corning Clinical Laboratories for nine years serving most recently as
the Midwest Regional Director of Information Systems. Mr. Clayton holds an ASM
from Thomas Edison State College.
Steven L. Gersen, age 47, has served as Vice President, Genetics Services
since January 2000. Dr. Gersen joined Dianon in December 1993 as Director,
Genetics Services. Prior to joining Dianon, Dr. Gersen was with Integrated
Genetics for three years serving most recently as the Associate Director,
Cytogenetics Laboratory. Dr. Gersen holds a Ph.D. in Genetics from Rutgers
University/University of Medicine and Dentistry of NJ.
Valerie B. Palmieri, age 40, has served as Senior Vice President, Operations
since April 2001. She previously served as Vice President, Operations since
December 1999. Ms. Palmieri joined Dianon in December 1987 as a Medical
Technologist and subsequently served as Laboratory Supervisor, Operations
Laboratory Manager, Director of Operations--Clinical Pathology, Director of
Service Operations and Vice President, Service Operations. Prior to joining
Dianon, Ms. Palmieri was with Park City and Bridgeport Hospital as a Medical
Technologist. Ms. Palmieri holds a BS from Western Connecticut State
University.
Christopher J. Rausch, age 34, is Vice President, Finance and Corporate
Controller. Mr. Rausch joined Dianon as Corporate Controller in June 1999, and
was appointed to the additional position of Vice President, Finance in October
2000. Prior to joining Dianon, Mr. Rausch was with Quest Diagnostics for four
years, serving most recently as the Regional Controller for Quest's Florida
operations. Mr. Rausch holds a BS from Rutgers University. Mr. Rausch was
certified as a CPA in 1991.
Martin J. Stefanelli, age 40, has served as Senior Vice President, Sales,
Marketing and Business Development since December 1999. He previously served as
Senior Vice President, Operations and Vice President, Laboratory Operations.
Mr. Stefanelli joined Dianon in January 1990 as a Sales Representative and
subsequently served as Logistics Manager, Marketing Manager and Director of
Operations, Anatomic Pathology. Before joining Dianon, Mr. Stefanelli was a
captain in the U.S. Army. Mr. Stefanelli holds a BS from the United States
Military Academy.
EXECUTIVE COMPENSATION
Compensation Committee Report
The Compensation Committee of the Board of Directors of DIANON Systems, Inc.
(the "Committee") sets forth its report on executive compensation below. This
Committee report documents the components of Dianon's executive officer
compensation programs and describes the basis on which 2000 compensation
determinations were made by the Committee with respect to the executive
officers of Dianon, including the executive officers that are named in the
compensation tables below.
V-5
Compensation Program Components
The Committee is responsible for setting and monitoring the effectiveness of
the compensation provided to Dianon's Directors and executive officers. In its
decision-making, the Committee is guided by a compensation philosophy designed
to reward employees for the achievement of business goals and the maximization
of stockholder returns. Specific levels of pay and incentive opportunity are
determined by the competitive market for executive talent and, where
appropriate, the need to invest in the future growth of the business. The
compensation program, which provides incentives for executive officers to
achieve the short-term and long-term goals of Dianon, comprises three
components: base salary, incentive compensation and stock option awards.
Base Salary--Base pay levels are largely determined through comparisons
with service companies of similar size. Since Dianon's current strategy
places greater reliance on outstanding professional and management skills
than on proprietary technology, Dianon believes that base salaries at the
high end of the competitor range may be required in certain circumstances to
maintain Dianon's strategic position. Actual salaries are based on
individual performance contributions within a tiered salary range for each
position that is established through job evaluation and competitive
comparisons.
Management Incentive Plan--Dianon's Management Incentive Plan provides
cash bonus incentives ("Incentive Payments") for all management employees.
The bonus payment under this plan is based on a fixed percentage of an
employee's annual salary, which increases with the grade of an employee's
position from 10% to a maximum of 50%. This percentage of salary is then
adjusted to reflect the degree to which Company and individual performance
goals are achieved (respectively, the "Company Achievement Percentage" and
the "Individual Achievement Percentage") by multiplying the employee's fixed
bonus percentage by Dianon Achievement Percentage and by the Individual
Achievement Percentage. Dianon Achievement Percentage is based on, among
other things, sales and earnings per share growth. The Individual
Achievement Percentages for executive officers is based upon the degree to
which each officer met the individual goals set for him/her, as evaluated by
the CEO and Compensation Committee. The maximum bonus attainable is limited
to the prescribed salary percentage, unless certain special Company sales
and income goals are met. Achieving these special "stretch" goals entitles
participants to additional compensation equal to 50% of the amount otherwise
payable under the Management Incentive Plan ("Extra Incentive Payout").
Actual awards are subject to decrease or increase at the discretion of the
Committee. In 2000, Company performance goals were partially achieved.
Therefore, management incentive bonuses were awarded on a pro rata basis.
Stock Option Program--The Committee strongly believes that by providing
executives an opportunity to own shares of Company stock, the best interests
of stockholders and executives will be closely aligned. Therefore, all
executives are eligible to receive stock options from time to time giving
them the right to purchase shares of Common Stock of Dianon at a specific
price in the future. The number of stock options granted to executive
officers is determined at the discretion of the Committee based on the
accomplishments of such executives, their length of service with Dianon, the
number of prior awards received by such officer, the relative value as well
as the exercise price of such awards, and competitive practices.
Discussion of 2000 Compensation for the Chief Executive Officer
The Committee meets with the Chief Executive Officer to evaluate his
performance. For 2000, Mr. Johnson's incentive compensation was based on Dianon
Achievement Percentage and the Committee's evaluation regarding his overall
performance based on both quantitative and qualitative objectives, as set by
the Board at the start of the year. Based on these considerations, the
Committee awarded Mr. Johnson incentive compensation in 2000 which represented
approximately 20% of his annual base salary for the year.
This report has been provided by the Compensation Committee of the Board of
Directors:
Bruce K. Crowther
G.S. Beckwith Gilbert
Jeffrey L. Sklar, MD, Ph.D.
V-6
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to the following
named executive officers: (i) the person who served as Chief Executive Officer
("CEO") during 2000 and (ii) the four most highly compensated executive
officers other than the CEO serving at December 31, 2000 whose total salary and
bonus for 2000 exceeded $100,000.
Long Term
Annual Compensation Compensation
----------------------------- ------------
Other Securities
Name and Annual Underlying All Other
Principal Position Year Salary Bonus Compensation Options Compensation
------------------ ---- -------- ------- ------------ ------------ ------------
Kevin C. Johnson....................... 2000 $303,958 $61,366 $-- 60,000 $ 44,216(1)
Chairman, President and Chief 1999 300,479 -- -- -- 39,678
Executive Officer 1998 295,773 -- -- 40,000 184,599
Steven T. Clayton...................... 2000 148,362 23,898 -- 30,000 12,613(2)
Vice President, Information Services 1999 128,544 -- -- -- 2,031
and Chief Information Officer 1998 127,211 -- -- 5,000 43,613
Valerie B. Palmieri.................... 2000 142,794 28,381 -- 30,000 11,228(3)
Senior Vice President, Operations 1999 118,261 -- -- -- 3,169
1998 101,708 -- -- 5,000 520
David R. Schreiber..................... 2000 209,846 46,045 -- 45,000 13,170(4)
Senior Vice President Finance, 1999 204,516 -- -- -- 9,678
Chief Financial Officer 1998 195,582 -- -- 20,000 6,124
and Corporate Secretary and Director
Martin J. Stefanelli................... 2000 191,423 43,516 -- 45,000 13,561(5)
Sr. Vice President, Sales, Marketing 1999 150,768 -- -- -- 9,571
and Business Development 1998 125,394 -- -- 20,000 1,223
- --------
(1)The $44,216 indicated for Mr. Johnson represents: (i) a loan forgiveness
aggregating $30,000 pursuant to Mr. Johnson's employment agreement; (ii) an
auto allowance of $9,038; (iii) contributions of $5,100 paid by Dianon
pursuant to Dianon's 401(K) Retirement Plan; and (iv) term life insurance
premiums of $78 paid by Dianon.
(2)The $12,613 indicated for Mr. Clayton represents an auto allowance of
$8,200, contributions of $4,335 paid by Dianon pursuant to Dianon's 401(K)
Retirement Plan and term life insurance premiums of $78 paid by Dianon.
(3)The $11,228 indicated for Ms. Palmieri represents an auto allowance of
$6,050, contributions of $5,100 paid by Dianon pursuant to Dianon's 401(K)
Retirement Plan and term life insurance premiums of $78 paid by Dianon.
(4)The $13,170 indicated for Mr. Schreiber represents an auto allowance of
$7,992, contributions of $5,100 paid by Dianon pursuant to Dianon's 401(K)
Retirement Plan and term life insurance premiums of $78 paid by Dianon.
(5)The $13,561 indicated for Mr. Stefanelli represents an auto allowance of
$8,383, contributions of $5,100 paid by Dianon pursuant to Dianon's 401(K)
Retirement Plan and term life insurance premiums of $78 paid by Dianon.
V-7
Performance Graph
The Securities and Exchange Commission requires that Dianon include in this
Annual Report a line-graph presentation comparing cumulative stockholder return
on an indexed basis with a broad equity market index and either a published
industry index or an index of peer companies selected by Dianon. The graph
below compares the cumulative total return during such period on $100 invested
as of December 31, 1995 in the Common Stock of Dianon, the JP Morgan H&Q Health
Care Sub-Sector excluding the Biotechnology Sector of the JP Morgan Hambrecht &
Quist Technology and Growth Indices and the NASDAQ National Market Index,
assuming the reinvestment of all dividends:
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
JP MORGAN H&Q INDEX PRODUCTS AND SERVICES:
2000 PROXY PERFORMANCE GRAPH DATA
ANNUAL DATA SERIES
SCALED PRICES: Stock and index prices scaled to 100 at 12/31/95
JP Morgan
H&Q Nasdaq
DIANON Healthcare Stock
Dates Systems Excl. Biotech Market U.S.
- ----- -------- ------------- -----------
Dec-95 100.00 100.00 100.00
Dec-96 202.94 123.04 111.02
Dec-97 220.59 150.69 132.31
Dec-98 211.76 212.51 160.76
Dec-99 323.53 394.92 140.46
Dec-00 1,032.35 237.62 219.73
Employment and Severance Agreements
Dianon entered into an employment agreement with Mr. Johnson on May 2, 1996.
The agreement provides for Mr. Johnson to serve as President of Dianon at an
initial base salary of $275,000 per annum, the grant of options to purchase
200,000 shares of Common Stock with a 10-year term and an exercise price of
$5.69, stock grants of 15,000 shares of Common Stock on January 2, 1997 and
15,000 additional shares on January 2, 1998, a signing bonus of $50,000 and a
loan of $150,000. The loan carries an interest rate of 5.9%, payable annually,
and is repayable upon termination of Mr. Johnson's employment with Dianon. If
Mr. Johnson continues to be employed with Dianon, the loan principal will be
forgiven at the rate of $2,500 per completed month of employment from January
31, 1998 through December 31, 2002. This agreement provides that in the event
of a termination of Mr. Johnson's employment other than for "Cause," as defined
in the agreement, he is entitled to receive one year's salary and other
benefits. Subject to the foregoing, this agreement is subject to termination at
will by either party.
Dianon entered into an employment agreement with David R. Schreiber on
September 30, 1996 as the Chief Financial Officer and Senior Vice President,
Finance. The agreement provides for an initial base salary of $190,000 per
annum, the grant of options to purchase 50,000 shares of Common Stock with a
10-year term and an exercise price of $6.625, a signing bonus of $80,000 and a
stock grant of 7,500 shares of Common Stock on April 1, 1997. This agreement
provides that in the event of a termination of Mr. Schreiber's employment other
than for "Cause," as defined in the agreement, he is entitled to receive one
year's salary (and certain other benefits) if such termination occurs within
the first year of employment or six months after Dianon is acquired by another
business entity, or six month's salary (and certain other benefits) if such
termination occurs after such period. Subject to the foregoing, this agreement
is subject to termination at will by either party.
V-8
Dianon entered into an employment agreement with Steven T. Clayton on
November 18, 1996 as Vice President, Information Services of Dianon. The
agreement provides for an initial base salary of $120,000 per annum, a signing
bonus of $14,000 and the grant of options to purchase 15,000 shares of Common
Stock with a 10-year term and an exercise price of $7.875.
Dianon entered into an agreement with Mr. Kevin C. Johnson on April 24,
2000, which provides that following a "Change in Control" of Dianon, as defined
in the agreement, if Mr. Johnson's employment is terminated other than for
"Cause," as defined in the agreement, he is entitled to receive three years
salary, bonus and other benefits if such termination occurs within 12 months of
the change of control. This agreement supercedes any prior "Change in Control"
agreements with Mr. Johnson.
Dianon entered into an agreement with Mr. David R. Schreiber on April 24,
2000, which provides that following a "Change in Control" of Dianon, as defined
in the agreement, if Mr. Schreiber's employment is terminated other than for
"Cause," as defined in the agreement, he is entitled to receive three years
salary, bonus and other benefits if such termination occurs within 12 months of
the change of control. This agreement supercedes any prior "Change in Control"
agreements with Mr. Schreiber.
Dianon entered into an agreement with Mr. Christopher J. Rausch on April 24,
2000 (as amended on August 1, 2001), which provides that following a "Change in
Control" of Dianon, as defined in the agreement, if Mr. Rausch's employment is
terminated other than for "Cause," as defined in the agreement, he is entitled
to receive 100% of his annual salary, bonus and other benefits if such
termination occurs within 12 months of the change of control.
On August 1, 2001, Dianon also entered into agreements with each of Messrs.
Steven T. Clayton, Steven L. Gersen and Martin J. Stefanelli and Ms. Valerie B.
Palmieri, which provide that following a "Change in Control" of Dianon, as
defined in the agreements, if the employee's employment is terminated other
than for "Cause", as defined in the agreements, the employee is entitled to
receive 100% of his or her annual salary, bonus and other benefits if such
termination occurs within 12 months of the change in control.
Change of Control Provisions
As a general matter, under Dianon's 2000 Stock Incentive Plan and the
proposed 2001 Stock Incentive Plan, upon the occurrence of a Change of Control
(as defined below), (1) all outstanding stock options, SARs, and limited SARs,
including those held by Outside Directors (as defined in such plan), will
become fully exercisable and vested, (2) all other awards under the Plan will
become fully vested, and (3) to the extent the cash payment of any award is
based on the fair market value of stock, such fair market value will be the
Change of Control Price (as defined below).
A "Change of Control" is deemed to occur on the date (1) any person or group
acquires beneficial ownership of securities representing 25% or more of
Dianon's total voting power (with certain exceptions), (2) individuals who
constitute the "Current Directors" (as defined in the Plan) fail to constitute
at least two-thirds of the Board of Directors, (3) the stockholders approve a
merger or consolidation unless following such transaction (a) the beneficial
owners of Dianon's Common Stock before the transaction own securities
representing more than 50% of the total voting power of Dianon resulting from
the transaction, and (b) at least a majority of members of the board of
directors of Dianon resulting from the transaction were members of Dianon's
Board of Directors at the time such Board approved the transaction, or (4) the
stockholders of Dianon approve a sale of substantially all of its assets.
The "Change of Control Price" is the highest price per share of Common Stock
paid in any open market transaction, or paid or offered to be paid in any
transaction related to a Change of Control, during the 90-day period ending
with the Change of Control, except that for an SAR granted in tandem with an
ISO, such price is the highest price paid on the date the SAR is exercised.
V-9
The 1991, 1996 and 1999 Stock Incentive Plans and the proposed 2001 Stock
Incentive Plan contain change of control provisions generally comparable to the
change of control provisions contained in Dianon's 2000 Stock Incentive Plan,
as described above.
The issuance of Dianon's Common Stock to UroCor stockholder in connection
with Dianon's merger transaction with UroCor will not be deemed a "Change of
Control" under any of the Stock Incentive Plans.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires Dianon's
directors and executive officers, and persons who own more than ten percent of
a registered class of Dianon's equity securities, to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of Dianon. Officers,
directors and greater than ten percent stockholders are required to furnish
Dianon with copies of all Section 16(a) forms they file.
To Dianon's knowledge, based solely on review of the copies of such reports
furnished to Dianon and representations that no other reports were required
during the fiscal year ended December 31, 2000, all Section 16(a) reporting
requirements applicable to its officers, directors and greater than ten percent
beneficial stockholders were complied with except for the following: Mr.
Carlson who was late in filing his initial Form 3 when becoming subject to the
Section 16 reporting requirements and James B. Amberson, M.D. who filed two
late reports.
Stock Options
The following table shows, as to the named executive officers of Dianon,
information about option grants in the last fiscal year. Dianon, as of December
31, 2000, has not granted any Stock Appreciation Rights to officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term
- ----------------------------------------------------------------- -----------------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise or
Options Employees Base Price Expiration
Name Granted(#) in 2000 ($/Share) Date 5%($) 10%($)
---- ---------- ---------- ----------- ---------- ---------- ----------
Kevin C. Johnson... 15,000(1) 2% $16.625 01/19/2010 $ 156,831 $ 397,440
Kevin C. Johnson... 45,000(2) 7% 38.500 12/06/2010 1,089,560 2,761,159
Steven T. Clayton.. 10,000(1) 2% 16.625 01/19/2010 104,554 264,960
Steven T. Clayton.. 20,000(2) 3% 38.500 12/06/2010 484,249 1,227,182
Valerie B. Palmieri 10,000(1) 2% 16.625 01/19/2010 104,554 264,960
Valerie B. Palmieri 20,000(2) 3% 38.500 12/06/2010 484,249 1,227,182
David R. Schreiber. 15,000(1) 2% 16.625 01/19/2010 156,831 397,440
David R. Schreiber. 30,000(2) 5% 38.500 12/06/2010 726,373 1,840,773
Marty J. Stefanelli 15,000(1) 2% 16.625 01/19/2010 156,831 397,440
Marty J. Stefanelli 30,000(2) 5% 38.500 12/06/2010 726,373 1,840,773
- --------
(1)In January 2000, Dianon granted certain employees and officers options to
purchase 249,000 shares of Common Stock at $16.625 per share. These options
vest 40% in January 2002 and 20% during each year thereafter. Upon
termination, all unvested options are cancelled and all vested options
expire 90 days after termination of employment.
(2)In December 2000, Dianon granted certain employees and officers options to
purchase 328,250 shares of Common Stock at $38.50 per share. These options
vest 20% in December 2001 and 20% during each year thereafter. Upon
termination, all unvested options are cancelled and all vested options
expire 90 days after termination of employment.
V-10
The following table shows aggregate option exercises in the last fiscal year
and fiscal year-end option values for the named executive officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
Value of Unexercised In-the-
Money Options at Fiscal
Number of Securities Year-End (based on Fiscal
Underlying Unexercised Year-End Price of
Options at Fiscal Year-End(#) $43.875/share)($)(1)
----------------------------- ----------------------------
Shares Value
Acquired on Realized
Name Exercise(#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
Kevin C. Johnson.... 16,000 $506,938 160,000 124,000 $6,110,000 $3,066,125
Steven T. Clayton... 8,000 213,238 -- 42,000 -- 809,750
Valerie B. Palmieri. 12,000 305,375 3,000 42,600 105,375 836,750
David R. Schreiber.. 45,000 971,554 -- 75,000 -- 1,667,500
Martin J. Stefanelli 15,900 421,488 3,500 68,600 127,625 1,430,000
- --------
(1)Computed based upon difference between aggregate fair market value and
aggregate exercise price.
OWNERSHIP OF VOTING STOCK BY MANAGEMENT
The following table gives information concerning the beneficial ownership of
Dianon's Common Stock as of August 29, 2001 by each director and each of the
executive officers named in the summary compensation table and all current
directors and executive officers (as of August 29, 2001) as a group.
Total Shares
Beneficially Direct Right to Percent of
Beneficial Owners Owned(1)(2) Ownership Acquire(3) Class(4)
----------------- ------------ --------- ---------- ----------
James T. Barry......................................... 2,896 2,875 21 -- (5)
Steven T. Clayton...................................... 1,000 -- 1,000 -- (5)
Bruce K. Crowther...................................... 7,947 2,343 5,604 -- (5)
John P. Davis.......................................... 209,357 69,472 139,885 2.8%
E. Timothy Geary....................................... 9,468 2,789 6,679 -- (5)
G.S. Beckwith Gilbert.................................. 1,826,134 1,803,252 22,882 24.5%(6)
Kevin C. Johnson....................................... 209,381 1,381 208,000 2.7%
Valerie B. Palmieri.................................... 4,052 52 4,000 -- (5)
David R. Schreiber..................................... -- -- -- -- (5)
Jeffrey L. Sklar, M.D., Ph.D........................... 23,734 733 23,001 -- (5)
Martin J. Stefanelli................................... 7,500 -- 7,500 -- (5)
All current directors and executive officers as a group
(13 persons)......................................... 2,313,869 1,882,897 430,972 29.4%
- --------
(1)The information as to beneficial ownership is based on statements furnished
to the Company by its executive officers and directors. Each executive
officer and director has sole voting and sole investment power with respect
to his respective shares listed above, except that the shares reported for
Mr. Gilbert include 121,951 shares which are held by a trust of which Mr.
Gilbert is a trustee, as to which Mr. Gilbert shares voting and investment
powers. Amounts shown for Mr. Johnson include 1,381 shares held in the
Company's 401(K) Retirement Plan.
(2)Includes shares listed under the captions "Direct Ownership" and "Right to
Acquire," as well as shares held in the Company's 401(K) Retirement Plan
which are beneficially owned by the named individuals.
(3)Individuals have the right to acquire these shares within 60 days of August
29, 2001 by the exercise of stock options or through purchases under the
Company's Employee Stock Purchase Plan.
V-11
(4)For the purposes of this table, "Percent of Class" held by each individual
has been calculated based on a total class equal to the sum of (i) 7,442,524
shares of Common Stock issued and outstanding on August 29, 2001 plus (ii)
for such individual the number of shares of Common Stock subject to stock
options presently exercisable, or exercisable within 60 days after August
29, 2001, held by that individual, and which percent is rounded to the
nearest whole number.
(5)Owns less than 1% of the outstanding Common Stock.
(6)As of August 29, 2001, Mr. Gilbert cannot vote, without restriction, any
Common Stock or other voting securities of the Company beneficially owned by
him representing greater than 20% of the total voting power of the Company's
voting securities outstanding from time to time, or 1,488,505 votes as of
August 29, 2001. Excess votes above this amount are required to be voted in
proportion to the votes cast by all other stockholders of the Company.
OWNERSHIP OF VOTING STOCK BY CERTAIN BENEFICIAL OWNERS
The following table sets forth information with respect to the only persons
who, to the best knowledge of Dianon, beneficially owned more than five percent
of the Common Stock of Dianon as of August 29, 2001. Unless otherwise indicated
below, each person included in the table has sole voting and investment power
with respect to all shares included therein.
Name and Address of Amount and Nature of Percent of
Title of Class Beneficial Owner Beneficial Ownership Class(1)
- -------------- ------------------- -------------------- ----------
Common Stock. G.S. Beckwith Gilbert et al 1,826,134 (2)(3) 24.5%(3)
47 Arch Street
Greenwich, CT 06830
Common Stock. Larry N. Feinberg 724,350 (4) 9.7%
200 Greenwich Avenue, 3rd Floor
Greenwich, Connecticut 06830
Common Stock. Westfield Capital Management 618,650 (5) 8.3%
One Financial Center
Boston, MA 02111
Common Stock. HLM Management Co., Inc. 460,900 (6) 6.2%
222 Berkeley Street
Boston, MA 02116
- --------
(1)For the purposes of this table, "Percent of Class" held by each person has
been calculated based on a total class equal to the sum of (i) 7,442,524
shares of Common Stock issued and outstanding on August 29, 2001 plus (ii)
for such person the number of shares of Common Stock subject to stock
options or warrants presently exercisable, or exercisable within 60 days
after August 29, 2001, held by that person, and which percent is rounded to
the nearest whole number.
(2)Mr. Gilbert has shared voting and investment power with respect to 121,951
shares included in the table above.
(3)As of August 29, 2001, Mr. Gilbert cannot vote, without restriction, any
Common Stock or other voting securities of Dianon beneficially owned by him
representing greater than 20% of the total voting power of Dianon's voting
securities outstanding from time to time, 1,488,505 votes as of August 29,
2001. Excess votes above this amount are required to be voted in proportion
to the votes cast by all other stockholders of Dianon.
(4)Based on information contained in Schedule 13G filed with the Securities and
Exchange Commission on March 8, 2001, by Larry N. Feinberg, on his own
behalf and as senior managing member of Oracle Associates, LLC.
(5)Based on information contained in Schedule 13G filed with the Securities and
Exchange Commission on January 25, 2001, by Westfield Capital Management
Co., Inc.
(6)Based on information contained in Schedule 13G filed with the Securities and
Exchange Commission on February 14, 2001, by HLM Management Co., Inc.
V-12
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dianon pays Nonda Katapodis, a stockholder, who is also Chairman Emeritus,
and who was a director until January 1995, a royalty of 6% of revenue on sales
of certain technology covered by a license agreement. In addition, Dianon
provides this stockholder with certain insurance benefits, the use of an
automobile and the reimbursement of expenses incident to his performance as a
consultant to Dianon. Dianon paid licensing and royalty fees to this
stockholder of approximately $12,000, $30,000 and $27,000 during the years
ended December 31, 2000, 1999 and 1998, respectively.
Pursuant to his employment agreement, Kevin Johnson, the President of Dianon
received a loan in 1996 totaling $150,000 which bears interest at 5.9%, payable
annually, and is repayable upon termination of his employment with Dianon. In
addition, pursuant to the terms of such agreement the loan principal is being
forgiven at a rate of $2,500 per month over the period January 1998 through
December 2002 if the President continues to be employed by Dianon. Pursuant to
the terms of such agreement, the current outstanding balance on the loan was
$60,000 on December 31, 2000.
In December 1999, Dianon modified an existing loan agreement with an officer
of Dianon, for approximately $55,000, bearing interest at 8.25% per annum
through December 31, 1999. The loan is payable at a rate of $1,000 per month,
commencing January 1, 2000, with the remaining outstanding balance due in full
no later than December 31, 2002 or upon termination of employment with Dianon.
As of December 31, 2000, the outstanding balance was approximately $43,000.
In connection with the acquisition of John H. Altshuler, M.D., P.C., Dianon
entered into a lease for an office and laboratory facility located in
Englewood, Colorado for a one-year term commencing October 1, 2000. There is an
option to renew the lease for one year. John H. Altshuler, M.D., and Barbara A.
Altshuler are owners in joint tenancy of this laboratory facility.
ADOPTION OF THE 2001 STOCK INCENTIVE PLAN
The Board of Directors has adopted, subject to approval at the Annual
Meeting, the DIANON Systems, Inc. 2001 Stock Incentive Plan (the "Plan"). The
purposes of the Plan are to enable Dianon to attract, retain and reward key
employees and outside directors by providing such individuals with equity and
equity-based long-term incentive compensation awards.
Principal Provisions of the Plan
The following summary of the Plan, as adopted by the Board of Directors
subject to stockholder approval, is qualified by reference to the full text of
the Plan, which is attached as Annex E to this Proxy Statement.
General Provisions
The Plan authorizes the granting of awards in the form of any combination
(independent or in tandem) of (1) options to purchase shares of Common Stock,
(2) stock appreciation rights ("SARs"), (3) shares of restricted Common Stock
("restricted stock"), (4) shares of deferred Common Stock ("deferred stock"),
(5) bonus stock, (6) loans, and (7) tax-offset payments with respect to any of
such awards. Awards may be granted (i) to key employees (including officers) of
Dianon and certain related companies by the Plan Committee (as defined below),
and (ii) to directors who are not employees or officers of Dianon or certain
related companies ("Outside Directors") by the Board of Directors. The Plan
also provides for the automatic grant to Outside Directors of options to
purchase shares of Common Stock.
V-13
Administration. The Plan is administered by the Board of Directors with
respect to awards to Outside Directors, and by a committee of Dianon's Board of
Directors, which consists of at least two Outside Directors (the "Plan
Committee"), with respect to awards to employees. (The Board of Directors and
the Plan Committee, in their respective roles, are referred to as the "Granting
Authority.") With respect to awards within its jurisdiction, the Granting
Authority designates the persons to be granted awards from among those eligible
and the type and amount of awards to be granted and has authority to interpret
the Plan, adopt, alter and repeal administrative regulations, and determine and
amend the terms of awards. The Plan Committee may delegate to officers of
Dianon any of its authority under the Plan (other than with respect to awards
to persons subject to Section 16 of the Securities Exchange Act of 1934, as
amended, and Performance Awards (as defined below)).
Eligibility. The Plan Committee may make awards under the Plan to key
employees (including officers) of Dianon or of any entity in which Dianon owns
at least a 20% interest. The Plan Committee, in its sole discretion, will
select the key employees eligible to participate in the Plan. Outside Directors
are automatically granted stock options and related limited SARs and stock
grants having the terms specified in the Plan, and may be granted discretionary
awards by the Board of Directors. All key employees (currently numbering
approximately 30) and Outside Directors (currently numbering 6) are eligible to
receive awards under the Plan.
Limitations on Awards. The aggregate number of shares of Common Stock which
may be issued under the Plan is 640,000, of which 500,000 may be issued to key
employees and 140,000 may be issued to Outside Directors. Such shares may
consist of authorized but unissued shares or treasury shares. The exercise of a
SAR for cash or the settlement of any other award in cash will not count
against this share limit. Shares subject to lapsed, forfeited or canceled
awards, including options canceled upon the exercise of tandem SARs for cash,
will not count against this limit and can be regranted under the Plan. If the
exercise price of an option is paid in Common Stock or if shares are withheld
from payment of an award to satisfy tax obligations with respect to the award,
such shares also will not count against the above limit.
No key employee may be granted stock options, SARs, restricted stock,
deferred stock, or bonus stock under the Plan with respect to more than 50,000
shares of Common Stock in any fiscal year. The Plan does not limit awards which
may be made under other plans of Dianon.
Discretionary Awards
The Plan authorizes the Granting Authority to grant, within its
jurisdiction, the following types of awards in its discretion:
1. Stock Options. The Granting Authority is authorized to grant incentive
stock options ("ISOs") and non-qualified stock options to purchase such
number of shares of Common Stock as the Granting Authority determines. An
option will be exercisable at such times, over such term and subject to such
terms and conditions as the Granting Authority determines, and at an
exercise price determined by the Granting Authority, which may be less than
the fair market value of the Common Stock at the date of grant of the
option. ISOs may be granted only to key employees and are subject to
additional restrictions as to exercise period and exercise price as required
by the Internal Revenue Code of 1986, as amended (the "Code"). Payment of
the exercise price of an option may be made in such manner as the Granting
Authority may provide, including cash, delivery of shares of Common Stock
already owned for six months or subject to an award under the Plan,
"cashless exercise" (an arrangement with a brokerage firm whereby shares
issuable upon exercise of an option would be sold by the broker and the
proceeds used to pay the exercise price), or in any other manner specified
by the Granting Authority. Under this provision, the Granting Authority
could permit payment to be made by way of successive, automatic applications
of shares received upon exercise of a portion of the option to satisfy the
exercise price for additional portions of the option, a payment method known
as "pyramiding".
The Granting Authority is authorized to specify the period, if any, over
which options become exercisable, and to accelerate the exercisability of
options on a case by case basis at any time. The Granting
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Authority is also authorized to specify the period during which options may
be exercised following an option holder's termination of service with
Dianon, and to extend such period on a case by case basis. The Granting
Authority may permit an option to be exercised for an additional period
after the option holder's death, even if such period extends beyond the
original option term. Unless otherwise provided by the Granting Authority,
options will not be transferable except by will or by the laws of descent
and distribution.
2. Stock Appreciation Rights. Upon exercise of a SAR the award holder is
entitled to receive, for each share with respect to which the SAR is
exercised, an amount (the "appreciation") equal to the excess of the fair
market value of a share of Common Stock on the exercise date over an
"amount" determined by the Granting Authority. The appreciation is payable
in cash, Common Stock, or a combination of both, as determined by the
Granting Authority.
The Granting Authority may also grant limited SARs that will be
exercisable only during the 60-day period following a "Change of Control"
(as defined below) of Dianon. The Granting Authority may provide that in the
event of a Change of Control, SARs or limited SARs may be settled on the
basis of the "Change of Control Price" (as defined below).
3. Restricted Stock. The Granting Authority is authorized to award
restricted stock subject to such terms and conditions as the Granting
Authority may determine in its sole discretion. The Granting Authority has
authority to determine the number of shares of restricted stock to be
awarded, the price, if any, to be paid by the recipient of the restricted
stock, and the date or dates on which the restricted stock will vest. The
vesting of restricted stock may be conditioned upon the completion of a
specified period of service with Dianon, upon the attainment of specified
performance goals, or upon such other criteria as the Granting Authority may
determine. The Plan gives the Granting Authority discretion to accelerate
the vesting of restricted stock on a case by case basis at any time. The
Granting Authority also has authority to determine whether the award holder
will have the right to vote and/or receive dividends on shares of restricted
stock, and whether the certificates for such shares will be held by Dianon
or delivered to the award holder bearing legends to restrict their transfer.
Stock certificates representing the restricted stock granted under the
Plan will be registered in the award holder's name. However, no share of
restricted stock may be sold, transferred, assigned or pledged by the award
holder until such share has vested in accordance with the terms of the
restricted stock award. In the event of an award holder's termination of
service before all of his restricted stock has vested, or in the event other
conditions to the vesting of restricted stock have not been satisfied prior
to any deadline for the satisfaction of such conditions set forth in the
award, the shares of restricted stock which have not vested will be
forfeited and any purchase price paid by the award holder generally will be
returned to the award holder. At the time restricted stock vests, a
certificate for such vested shares will be delivered to the award holder (or
the beneficiary designated by the award holder, in the event of death), free
of all restrictions.
4. Deferred Stock. Deferred stock may be conditioned upon the attainment
of specific performance goals or such other criteria as the Granting
Authority may determine. In making an award of deferred stock the Granting
Authority will determine the periods, if any, during which the award is
subject to forfeiture, and may provide for the issuance of stock pursuant to
the award without payment therefor. Upon vesting, the award will be settled
in shares of Common Stock, cash equal to the fair market value of such
stock, or a combination thereof, as provided by the Granting Authority.
During the deferral period set by the Granting Authority, the award holder
may not sell, transfer, pledge or assign the deferred stock award. In the
event of termination of service before the expiration of the deferral
period, the deferred stock award will be forfeited, except as may be
provided by the Granting Authority. Deferred stock will carry no voting
rights until such time as the Common Stock is actually issued.
5. Bonus Stock. The Granting Authority may award bonus stock subject to
such terms and conditions as it may determine. Such awards may be
conditioned upon attainment of specific performance goals or such other
criteria as the Granting Authority may determine, and the Granting Authority
may waive such
V-15
conditions in its discretion. Bonus stock may be issued without payment
therefore or may be sold at a discount from its fair market value.
6. Loans. The Granting Authority may provide that Dianon will make, or
arrange for, a loan with respect to the exercise of any stock option granted
under the Plan, with respect to the payment of the purchase price, if any,
of any restricted stock awarded under the Plan, and/or with respect to any
taxes arising from an award under the Plan, provided that Dianon will not
loan more than the sum of (i) the excess of the purchase or exercise price
of an award over the par value of any shares awarded, plus (ii) the amount
of any taxes arising from such award. The Granting Authority will determine
the terms of any such loan.
7. Tax-Offset Payments. The Granting Authority is authorized to provide
for a tax-offset payment by Dianon to an award holder not in excess of the
amount necessary to pay the federal, state, local, and other taxes payable
with respect to any award and the receipt of the tax-offset payment,
assuming the award holder is taxed at the maximum tax rate applicable to
such income. Due to variations in the actual tax rates applicable to award
holders, the benefit of the tax-offset payment may not correspond to the
actual tax liability of the award holder. Tax-offset payments are payable in
cash.
8. Performance Awards. The Plan Committee can designate any awards to
employees under the Plan as "Performance Awards", and the Plan provides that
awards so designated are to be granted and administered so as to qualify as
"performance-based compensation" under Section 162(m) of the Code. The grant
or vesting of a Performance Award will be subject to the achievement of
performance objectives (the "Performance Objectives") established by the
Plan Committee based on one or more of the following criteria, which the
Plan Committee may apply to Dianon on a consolidated basis and/or to a
business unit, and which the Plan Committee may use either as an absolute
measure or as a measure of comparative performance relative to a peer group
of companies: sales, operating profits, operating profits before interest
expense and taxes, net earnings, earnings per share, return on equity,
return on assets, return on invested capital, total stockholder return, cash
flow, debt to equity ratio, market share, stock price, economic value added,
and market value added.
The Performance Objectives for a particular Performance Award must be
established by the Plan Committee in writing no later than 90 days after the
beginning of Dianon's fiscal year to which it relates. The Plan Committee
has authority to determine whether the Performance Objectives and other
terms and conditions of the award are satisfied, but has discretion to
modify or waive the Performance Objectives or conditions to the grant or
vesting of a Performance Award only to the extent that the exercise of such
discretion would not cause the Performance Award to fail to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
Code.
9. Deferral of Awards. The Granting Authority may permit an award holder
to defer receipt of any award for a specified period or until a specified
event.
Automatic Awards to Outside Directors
The Plan provides for the automatic grant of stock options and stock grants
to Outside Directors on the following terms: (i) on the first trading day
following the approval of the Plan by the Company's stockholders, an option to
purchase 20,000 shares of Common Stock shall be granted automatically to each
Outside Director who is then a member of the Board of Directors; (ii) on each
three-year anniversary of the date of grant of the options granted pursuant to
(i), an option to purchase 20,000 shares of Common Stock shall be granted
automatically to each Outside Director who is then a member of the Board of
Directors; (iii) each new Outside Director who has not been granted an option
pursuant to (i) or (ii), upon the first trading day coincident with or
immediately following the effective date of his or her election as an Outside
Director shall be granted an option to purchase a pro-rated number of shares of
Common Stock. The pro-rated number of shares of Common Stock with respect to
which an option shall be granted shall be equal to 20,000 times a fraction, the
numerator of which is the number of whole months remaining (if any) until the
next triennial option grant under (ii) above and the denominator of which is
36.
V-16
The option price of all options automatically granted to Outside Directors
will be equal to the closing sales price of a share of Common Stock on the date
of option grant, and may be paid using cash or Common Stock owned for at least
six months, or a combination thereof, in the discretion of the option holder.
Each option has a ten-year term, and vests with respect to one-third of the
total number of shares of Common Stock covered by the option, on a cumulative
basis, on each of the first, second and third anniversaries of the date of
grant if the holder thereof has been an Outside Director at all times since
such date of grant. The minimum number of shares with respect to which an
option may be exercised at any time is the lesser of 100 shares or the number
of shares subject to the option. Following an Outside Director's termination of
service, the options which have previously become exercisable will remain
exercisable for five years after such termination, but not beyond their 10-year
term.
An option shall only be exercisable by the option holder or his or her
guardian or legal representative. No holder of an option shall have any of the
rights of a stockholder.
Each automatic option to Outside Directors is granted in tandem with a
limited SAR which may be exercised only within the 60-day period following a
Change of Control. Upon exercise of the limited SAR, the appreciation will be
paid in cash based on the Change of Control Price.
Provisions Relating to a Change of Control
As a general matter, upon the occurrence of a Change of Control (1) all
outstanding stock options, SARs, and limited SARs, including those held by
Outside Directors, will become fully exercisable and vested, (2) all
restrictions and deferral limitations applicable to outstanding restricted
stock and deferred stock awards under the Plan will lapse, and such shares and
awards will be deemed fully vested, and (3) to the extent the cash payment of
any award is based on the fair market value of stock, such fair market value
will be the Change of Control Price.
A "Change of Control" is deemed to occur on the date (1) any person or group
acquires beneficial ownership of securities representing 25% or more of
Dianon's total voting power (with certain exceptions), (2) individuals who
constitute the "Current Directors" (as defined in the Plan) fail to constitute
at least two-thirds of the Board of Directors, (3) the stockholders approve a
merger or consolidation unless following such transaction (a) the beneficial
owners of Dianon's Common Stock before the transaction own securities
representing more than 50% of the total voting power of Dianon resulting from
the transaction, and (b) at least a majority of members of the Board of
Directors of Dianon resulting from the transaction were members of Dianon's
Board of Directors at the time such Board approved the transaction, or (4) the
stockholders of Dianon approve a sale of substantially all of its assets.
The "Change of Control Price" is the highest price per share of Common Stock
paid in any open market transaction, or paid or offered to be paid in any
transaction related to a Change of Control during the 90-day period ending with
the Change of Control, except that for a SAR granted in tandem with an ISO,
such price is the highest price paid on the date the SAR is exercised.
Other Provisions
Tax Withholding. The Plan permits employees to satisfy all or a portion of
their federal, state, local or other tax liabilities with respect to awards
under the Plan by delivering previously-owned shares (that have been owned by
the optionee for at least six months) or by having Dianon withhold from the
shares otherwise deliverable to such employee shares having a value equal to
the tax liability to be so satisfied.
Adjustments. In the event of specified changes in Dianon's capital
structure, the Plan Committee will have the power to adjust the number and kind
of shares authorized by the Plan (including any limitations on individual
awards), the number of stock options to be automatically granted to Outside
Directors, and the number, option
V-17
price and kinds of shares covered by outstanding awards (including those held
by Outside Directors), and to make such other adjustments in awards under the
Plan as it deems appropriate, provided that no such adjustment may increase the
aggregate value of outstanding awards.
Amendments. The Board of Directors may amend the Plan without stockholder
approval, unless such approval is required by law or other regulatory
requirements. Amendment or discontinuation of the Plan cannot adversely affect
any award previously granted without the award holder's written consent.
The Granting Authority may amend any grant under the Plan within its
jurisdiction (including both discretionary and automatic grants to Outside
Directors) to include any provision which, at the time of such amendment, is
authorized under the terms of the Plan, except that no award can be modified in
a manner unfavorable to the award holder without the written consent of the
award holder. In addition, the Granting Authority may, without stockholder
approval, cancel an option or other award granted under the Plan and grant a
new option or award to the award holder at a lower exercise price or otherwise
on more favorable terms and conditions than the canceled award. The Plan shall
continue in effect for an unlimited period, but may be terminated by the Board
of Directors in its discretion at any time. No ISOs may be granted under the
Plan after 10 years from the effective date the Plan.
Certain Federal Income Tax Consequences
The following is a summary of certain federal income tax aspects of awards
made under the Plan, based upon the laws in effect on the date hereof. All
references to the "Code" are references to provisions of the Internal Revenue
Code of 1986, now in effect.
Non-Qualified Stock Options. With respect to non-qualified stock options:
(a) no income is recognized by the participant at the time the option is
granted; (b) upon exercise of the option, the participant recognizes ordinary
income in an amount equal to the difference between the option price and the
fair market value of the shares on the date of exercise; and (c) at
disposition, any appreciation after the date of exercise is treated either as
long-term or short-term capital gain, depending on whether the shares were held
for more than one year by the participant.
Incentive Stock Options. Generally, no taxable income is recognized by the
participant upon the grant of an ISO or upon the exercise of an ISO during the
period of his or her employment with Dianon or one of its subsidiaries or
within three months (12 months, in the event of permanent and total disability,
as defined in the Code) after termination. However, the exercise of an ISO may
result in an alternative minimum tax liability to the participant. If the
participant continues to hold the shares acquired upon exercise of an ISO for
at least two years from the date of grant and one year from the date of
exercise, upon the sale of the shares, any amount realized in excess of the
option price will be taxed as long-term capital gain.
If Common Stock acquired upon the exercise of an ISO is disposed of prior to
the expiration of the one-year and two-year holding periods described above,
the participant will generally recognize ordinary income in an amount equal to
the excess, if any, of the fair market value of the shares on the date of
exercise (or, if less, the amount realized on the disposition of the shares)
over the option price. Any further gain recognized by the participant on such
disposition will be taxed as short-term or long-term capital gain, depending on
whether the shares were held for more than one year.
Stock Appreciation Rights. No income will be recognized by a participant in
connection with the grant of a SAR. When the SAR is exercised, the participant
will generally recognize as ordinary income in the year of exercise an amount
equal to the amount of cash received plus the fair market value on the date of
exercise of any shares received. If the participant receives Common Stock upon
exercise of a SAR, rules similar to those described above under "Non-Qualified
Stock Options" will apply with respect to the post-exercise appreciation.
V-18
Restricted Stock. A participant receiving restricted stock generally will
recognize ordinary income in the amount of the fair market value of the
restricted stock at the time the restrictions lapse and the stock vests, less
the consideration paid for the restricted stock. However, a participant may
elect, under Section 83(b) of the Code, to recognize ordinary income on the
date of grant in an amount equal to the excess of the fair market value of the
shares on such date (determined without regard to the restrictions) over their
purchase price. The holding period to determine whether the participant has
long-term or short-term capital gain on a subsequent disposition of the shares
generally begins when the restriction period expires, and the tax basis for
such shares will generally be the fair market value of such shares on such
date. However, if the participant has made an election under Section 83(b), the
holding period will commence on the day after the date of grant, and the tax
basis will be equal to the fair market value of the shares on the date of grant
(determined without regard to the restrictions).
Deferred Stock. A participant receiving deferred stock generally will
recognize ordinary income equal to the amount of cash received in settlement of
the award or the fair market value of the deferred stock on the date that such
stock is distributed to the participant, and the capital gain holding period
for such stock will also commence on that date.
Dividends and Dividend Equivalents. Dividends paid on restricted stock prior
to the date on which the forfeiture restrictions lapse generally will be
treated as compensation that is taxable as ordinary income to the participant.
If, however, the participant makes a Section 83(b) election with respect to the
restricted stock, the dividends will be taxable as ordinary dividend income to
the participant. If dividend equivalents are credited with respect to deferred
stock or other awards, the participant generally will recognize ordinary income
when the dividend equivalents are paid.
Bonus Stock and Director Stock Grants. A participant receiving bonus stock
or a stock grant generally will recognize ordinary income on the date of grant
equal to the fair market value of such stock on such date.
Tax-Offset Payments. A participant receiving a tax-offset payment will
recognize ordinary income on the date of payment.
Company Deductions. As a general rule, Dianon will be entitled to a
deduction for federal income tax purposes at the same time and in the same
amount that an employee or Outside Director recognizes ordinary income from
awards under the Plan, to the extent such income is considered reasonable
compensation under the Code. Dianon will not, however, be entitled to a
deduction to the extent compensation in excess of $1 million is paid to an
executive officer named in a proxy statement of Dianon who was employed by
Dianon at year-end, unless the compensation qualifies as "performance-based"
under Section 162(m) of the Code or certain other exceptions apply. In
addition, Dianon will not be entitled to a deduction with respect to payments
to employees which are contingent upon a change of control if such payments are
deemed to constitute "excess parachute payments" under Section 280G of the Code
and do not qualify as reasonable compensation pursuant to that Section; such
payments will subject the recipients to a 20% excise tax.
Benefits Under the Plan
Since Dianon does not have any future commitments to grant awards under the
2001 Stock Incentive Plan, the future awards under this Plan are not
determinable. Therefore, a "New Plan Benefits Table" has not been provided.
Additional Information
The last sale price of Common Stock on the NASDAQ National Market System on
September 6, 2001 was $49.28 per share.
V-19
Dianon's Board of Directors recommends that stockholders vote "FOR" approval
of the 2001 Stock Incentive Plan. Approval of the Plan requires that the votes
cast in favor of approval of the Plan exceed the votes cast against such
approval. Pursuant to Dianon's Bylaws, abstentions and broker "non-votes"
(shares not voted because a nominee holding shares for a beneficial owner
neither receives voting instructions from the beneficial owner nor has
discretionary voting power with respect thereto) will have no effect on the
vote.
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS' APPOINTMENT
Arthur Andersen LLP has been the independent public accountants for Dianon
since 1983. Such firm has no financial interest, either direct or indirect, in
Dianon. Selection of Arthur Andersen LLP as the independent public accountants
for the calendar year ending December 31, 2001 was made by the Board of
Directors, subject to stockholder ratification. A representative of Arthur
Andersen LLP is expected to attend the meeting and have an opportunity to make
a statement and/or respond to appropriate questions from stockholders.
The aggregate fees billed or expected to be billed to Dianon for the fiscal
year ended December 31, 2000 by Arthur Andersen LLP, are as follows:
Audit Fees.................................................. $ 98,000
Financial Information Systems Design and Implementation Fees --
All Other Fees.............................................. 206,850
--------
Total.................................................... $304,850
========
Dianon's Board of Directors recommends that stockholders vote "FOR"
ratification of the appointment of Arthur Andersen LLP as Dianon's independent
public accountants for 2001. Approval of the ratification of the independent
public accountants' appointment requires that the number of votes cast in favor
of approval of the ratification of the independent public accountants'
appointment exceed the number of votes cast against such approval. Abstentions
will have no effect on the vote.
AVAILABILITY OF ANNUAL REPORT ON FORM 10-K
Upon the written request of a stockholder of Dianon, addressed to David R.
Schreiber, Secretary of Dianon, at 200 Watson Boulevard, Stratford, Connecticut
06615, Dianon will provide without charge to such stockholder, a copy of
Dianon's Annual Report on Form 10-K for its calendar year ended December 31,
2000, including all statements and schedules (but without exhibits), as filed
with the Securities and Exchange Commission.
-----------------
The information under the headings "Compensation Committee Report,"
"Compensation Program Components," "Discussion of 2000 Compensation for the
Chief Executive Officer" and "Performance Graph" above shall not be deemed to
be "soliciting material" or to be "filed" with the Securities and Exchange
Commission or subject to Regulation 14A or 14C, other than as provided in Item
402 of Regulation S-K, or to the liabilities of Section 18 of the Securities
Exchange Act of 1934, as amended, and, unless specific reference is made
therein to such headings, shall not be incorporated by reference into any
filing under the Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended.
V-20
CHAPTER SIX
ADDITIONAL INFORMATION FOR STOCKHOLDERS
FUTURE DIANON STOCKHOLDER PROPOSALS
The eligibility of stockholders to submit proposals, the proper subjects of
stockholder proposals and other issues governing stockholder proposals are
regulated by the rules (the "Stockholder Proposal Rules") adopted under Section
14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Stockholder proposals submitted pursuant to Rule 14a-8 under the Exchange Act
for inclusion in Dianon's proxy materials for the 2002 annual meeting of
stockholders must be received by Dianon at its principal executive office, 200
Watson Boulevard, Stratford, Connecticut 06615, no later than , 2002.
Under Dianon's by-laws, and as permitted by the rules of the SEC, certain
procedures are provided which a stockholder must follow to nominate persons for
election as directors or to introduce an item of business at the annual meeting
of Dianon stockholders. These procedures provide that nominations for director
nominees and/or an item of business to be introduced at an annual meeting of
stockholders must be submitted in writing to the Secretary of Dianon at the
address set forth in the preceding paragraph. Dianon must receive the notice of
a stockholder's intention to introduce a nomination or proposed item of
business at Dianon's 2002 annual meeting not more than 90 days nor less than 60
days in advance of the anniversary date of Dianon's 2001 annual meeting
(October [ ], 2001); however, if the date of Dianon's 2002 annual meeting is
more than 30 days after such anniversary date, a stockholder's notice would be
timely if received by the Secretary of Dianon by the earlier of (a) the 10/th/
day prior to the date of the 2002 annual meeting or (b) the close of business
on the 10/th/ day following the date on which Dianon first makes public
disclosure of the 2002 annual meeting date. The persons designated as proxies
by Dianon in connection with 2002 annual meeting of stockholders will have
discretionary voting authority with respect to any proposal of which Dianon did
not receive timely notice.
The chairman of the meeting may refuse to allow the transaction of any
business not presented beforehand, or to acknowledge the nomination of any
person not made in compliance with the foregoing procedures.
The Dianon board of directors is not aware of any matters that are expected
to come before the 2001 annual meeting other than those referred to in this
joint proxy statement/prospectus. If any other matter should come before the
annual meeting, the persons named in the accompanying proxy intend to vote the
proxies in accordance with their best judgment.
WHERE YOU CAN FIND MORE INFORMATION
Dianon has filed with the SEC a registration statement on Form S-4 under the
Securities Act that registers the shares of Dianon common stock to be issued in
the merger to UroCor stockholders. The registration statement, including the
attached exhibits and schedules, contains additional relevant information about
Dianon and UroCor. The rules and regulations of the SEC allow us to omit
certain information included in the registration statement from this document.
In addition, Dianon and UroCor file reports, proxy statements and other
information with the SEC under the Securities Exchange Act of 1934, as amended.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. You may read and copy this information at the following
locations of the SEC.
Public Reference Room New York Regional Office Chicago Regional Office
Room 1024 Suite 1300 Citicorp Center
450 Fifth Street, N.W. 7 World Trade Center Suite 1400
Washington, D.C. 20549 New York, New York 10048 500 West Madison Street
Chicago, Illinois 60661-2511
VI-1
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024 Washington,
D.C. 20549, at prescribed rates. The SEC also maintains an Internet website
that contains reports, proxy statements and other information about issuers,
like Dianon and UroCor, who file electronically with the SEC. The address of
that website is http://www.sec.gov. You can also inspect reports, proxy
statements and other information about Dianon or UroCor at the offices of the
National Association of Securities Dealers, 1735 K Street, Washington, D.C.
20006.
The SEC allows Dianon and UroCor to "incorporate by reference" information
into this document. This means that the companies can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is considered to be a part
of this document, except for any information that is superseded by information
that is included directly in this document.
This document incorporates by reference the documents listed below that
Dianon and UroCor have previously filed with the SEC. They contain important
information about our companies and their financial condition. Some of these
filings have been amended by later filings, which are also listed.
Dianon Commission Filings
(File No. 000-19392)
Description or Period
Annual Report on Form 10-K, filed on March 14, 2001
Year ended December 31, 2000
Quarterly Report on Form 10-Q, filed on May 9, 2001
Quarter ended March 31, 2001
Quarterly Report on Form 10-Q, filed on August 13, 2001
Quarter ended June 30, 2001
UroCor Commission Filings
(File No. 000-28328)
Description or Period
Annual Report on Form 10-K, filed on April 2, 2001
Year ended December 31, 2000
Quarterly Report on Form 10-Q, filed on May 15, 2001
Quarter ended March 31, 2001
Quarterly Report on Form 10-Q, filed on August 14, 2001
Quarter ended June 30, 2001
Dianon and UroCor incorporate by reference additional documents that either
company may file with the SEC between the date of this document and the dates
of the Dianon special meeting and the UroCor special meeting. These documents
include periodic reports, such as Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K, as well as proxy
statements.
You can obtain any of the documents incorporated by reference in this
document through Dianon or UroCor, as the case may be, or from the SEC through
its website address provided above. Documents incorporated by reference are
available from the companies without charge, excluding any exhibits to those
documents unless the exhibit is specifically incorporated by reference as an
exhibit in this document. You can obtain documents incorporated by reference as
an exhibit in this document by requesting them in writing or by telephone from
the appropriate company at the following addressees:
For Dianon Stockholders For UroCor Stockholders
David R. Schreiber Bruce C. Hayden
DIANON Systems, Inc. UroCor, Inc.
200 Watson Boulevard 840 Research Parkway
Stratford, CT 06615 Oklahoma City, OK 73104
Tel: (203) 381-4055 Tel: (405) 290-4117
If you would like to request documents, please do so promptly to receive
them before the special meetings. If you request any incorporated documents
from us, we will mail them to you by first class mail, or another equally
prompt means, within one business day after we receive your request. To obtain
timely delivery, you must request the documents no later than October [ ],
2001.
VI-2
WE HAVE AUTHORIZED NO ONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ABOUT THE MERGER OR OUR COMPANIES THAT DIFFERS FROM OR ADDS TO
THE INFORMATION CONTAINED IN THIS DOCUMENT OR IN THE DOCUMENTS OUR COMPANIES
HAVE PUBLICLY FILED WITH THE SEC. THEREFORE, IF ANYONE SHOULD GIVE YOU ANY
DIFFERENT OR ADDITIONAL INFORMATION, YOU SHOULD NOT RELY ON IT.
IF YOU LIVE IN A JURISDICTION IN WHICH IT IS UNLAWFUL TO OFFER TO EXCHANGE
OR SELL, OR TO ASK FOR OFFERS TO EXCHANGE OR BUY, THE SECURITIES OFFERED BY
THIS DOCUMENT, OR TO ASK FOR PROXIES, OR IF YOU ARE A PERSON TO WHOM IT IS
UNLAWFUL TO DIRECT SUCH ACTIVITIES, THEN THE OFFER PRESENTED BY THIS DOCUMENT
DOES NOT EXTEND TO YOU.
THE INFORMATION CONTAINED IN THIS DOCUMENT SPEAKS ONLY AS OF THE DATE
INDICATED ON THE COVER OF THIS DOCUMENT UNLESS THE INFORMATION SPECIFICALLY
INDICATES THAT ANOTHER DATE APPLIES.
With respect to the information contained in this document, Dianon has
supplied the information concerning Dianon, and UroCor has supplied the
information concerning UroCor.
VI-3
- --------------------------------------------------------------------------------
Annex A
AGREEMENT AND PLAN OF MERGER
dated as of June 28, 2001
among
DIANON SYSTEMS, INC.,
UROCOR ACQUISITION CORP.
and
UROCOR, INC.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
ARTICLE I
THE MERGER; CERTAIN RELATED MATTERS
Page
----
1.1 The Merger............................................. 1
1.2 Closing................................................ 2
1.3 Effective Time......................................... 2
1.4 Effects of the Merger.................................. 2
1.5 Certificate of Incorporation........................... 2
1.6 Bylaws................................................. 2
1.7 Effect on Capital Stock................................ 2
1.8 UroCor Stock Options................................... 3
1.9 Certain Adjustments.................................... 4
1.10 Associated Rights...................................... 4
1.11 Officers and Directors of the Surviving Corporation.... 4
ARTICLE II
EXCHANGE OF CERTIFICATES
2.1 Exchange Fund.......................................... 5
2.2 Exchange Procedures.................................... 5
2.3 Distributions with Respect to Unexchanged Shares....... 5
2.4 No Further Ownership Rights in UroCor Common Stock..... 6
2.5 No Fractional Shares of Dianon Common Stock............ 6
2.6 Termination of Exchange Fund........................... 6
2.7 No Liability........................................... 7
2.8 Investment of the Exchange Fund........................ 7
2.9 Lost Certificates...................................... 7
2.10 Withholding Rights..................................... 7
2.11 Further Assurances..................................... 7
2.12 Stock Transfer Books................................... 8
2.13 Affiliates............................................. 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Dianon............... 8
3.2 Representations and Warranties of UroCor............... 23
3.3 Representations and Warranties of Dianon and Merger Sub 39
i
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Page
----
4.1 Covenants of Dianon.......................................... 39
4.2 Covenants of UroCor.......................................... 40
4.3 Advice of Changes............................................ 43
4.4 Governmental Filings......................................... 43
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of Proxy Statement; Stockholders Meetings........ 43
5.2 Access to Information/Employees.............................. 45
5.3 Reasonable Efforts........................................... 46
5.4 Standstill Agreement......................................... 47
5.5 Acquisition Proposals........................................ 47
5.6 S-8 Registration Statement................................... 49
5.7 Special UroCor Employee Bonus Plan........................... 49
5.8 Fees and Expenses............................................ 49
5.9 Directors' and Officers' Indemnification and Insurance....... 50
5.10 Public Announcements......................................... 50
5.11 Accountant's Letters......................................... 51
5.12 Listing of Shares of Dianon Common Stock..................... 51
5.13 Affiliates................................................... 51
5.14 Tax Treatment................................................ 51
5.15 UroCor Employee Stock Purchase Plan.......................... 51
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger... 52
6.2 Additional Conditions to Obligations of Dianon and Merger Sub 53
6.3 Additional Conditions to Obligations of UroCor............... 54
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination.................................................. 55
7.2 Effect of Termination........................................ 57
7.3 Amendment.................................................... 58
7.4 Extension; Waiver............................................ 58
ii
ARTICLE VIII
GENERAL PROVISIONS
Page
----
8.1 Non-Survival of Representations, Warranties and Agreements 58
8.2 Notices................................................... 58
8.3 Interpretation............................................ 59
8.4 Counterparts.............................................. 59
8.5 Entire Agreement; No Third Party Beneficiaries............ 59
8.6 Governing Law............................................. 60
8.7 Severability.............................................. 60
8.8 Assignment................................................ 60
8.9 Submission to Jurisdiction; Waivers....................... 60
8.10 Enforcement............................................... 61
8.11 Definitions............................................... 61
LIST OF EXHIBITS
Exhibit Title
- ------- -----
5.11 Form of Affiliate Letter
6.2(c)(1) Form of Tax Opinion of Cadwalader, Wickersham & Taft
6.2(c)(2) Form of Dianon Representations Letter
6.2(c)(3) Form of UroCor Representations Letter
6.3(c)(1) Form of Tax Opinion of Fulbright & Jaworski L.L.P.
6.2(f) Form of Opinion of Fulbright & Jaworski L.L.P.
6.3(f) Form of Opinion of Cadwalader, Wickersham & Taft
iii
AGREEMENT AND PLAN OF MERGER, dated as of June 28, 2001 (this "Agreement"),
among DIANON SYSTEMS, INC., a Delaware corporation ("DIANON"), UROCOR
ACQUISITION CORP., a Delaware corporation and a direct wholly-owned subsidiary
of Dianon ("Merger Sub"), and UROCOR, INC., a Delaware corporation ("UroCor").
W I T N E S S E T H:
WHEREAS, the Boards of Directors of UroCor and Dianon deem it advisable and
in the best interests of each corporation and its respective stockholders to
consummate the business combination transaction provided for herein;
WHEREAS, the combination of UroCor and Dianon shall be effected by the terms
of this Agreement through a merger as described below (the "Merger");
WHEREAS, in furtherance thereof, the respective Boards of Directors of
UroCor and Dianon have approved the Merger, upon the terms and subject to the
conditions set forth in this Agreement, pursuant to which each share of common
stock, par value $0.01 per share, of UroCor ("UroCor Common Stock") issued and
outstanding immediately prior to the Effective Time (as defined in Section
1.3), other than shares owned or held by Dianon, or any of its Subsidiaries, or
by UroCor, will be converted into the right to receive shares of common stock,
par value $0.01 per share, of Dianon ("Dianon Common Stock") as set forth in
Section 1.7; and
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
promulgated thereunder.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, and intending to be legally bound hereby, the parties hereto agree
as follows:
ARTICLE I
THE MERGER; CERTAIN RELATED MATTERS
1.1 TheMerger.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the Delaware General Corporation Law (the
"DGCL"), Merger Sub shall be merged with and into UroCor at the Effective Time.
Following the Merger, the separate corporate existence of Merger Sub shall
cease and UroCor shall continue as the surviving corporation (the "Surviving
Corporation").
(b) At any time prior to the Effective Time, Dianon, in its sole discretion,
may give written notice to UroCor to the effect that the Merger and the
transactions contemplated by this Agreement shall be restructured such that the
Merger will be effected through the merger of UroCor with and into Dianon, with
Dianon continuing as the surviving corporation, in which case the parties
hereto shall amend this Agreement to reflect such revised transaction structure
(the "Alternative Merger Structure").
1.2 Closing. Upon the terms and subject to the conditions set forth in
Article VI and the termination rights set forth in Article VII, the closing of
the Merger (the "Closing") will take place on the first Business Day (as
defined in Section 8.11(c)) after the satisfaction or waiver (subject to
applicable law) of the conditions (excluding conditions that, by their nature,
cannot be satisfied until the Closing Date) set forth in Article VI, unless
this Agreement has been theretofore terminated pursuant to its terms or unless
another time or date is agreed to in writing by the parties hereto (the actual
time and date of the Closing being referred to herein as the "Closing Date").
The Closing shall be held at the offices of Cadwalader, Wickersham & Taft, 100
Maiden Lane, New York, New York, 10038, unless another place is agreed to in
writing by the parties hereto.
1.3 Effective Time. As soon as practicable following the satisfaction or
waiver (subject to applicable law) of the conditions set forth in Article VI,
at the Closing the parties shall (i) file a certificate of merger (the
"Certificate of Merger") in such form as is required by and executed in
accordance with the relevant provisions of the DGCL and (ii) make all other
filings or recordings required under the DGCL. The Merger shall become
effective at such time as the Certificate of Merger is duly filed with the
Delaware Secretary of State or at such subsequent time as Dianon and UroCor
shall agree and as shall be specified in the Certificate of Merger (the date
and time the Merger becomes effective being the "Effective Time").
1.4 Effects of the Merger. At and after the Effective Time, the Merger will
have the effects set forth in the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property, rights,
privileges, powers and franchises of UroCor and Merger Sub shall be vested in
the Surviving Corporation, and all debts, liabilities and duties of UroCor and
Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
1.5 Certificate of Incorporation. The certificate of incorporation of
UroCor, as in effect immediately prior to the Effective Time, shall be the
certificate of incorporation of the Surviving Corporation, until thereafter
changed or amended as provided therein or by applicable law.
1.6 Bylaws. The bylaws of UroCor, as in effect immediately prior to the
Effective Time, shall be the bylaws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
1.7 Effect on Capital Stock.
(a) At the Effective Time, by virtue of the Merger and without any action on
the part of the holder thereof, each share of UroCor Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares of
UroCor Common Stock owned by Dianon or Merger Sub or held by UroCor, all of
which shall be canceled as provided in Section 1.7(c)), together with the
associated UroCor Rights (as defined in Section 3.2(b)), shall be converted
into the right to receive that number of validly issued, fully paid and
non-assessable shares of Dianon Common Stock and the associated Dianon Rights
(as defined in Section 3.1(b)) (together with any cash in lieu of fractional
shares of Dianon Common Stock to be paid pursuant to Section 2.5, the "Merger
Consideration") equal to the Exchange Ratio. The "Exchange Ratio" shall be
determined as follows:
(i) If the Dianon Market Price is less than or equal to $44.29, the
Exchange Ratio shall equal 0.4064, and
(ii) If the Dianon Market Price is greater than $44.29, the Exchange
Ratio shall equal a quotient (rounded to four decimal points), the numerator
of which is $18.00, and the denominator of which is the Dianon Market Price.
For purposes of this Agreement, "Dianon Market Price" shall mean the average
daily closing price per share of Dianon Common Stock as reported on the Nasdaq
National Market ("Nasdaq") for the Random Trading Days, "Random Trading Days"
shall mean the five trading days selected by lot out of the fifteen trading
days ending on and including the Determination Date (with Random Trading Days
selected by lot by Dianon and UroCor at 5:00 p.m. New York time on the
Determination Date), and "Determination Date" shall mean the third Nasdaq
trading day preceding the Closing Date.
(b) As a result of the Merger and without any action on the part of the
holders thereof, at the Effective Time, all shares of UroCor Common Stock
(together with the associated UroCor Rights) shall cease to be outstanding and
shall be canceled and retired and shall cease to exist, and each holder of a
certificate, which certificate immediately prior to the Effective Time
represented any such shares of UroCor Common Stock and associated UroCor Rights
(a "Certificate"), shall thereafter cease to have any rights with respect to
such shares of UroCor Common Stock and associated UroCor Rights, except as
provided herein or by law.
2
(c) Each share of UroCor Common Stock issued and owned by Dianon or Merger
Sub or by UroCor, including any treasury shares, at the Effective Time shall,
by virtue of the Merger, cease to be issued or outstanding and shall be
canceled and retired and no stock of Dianon or other consideration shall be
delivered in exchange therefor.
(d) At the Effective Time, by virtue of the Merger and without any action on
the part of the holder thereof, each share of common stock, par value $0.01 per
share, of Merger Sub issued and outstanding immediately prior to the Effective
Time, shall be converted into one validly issued, fully paid and non-assessable
share of common stock, par value $0.01 per share, of the Surviving Corporation.
1.8 UroCor Stock Options. Each UroCor Stock Option (as defined in Section
3.2(b)) that was granted pursuant to the UroCor 1992 Plan and the UroCor 1997
Plan (each as defined in Section 3.2(b)) prior to the Effective Time (whether
vested or not vested) and which remains outstanding immediately prior to the
Effective Time shall cease to represent a right to acquire shares of UroCor
Common Stock and shall be converted, at the Effective Time, into an option to
acquire that number of shares of Dianon Common Stock (an "Assumed Stock
Option") determined by multiplying the number of shares of UroCor Common Stock
subject to such UroCor Stock Option by the Exchange Ratio, rounded, if
necessary, to the nearest whole share of Dianon Common Stock, at a price per
share (rounded to the nearest one-hundredth of a cent) equal to the per share
exercise price specified in such UroCor Stock Option divided by the Exchange
Ratio; provided, however, that in the case of any such UroCor Stock Option to
which Section 421 of the Code applies by reason of its qualification under
Section 422 of the Code, the option price, the number of shares subject to such
option and the terms and conditions of exercise of such option shall be
determined in a manner consistent with the requirements of Section 424(a) of
the Code. On or prior to the Effective Time, UroCor will take all actions
necessary such that all UroCor Stock Options outstanding prior to the Effective
Time under the UroCor 1992 Plan and the UroCor 1997 Plan are treated in
accordance with the immediately preceding sentences, including, but not limited
to, precluding the holder of each such UroCor Stock Option from receiving any
cash payments in respect of such UroCor Stock Option in connection with the
Merger. Each such Assumed Stock Option shall otherwise be subject to the same
terms and conditions as in effect at the Effective Time, including the
expiration date of the option, as the related UroCor Stock Option; and, in such
regard, Dianon acknowledges and agrees that, upon the Effective Time, each
outstanding UroCor Stock Option granted under the UroCor 1992 Plan shall become
fully vested and fully exercisable regardless of the extent to which such stock
option was vested immediately prior to the Effective Time. At the Effective
Time, (i) all references to UroCor in the UroCor 1992 Plan and the UroCor 1997
Plan and in the stock option agreements evidencing the related UroCor Stock
Options shall be deemed to refer to Dianon, and (ii) Dianon shall assume all of
UroCor's obligations with respect to such UroCor Stock Options as so converted
into Assumed Stock Options. Dianon shall take all corporate action necessary to
reserve for issuance a sufficient number of shares of Dianon Common Stock for
delivery upon exercise of Assumed Stock Options at and after the Effective
Time.
1.9 Certain Adjustments. If, between the date of this Agreement and the
Effective Time, the outstanding Dianon Common Stock or UroCor Common Stock
shall have been changed into a different number of shares or different class by
reason of any reclassification, recapitalization, stock split, split-up,
combination or exchange of shares or a stock dividend or dividend payable in
any other securities shall be declared with a record date within such period,
or any similar event shall have occurred, the Exchange Ratio shall be
appropriately adjusted to provide to the holders of UroCor Common Stock the
same economic effect as contemplated by this Agreement prior to such event.
1.10 Associated Rights. References in Article I and Article II of this
Agreement to UroCor Common Stock shall include, unless the context requires
otherwise, the associated UroCor Rights and references in Article I and Article
II of this Agreement to Dianon Common Stock shall include, unless the context
requires otherwise, the associated Dianon Rights.
3
1.11 Officers and Directors of the Surviving Corporation. The directors of
Merger Sub immediately prior to the Effective Time shall be the directors of
the Surviving Corporation, and the officers of Merger Sub immediately prior to
the Effective Time shall be the officers of the Surviving Corporation, each to
hold office in accordance with the certificate of incorporation and by-laws of
the Surviving Corporation, in each case until their respective successors are
duly elected and qualified.
ARTICLE II
EXCHANGE OF CERTIFICATES
2.1 Exchange Fund. Prior to the Effective Time, Dianon shall appoint a
commercial bank or trust company reasonably acceptable to UroCor to act as
exchange agent hereunder for the purpose of exchanging Certificates for the
Merger Consideration (the "Exchange Agent"). At or prior to the Effective Time,
Dianon shall deposit with the Exchange Agent, in trust for the benefit of
holders of shares of UroCor Common Stock, certificates representing the Dianon
Common Stock issuable pursuant to Section 1.7 in exchange for outstanding
shares of UroCor Common Stock. Dianon agrees to make available to the Exchange
Agent from time to time as needed, cash sufficient to pay cash in lieu of
fractional shares pursuant to Section 2.5 and any dividends and other
distributions pursuant to Section 2.3. Any cash and certificates of Dianon
Common Stock deposited with the Exchange Agent shall hereinafter be referred to
as the "Exchange Fund."
2.2 Exchange Procedures. The Surviving Corporation shall cause the Exchange
Agent, as promptly as practicable after the Effective Time, to mail to each
holder of a Certificate (i) a letter of transmittal which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Exchange
Agent, and which letter shall be in customary form and have such other
provisions as Dianon may reasonably specify and (ii) instructions for effecting
the surrender of such Certificates in exchange for the applicable Merger
Consideration. Upon surrender of a Certificate to the Exchange Agent together
with such letter of transmittal, duly executed and completed in accordance with
the instructions thereto, and such other documents as may reasonably be
required by the Exchange Agent, the holder of such Certificate shall be
entitled to receive in exchange therefor (A) one or more shares of Dianon
Common Stock (which shall be in uncertificated book-entry form unless a
physical certificate is requested) representing, in the aggregate, the whole
number of shares that such holder has the right to receive pursuant to Section
1.7 (after taking into account all shares of UroCor Common Stock then held by
such holder) and (B) a check in the amount equal to the cash that such holder
has the right to receive pursuant to the provisions of this Article II,
including cash in lieu of any fractional shares of Dianon Common Stock pursuant
to Section 2.5 and dividends and other distributions pursuant to Section 2.3,
and in each case the Certificate so surrendered shall forthwith be cancelled.
No interest will be paid or will accrue on any cash payable pursuant to Section
2.3 or Section 2.5. In the event of a transfer of ownership of UroCor Common
Stock which is not registered in the transfer records of UroCor, one or more
shares of Dianon Common Stock evidencing, in the aggregate, the proper number
of shares of Dianon Common Stock and a check in the proper amount of cash in
lieu of any fractional shares of Dianon Common Stock pursuant to Section 2.5
and any dividends or other distributions to which such holder is entitled
pursuant to Section 2.3, may be issued with respect to such UroCor Common Stock
to such a transferee if the Certificate representing such shares of UroCor
Common Stock is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid as the Exchange Agent may
require.
2.3 Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made with respect to shares of Dianon Common Stock
with a record date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of Dianon Common Stock
that such holder would be entitled to receive upon surrender of such
Certificate and no cash payment in lieu of fractional shares of Dianon Common
Stock shall be paid to any such holder pursuant to Section 2.5 until such
holder shall surrender such Certificate in accordance with Section 2.2. Subject
to the effect of applicable laws, following surrender of any such Certificate,
there shall be paid to such holder of shares of Dianon Common Stock issuable
4
in exchange therefor, without interest, (a) promptly after the time of such
surrender, the amount of any cash payable in lieu of fractional shares of
Dianon Common Stock to which such holder is entitled pursuant to Section 2.5
and the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of Dianon
Common Stock, and (b)at the appropriate payment date, the amount of dividends
or other distributions with a record date after the Effective Time but prior to
such surrender and a payment date subsequent to such surrender payable with
respect to such shares of Dianon Common Stock.
2.4 No Further Ownership Rights in UroCor Common Stock. All shares of Dianon
Common Stock issued and cash paid upon conversion of shares of UroCor Common
Stock in accordance with the terms of Article I and this Article II (including
any cash paid pursuant to Section 2.3 or 2.5) shall be deemed to have been
issued or paid in full satisfaction of all rights pertaining to the shares of
UroCor Common Stock.
2.5 No Fractional Shares of Dianon Common Stock. (a) No certificates or
scrip or shares of Dianon Common Stock representing fractional shares of Dianon
Common Stock or book-entry credit of the same shall be issued upon the
surrender for exchange of Certificates and such fractional share interests will
not entitle the owner thereof to vote or to have any rights of a stockholder of
Dianon or a holder of shares of Dianon Common Stock.
(b) Notwithstanding any other provision of this Agreement, each holder of
shares of UroCor Common Stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of Dianon Common
Stock (after taking into account all Certificates delivered by such holder)
shall receive, in lieu thereof, cash (without interest) in an amount equal to
the product of (i) such fractional part of a share of Dianon Common Stock
multiplied by (ii) the closing price for a share of Dianon Common Stock on the
Nasdaq on the date of the Effective Time or, if such date is not a Business
Day, the Business Day immediately following the date on which the Effective
Time occurs. Such cash consideration issued in lieu of fractional shares will
not exceed 1% of the total Merger Consideration.
(c) As promptly as practicable after the determination of the amount of
cash, if any, to be paid to holders of fractional interests, the Exchange Agent
shall so notify Dianon, and Dianon shall cause the Surviving Corporation to
deposit such amount with the Exchange Agent and shall cause the Exchange Agent
to forward payments to such holders of fractional interests subject to and in
accordance with the terms hereof.
2.6 Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of Certificates for six months after the
Effective Time shall be delivered to Dianon or otherwise on the instruction of
Dianon, and any holders of the Certificates who have not theretofore complied
with this Article II shall thereafter look only to Dianon for the Merger
Consideration with respect to the shares of UroCor Common Stock formerly
represented thereby to which such holders are entitled pursuant to Section 1.7
and Section 2.2, any cash in lieu of fractional shares of Dianon Common Stock
to which such holders are entitled pursuant to Section 2.5 and any dividends or
distributions with respect to shares of Dianon Common Stock to which such
holders are entitled pursuant to Section 2.3. Any such portion of the Exchange
Fund remaining unclaimed by holders of shares of UroCor Common Stock five years
after the Effective Time (or such earlier date immediately prior to such time
as such amounts would otherwise escheat to or become property of any
Governmental Entity (as defined in Section 3.1(c)(iii)) shall, to the extent
permitted by law, become the property of the Surviving Corporation free and
clear of any claims or interest of any Person (as defined in Section 8.11(h))
previously entitled thereto.
2.7 No Liability. None of Dianon, Merger Sub, UroCor, the Surviving
Corporation or the Exchange Agent shall be liable to any Person in respect of
any Merger Consideration from the Exchange Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
2.8 Investment of the Exchange Fund. The Exchange Agent shall invest any
cash included in the Exchange Fund as directed by Dianon on a daily basis;
provided, that no such gain or loss thereon shall affect the
5
amounts payable to UroCor stockholders pursuant to Article I and the other
provisions of this Article II. Any interest and other income resulting from
such investments shall promptly be paid to Dianon.
2.9 Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such Person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange
Agent will deliver in exchange for such lost, stolen or destroyed Certificate
the applicable Merger Consideration with respect to the shares of UroCor Common
Stock formerly represented thereby, any cash in lieu of fractional shares of
Dianon Common Stock, and unpaid dividends and distributions on shares of Dianon
Common Stock deliverable in respect thereof, pursuant to this Agreement.
2.10 Withholding Rights. Each of the Surviving Corporation and Dianon shall
be entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of shares of UroCor Common Stock such
amounts as it is required to deduct and withhold with respect to the making of
such payment under the Code and the rules and regulations promulgated
thereunder, or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by the Surviving Corporation or Dianon, as the
case may be, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of UroCor Common
Stock in respect of which such deduction and withholding was made by the
Surviving Corporation or Dianon, as the case may be.
2.11 Further Assurances. At and after the Effective Time, the officers and
directors of the Surviving Corporation will be authorized to execute and
deliver, in the name and on behalf of UroCor or Merger Sub, any deeds, bills of
sale, assignments or assurances and to take and do, in the name and on behalf
of UroCor or Merger Sub, any other actions and things to vest, perfect or
confirm of record or otherwise in the Surviving Corporation any and all right,
title and interest in, to and under any of the rights, properties or assets
acquired or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger.
2.12 Stock Transfer Books. The stock transfer books of UroCor shall be
closed immediately upon the Effective Time and there shall be no further
registration of transfers of shares of UroCor Common Stock thereafter on the
records of UroCor. On or after the Effective Time, any Certificates presented
to the Exchange Agent or Dianon for any reason shall be converted into the
Merger Consideration with respect to the shares of UroCor Common Stock formerly
represented thereby (including any cash in lieu of fractional shares of Dianon
Common Stock to which the holders thereof are entitled pursuant to Section 2.5)
and any dividends or other distributions to which the holders thereof are
entitled pursuant to Section 2.3.
2.13 Affiliates. Notwithstanding anything to the contrary herein, to the
fullest extent permitted by law, no certificates representing shares of Dianon
Common Stock or cash shall be delivered to a Person who may be deemed an
"affiliate" of UroCor in accordance with Section 5.13 hereof for purposes of
Rule145 under the Securities Act of 1933, as amended (the "Securities Act"),
and applicable rules and regulations of the Securities and Exchange Commission
(the "SEC") until such Person has executed and delivered an Affiliate Agreement
(as defined in Section 5.13) to Dianon.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Dianon. Except as set forth in the
Dianon disclosure schedule delivered by Dianon to UroCor prior to the execution
of this Agreement (the "Dianon Disclosure Schedule")
6
(each section of which qualifies the correspondingly numbered representation
and warranty or covenant), Dianon represents and warrants to UroCor as follows:
(a) Organization, Standing and Power; Subsidiaries.
(i) Each of Dianon and each of its Subsidiaries (as defined in Section
8.11(i)) is duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation or organization, has the requisite
power and authority to own, lease and operate its properties and to carry on
its business as now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power and
authority, in the aggregate, would not reasonably be expected to have a
Material Adverse Effect (as defined in Section 8.11(f)) on Dianon, and is
duly qualified and in good standing to do business in each jurisdiction in
which the nature of its business or the ownership or leasing of its
properties makes such qualification necessary other than in such
jurisdictions where the failure so to qualify or to be in good standing, in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect on Dianon. The copies of the certificate of incorporation and bylaws
of Dianon which were previously furnished or made available to UroCor are
true, complete and correct copies of such documents as in effect on the date
of this Agreement.
(ii) Section 3.1(a)(ii) of the Dianon Disclosure Schedule sets forth all
of the Subsidiaries of Dianon. All the outstanding shares of capital stock
of, or other equity interests in, each such Subsidiary have been validly
issued and are fully paid and non-assessable and are, except as set forth in
Section 3.1(a)(ii) of the Dianon Disclosure Schedule, owned directly or
indirectly by Dianon, free and clear of all pledges, claims, liens, charges,
encumbrances, mortgages and security interests of any kind or nature
whatsoever (collectively "Liens") and free of any other restriction
(including any restriction on the right to vote, sell or otherwise dispose
of such capital stock or other ownership interests), except for restrictions
imposed by applicable securities laws.
(b) Capital Structure.
(i) As of June 26, 2001, the authorized capital stock of Dianon consisted
of (A) 20,000,000 shares of Dianon Common Stock of which 7,430,034 shares
were outstanding and 10,684 shares were held in the treasury of Dianon and
(B) 5,000,000 shares of Preferred Stock, par value $0.01 per share, of which
100,000 shares have been designated Series A Junior Participating Preferred
Stock and reserved for issuance upon exercise of the rights (the "Dianon
Rights") distributed to the holders of Dianon Common Stock pursuant to the
Rights Agreement, dated as of April 29, 1994, as amended as of October 4,
1995, between Dianon and American Stock and Trust Company (the "Dianon
Rights Agreement"). Since June 26, 2001 to the date of this Agreement, there
have been no issuances of shares of the capital stock of Dianon or any other
securities of Dianon other than issuances of shares pursuant to options or
rights outstanding as of June 26, 2001 under the Dianon Benefit Plans (as
defined in Section 3.1(q)) of Dianon. All issued and outstanding shares of
the capital stock of Dianon are, and when shares of Dianon Common Stock are
issued in the Merger or upon exercise of stock options converted in the
Merger pursuant to Section 1.8, such shares will be, duly authorized,
validly issued, fully paid and non-assessable and free of any preemptive
rights. Except as disclosed in Section 3.1(b)(i) of the Dianon Disclosure
Schedule, there were outstanding as of June 13, 2001 no options, warrants or
other rights to acquire capital stock from Dianon other than (x) the Dianon
Rights and (y) options, restricted stock and other rights to acquire capital
stock from Dianon representing in the aggregate the right to purchase
1,353,416 shares of Dianon Common Stock (collectively, the "Dianon Stock
Options") under Dianon's 1991 Stock Incentive Plan, 1996 Stock Incentive
Plan 1999 Stock Incentive Plan, and 2000 Stock Incentive Plan (collectively,
the "Dianon Stock Option Plans") and under contractual commitments to issue
options. Section 3.1(b)(i) of the Dianon Disclosure Schedule sets forth a
complete and correct list, as of June 26, 2001, of the number of shares of
Dianon Common Stock subject to Dianon Stock Options or other rights to
purchase or receive Dianon Common Stock granted under the Dianon Benefit
Plans or otherwise, the dates of grant and the exercise prices thereof.
Except as set forth in Section 3.1(b)(i) of the Dianon Disclosure Schedule,
no options, warrants or other rights to acquire capital stock from Dianon
have been issued or granted since June 26, 2001 to the date of this
Agreement. All Dianon Stock Options are evidenced by stock option agreements
in the forms attached as Exhibit A to Section 3.1(b)(i) of the Dianon
Disclosure Schedule, and no stock option agreement contains terms that are
inconsistent with such forms.
7
(ii) No bonds, debentures, notes or other indebtedness of Dianon having
the right to vote on any matters on which stockholders of Dianon or any of
its Subsidiaries may vote ("Dianon Voting Debt") are issued or outstanding
or subject to issuance.
(iii) Except as otherwise set forth in this Section 3.1(b) (including
pursuant to the conversion or exercise of the securities referred to above)
or as set forth in Section 3.1(b)(iii) of the Dianon Disclosure Schedule,
(x) there are not issued, reserved for issuance or outstanding (A) any
shares of capital stock or other voting securities of Dianon or any of its
Subsidiaries (other than shares of capital stock or other voting securities
of such Subsidiaries that are directly or indirectly owned by Dianon), (B)
any securities of Dianon or any of its Subsidiaries convertible into or
exchangeable or exercisable for shares of capital stock or other voting
securities of, or other ownership interests in, Dianon or any of its
Subsidiaries or (C) any warrants, calls, options or other rights to acquire
from Dianon or any of its Subsidiaries, and no obligation of Dianon or any
of its Subsidiaries to issue, any capital stock or other voting securities
of, or other ownership interests in, or any securities convertible into or
exchangeable or exercisable for any capital stock or other voting securities
of, or other ownership interests in, Dianon or any of its Subsidiaries and
(y) there are not any outstanding obligations of Dianon or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any such securities
or to issue, deliver or sell, or cause to be issued, delivered or sold, any
such securities. Dianon is not a party to any voting agreement with respect
to the voting of any such securities. Other than the capital stock of, or
other equity interests in, its Subsidiaries, or as set forth in Section
3.1(b)(iii) of the Dianon Disclosure Schedule, Dianon does not directly or
indirectly beneficially own any securities or other beneficial ownership
interests in any other entity.
(c) Authority; No Conflicts.
(i) Dianon has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby,
subject to obtaining the requisite stockholder approval of the issuance of
the shares of Dianon Common Stock to be issued in the Merger (the "Share
Issuance"), and in the event the Alternative Merger Structure is
implemented, the adoption of this Agreement and approval of the merger of
UroCor with and into Dianon by a majority of the outstanding shares of
Dianon Common Stock (such stockholder approval of (i) the Share Issuance and
(ii) this Agreement if the Alternative Merger Structure is implemented,
together the "Dianon Stockholder Approvals"). The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
Dianon, subject to obtaining the Dianon Stockholder Approvals. This
Agreement has been duly executed and delivered by Dianon and constitutes a
valid and binding agreement of Dianon, enforceable against it in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and similar laws relating to or
affecting creditors generally or by general equity principles (regardless of
whether such enforceability is considered in a proceeding in equity or at
law).
(ii) The execution and delivery of this Agreement by Dianon does not or
will not, as the case may be, and the consummation by Dianon of the Merger
and the other transactions contemplated hereby will not, conflict with, or
result in any violation of, or constitute a default (with or without notice
or lapse of time, or both) under, or give rise to a right of, or result by
its terms in, termination, amendment, cancellation or acceleration of any
obligation or the loss of a material benefit under, or the creation of a
lien, pledge, security interest, charge or other encumbrance on, or the loss
of, any assets, including Intellectual Property Rights (as defined in
Section 3.1(k)) (any such conflict, violation, default, right of
termination, amendment, cancellation or acceleration, loss or creation, a
"Violation") pursuant to: (A) any provision of the certificate of
incorporation or bylaws of Dianon or any Subsidiary of Dianon, or (B) except
as, in the aggregate, would not reasonably be expected to have a Material
Adverse Effect on Dianon, subject to obtaining or making the consents,
approvals, orders, authorizations, registrations, declarations and filings
referred to in paragraph (iii) below, (x) any loan or credit agreement,
note, bond, mortgage, indenture, lease or other contract, agreement,
obligation, commitment, arrangement, understanding, instrument, permit,
concession, franchise, license or similar authorization (each, a "Contract")
applicable to Dianon or any of its Subsidiaries or their respective
properties or assets, (y) any judgment, order or decree or (z) any statute,
law,
8
ordinance, rule or regulation, in each case applicable to Dianon or any of
its Subsidiaries or their respective properties or assets.
(iii) No consent, approval, order or authorization of, or registration,
declaration or filing with, any supranational, national, state, municipal,
local or foreign government, any instrumentality, subdivision, court,
administrative agency or commission or other authority thereof, or any
quasi-governmental or private body exercising any regulatory, taxing,
importing or other governmental or quasi-governmental authority (a
"Governmental Entity"), is required by or with respect to Dianon or any
Subsidiary of Dianon in connection with the execution and delivery of this
Agreement by Dianon or the consummation of the Merger and the other
transactions contemplated hereby, except for those required under or in
relation to (A) the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), (B) state securities or "blue sky" laws (the "Blue
Sky Laws"), (C) the Securities Act, (D) the Exchange Act of 1934, as amended
(the "Exchange Act"), (E) the DGCL with respect to the filing of the
Certificate of Merger, (F) rules and regulations of the Nasdaq, (G)
antitrust or other competition laws of other jurisdictions, (H)
Medicare/Medicaid, the Clinical Laboratories Improvement Act of 1976, as
amended by the Clinical Laboratory Improvement Amendments of 1988, the Food
and Drug Administration rules and regulations, the U.S. Nuclear Regulatory
Commission rules and regulations or other similar laws, rules and
regulations, and (I) such consents, approvals, orders, authorizations,
registrations, declarations and filings the failures of which to make or
obtain, in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on Dianon. Consents, approvals, orders,
authorizations, registrations, declarations and filings required under or in
relation to any of the foregoing clauses (A) through (H) are hereinafter
referred to as "Necessary Consents."
(d) Reports and Financial Statements.
(i) Dianon has filed all required registration statements, prospectuses,
reports, schedules, forms, statements and other documents required to be
filed by it with the SEC since January1, 1998 (collectively, including all
exhibits thereto, the "Dianon SEC Reports"). No Subsidiary of Dianon is
required to file any form, report, registration statement, prospectus or
other document with the SEC. None of the Dianon SEC Reports, as of their
respective dates (and, if amended or superseded by a filing prior to the
date of this Agreement or the Closing Date, then on the date of such
filing), contained or will contain any untrue statement of a material fact
or omitted or will omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of the
financial statements (including the related notes) included in the Dianon
SEC Reports presents fairly, in all material respects, the consolidated
financial position and consolidated results of operations and cash flows of
Dianon and its consolidated Subsidiaries as of the respective dates or for
the respective periods set forth therein, all in conformity with generally
accepted accounting principles ("GAAP") consistently applied during the
periods involved except as otherwise noted therein, and subject, in the case
of the unaudited interim financial statements, to the absence of notes and
normal and recurring year-end adjustments that have not been and are not
expected to be material in amount. All of such Dianon SEC Reports, as of
their respective dates (and as of the date of any amendment to the
respective Dianon SEC Report), complied as to form in all material respects
with the applicable requirements of the Securities Act and the Exchange Act
and the rules and regulations promulgated thereunder.
(ii) Except as disclosed in the Dianon SEC Reports filed prior to the
date hereof, since December 31, 2000, Dianon and its Subsidiaries have not
incurred any liabilities that are of a nature that would be required to be
disclosed on a balance sheet of Dianon and its Subsidiaries or the footnotes
thereto prepared in conformity with GAAP, other than liabilities incurred in
the ordinary course of business that, in the aggregate, would not reasonably
be expected to have a Material Adverse Effect on Dianon.
(e) Information Supplied.
(i) None of the information supplied or to be supplied by Dianon for
inclusion or incorporation by reference in (A) the Form S-4 (as defined in
Section 5.1) will, at the time the Form S-4 is filed with the SEC, at any
time it is amended or supplemented or at the time it becomes effective under
the Securities Act,
9
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading and (B) the Joint Proxy
Statement/Prospectus (as defined in Section 5.1) will, on the date it is
first mailed to UroCor stockholders or Dianon stockholders or at the time of
the UroCor Stockholders Meeting or the Dianon Stockholders Meeting (each as
defined in Section 5.1), contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The Form S-4 and the Joint Proxy
Statement/Prospectus will comply as to form in all material respects with
the requirements of the Exchange Act and the Securities Act and the rules
and regulations of the SEC thereunder.
(ii) Notwithstanding the foregoing provisions of this Section 3.1(e), no
representation or warranty is made by Dianon with respect to statements made
or incorporated by reference in the Form S-4 or the Joint Proxy
Statement/Prospectus based on information supplied by UroCor for inclusion
or incorporation by reference therein.
(f) Board Approval. The Board of Directors of Dianon, by resolutions duly
adopted by unanimous vote of those voting at a meeting duly called and held and
not subsequently rescinded or modified in any way (the "Dianon Board
Approval"), has duly (i) determined that this Agreement and the Merger are
advisable and are fair to and in the best interests of Dianon and its
stockholders, (ii) approved this Agreement, the Merger, and the Share Issuance
and (iii) recommended that the stockholders of Dianon approve the Share
Issuance and directed that the Share Issuance be submitted for consideration by
Dianon's stockholders at the Dianon Stockholders Meeting. The Dianon Board
Approval constitutes approval of this Agreement and the Merger for purposes of
Section 203 of the DGCL. To the knowledge of Dianon, except for Section 203 of
the DGCL (which has been rendered inapplicable), no state takeover statute is
applicable to this Agreement, the Merger or the other transactions contemplated
hereby.
(g) Vote Required. The affirmative vote of at least a majority of the votes
cast by the holders of Dianon Common Stock, provided that the total votes cast
represents a majority of the outstanding shares of Dianon Common Stock, is the
only vote necessary to approve the Share Issuance. In the event the Alternative
Merger Structure is implemented, the affirmative vote of the holders of a
majority of the outstanding shares of Dianon Common Stock to adopt this
Agreement and approve the merger of UroCor with and into Dianon is the only
vote of the holders of any class or series of Dianon capital stock necessary to
adopt this Agreement and approve such merger.
(h) Litigation; Compliance with Laws.
(i) Except as disclosed in the Dianon SEC Reports filed prior to the date
of this Agreement, there are no (a) suits, actions or proceedings
(collectively "Actions") pending or, to the knowledge of Dianon, threatened,
against or affecting Dianon or any Subsidiary of Dianon which, in the
aggregate, would reasonably be expected to have a Material Adverse Effect on
Dianon, or (b) judgments, decrees, injunctions, rules or orders of any
Governmental Entity or arbitrator outstanding against Dianon or any
Subsidiary of Dianon which, in the aggregate, would reasonably be expected
to have a Material Adverse Effect on Dianon.
(ii) Except as disclosed in the Dianon SEC Reports filed prior to the
date of this Agreement and except as, in the aggregate, would not reasonably
be expected to have a Material Adverse Effect on Dianon, Dianon and its
Subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities which are necessary for the operation
of the businesses of Dianon and its Subsidiaries, taken as a whole (the
"Dianon Permits"). Dianon and its Subsidiaries are in compliance with the
terms of the Dianon Permits, except where the failures to so comply, in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect on Dianon. Except as disclosed in the Dianon SEC Reports filed prior
to the date of this Agreement, neither Dianon nor any of its Subsidiaries is
in violation of, and Dianon and its Subsidiaries have not received any
notices of violations with respect to, any
10
laws, ordinances or regulations of any Governmental Entity, except for
violations which, in the aggregate, would not reasonably be expected to have
a Material Adverse Effect on Dianon.
(i) Absence of Certain Changes or Events. Except for liabilities incurred in
connection with this Agreement or the transactions contemplated hereby, except
as disclosed in the Dianon SEC Reports filed prior to the date of this
Agreement, and except as permitted by Section 4.1, since December 31, 2000, (i)
Dianon and its Subsidiaries have conducted their business only in the ordinary
course and (ii) there has not been any action taken by Dianon or any of its
Subsidiaries during the period from December 31, 2000 through the date of this
Agreement that, if taken during the period from the date of this Agreement
through the Effective Time, would constitute a breach of Section 4.1. Except as
disclosed in the Dianon SEC Reports filed prior to the date of this Agreement
or as set forth in Section 3.1(i) of the Dianon Disclosure Schedule, since
December 31, 2000, there have not been (1) any changes, circumstances or events
which, in the aggregate, have had, or would reasonably be expected to have a
Material Adverse Effect on Dianon, (2) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to any of Dianon's capital stock, (3) any purchase,
redemption or other acquisition of any shares of capital stock or any other
securities of Dianon or any of its Subsidiaries or any options, warrants, calls
or rights to acquire such shares or other securities, (4) any split,
combination or reclassification of any of Dianon's capital stock or any
issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of Dianon's capital stock,
(5) (A) any granting by Dianon or any of its Subsidiaries to any current or
former director, consultant, executive officer or other employee of Dianon or
its Subsidiaries of any increase in compensation, bonus or other benefits,
except for normal increases in cash compensation in the ordinary course of
business consistent with past practice or as was required under any employment
agreements in effect as of the date of the most recent audited financial
statements included in the Dianon SEC Reports, (B) any granting by Dianon or
any of its Subsidiaries to any such current or former director, consultant,
executive officer or employee of any increase in severance or termination pay,
(C) any amendment to, or modification of, any Dianon Stock Option or (D) any
adoption of, or amendment to, a Dianon Benefit Plan or any Dianon Benefit
Agreement, except as was required in order to comply with changes in law or
applicable regulations, (6) except insofar as may have been required by a
change in GAAP, any change in accounting methods, principles or practices by
Dianon or any of its Subsidiaries materially affecting their respective assets,
liabilities or businesses, (7) any tax election that individually or in the
aggregate would reasonably be expected to adversely affect in any material
respect the tax liability or tax attributes of Dianon or any of its
Subsidiaries, (8) any settlement or compromise of any material income tax
liability, or (9) any licensing agreement or any agreement with regard to the
acquisition or disposition of any material Intellectual Property Rights (as
defined in Section 3.1(k)) or rights thereto other than licenses by Dianon or
its Subsidiaries in the ordinary course of business consistent with past
practice.
(j) Environmental Matters. Except as, in the aggregate, would not reasonably
be expected to have a Material Adverse Effect on Dianon and except as disclosed
in the Dianon SEC Reports filed prior to the date of this Agreement (i) the
operations of Dianon and its Subsidiaries have been and are in compliance with
all Environmental Laws (as defined below), and with all environmental permits
and licenses possessed by Dianon, (ii) there are no pending or, to the
knowledge of Dianon, threatened, Actions under or pursuant to Environmental
Laws against Dianon or its Subsidiaries or involving any real property
currently or, to the knowledge of Dianon, formerly owned, operated or leased by
Dianon or its Subsidiaries, (iii) to the knowledge of Dianon, Dianon and its
Subsidiaries are not subject to any Environmental Liabilities (as defined
below), and, to the knowledge of Dianon, no facts, circumstances or conditions
relating to, arising from, associated with or attributable to any real property
currently or formerly owned, operated or leased by Dianon or its Subsidiaries
or operations thereon would reasonably be expected to result in Environmental
Liabilities, (iv) to the knowledge of Dianon, all real property owned and, to
the knowledge of Dianon, all real property operated or leased by Dianon or its
Subsidiaries is free of contamination from Hazardous Material (as defined
below) that would have an adverse effect on human health or the environment or
result in Environmental Liabilities and (v) to the knowledge of Dianon, there
is not now, nor has there been in the past, on, in or under any real property
owned, leased or
11
operated by Dianon or any of its predecessors (A) any underground storage
tanks, dikes or impoundments containing more than a reportable quantity of any
Hazardous Material, (B) any friable asbestos-containing materials or (C) any
polychlorinated biphenyls.
As used in this Agreement, "Environmental Laws" means any and all federal,
state, foreign, interstate, local or municipal laws, rules, orders,
regulations, statutes, ordinances, codes, enforceable requirements of any
Governmental Entity, any and all common law requirements, rules and bases of
liability regulating, relating to or imposing liability or standards of conduct
concerning pollution, Hazardous Materials or protection of human health, safety
or the environment, as currently in effect, and includes the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. (S)(S) 9601,
et seq., the Hazardous Materials Transportation Act, 49 U.S.C. (S)(S) 1801, et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. (S)(S) 6901, et
seq., the Clean Water Act, 33 U.S.C. (S)(S) 1251, et seq., the Clean Air Act,
33 U.S.C. (S)(S) 2601, et seq., the Toxic Substances Control Act, 15 U.S.C.
(S)(S) 2601, et seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7
U.S.C. (S)(S) 136, et seq., Occupational Safety and Health Act 29 U.S.C. (S)(S)
651, et seq., the Atomic Energy Act, 42 U.S.C. (S)(S) 2011, et seq. and the Oil
Pollution Act of 1990, 33 U.S.C. (S)(S) 2701, et seq., as such laws have been
amended or supplemented as of the date of this Agreement, and the regulations
promulgated pursuant thereto, and all analogous state or local statutes. As
used in this Agreement, "Environmental Liabilities" with respect to any Person
means any and all liabilities of or relating to such Person or any of its
Subsidiaries (including any entity which is a predecessor of such Person or any
of such Subsidiaries), whether vested or unvested, contingent or fixed, actual
or potential, known or unknown, which (i) arise under or relate to matters
covered by Environmental Laws and (ii) relate to actions occurring or
conditions existing on or prior to the Closing Date. As used in this Agreement,
"Hazardous Materials" means any materials or wastes, defined, listed,
classified or regulated as hazardous, extremely hazardous, toxic, solid waste,
a pollutant, a contaminant or dangerous in or under any Environmental Laws and
shall include petroleum, petroleum products, medical waste, friable asbestos,
urea formaldehyde, radioactive materials (including source, special nuclear or
by-product material) and polychlorinated biphenyls.
(k) Intellectual Property.
(i) Except as disclosed in the Dianon SEC Reports, all trademarks,
service marks, trade names, brands, copyrights and patents, all applications
for registration and registrations for such trademarks, copyrights and
patents and all mask works, trade secrets, confidential and proprietary
information, compositions of matter, formulas, designs, proprietary rights,
know-how and processes (all of the foregoing collectively hereinafter
referred to as the "Intellectual Property Rights") owned by or licensed to
or used by Dianon, and all licenses, contracts, rights and arrangements with
respect to the foregoing, are, to the extent material to the conduct of the
business of Dianon and its Subsidiaries, listed and briefly described in
Section 3.1(k) of the Dianon Disclosure Schedule. Dianon has made available
to UroCor true and complete copies of each of the foregoing and, to Dianon's
knowledge, all Intellectual Property Rights of Dianon are valid, enforceable
and in full force and effect. Dianon and its Subsidiaries own, free and
clear of all Liens, or are validly licensed or otherwise have the right to
use all the Intellectual Property Rights of Dianon which are material to the
conduct of the business of Dianon and its Subsidiaries.
(ii) To the knowledge of Dianon, neither Dianon nor any of its
Subsidiaries has materially interfered with, infringed upon, misappropriated
or otherwise come into conflict with any Intellectual Property Rights or
other proprietary information of any other person. Neither Dianon nor any of
its Subsidiaries has received any written charge, complaint, claim, demand
or notice alleging any such interference, infringement, misappropriation or
other conflict (including any claim that Dianon or any such Subsidiary must
license or refrain from using any Intellectual Property Rights or other
proprietary information of any other person) which has not been settled or
otherwise fully resolved. To Dianon's knowledge, no other person has
materially interfered with, infringed upon, misappropriated or otherwise
come into conflict with any Intellectual Property Rights of Dianon or any of
its Subsidiaries.
(iii) As the business of Dianon and its Subsidiaries is presently
conducted and proposed to be conducted without giving effect to any change
with respect thereto that may be made by UroCor, to
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Dianon's knowledge, the Surviving Corporation's use after the Closing of the
Intellectual Property Rights which are material to the conduct of the
business of Dianon and its Subsidiaries taken as a whole will not interfere
with, infringe upon, misappropriate or otherwise come into conflict with the
Intellectual Property Rights or other proprietary information of any other
person.
(l) Brokers or Finders. No agent, broker, investment banker, financial
advisor or other firm or Person is or will be entitled to any broker's or
finder's fee or any other similar commission or fee in connection with any of
the transactions contemplated by this Agreement, based upon arrangements made
by or on behalf of Dianon, except Lazard Freres & Co. LLC and J.P. Morgan Chase
H&Q, whose fees and expenses will be paid by Dianon in accordance with Dianon's
agreements with such firms, copies of which have been provided to UroCor.
(m) Opinion of Dianon Financial Advisor. Lazard Freres & Co. LLC has
delivered its oral opinion to the Board of Directors of Dianon to the effect
that, as of the date of this Agreement, the Exchange Ratio is fair to Dianon,
from a financial point of view, which opinion will promptly after the date of
this Agreement be confirmed in writing, a copy of which opinion will be
promptly delivered to UroCor.
(n) Taxes. Except as would not, individually or in the aggregate, have a
Material Adverse Effect on Dianon:
(i) (A) each of Dianon and its Subsidiaries has accurately filed or
caused to be filed in accordance with applicable law when due all Tax
Returns (as defined below) required to have been filed (or extensions have
been duly obtained), (B) all Tax Returns filed by Dianon, each of its
Subsidiaries, and any Dianon consolidated group are complete and accurate in
all respects, and (C) Dianon has paid or caused to be paid when due all
Taxes (as defined below) shown due on such Tax Returns or otherwise owed.
(ii) The most recent financial statements filed in the Dianon SEC Reports
reflect an adequate reserve for all Taxes payable by Dianon and its
Subsidiaries for all taxable periods and portions thereof through the date
of such financial statements. No deficiencies for any Taxes have been
proposed, assessed, or asserted against Dianon, any of its Subsidiaries or
any Dianon consolidated group that are not adequately reserved for, and no
requests for waivers of the time to assess any such Taxes have been granted
or are pending.
(iii) The federal income Tax Returns of Dianon, each of its Subsidiaries
and any Dianon consolidated group have been examined by and settled with the
United States Internal Revenue Service for all years through December 31,
1998. All material assessments for Taxes due with respect to such completed
and settled examinations or any concluded litigation have been fully paid.
(iv) Neither Dianon nor any of its Subsidiaries has taken or has agreed
to take any action or has any knowledge of any fact, agreement, plan or
other circumstance that is reasonably likely to prevent the Merger from
qualifying as a reorganization within the meaning of section 368(a) of the
Code.
(v) Neither Dianon nor any of its Subsidiaries has made a distribution or
has been the subject of a distribution qualifying or intended to qualify for
tax-free treatment under section 355 of the Code (A) in the two years prior
to the date of this Agreement, or (B) in a distribution which could
otherwise constitute part of a "plan" or series of "related transactions"
(within the meaning of section 355(e) of the Code) that includes the Merger.
(vi) There are no Liens for Taxes (other than for current Taxes not yet
due and payable) on the assets of Dianon or any of its Subsidiaries.
(vii) None of Dianon or any of its Subsidiaries is a party to or bound by
any tax sharing agreement, tax indemnity obligation or similar agreement,
arrangement or practice (including any liability for Taxes of any other
person under Treasury Regulation section 1.1502-6 or comparable provision of
foreign, state or local law) except for any agreement or liability solely
among Dianon and its Subsidiaries.
(viii) For purposes of this Agreement: (A) "Tax" (and with correlative
meaning, "Taxes") means any federal, state, local or foreign income, gross
receipts, property, sales, use, license, estimated, franchise, employment,
payroll, withholding, alternative or add on minimum, ad valorem, transfer or
excise tax, or any
13
other tax, custom, duty, governmental fee or other like assessment or charge
of any kind whatsoever, together with any interest, penalty, addition to tax
or additional amount imposed by any governmental authority or any obligation
to pay Taxes imposed on any entity for which a party to this Agreement is
liable as a result of any indemnification provision or other contractual
obligation, and (B) "Tax Return" means any return, report or similar
statement required to be filed with respect to any Tax (including any
attached schedules), including, without limitation, any information return,
claim for refund, amended return or declaration of estimated Tax.
(o) Contracts. Except for Contracts filed as exhibits to Dianon's most
recent annual report on Form 10-K or the most recent report on Form 10-Q filed
with SEC or as set forth in Section 3.1(o) of the Dianon Disclosure Schedule,
as of the date of this Agreement, none of Dianon or any of its Subsidiaries is
a party to or bound by, and none of their properties or assets are bound by or
subject to, any written or oral:
(i) Contract not made in the ordinary course of business;
(ii) Contract pursuant to which Dianon or any of its Subsidiaries has
agreed not to compete with any Person or to engage in any activity or
business, or pursuant to which any benefit is required to be given or lost
as a result of so competing or engaging;
(iii) Contract pursuant to which Dianon or any of its Subsidiaries is
restricted in any material respect in the development, marketing or
distribution of their respective products or services;
(iv) Contract with (A) any affiliate of Dianon or any of its Subsidiaries
or (B) any current or former director or officer of Dianon or any of its
Subsidiaries or of any affiliate of Dianon or any of its Subsidiaries or (C)
any affiliate of any such Person (other than (w) contracts on arm's-length
terms with companies whose common stock is publicly traded, (x) offer
letters providing solely for "at will" employment, (y) invention assignment
and confidentiality agreements relating to the assignment of inventions to
Dianon or any of its Subsidiaries not involving the payment of money and (z)
Dianon Benefit Plans referred to in Section 3.1(q));
(v) license or franchise granted by Dianon or any of its Subsidiaries
pursuant to which Dianon or any of its Subsidiaries has agreed to refrain
from granting license or franchise rights to any other Person;
(vi) Contract under which Dianon or any of its Subsidiaries has incurred
any indebtedness that is currently owing or given any guarantee in respect
of indebtedness, in each case having an aggregate principal amount in excess
of $100,000, or granted any pledge, mortgage or other security interest in
any property or assets of Dianon or any of its Subsidiaries;
(vii) Contract that is material to the conduct of the business of Dianon
and its Subsidiaries that requires consent, approval or waiver of or notice
to a third party in the event of or with respect to the Merger or any of the
other transactions contemplated by this Agreement, including in order to
avoid termination of or a loss of material benefit under any such Contract;
(viii) Contract or other agreement, whether written or oral, that
contains any guarantees as to Dianon or any of its Subsidiaries' future
revenues;
(ix) Contract granting a third party any license to Intellectual Property
Rights that is not limited to the internal use of such third party;
(x) Contract in respect of any joint venture, partnership, business
alliance or similar arrangement between Dianon or any of its Subsidiaries
and any third party;
(xi) Except for the Confidentiality Agreement, Contract providing for a
"standstill" or for confidential treatment by Dianon or any of its
Subsidiaries of third party information other than non-disclosure agreements
and provisions entered into by Dianon in the ordinary course of business
consistent with past practice;
14
(xii) Contract granting the other party to such Contract or a third party
"most favored nation" status that, following the Merger, would in any way
apply to UroCor or any of its Subsidiaries (other than Dianon and its
Subsidiaries and their products or services); or
(xiii) Contract which (i) has aggregate future sums due from Dianon or
any of its Subsidiaries in excess of $100,000 and is not terminable by
Dianon or any such subsidiary for a cost of less than $100,000 or (ii) is
otherwise material to the business of Dianon and its Subsidiaries, taken as
a whole, as presently conducted or as proposed to be conducted.
Each Contract of Dianon and its Subsidiaries is in full force and effect and
is a legal, valid and binding agreement of Dianon or such Subsidiary and, to
the knowledge of Dianon or such Subsidiary, of each other party thereto,
enforceable against Dianon or any of its Subsidiaries, as the case may be, and,
to the knowledge of Dianon, against the other party or parties thereto, in each
case, in accordance with its terms, except for such failures to be in full
force and effect or enforceable that individually or in the aggregate have not
had and would not reasonably be expected to have a Material Adverse Effect on
Dianon. Each of Dianon and its Subsidiaries has performed or is performing all
obligations required to be performed by it under its Contracts and is not (with
or without notice or lapse of time or both) in breach or default in any respect
thereunder, and, to the knowledge of Dianon or such subsidiary, no other party
to any of its Contracts is (with or without notice or lapse of time or both) in
breach or default in any respect thereunder except, in each case, for such
breaches that individually or in the aggregate have not had and would not
reasonably be expected to have a Material Adverse Effect on Dianon.
(p) Related Party Transactions.
Except for Contracts filed as exhibits to Dianon's most recent annual report
on Form 10-K filed with SEC or as set forth in Section 3.1(p) of the Dianon
Disclosure Schedule, no officer, director, stockholder that is a beneficial
owner (as determined in accordance with Rule 13d-3 under the Exchange Act) of
five percent or more of Dianon Common Stock, or affiliate of Dianon or any of
its Subsidiaries nor any relative or affiliate of such officer, director or
stockholder, or, to the knowledge of Dianon, none of its key employees or the
key employees of any of its Subsidiaries, is a party to any agreement,
contract, commitment, arrangement or transaction with Dianon or any of its
Subsidiaries or is entitled to any payment or transfer of any assets from
Dianon or any of its Subsidiaries or has any material interest in any material
property used by Dianon or any of its Subsidiaries or has an interest in any
customer, supplier or provider of any services to Dianon or any of its
Subsidiaries.
(q) Absence of Changes in Benefit Plans. Since December 31, 2000, there has
not been any adoption or amendment by Dianon or any of its Subsidiaries of any
collective bargaining agreement or any bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, thrift, savings, stock bonus, restricted
stock, cafeteria, paid time off, perquisite, fringe benefit, vacation,
severance, disability, death benefit, hospitalization, medical, welfare benefit
or other plan, arrangement or understanding (whether or not legally binding)
maintained, contributed to or required to be maintained or contributed to by
Dianon, any of its Subsidiaries, or any other person or entity that, together
with Dianon, is treated as a single employer under Section 414(b), (c), (m) or
(o) of the Code (a "Dianon Commonly Controlled Entity") providing benefits to
any current or former employee, officer, consultant or director of Dianon or
any of its Subsidiaries (collectively, the "Dianon Benefit Plans"), or any
change in any actuarial or other assumption used to calculate funding
obligations with respect to any Dianon Pension Plans (as defined below), or any
change in the manner in which contributions to any Dianon Pension Plans are
made or the basis on which such contributions are determined. Except for
Contracts filed as exhibits to Dianon's most recent Form 10-K filed with the
SEC, there are no (1) employment, consulting, deferred compensation,
indemnification, severance or termination agreements or arrangements or
understandings between Dianon or any of its Subsidiaries and any current or
former employee, officer, consultant or director of Dianon or any of its
Subsidiaries or (2) agreements between Dianon or any of its Subsidiaries and
any current or former employee, officer, consultant or director of Dianon or
any of its Subsidiaries, the benefits of which are contingent, or the
15
terms of which are materially altered, upon the occurrence of a transaction
involving Dianon of a nature contemplated by this Agreement (collectively, the
"Dianon Benefit Agreements").
(r) ERISA Compliance.
(i) Section 3.1(r)(i) of the Dianon Disclosure Schedule contains a list
of each Dianon Benefit Plan that is an "employee pension benefit plan" (as
defined in Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")) (sometimes referred to herein as "Dianon Pension
Plans"), "employee welfare benefit plan" (as defined in Section 3(1) of
ERISA) and all other Dianon Benefit Plans and Dianon Benefit Agreements.
Dianon has made available to UroCor true, complete and correct copies of (a)
each Dianon Benefit Plan and Dianon Benefit Agreement (or, in the case of
any unwritten Dianon Benefit Plan or Dianon Benefit Agreement a description
thereof), (b) the two most recent annual reports on Form 5500 filed with the
Internal Revenue Service with respect to each Dianon Benefit Plan (if any
such report was required), (c) the most recent summary plan description for
each Dianon Benefit Plan for which such summary plan description is required
and (d) each trust agreement and insurance or group annuity contract
relating to any Dianon Benefit Plan.
(ii) In all material respects, each Dianon Benefit Plan has been
administered in accordance with its terms and in accordance with the
applicable provisions of ERISA and the Code, and all other applicable laws,
including laws of foreign jurisdictions, and the terms of all collective
bargaining agreements. All Dianon Pension Plans intended to be qualified
have received favorable determination letters from the Internal Revenue
Service to the effect that such Dianon Pension Plans are qualified and
exempt from Federal income taxes under Sections 401(a) and 501(a),
respectively, of the Code, and no such determination letter has been revoked
nor, to the knowledge of Dianon, has revocation been threatened, nor has any
event occurred since the date of its most recent determination letter or
application therefor that would adversely affect its qualification or
materially increase its costs or require security under Section 307 of
ERISA. All Dianon Pension Plans required to have been approved by any
foreign Governmental Entity have been so approved; no such approval has been
revoked (or, to the knowledge of Dianon, has revocation been threatened) nor
has any event occurred since the date of the most recent approval or
application therefor relating to any such Dianon Pension Plan that would
materially affect any such approval relating thereto or materially increase
the costs relating thereto. Dianon has also provided to UroCor a true and
complete list of all Dianon Pension Plan amendments as to which a favorable
determination letter has not yet been received. There is no pending or, to
the knowledge of Dianon, threatened litigation relating to any Dianon
Benefit Plan.
(iii) No Dianon Pension Plan, other than any Dianon Pension Plan that is
a "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA (a
"Dianon Multiemployer Pension Plan"), had, as of the respective last annual
valuation date for each such Dianon Pension Plan, any "unfunded benefit
liabilities" (as such term is defined in Section 4001(a)(18) of ERISA), and
there has been no material adverse change in the financial condition of any
Dianon Pension Plan since its last such annual valuation date. No liability
under Subtitle C or D of Title IV of ERISA has been or is expected to be
incurred by the Dianon or any of its Subsidiaries with respect to any
ongoing, frozen or terminated "single-employer plan", within the meaning of
Section 4001(a)(15) of ERISA, currently or formerly maintained by any of
them, or the single-employer plan of any Dianon Commonly Controlled Entity.
None of Dianon, any of its Subsidiaries, any officer of Dianon or any of its
Subsidiaries or any of the Dianon Benefit Plans which are subject to ERISA,
including the Dianon Pension Plans, any trusts created thereunder or any
trustee or administrator thereof, has engaged in a "prohibited transaction"
(as such term is defined in Section 406 of ERISA or Section 4975 of the
Code) or any other breach of fiduciary responsibility that could subject
Dianon, any of its Subsidiaries or any officer of Dianon or any of its
Subsidiaries to the tax on prohibited transactions imposed by such Section
4975 or to any liability under Section 502(i) or 502(l) of ERISA. None of
such Dianon Benefit Plans and trusts has been terminated, nor has there been
any "reportable event" (as that term is defined in Section 4043 of ERISA)
for which the 30-day reporting requirement has not been waived with respect
to any Dianon Benefit Plan during the last five years, and no notice of a
16
reportable event will be required to be filed in connection with the Merger
or the other transactions contemplated by this Agreement. Neither Dianon nor
any of its Subsidiaries has incurred a "complete withdrawal" or a "partial
withdrawal" (as such terms are defined in Sections 4203 and 4205,
respectively, of ERISA) since the effective date of such Sections 4203 and
4205 with respect to any Dianon Multiemployer Pension Plan. All
contributions and premiums required to be made under the terms of any Dianon
Benefit Plan as of the date hereof have been timely made or have been
reflected on the most recent consolidated balance sheet filed or
incorporated by reference in the Dianon SEC Reports. Neither any Dianon
Pension Plan nor any single-employer plan of any Dianon Commonly Controlled
Entity has an "accumulated funding deficiency" (as such term is defined in
Section 302 of ERISA or Section 412 of the Code), whether or not waived.
(iv) Section 3.1(r)(iv) of the Dianon Disclosure Schedule discloses
whether each Dianon Benefit Plan that is an employee welfare benefit plan is
(a) unfunded, (b) funded through a "welfare benefit fund" (as such term is
defined in Section 419(e) of the Code) or other funding mechanism or (c)
insured. Dianon and its Subsidiaries, with respect to each Dianon Benefit
Plan that is a "group health plan" (as such term is defined in Section
5000(b)(1) of the Code), comply in all material respects with the applicable
requirements of Section 4980B(f) of the Code.
(v) Except as disclosed in Section 3.1(r)(v) of the Dianon Disclosure
Schedule, none of the execution and delivery of this Agreement, the
consummation of the Merger or any other transaction contemplated by this
Agreement (including as a result of any termination of employment following
the Effective Time) will (x) entitle any employee, officer, consultant or
director of Dianon or any of its Subsidiaries to severance or termination
pay, (y) accelerate the time of payment or vesting or trigger any payment or
funding (through a grantor trust or otherwise) of compensation or benefits
under, increase the amount payable or trigger any other material obligation
pursuant to, any of the Dianon Benefit Plans or Dianon Benefit Agreements or
(z) result in any breach or violation of, or a default under, any of the
Dianon Benefit Plans or Dianon Benefit Agreements.
(vi) Dianon and its Subsidiaries are in compliance in all material
respects with all Federal, state, local and foreign requirements regarding
employment. Neither Dianon nor any of its Subsidiaries is a party to any
collective bargaining or other labor union contract applicable to persons
employed by Dianon or any of its Subsidiaries and no collective bargaining
agreement is being negotiated by Dianon or any of its Subsidiaries. As of
the date of this Agreement, there is no labor dispute, strike or work
stoppage against Dianon or any of its Subsidiaries pending or, to the
knowledge of Dianon, threatened which may interfere with the respective
business activities of Dianon or its Subsidiaries. As of the date of this
Agreement, to the knowledge of Dianon, none of Dianon, any of its
Subsidiaries or any of their respective representatives or employees has
committed an unfair labor practice in connection with the operation of the
respective businesses of Dianon or any of its Subsidiaries, and there is no
charge or complaint against Dianon or any of its Subsidiaries by the
National Labor Relations Board or any comparable governmental agency pending
or threatened in writing.
(vii) All reports, returns and similar documents with respect to all
Dianon Benefit Plans required to be filed with any Governmental Entity or
distributed to any Dianon Benefit Plan participant have been duly and timely
filed or distributed. None of Dianon or any of its Subsidiaries has received
notice of, and to the knowledge of Dianon, there are no investigations by
any Governmental Entity with respect to, termination proceedings or other
claims (except claims for benefits payable in the normal operation of the
Dianon Benefit Plans), suits or proceedings against or involving any Dianon
Benefit Plan or asserting any rights or claims to benefits under any Dianon
Benefit Plan that could give rise to any liability, and, to the knowledge of
Dianon, there are not any facts that could give rise to any liability in the
event of any such investigation, claim, suit or proceeding.
(viii) None of Dianon nor any of its Subsidiaries has any material
liability or obligations, including under or on account of a Dianon Benefit
Plan, arising out of the hiring of persons to provide services to Dianon or
any of its Subsidiaries and treating such persons as consultants or
independent contractors and not as employees of Dianon or any of its
Subsidiaries.
17
(s) Labor Matters. Except where failure to comply would not reasonably be
expected to have a Material Adverse Effect on Dianon, Dianon is and has been in
compliance with all applicable laws of the United States, or of any state or
local government or any subdivision thereof or of any foreign government
respecting employment and employment practices, terms and conditions of
employment and wages and hours, including, without limitation, ERISA, the Code,
the Immigration Reform and Control Act, the Worker Adjustment and Retraining
Notification Act (the "WARN Act"), any laws respecting employment
discrimination, sexual harassment, disability rights or benefits, equal
opportunity, plant closure issues, affirmative action, workers' compensation,
employee benefits, severance payments, continuation of health insurance
("COBRA"), labor relations, employee leave issues, wage and hour standards,
occupational safety and health requirements and unemployment insurance and
related matters, and is not engaged in any unfair labor practices.
3.2 Representations and Warranties of UroCor. Except as set forth in the
UroCor Disclosure Schedule delivered by UroCor to Dianon prior to the execution
of this Agreement (the "UroCor Disclosure Schedule") (each section of which
qualifies the correspondingly numbered representation and warranty or
covenant), UroCor represents and warrants to Dianon as follows:
(a) Organization, Standing and Power; Subsidiaries.
(i) Each of UroCor and each of its Subsidiaries is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation or organization, has the requisite power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted, except where the failure to be so organized, existing and in good
standing or to have such power and authority, in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on UroCor, and is
duly qualified and in good standing to do business in each jurisdiction in
which the nature of its business or the ownership or leasing of its
properties makes such qualification necessary other than in such
jurisdictions where the failure so to qualify or to be in good standing in
the aggregate would not reasonably be expected to have a Material Adverse
Effect on UroCor. The copies of the certificate of incorporation and bylaws
of UroCor which were previously furnished or made available to Dianon are
true, complete and correct copies of such documents as in effect on the date
of this Agreement.
(ii) Section 3.2(a)(ii) of the UroCor Disclosure Schedule sets forth all
of the Subsidiaries of UroCor. All the outstanding shares of capital stock
of, or other equity interests in, each such Subsidiary have been validly
issued and are fully paid and non-assessable and are, except as set forth in
Section 3.2(a)(ii) of the UroCor Disclosure Schedule, owned directly or
indirectly by UroCor, free and clear of all Liens and free of any other
restriction (including any restriction on the right to vote, sell or
otherwise dispose of such capital stock or other ownership interests),
except for restrictions imposed by applicable securities laws.
(b) Capital Structure.
(i) As of June 15, 2001, the authorized capital stock of UroCor consisted
of (A) 20,000,000 shares of UroCor Common Stock, of which 9,954,113 shares
were outstanding and 1,181,188 shares were held in the treasury of UroCor
and (B) 6,000,000 shares of Preferred Stock, par value $0.01 per share, none
of which were outstanding and 50,000 shares of which have been designated
Series I Preferred Stock and reserved for issuance upon exercise of the
rights (the "UroCor Rights") distributed to the holders of UroCor Common
Stock pursuant to the Rights Agreement dated as of August 17, 1998, between
UroCor and American Stock Transfer and Trust Company (the "UroCor Rights
Agreement"). Since June 15, 2001 to the date of this Agreement, there have
been no issuances of shares of the capital stock of UroCor or any other
securities of UroCor other than issuances of shares (and accompanying UroCor
Rights) pursuant to options or rights outstanding as of June 15, 2001 under
the UroCor Benefit Plans (as defined in Section 3.2(r)). All issued and
outstanding shares of the capital stock of UroCor are duly authorized,
validly issued, fully paid and non-assessable, and no class of capital stock
is entitled to preemptive rights. There were outstanding as of June 15, 2001
no options, warrants or other rights to acquire capital stock from UroCor
other than (x) the UroCor Rights and (y) options and other rights to acquire
capital stock of UroCor representing in the aggregate the
18
right to purchase 1,631,254 shares of UroCor Common Stock (collectively, the
"UroCor Stock Options") under the UroCor Second Amended and Restated 1992
Stock Option Plan, as amended (the "UroCor 1992 Plan"), and the UroCor 1997
Non-Employee Director Stock Option Plan, as amended (the "UroCor 1997 Plan")
(collectively, the "UroCor Stock Option Plans") and under contractual
commitments to issue options, and (z) the UroCor 1997 Employee Stock
Purchase Plan (the "UroCor 1997 ESP Plan"). Section3.2(b) of the UroCor
Disclosure Schedule sets forth a complete and correct list, as of June 15,
2001, of the number of shares of UroCor Common Stock subject to UroCor Stock
Options or other rights to purchase or receive UroCor Common Stock granted
under the UroCor Benefit Plans or otherwise, the dates of grant and the
exercise prices thereof. Except as set forth in Section 3.2(b)(i) of the
UroCor Disclosure Schedule, no options or warrants or other rights to
acquire capital stock from UroCor have been issued or granted since June 15,
2001 to the date of this Agreement. All UroCor Stock Options are evidenced
by stock option agreements in the forms attached as Exhibit A to Section
3.2(b)(i) of the UroCor Disclosure Schedule, and no stock option agreement
contains terms that are inconsistent with such forms.
(ii) No bonds, debentures, notes or other indebtedness of UroCor having
the right to vote on any matters on which stockholders of UroCor or any of
its Subsidiaries may vote ("UroCor Voting Debt") are issued or outstanding
or subject to issuance.
(iii) Except as otherwise set forth in this Section 3.2(b), (including
pursuant to the conversion or exercise of the securities referred to above),
(x) there are not issued, reserved for issuance or outstanding (A) any
shares of capital stock or other voting securities of UroCor or any of its
Subsidiaries (other than shares of capital stock or other voting securities
of such Subsidiaries that are directly or indirectly owned by UroCor), (B)
any securities of UroCor or any of its Subsidiaries convertible into or
exchangeable or exercisable for shares of capital stock or other voting
securities of, or other ownership interests in, UroCor or any of its
Subsidiaries or (C) any warrants, calls, options or other rights to acquire
from UroCor or any of its Subsidiaries, and no obligation of UroCor or any
of its Subsidiaries to issue, any capital stock or other voting securities
of, or other ownership interests in, or any securities convertible into or
exchangeable or exercisable for any capital stock or other voting securities
of, or other ownership interests in, UroCor or any of its Subsidiaries and
(y) there are not any outstanding obligations of UroCor or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any such securities
or to issue, deliver or sell, or cause to be issued, delivered or sold, any
such securities. UroCor is not a party to any voting agreement with respect
to the voting of any such securities. Other than the capital stock of, or
other equity interests in, its Subsidiaries, or as set forth in Section
3.2(b)(iii) of the UroCor Disclosure Schedule, UroCor does not directly or
indirectly beneficially own any securities or other beneficial ownership
interests in any other entity.
(c) Authority; No Conflicts.
(i) UroCor has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby,
including the Alternative Merger Structure, if implemented, subject in the
case of the consummation of the Merger to the adoption of this Agreement by
the Required UroCor Vote (as defined in Section 3.2(g)). The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of UroCor, subject in the case of the consummation of the
Merger to the adoption of this Agreement by the Required UroCor Vote. This
Agreement has been duly executed and delivered by UroCor and constitutes a
valid and binding agreement of UroCor, enforceable against it in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and similar laws relating to or
affecting creditors generally or by general equity principles (regardless of
whether such enforceability is considered in a proceeding in equity or at
law).
(ii) The execution and delivery of this Agreement by UroCor does not or
will not, as the case may be, and the consummation by UroCor of the Merger
and the other transactions contemplated hereby will not, conflict with, or
result in a Violation pursuant to: (A) any provision of the certificate of
incorporation or bylaws of UroCor or any Subsidiary of UroCor or (B) except
as, in the aggregate, would not reasonably be
19
expected to have a Material Adverse Effect on UroCor, subject to obtaining
or making the consents, approvals, orders, authorizations, registrations,
declarations and filings referred to in paragraph (iii) below, (x) any
Contract applicable to UroCor or any of its Subsidiaries or their respective
properties or assets, (y) any judgment, order or decree or (z) any statute,
law, ordinance, rule or regulation, in each case applicable to UroCor or any
of its Subsidiaries or their respective properties or assets.
(iii) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to UroCor or any Subsidiary of UroCor in connection with the
execution and delivery of this Agreement by UroCor or the consummation of
the Merger and the other transactions contemplated hereby, including the
Alternative Merger Structure, if implemented, except for the Necessary
Consents and such consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to make or
obtain, in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on UroCor.
(d) Reports and Financial Statements.
(i) UroCor has filed all required registration statements, prospectuses,
reports, schedules, forms, statements and other documents required to be
filed by it with the SEC since January 1, 1998 (collectively, including all
exhibits thereto, the "UroCor SEC Reports"). No Subsidiary of UroCor is
required to file any form, report, registration statement or prospectus or
other document with the SEC. None of the UroCor SEC Reports, as of their
respective dates (and, if amended or superseded by a filing prior to the
date of this Agreement or the Closing Date, then on the date of such
filing), contained or will contain any untrue statement of a material fact
or omitted or will omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of the
financial statements (including the related notes) included in the UroCor
SEC Reports presents fairly, in all material respects, the consolidated
financial position and consolidated results of operations and cash flows of
UroCor and its consolidated Subsidiaries as of the respective dates or for
the respective periods set forth therein, all in conformity with GAAP
consistently applied during the periods involved except as otherwise noted
therein, and subject, in the case of the unaudited interim financial
statements, to the absence of notes and normal and recurring year-end
adjustments that have not been and are not expected to be material in
amount. All of such UroCor SEC Reports, as of their respective dates (and as
of the date of any amendment to the respective UroCor SEC Report), complied
as to form in all material respects with the applicable requirements of the
Securities Act and the Exchange Act and the rules and regulations
promulgated thereunder.
(ii) Except as disclosed in the UroCor SEC Reports filed prior to the
date hereof, since December 31, 2000, UroCor and its Subsidiaries have not
incurred any liabilities that are of a nature that would be required to be
disclosed on a balance sheet of UroCor and its Subsidiaries or the footnotes
thereto prepared in conformity with GAAP, other than liabilities incurred in
the ordinary course of business that, in the aggregate, would not reasonably
be expected to have a Material Adverse Effect on UroCor.
(iii) The total amount of UroCor's long term debt outstanding as of May
31, 2001 was $1,100,000, consisting of the non-current portion of lease
obligations and deferred compensation, and such amount will not exceed
$1,100,000 as of the Effective Time.
(e) Information Supplied.
(i) None of the information supplied or to be supplied by UroCor for
inclusion or incorporation by reference in (A) the Form S-4 will, at the
time the Form S-4 is filed with the SEC, at any time it is amended or
supplemented or at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, and (B) the Joint Proxy
Statement/Prospectus will, on the date it is first mailed to UroCor
stockholders or Dianon stockholders or at the time of the UroCor
Stockholders Meeting or the Dianon Stockholders Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the
20
circumstances under which they were made, not misleading. The UroCor Proxy
Statement included in the Form S-4 and in the Joint Proxy
Statement/Prospectus will comply as to form in all material respects with
the requirements of the Exchange Act and the Securities Act and the rules
and regulations of the SEC thereunder.
(ii) Notwithstanding the foregoing provisions of this Section 3.2(e), no
representation or warranty is made by UroCor with respect to statements made
or incorporated by reference in the Form S-4 or the Joint Proxy
Statement/Prospectus based on information supplied by Dianon or Merger Sub
for inclusion or incorporation by reference therein.
(f) Board Approval. The Board of Directors of UroCor, by resolutions duly
adopted by unanimous vote of those voting at a meeting duly called and held and
not subsequently rescinded or modified in any way (the "UroCor Board
Approval"), has duly (i) determined that this Agreement and the Merger are
advisable and are fair to and in the best interests of UroCor and its
stockholders, (ii) approved this Agreement and the Merger and (iii) recommended
that the stockholders of UroCor adopt this Agreement and approve the Merger and
directed that this Agreement and the transactions contemplated hereby be
submitted for consideration by UroCor's stockholders at the UroCor Stockholders
Meeting. The UroCor Board Approval constitutes approval of this Agreement and
the Merger for purposes of Section 203 of the DGCL. To the knowledge of UroCor,
except for Section 203 of the DGCL (which has been rendered inapplicable), no
state takeover statute is applicable to this Agreement, the Merger or the other
transactions contemplated hereby or thereby.
(g) Vote Required. The affirmative vote of the holders of a majority of the
outstanding shares of UroCor Common Stock to adopt this Agreement and approve
the Merger is the only vote of the holders of any class or series of UroCor
capital stock necessary to adopt this Agreement and approve the Merger and the
other transactions contemplated hereby. In the event the Alternative Merger
Structure is implemented, the affirmative vote of the holders of a majority of
the outstanding shares of UroCor Common Stock to adopt this Agreement and
approve the merger of UroCor with and into Dianon is the only vote of the
holders of any class or series of UroCor capital stock necessary to adopt this
Agreement and approve such merger. As used herein, the "Required UroCor Vote"
shall mean the vote described in the first sentence of this Section 3.2(g),
unless the Alternative Merger Structure is implemented, in which case such term
shall mean the vote described in the second sentence of this Section 3.2(g).
(h) Litigation; Compliance with Laws.
(i) Except as disclosed in the UroCor SEC Reports filed prior to the date
of this Agreement, there are no (a) Actions pending or, to the knowledge of
UroCor, threatened, against or affecting UroCor or any Subsidiary of UroCor
which, in the aggregate, would reasonably be expected to have a Material
Adverse Effect on UroCor, or (b) judgments, decrees, injunctions, rules or
orders of any Governmental Entity or arbitrator outstanding against UroCor
or any Subsidiary of UroCor which, in the aggregate, would reasonably be
expected to have a Material Adverse Effect on UroCor.
(ii) Except as disclosed in the UroCor SEC Reports filed prior to the
date of the Agreement and except as would, in the aggregate, not reasonably
be expected to have a Material Adverse Effect on UroCor, UroCor and its
Subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities necessary for the operation of the
businesses of UroCor and its Subsidiaries, taken as a whole (the "UroCor
Permits"). UroCor and its Subsidiaries are in compliance with the terms of
the UroCor Permits, except where the failures to so comply, in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect on UroCor. Except as disclosed in the UroCor SEC Reports filed prior
to the date of this Agreement, neither UroCor nor its Subsidiaries is in
violation of, and UroCor and its Subsidiaries have not received any notices
of violations with respect to, any laws, ordinances or regulations of any
Governmental Entity, except for violations which, in the aggregate, would
not reasonably be expected to have a Material Adverse Effect on UroCor.
(i) Absence of Certain Changes or Events. Except for liabilities incurred in
connection with this Agreement or the transactions contemplated hereby, or as
disclosed in the UroCor SEC Reports filed prior to the date of this
21
Agreement or as set forth in Section 3.2(i) of the UroCor Disclosure Schedule,
or as permitted by Section 4.2, since December 31, 2000, (i) UroCor and its
Subsidiaries have conducted their business only in the ordinary course and (ii)
there has not been any action taken by UroCor or any of its Subsidiaries during
the period from December 31, 2000 through the date of this Agreement that, if
taken during the period from the date of this Agreement through the Effective
Time, would constitute a breach of Section 4.2. Except as disclosed in the
UroCor SEC Reports filed prior to the date of this Agreement, since December
31, 2000, there has not been (1) any changes, circumstances or events which, in
the aggregate, have had, or would reasonably be expected to have a Material
Adverse Effect on UroCor, (2) any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with
respect to any of UroCor's capital stock, (3) any purchase, redemption or other
acquisition of any shares of capital stock or any other securities of UroCor or
any of its Subsidiaries or any options, warrants, calls or rights to acquire
such shares or other securities, (4) any split, combination or reclassification
of any of UroCor's capital stock or any issuance or the authorization of any
issuance of any other securities in respect of, in lieu of or in substitution
for shares of UroCor's capital stock, (5) (A) any granting by UroCor or any of
its Subsidiaries to any current or former director, consultant, executive
officer or other employee of UroCor or its Subsidiaries of any increase in
compensation, bonus or other benefits, except for normal increases in cash
compensation in the ordinary course of business consistent with past practice
or as was required under any employment agreements in effect as of the date of
the most recent audited financial statements included in the UroCor SEC
Reports, (B) any granting by UroCor or any of its Subsidiaries to any such
current or former director, consultant, executive officer or employee of any
increase in severance or termination pay, (C) any amendment to, or modification
of, any UroCor Stock Option, (D) any adoption of, or amendment to, a UroCor
Benefit Plan or UroCor Benefit Agreements, or (E) any payment of a bonus or
other benefit to any current or former employee or director of UroCor,
including, without limitation, pursuant to the UroCor 2001 Employee Bonus Plan
(the "UroCor 2001 Bonus Plan"), (6) except insofar as may have been required by
a change in GAAP, any change in accounting methods, principles or practices by
UroCor or any of its Subsidiaries materially affecting their respective assets,
liabilities or businesses, (7) any tax election that individually or in the
aggregate would reasonably be expected to adversely affect in any material
respect the tax liability or tax attributes of UroCor or any of its
Subsidiaries, (8) any settlement or compromise of any material income tax
liability, or (9) any licensing agreement or any agreement with regard to the
acquisition or disposition of any material Intellectual Property Rights or
rights thereto other than licenses by UroCor or its Subsidiaries in the
ordinary course of business consistent with past practice.
(j) Environmental Matters. Except as, in the aggregate, would not reasonably
be expected to have a Material Adverse Effect on UroCor and except as disclosed
in the UroCor SEC Reports filed prior to the date of this Agreement, (i) the
operations of UroCor and its Subsidiaries have been and are in compliance with
all Environmental Laws and with all environmental permits and licenses
possessed by UroCor, (ii) there are no pending or, to the knowledge of UroCor,
threatened, Actions under or pursuant to Environmental Laws against UroCor or
its Subsidiaries or involving any real property currently or, to the knowledge
of UroCor, formerly owned, operated or leased by UroCor or its Subsidiaries,
(iii) to the knowledge of UroCor, UroCor and its Subsidiaries are not subject
to any Environmental Liabilities and, to the knowledge of UroCor, no facts,
circumstances or conditions relating to, arising from, associated with or
attributable to any real property currently or formerly owned, operated or
leased by UroCor or its Subsidiaries or operations thereon would reasonably be
expected to result in Environmental Liabilities, (iv) to the knowledge of
UroCor, all real property owned and all real property operated or leased by
UroCor or its Subsidiaries is free of contamination from Hazardous Material
that would have an adverse effect on human health or the environment or result
in Environmental Liability, and (v) to the knowledge of UroCor, there is not
now, nor has there been in the past, on, in or under any real property owned,
leased or operated by UroCor or any of its predecessors (A) any underground
storage tanks, dikes or impoundments containing more than a reportable quantity
of any Hazardous Material, (B) any friable asbestos-containing materials or (c)
any polychlorinated biphenyls.
(k) Intellectual Property.
(i) Except as disclosed in the UroCor SEC Reports, no Intellectual
Property Rights owned by or licensed to or used by UroCor or licenses,
contracts, rights and arrangements with respect to the foregoing,
22
are material to the conduct of the business of UroCor and its Subsidiaries.
To UroCor's knowledge, all Intellectual Property Rights of UroCor are valid,
enforceable and in full force and effect. UroCor and its Subsidiaries own,
free and clear of all Liens, or are validly licensed or otherwise have the
right to use, all the Intellectual Property Rights of UroCor which are
material to the conduct of the business of UroCor and its Subsidiaries.
(ii) To the knowledge of UroCor, neither UroCor nor any of its
Subsidiaries has materially interfered with, infringed upon, misappropriated
or otherwise come into conflict with any Intellectual Property Rights or
other proprietary information of any other person. Neither UroCor nor any of
its Subsidiaries has received any written charge, complaint, claim, demand
or notice alleging any such interference, infringement, misappropriation or
other conflict (including any claim that UroCor or any such Subsidiary must
license or refrain from using any Intellectual Property Rights or other
proprietary information of any other person) which has not been settled or
otherwise fully resolved. To UroCor's knowledge, no other person has
materially interfered with, infringed upon, misappropriated or otherwise
come into conflict with any Intellectual Property Rights of UroCor or any of
its Subsidiaries.
(iii) As the business of UroCor and its Subsidiaries is presently
conducted and proposed to be conducted without giving effect to any change
with respect thereto that may be made by Dianon, to UroCor's knowledge, the
Surviving Corporation's use after the Closing of the Intellectual Property
Rights which are material to the conduct of the business of UroCor and its
Subsidiaries taken as a whole will not interfere with, infringe upon,
misappropriate or otherwise come into conflict with the Intellectual
Property Rights or other proprietary information of any other person.
(l) Brokers or Finders. No agent, broker, investment banker, financial
advisor or other firm or Person is or will be entitled to any broker's or
finder's fee or any other similar commission or fee in connection with any of
the transactions contemplated by this Agreement, based upon arrangements made
by or on behalf of UroCor, except U.S. Bancorp Piper Jaffray, Inc. whose fees
and expenses will be paid by UroCor in accordance with UroCor's agreements with
such firm, copies of which have been provided to Dianon.
(m) Opinion of UroCor Financial Advisor. UroCor has received the opinion of
U.S. Bancorp Piper Jaffray, Inc. dated the date of this Agreement, to the
effect that, as of such date, the Exchange Ratio is fair, from a financial
point of view, to the holders of UroCor Common Stock, a copy of which opinion
will promptly be provided to Dianon.
(n) Taxes. Except as would not, individually or in the aggregate, have a
Material Adverse Effect on UroCor:
(i) (A) Each of UroCor and its Subsidiaries has accurately filed or
caused to be filed in accordance with applicable law when due all Tax
Returns required to have been filed (or extensions have been duly obtained),
(B) all Tax Returns filed by UroCor, each of its Subsidiaries, and any
UroCor consolidated group are complete and accurate in all respects, and (C)
UroCor has paid or caused to be paid when due all Taxes shown due on such
Tax Returns or otherwise owed.
(ii) The most recent financial statements filed in the UroCor SEC Reports
reflect an adequate reserve for all Taxes payable by UroCor and its
Subsidiaries for all taxable periods and portions thereof through the date
of such financial statements. No deficiencies for any Taxes have been
proposed, assessed, or asserted against UroCor, any of its Subsidiaries or
any UroCor consolidated group that are not adequately reserved for, and no
requests for waivers of the time to assess any such Taxes have been granted
or are pending.
(iii) The federal income Tax Returns of UroCor, each of its Subsidiaries
and any UroCor consolidated group have been examined by and settled with the
United States Internal Revenue Service for all years through December 31,
1998. All material assessments for Taxes due with respect to such completed
and settled examinations or any concluded litigation have been fully paid.
(iv) Neither UroCor nor any of its Subsidiaries has taken or has agreed
to take any action or has any knowledge of any fact, agreement, plan or
other circumstance that is reasonably likely to prevent the Merger from
qualifying as a reorganization within the meaning of section 368(a) of the
Code.
23
(v) Neither UroCor nor any of its Subsidiaries has made a distribution or
has been the subject of a distribution qualifying or intended to qualify for
tax-free treatment under section 355 of the Code (A) in the two years prior
to the date of this Agreement, or (B) in a distribution which could
otherwise constitute part of a "plan" or series of "related transactions"
(within the meaning of section 355(e) of the Code) that includes the Merger.
(vi) There are no Liens for Taxes (other than for current Taxes not yet
due and payable) on the assets of UroCor or any of its Subsidiaries.
(vii) None of UroCor or any of its Subsidiaries is a party to or bound by
any tax sharing agreement, tax indemnity obligation or similar agreement,
arrangement or practice (including any liability for Taxes of any other
person under Treasury Regulation section 1.1502-6 or comparable provision of
foreign, state or local law) except for any agreement or liability solely
among UroCor and its Subsidiaries.
(o) Contracts. Except for Contracts filed as exhibits to UroCor's most
recent annual report on Form 10-K or the most recent report on Form 10-Q filed
with SEC or as set forth in Section 3.2(o) of the UroCor Disclosure Schedule,
as of the date of this Agreement, none of UroCor or any of its Subsidiaries is
a party to or bound by, and none of their properties or assets are bound by or
subject to, any written or oral:
(i) Contract not made in the ordinary course of business;
(ii) Contract pursuant to which UroCor or any of its Subsidiaries has
agreed not to compete with any Person or to engage in any activity or
business, or pursuant to which any benefit is required to be given or lost
as a result of so competing or engaging;
(iii) Contract pursuant to which UroCor or any of its Subsidiaries is
restricted in any material respect in the development, marketing or
distribution of their respective products or services;
(iv) Contract with (A) any affiliate of UroCor or any of its Subsidiaries
or (B) any current or former director or officer of UroCor or any of its
Subsidiaries or of any affiliate of UroCor or any of its Subsidiaries or (C)
any affiliate of any such Person (other than (w) contracts on arm's-length
terms with companies whose common stock is publicly traded, (x) offer
letters providing solely for "at will" employment, (y) invention assignment
and confidentiality agreements relating to the assignment of inventions to
UroCor or any of its Subsidiaries not involving the payment of money and (z)
UroCor Benefit Plans referred to in Section 3.2(r));
(v) license or franchise granted by UroCor or any of its Subsidiaries
pursuant to which UroCor or any of its Subsidiaries has agreed to refrain
from granting license or franchise rights to any other Person;
(vi) Contract under which UroCor or any of its Subsidiaries has incurred
any indebtedness that is currently owing or given any guarantee in respect
of indebtedness, in each case having an aggregate principal amount in excess
of $100,000, or granted any pledge, mortgage or other security interest in
any property or assets of UroCor or any of its Subsidiaries;
(vii) Contract that is material to the conduct of the business of UroCor
and its Subsidiaries that requires consent, approval or waiver of or notice
to a third party in the event of or with respect to the Merger or any of the
other transactions contemplated by this Agreement, including in order to
avoid termination of or a loss of material benefit under any such Contract;
(viii) Contract or other agreement, whether written or oral, that
contains any guarantees as to UroCor or any of its Subsidiaries' future
revenues;
(ix) Contract granting a third party any license to Intellectual Property
Rights that is not limited to the internal use of such third party;
(x) Contract in respect of any joint venture, partnership, business
alliance or similar arrangement between UroCor or any of its Subsidiaries
and any third party;
24
(xi) except for the Confidentiality Agreement, Contract providing for a
"standstill" or for confidential treatment by UroCor or any of its
Subsidiaries of third party information other than non-disclosure agreements
and provisions entered into by UroCor in the ordinary course of business
consistent with past practice;
(xii) Contract granting the other party to such Contract or a third party
"most favored nation" status that, following the Merger, would in any way
apply to Dianon or any of its Subsidiaries (other than UroCor and its
Subsidiaries and their products or services); or
(xiii) Contract which (i) has aggregate future sums due from UroCor or
any of its Subsidiaries in excess of $100,000 and is not terminable by
UroCor or any such subsidiary for a cost of less than $100,000 or (ii) is
otherwise material to the business of UroCor and its Subsidiaries, taken as
a whole, as presently conducted or as proposed to be conducted.
Each Contract of UroCor and its Subsidiaries is in full force and effect and
is a legal, valid and binding agreement of UroCor or such subsidiary and, to
the knowledge of UroCor or such subsidiary, of each other party thereto,
enforceable against UroCor or any of its Subsidiaries, as the case may be, and,
to the knowledge of UroCor, against the other party or parties thereto, in each
case, in accordance with its terms, except for such failures to be in full
force and effect or enforceable that individually or in the aggregate have not
had and would not reasonably be expected to have a Material Adverse Effect on
UroCor. Each of UroCor and its Subsidiaries has performed or is performing all
obligations required to be performed by it under its Contracts and is not (with
or without notice or lapse of time or both) in breach or default in any respect
thereunder, and, to the knowledge of UroCor or such subsidiary, no other party
to any of its Contracts is (with or without notice or lapse of time or both) in
breach or default in any respect thereunder except, in each case, for such
breaches that individually or in the aggregate have not had and would not
reasonably be expected to have a Material Adverse Effect on UroCor.
(p) Related Party Transactions.
Except for Contracts filed as exhibits to UroCor's most recent annual report
on Form 10-K filed with the SEC or as set forth in Section 3.2(p) of the UroCor
Disclosure Schedule, no officer, director, stockholder that is a beneficial
owner (as determined in accordance with Rule 13d-3 under the Exchange Act) of
five percent or more of UroCor Common Stock, or affiliate of UroCor or any of
its Subsidiaries nor any relative or affiliate of such officer, director or
stockholder, or, to the knowledge of UroCor, none of its key employees or the
key employees of any of its Subsidiaries, is a party to any agreement,
contract, commitment, arrangement or transaction with UroCor or any of its
Subsidiaries or is entitled to any payment or transfer of any assets from
UroCor or any of its Subsidiaries or has any material interest in any material
property used by UroCor or any of its Subsidiaries or has an interest in any
customer, supplier or provider of any services to UroCor or any of its
Subsidiaries.
(q) UroCor Stockholder Rights Plan. The Board of Directors of UroCor has
amended the UroCor Rights Agreement in accordance with its terms to render it
inapplicable to the transactions contemplated by this Agreement. UroCor has
delivered to Dianon a true, complete and correct copy of the UroCor Rights
Agreement, as amended, in effect as of execution and delivery of this
Agreement.
(r) Absence of Changes in Benefit Plans. Since December 31, 2000, except for
the UroCor 2001 Bonus Plan, there has not been any adoption or amendment by
UroCor or any of its Subsidiaries of any collective bargaining agreement or any
bonus, pension, profit sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock option, phantom stock, retirement,
thrift, savings, stock bonus, restricted stock, cafeteria, paid time off,
perquisite, fringe benefit, vacation, severance, disability, death benefit,
hospitalization, medical, welfare benefit or other plan, arrangement or
understanding (whether or not legally binding) maintained, contributed to or
required to be maintained or contributed to by UroCor, any of its Subsidiaries,
or any other person or entity that, together with UroCor, is treated as a
single employer under Section 414(b), (c), (m) or (o) of the Code (a "UroCor
Commonly Controlled Entity") providing benefits to any current or former
employee, officer, consultant or director of UroCor or any of its Subsidiaries
(collectively, the "UroCor Benefit
25
Plans"), or any change in any actuarial or other assumption used to calculate
funding obligations with respect to any UroCor Pension Plans (as defined
below), or any change in the manner in which contributions to any UroCor
Pension Plans are made or the basis on which such contributions are determined.
Except for Contracts filed as exhibits to UroCor's most recent annual report in
Form 10-K or most recent report on Form 10-Q filed with the SEC, Contracts
described in Section 3.2(r) of the UroCor Disclosure Schedule or the UroCor
2001 Bonus Plan, there are no (1) employment, consulting, deferred
compensation, indemnification, severance or termination agreements or
arrangements or understandings between UroCor or any of its Subsidiaries and
any current or former employee, officer, consultant or director of UroCor or
any of its Subsidiaries or (2) any agreement between UroCor or any of its
Subsidiaries and any current or former employee, officer, consultant or
director of UroCor or any of its Subsidiaries, the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence
of a transaction involving UroCor of a nature contemplated by this Agreement
(collectively, the "UroCor Benefit Agreements").
(s) ERISA Compliance; Excess Parachute Payments.
(i) Section 3.2(s)(i) of the UroCor Disclosure Schedule contains a list
of each UroCor Benefit Plan that is an "employee pension benefit plan" (as
defined in Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")) (sometimes referred to herein as "UroCor Pension
Plans"), "employee welfare benefit plan" (as defined in Section 3(1) of
ERISA) and all other UroCor Benefit Plans and UroCor Benefit Agreements.
UroCor has made available to Dianon true, complete and correct copies of (a)
each UroCor Benefit Plan and UroCor Benefit Agreement (or, in the case of
any unwritten UroCor Benefit Plan or UroCor Benefit Agreement a description
thereof), (b) the two most recent annual reports on Form 5500 filed with the
Internal Revenue Service with respect to each UroCor Benefit Plan (if any
such report was required), (c) the most recent summary plan description for
each UroCor Benefit Plan for which such summary plan description is required
and (d) each trust agreement and insurance or group annuity contract
relating to any UroCor Benefit Plan.
(ii) In all material respects, each UroCor Benefit Plan has been
administered in accordance with its terms and in accordance with the
applicable provisions of ERISA and the Code, and all other applicable laws,
including laws of foreign jurisdictions, and the terms of all applicable
collective bargaining agreements. All UroCor Pension Plans intended to be
qualified have received favorable determination letters from the Internal
Revenue Service to the effect that such UroCor Pension Plans are qualified
and exempt from Federal income taxes under Sections 401(a) and 501(a),
respectively, of the Code, and no such determination letter has been revoked
nor, to the knowledge of UroCor, has revocation been threatened, nor has any
event occurred since the date of its most recent determination letter or
application therefor that would adversely affect its qualification or
materially increase its costs or require security under Section 307 of
ERISA. All UroCor Pension Plans required to have been approved by any
foreign Governmental Entity have been so approved; no such approval has been
revoked (or, to the knowledge of UroCor, has revocation been threatened) nor
has any event occurred since the date of the most recent approval or
application therefor relating to any such UroCor Pension Plan that would
materially affect any such approval relating thereto or materially increase
the costs relating thereto. UroCor has made available to Dianon a true and
complete copy of the most recent determination letter received with respect
to each UroCor Pension Plan, as well as a true and complete copy of each
pending application for a determination letter, if any. UroCor has also made
available to Dianon a true and complete list of all UroCor Pension Plan
amendments as to which a favorable determination letter has not yet been
received. There is no pending or, to the knowledge of UroCor, threatened
litigation relating to any UroCor Benefit Plan.
(iii) No UroCor Pension Plan, other than any UroCor Pension Plan that is
a "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA (a
"UroCor Multiemployer Pension Plan"), had, as of the respective last annual
valuation date for each such UroCor Pension Plan, any "unfunded benefit
liabilities" (as such term is defined in Section 4001(a)(18) of ERISA),
based on actuarial assumptions that have been furnished to Dianon, and there
has been no material adverse change in the financial condition of any UroCor
Pension Plan since its last such annual valuation date. No liability under
Subtitle C or D of Title IV of ERISA has been or is expected to be incurred
by the UroCor or any of its Subsidiaries with
26
respect to any ongoing, frozen or terminated "single-employer plan", within
the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by any of them, or the single-employer plan of any UroCor
Commonly Controlled Entity. None of UroCor, any of its Subsidiaries, any
officer of UroCor or any of its Subsidiaries or any of the UroCor Benefit
Plans which are subject to ERISA, including the UroCor Pension Plans, any
trusts created thereunder or any trustee or administrator thereof, has
engaged in a "prohibited transaction" (as such term is defined in Section
406 of ERISA or Section 4975 of the Code) or any other breach of fiduciary
responsibility that could subject UroCor, any of its Subsidiaries or any
officer of UroCor or any of its Subsidiaries to the tax on prohibited
transactions imposed by such Section 4975 or to any liability under Section
502(i) or 502(l) of ERISA. None of such UroCor Benefit Plans and trusts has
been terminated, nor has there been any "reportable event" (as that term is
defined in Section 4043 of ERISA) for which the 30-day reporting requirement
has not been waived with respect to any UroCor Benefit Plan during the last
five years, and no notice of a reportable event will be required to be filed
in connection with the Merger or the other transactions contemplated by this
Agreement. Neither UroCor nor any of its Subsidiaries has incurred a
"complete withdrawal" or a "partial withdrawal" (as such terms are defined
in Sections 4203 and 4205, respectively, of ERISA) since the effective date
of such Sections 4203 and 4205 with respect to any UroCor Multiemployer
Pension Plan. All contributions and premiums required to be made under the
terms of any UroCor Benefit Plan as of the date hereof have been timely made
or have been reflected on the most recent consolidated balance sheet filed
or incorporated by reference in the UroCor SEC Reports. Neither any UroCor
Pension Plan nor any single-employer plan of any UroCor Commonly Controlled
Entity has an "accumulated funding deficiency" (as such term is defined in
Section 302 of ERISA or Section 412 of the Code), whether or not waived.
(iv) Section 3.2(s)(iv) of the UroCor Disclosure Schedule discloses
whether each UroCor Benefit Plan that is an employee welfare benefit plan is
(a) unfunded, (b) funded through a "welfare benefit fund" (as such term is
defined in Section 419(e) of the Code) or other funding mechanism or (c)
insured. In the case of each such UroCor Benefit Plan that is funded through
a trust, the trust has received a favorable determination letter determining
the trust to be tax-exempt under Section 501(c)(9) of the Code, and such
determination letter is currently valid. UroCor has made available to Dianon
a copy of each such determination letter. Any such trust, or any other
"welfare benefit fund", is in compliance with all applicable provisions of
ERISA and the Code. UroCor and its Subsidiaries, with respect to each UroCor
Benefit Plan that is a "group health plan" (as such term is defined in
Section 5000(b)(1) of the Code), comply in all material respects with the
applicable requirements of Section 4980B(f) of the Code. Each UroCor Benefit
Plan (including any such plan covering retirees or other former employees)
that is an employee welfare benefit plan may be amended or terminated
without material liability to UroCor or any of its Subsidiaries on or at any
time after the Effective Time. Except as required under Section 4980B of the
Code, neither UroCor nor any of its Subsidiaries has any obligations for
retiree health or retiree life insurance benefits under any UroCor Benefit
Plan or UroCor Benefit Agreement.
(v) Except as set forth in Section 3.2(s)(v) of the UroCor Disclosure
Schedule, none of the execution and delivery of this Agreement, the
consummation of the Merger or any other transaction contemplated by this
Agreement (including as a result of any termination of employment following
the Effective Time) will (x) entitle any employee, officer, consultant or
director of UroCor or any of its Subsidiaries to severance or termination
pay, (y) accelerate the time of payment or vesting or trigger any payment or
funding (through a grantor trust or otherwise) of compensation or benefits
under, increase the amount payable or trigger any other material obligation
pursuant to, any of the UroCor Benefit Plans or UroCor Benefit Agreements or
(z) result in any breach or violation of, or a default under, any of the
UroCor Benefit Plans or UroCor Benefit Agreements.
(vi) Except as set forth in Section 3.2(s)(vi) of the UroCor Disclosure
Schedule, no amount or other entitlement or economic benefit that could be
received (whether in cash or property or the vesting of property) as a
result of the Merger or any other transaction contemplated by this Agreement
(including as a result of termination of employment on or following the
Effective Time) by or for the benefit of any employee, officer, director or
consultant of UroCor or any of its affiliates who is a "disqualified
individual" (as such term is defined in proposed Treasury Regulation Section
1.280G-1) under any UroCor Benefit Plan
27
or UroCor Benefit Agreement or otherwise would be characterized as an
"excess parachute payment" (as defined in Section 280G(b)(1) of the Code),
and no disqualified individual is entitled to receive any additional payment
from UroCor or any of its Subsidiaries in the event that the excise tax
under Section 4999 of the Code is imposed on such disqualified individual.
Set forth in Section 3.2(s)(vi) of the UroCor Disclosure Schedule is (a) the
estimated maximum amount that could be paid to each such "disqualified
individual" and each other person listed in Section 3.2(s)(vi) (each a
"Primary UroCor Executive") as a result of the Merger and the other
transactions contemplated by this Agreement (including as a result of a
termination of employment on or following the Effective Time) under all
UroCor Benefit Plans and UroCor Benefit Agreements and (b) the "base amount"
(as defined in Section 280G(b)(3) of the Code) for each Primary UroCor
Executive calculated as of the date of this Agreement.
(vii) UroCor and its Subsidiaries are in compliance in all material
respects with all Federal, state, local and foreign requirements regarding
employment. Neither UroCor nor any of its Subsidiaries is a party to any
collective bargaining or other labor union contract applicable to persons
employed by UroCor or any of its Subsidiaries and no collective bargaining
agreement is being negotiated by UroCor or any of its Subsidiaries. As of
the date of this Agreement, there is no labor dispute, strike or work
stoppage against UroCor or any of its Subsidiaries pending or, to the
knowledge of UroCor, threatened which may interfere with the respective
business activities of UroCor or its Subsidiaries. As of the date of this
Agreement, to the knowledge of UroCor, none of UroCor, any of its
Subsidiaries or any of their respective representatives or employees has
committed an unfair labor practice in connection with the operation of the
respective businesses of UroCor or any of its Subsidiaries, and there is no
charge or complaint against UroCor or any of its Subsidiaries by the
National Labor Relations Board or any comparable governmental agency pending
or threatened in writing.
(viii) All reports, returns and similar documents with respect to all
UroCor Benefit Plans required to be filed with any Governmental Entity or
distributed to any UroCor Benefit Plan participant have been duly and timely
filed or distributed. None of UroCor or any of its Subsidiaries has received
notice of, and to the knowledge of UroCor, there are no investigations by
any Governmental Entity with respect to, termination proceedings or other
claims (except claims for benefits payable in the normal operation of the
UroCor Benefit Plans), suits or proceedings against or involving any UroCor
Benefit Plan or asserting any rights or claims to benefits under any UroCor
Benefit Plan that could give rise to any liability, and, to the knowledge of
UroCor, there are not any facts that could give rise to any liability in the
event of any such investigation, claim, suit or proceeding.
(ix) None of UroCor nor any of its Subsidiaries has any material
liability or obligations, including under or on account of a UroCor Benefit
Plan, arising out of the hiring of persons to provide services to UroCor or
any of its Subsidiaries and treating such persons as consultants or
independent contractors and not as employees of UroCor or any of its
Subsidiaries.
(t) Labor Matters. Except where failure to comply would not reasonably be
expected to have a Material Adverse Effect on UroCor, UroCor is and has been in
compliance with all applicable laws of the United States, or of any state or
local government or any subdivision thereof or of any foreign government
respecting employment and employment practices, terms and conditions of
employment and wages and hours, including, without limitation, ERISA, the Code,
the Immigration Reform and Control Act, the WARN Act, any laws respecting
employment discrimination, sexual harassment, disability rights or benefits,
equal opportunity, plant closure issues, affirmative action, workers'
compensation, employee benefits, severance payments, COBRA, labor relations,
employee leave issues, wage and hour standards, occupational safety and health
requirements and unemployment insurance and related matters, and is not engaged
in any unfair labor practices.
(u) Other Financial Matters.
(i) All accounts receivable of UroCor and its Subsidiaries reflected on
UroCor's most recent audited financial statements filed with the SEC, and
all accounts receivable arising subsequent to the date of such financial
statements, are the result of bona fide transactions in the ordinary course
of business and practice, consistent with past custom and practice, and,
except to the extent specifically reserved for in the most
28
recent UroCor financial statements filed with the SEC are valid and
collectible obligations of the respective makers thereof and were not and
are not subject to any offset or counterclaim. The amount of accounts
receivable in the most recent UroCor financial statements filed with the SEC
are reflected in accordance with GAAP. Since December 31, 2000, there have
not been any material write-offs as uncollectible of any accounts receivable
of UroCor.
(ii) UroCor has made sufficient accruals in accordance with GAAP on its
most recent financial statements filed with the SEC for all contingent
liabilities, including sufficient accruals for employee bonuses and the
costs of governmental investigation. UroCor's billing and pricing policies
are reflected in accordance with GAAP on the most recent UroCor financial
statements filed with the SEC.
(v) Transaction Fees. Section 3.2(v) of the UroCor Disclosure Schedule
presents UroCor's best good faith estimate of the total amount of all
accounting, legal and financial advisory fees, employee and director bonuses
(including, without limitation, severance costs or payments that become due by
UroCor or any of its Subsidiaries before or after the Effective Time to current
or former UroCor employees and directors) and incidental expenses directly or
indirectly related to the transactions contemplated by this Agreement incurred
to the date of this Agreement and to be incurred after the date of this
Agreement.
3.3 Representations and Warranties of Dianon and Merger Sub. Dianon and
Merger Sub represent and warrant to UroCor as follows:
(a) Organization. Merger Sub is a corporation duly organized, validly
existing and in good standing under the laws of Delaware. All of the
outstanding shares of capital stock of the Merger Sub have been validly issued
and are fully paid and non-assessable and have will not been issued in
violation of any preemptive rights, and are owned by Dianon, free and clear of
all Liens and free of any other restriction (including any restriction on the
right to vote, sell or dispose of such capital stock) except for restrictions
imposed by applicable securities laws.
(b) Corporate Authorization. Merger Sub has all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance by Merger Sub of
this Agreement and the consummation by Merger Sub of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Merger Sub. This Agreement has been duly executed and delivered
by Merger Sub and constitutes a valid and binding agreement of Merger Sub,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors generally
or by general equity principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(c) Non-Contravention. The execution, delivery and performance by Merger Sub
of this Agreement and the consummation by Merger Sub of the transactions
contemplated hereby do not and will not contravene or conflict with the
certificate of incorporation or bylaws of Merger Sub.
(d) No Business Activities. Merger Sub has not conducted any activities
other than in connection with the organization of Merger Sub, the negotiation
and execution of this Agreement and the consummation of the transactions
contemplated hereby. Merger Sub has no Subsidiaries.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 Covenants of Dianon. Except as set forth in Section 4.1 of the Dianon
Disclosure Schedule, as otherwise expressly contemplated by this Agreement or
as consented to in writing by UroCor, during the period from the date of this
Agreement to the Effective Time, Dianon shall, and shall cause its Subsidiaries
to, carry on
29
their respective businesses only in the ordinary course consistent with past
practice and in compliance in all material respects with all applicable laws
and regulations and, to the extent consistent therewith, use all reasonable
efforts to preserve intact their current business organizations, use reasonable
efforts to keep available the services of their current officers and other key
employees and preserve their relationships with those persons having business
dealings with them to the end that their goodwill and ongoing businesses shall
be unimpaired at the Effective Time. Without limiting the generality of the
foregoing (but subject to the above exceptions, including as set forth in
Section 4.1 of the Dianon Disclosure Schedule), during the period from the date
of this Agreement to the Effective Time, Dianon shall not, and shall not permit
any of its Subsidiaries to:
(i) other than dividends and distributions (including liquidating
distributions) by a Subsidiary of Dianon to its parent, (x) declare, set
aside or pay any dividends on, or make any other distributions (whether in
cash, stock, property or otherwise) in respect of, any of its capital stock,
(y) split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or (z) purchase, redeem or
otherwise acquire, directly or indirectly, any shares of capital stock of
Dianon or any of its Subsidiaries or any other securities thereof or any
rights, warrants or options to acquire any such shares or other securities;
(ii) issue (w) any shares of its capital stock, (x) any other voting
securities, (y) any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities or convertible
securities or (z) any "phantom" stock or stock rights, SARs or stock-based
performance units other than the issuance of Dianon Common Stock upon the
exercise of Dianon Stock Options outstanding as of the date hereof in
accordance with their present terms or Dianon Stock Options granted in the
ordinary course of business after the date of this Agreement;
(iii) amend its certificate of incorporation, by-laws or other comparable
organizational documents;
(iv) take any action that would, or that would reasonably be expected to,
result in (x) any of the representations and warranties made by Dianon in
this Agreement that are qualified as to materiality becoming untrue, (y) any
of such representations and warranties that are not so qualified becoming
untrue in any material respect or (z) any condition to the Merger set forth
in Article VI not being satisfied;
(v) authorize, or commit, resolve or agree to take, any of the foregoing
actions; or
(vi) take any action (including any action otherwise permitted by this
Section 4.1) that would prevent the Merger from qualifying as a
reorganization under Section 368(a) of the Code.
4.2 Covenants of UroCor. Except as set forth in Section 4.2 of the UroCor
Disclosure Schedule, as otherwise expressly contemplated by this Agreement or
as consented to in writing by Dianon, during the period from the date of this
Agreement to the Effective Time, UroCor shall, and shall cause its Subsidiaries
to, carry on their respective businesses only in the ordinary course consistent
with past practice and in compliance in all material respects with all
applicable laws and regulations and, to the extent consistent therewith, use
all reasonable efforts to preserve intact their current business organizations,
use reasonable efforts to keep available the services of their current officers
and other key employees and preserve their relationships with those persons
having business dealings with them to the end that their goodwill and ongoing
businesses shall be unimpaired at the Effective Time. Without limiting the
generality of the foregoing (but subject to the above exceptions), during the
period from the date of this Agreement to the Effective Time, UroCor shall not,
and shall not permit any of its Subsidiaries to:
(i) other than dividends and distributions (including liquidating
distributions) by a Subsidiary of UroCor to its parent, (x) declare, set
aside or pay any dividends on, or make any other distributions (whether in
cash, stock, property or otherwise) in respect of, any of its capital stock,
(y) split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or (z) purchase, redeem or
otherwise acquire, directly or indirectly, any shares of capital stock of
UroCor or any of its Subsidiaries or any other securities thereof or any
rights, warrants or options to acquire any such shares or other securities;
30
(ii) issue, deliver, sell, pledge or otherwise encumber or subject to any
Lien (w) any shares of its capital stock, (x) any other voting securities,
(y) any securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible securities or (z)
any "phantom" stock or stock rights, SARs or stock-based performance units
other than the issuance of UroCor Common Stock upon the exercise of UroCor
Stock Options outstanding as of the date hereof in accordance with their
present terms;
(iii) amend its certificate of incorporation, by-laws or other comparable
organizational documents;
(iv) acquire or agree to acquire (A) by merging or consolidating with, or
by purchasing assets of, or by any other manner, any business, division or
Person or any interest therein or (B) any assets other than immaterial
assets acquired in the ordinary course of business consistent with past
practice;
(v) sell, lease, license, sell and leaseback, mortgage or otherwise
encumber or subject to any Lien or otherwise dispose of any of its
properties or assets (including securitizations), other than sales or
licenses of finished goods or services in the ordinary course of business
consistent with past practice;
(vi) repurchase, prepay or incur any indebtedness for borrowed money or
guarantee any such indebtedness of another person, issue or sell any debt
securities or warrants or other rights to acquire any debt securities of
UroCor or any of its Subsidiaries, guarantee any debt securities of another
person, enter into any "keep well" or other agreement to maintain any
financial statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing, except for
intercompany indebtedness between UroCor and any of its Subsidiaries or
between such Subsidiaries;
(vii) make any loans, advances or capital contributions to, or
investments in, any other Person, other than UroCor or Subsidiary of UroCor;
(viii) make or agree to make any new capital expenditures, or enter into
any agreements providing for payments which, individually, are in excess of
$100,000 or, in the aggregate, are in excess of $250,000;
(ix) (A) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), or litigation (whether or not commenced prior to the date of
this Agreement) other than the payment, discharge, settlement or
satisfaction, in the ordinary course of business consistent with past
practice or in accordance with their terms, of liabilities recognized or
disclosed in the most recent consolidated financial statements (or the notes
thereto) of UroCor included in the UroCor SEC Reports or incurred since the
date of such financial statements, or (B) waive the benefits of, agree to
modify in any manner, terminate, release any person from or fail to enforce
any confidentiality, standstill or similar agreement to which UroCor or any
of its Subsidiaries is a party or of which UroCor or any of its Subsidiaries
is a beneficiary;
(x) except as required by law or contemplated hereby and except for labor
agreements negotiated in the ordinary course, (x) establish, enter into,
adopt or amend or terminate any UroCor Benefit Plan or UroCor Benefit
Agreement, (y) change any actuarial or other assumption used to calculate
funding obligations with respect to any UroCor Pension Plan, or change the
manner in which contributions to any UroCor Pension Plan are made or the
basis on which such contributions are determined or (z) take any action to
accelerate any rights or benefits, or make any material determinations not
in the ordinary course of business consistent with past practice, under any
collective bargaining agreement, UroCor Benefit Plan or UroCor Benefit
Agreement;
(xi) (w) increase the compensation, bonus or other benefits of any
current or former director, consultant, officer or other employee, (x) grant
any current or former director, consultant, officer or other employee any
increase in severance or termination pay, (y) amend or modify any UroCor
Stock Option, or (z) pay any benefit or amount not required by a plan or
arrangement as in effect on the date of this Agreement to any such person,
other than with respect to the UroCor 2001 Bonus Plan as provided in Section
5.7;
(xii) transfer or license to any person or entity or otherwise extend,
amend or modify any rights to the Intellectual Property Rights of UroCor and
its Subsidiaries other than in the ordinary course of business consistent
with past practices; provided that in no event shall UroCor license on an
exclusive basis or sell any Intellectual Property Rights of UroCor and its
Subsidiaries;
31
(xiii) enter into or amend any Contract of the type listed in Section
3.2(o);
(xiv) obtain, through acquisition, lease, sublease or otherwise, any real
property for use as an office, warehouse or similar facility of UroCor or
any of its Subsidiaries;
(xv) increase the headcount of employees of UroCor or its Subsidiaries;
(xvi) except insofar as may be required by a change in GAAP, make any
changes in accounting methods, principles or practices;
(xvii) take any action that would, or that would reasonably be expected
to, result in (x) any of the representations and warranties made by UroCor
in this Agreement that are qualified as to materiality becoming untrue, (y)
any of such representations and warranties that are not so qualified
becoming untrue in any material respect or (z) any condition to the Merger
set forth in Article VI not being satisfied;
(xviii) (x) make or change any material Tax election, settle or
compromise any Tax claim or assessment, or consent to any extension or
waiver of the statute of limitations period applicable to any Tax claim or
assessment, without Dianon's written consent, or (y) take any action
(including any action otherwise permitted by this Section 4.2) that would
prevent the Merger from qualifying as a reorganization under section 368(a)
of the Code; or
(xix) authorize, or commit, resolve or agree to take, any of the
foregoing actions.
4.3 Advice of Changes. UroCor and Dianon shall promptly advise the other
party orally and in writing to the extent it has knowledge of (i) any
representation or warranty made by it (or any of its Subsidiaries) contained in
this Agreement that is qualified as to materiality becoming untrue or
inaccurate in any respect or any such representation or warranty that is not so
qualified becoming untrue or inaccurate in any material respect, (ii) the
failure by it (or any of its Subsidiaries) to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement and (iii) any change or event having, or
which would reasonably be expected to have, a Material Adverse Effect on such
party or on the truth of their respective representations and warranties or the
ability of the conditions set forth in Article VI to be satisfied; provided,
however, that no such notification shall affect the representations,
warranties, covenants or agreements of the parties (or remedies with respect
thereto) or the conditions to the obligations of the parties under this
Agreement.
4.4 Governmental Filings. UroCor and Dianon shall file all reports required
to be filed by each of them with the SEC (and all other Governmental Entities)
between the date of this Agreement and the Effective Time.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of Proxy Statement; Stockholders Meetings.
(a) As promptly as practicable following the date hereof, Dianon and UroCor
shall prepare and file with the SEC mutually acceptable proxy materials which
shall constitute the Joint Proxy Statement/Prospectus (such proxy
statement/prospectus, and any amendments or supplements thereto, the "Joint
Proxy Statement/Prospectus") and Dianon shall prepare and file a registration
statement on Form S-4 with respect to the issuance of Dianon Common Stock in
the Merger (the "Form S-4"). The Joint Proxy Statement/Prospectus will be
included in and will constitute a part of the Form S-4 as Dianon's prospectus.
The Form S-4 and the Joint Proxy Statement/Prospectus shall comply as to form
in all material respects with the applicable provisions of the Securities Act
and the Exchange Act and the rules and regulations thereunder. Each of Dianon
and UroCor shall use reasonable efforts to have the FormS-4 declared effective
by the SEC and to keep the FormS-4 effective as long as is necessary to
consummate the Merger and the transactions contemplated thereby. Dianon and
UroCor shall, as promptly as practicable after receipt thereof, provide the
other party copies of any written comments and
32
advise the other party of any oral comments, with respect to the Joint Proxy
Statement/Prospectus received from the SEC. Dianon will provide UroCor with a
reasonable opportunity to review and comment on any amendment or supplement to
the Form S-4 prior to filing such with the SEC, and will provide UroCor with a
copy of all such filings made with the SEC. Notwithstanding any other provision
herein to the contrary, no amendment or supplement (including by incorporation
by reference) to the Joint Proxy Statement/Prospectus or the FormS-4 shall be
made without the approval of both parties, which approval shall not be
unreasonably withheld or delayed; provided, that with respect to documents
filed by a party which are incorporated by reference in the Form S-4 or Joint
Proxy Statement/Prospectus, this right of approval shall apply only with
respect to information relating to the other party or its business, financial
condition or results of operations. Dianon will use reasonable efforts to cause
the Joint Proxy Statements/Prospectus to be mailed to Dianon stockholders, and
UroCor will use reasonable efforts to cause the Joint Proxy
Statement/Prospectus to be mailed to UroCor's stockholders, in each case after
the Form S-4 is declared effective under the Securities Act. Dianon shall also
take any action (other than qualifying to do business in any jurisdiction in
which it is not now so qualified or to file a general consent to service of
process) required to be taken under any applicable state securities laws in
connection with the Share Issuance and UroCor shall furnish all information
concerning UroCor and the holders of UroCor Common Stock as may be reasonably
requested in connection with any such action. Each party will advise the other
party, promptly after it receives notice thereof, of the time when the Form S-4
has become effective, the issuance of any stop order, the suspension of the
qualification of the Dianon Common Stock issuable in connection with the Merger
for offering or sale in any jurisdiction, or any request by the SEC for
amendment of the Joint Proxy Statement/Prospectus or the Form S-4. If at any
time prior to the Effective Time any information relating to Dianon or UroCor,
or any of their respective affiliates, officers or directors, should be
discovered by Dianon or UroCor which should be set forth in an amendment or
supplement to any of the Form S-4 or the Joint Proxy Statement/Prospectus so
that any of such documents would not include any misstatement of a material
fact or omit to state any material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, the party which discovers such information shall promptly notify
the other party hereto and, to the extent required by law, rules or
regulations, an appropriate amendment or supplement describing such information
shall be promptly filed with the SEC and disseminated to the stockholders of
Dianon and UroCor.
(b) UroCor shall duly take (subject to compliance with the provisions of
Section 3.2(e) (provided that UroCor shall have used reasonable efforts to
ensure that such representations are true and correct)) all lawful action to
call, give notice of, convene and hold a meeting of its stockholders on a date
as soon as reasonably practicable (the "UroCor Stockholders Meeting") for the
purpose of obtaining the required approval of its stockholders with respect to
the transactions contemplated by this Agreement, including the Alternative
Merger Structure, and shall take all lawful action to solicit the adoption of
this Agreement, including the Alternative Merger Structure, by the requisite
vote of its stockholders; and the Board of Directors of UroCor shall recommend
adoption of this Agreement, including the Alternative Merger Structure, by the
stockholders of UroCor to the effect as set forth in Section 3.2(f) (the
"UroCor Recommendation"), and shall not withdraw, modify or qualify (or propose
to withdraw, modify or qualify) in any manner adverse to Dianon such
recommendation or the approval of the Merger or this Agreement or take any
action or make any statement in connection with the UroCor Stockholders Meeting
inconsistent with such recommendation or approval (collectively, a "Change in
the UroCor Recommendation"); provided the foregoing shall not prohibit accurate
disclosure (and such disclosure shall not be deemed to be a Change in the
UroCor Recommendation) of factual information regarding the business, financial
condition or results of operations of Dianon or UroCor or the fact that an
Acquisition Proposal has been made, the identity of the party making such
proposal or the material terms of such proposal (provided, that the Board of
Directors of UroCor does not withdraw, modify or qualify (or propose to
withdraw, modify or qualify) in any manner adverse to Dianon its
recommendation) in the Form S-4 or the Joint Proxy Statement/Prospectus or
otherwise, to the extent such information, facts, identity or terms is required
to be disclosed under applicable law; and, provided further, that the Board of
Directors of UroCor may make a Change in the UroCor Recommendation pursuant to
Section 5.5 hereof.
(c) Dianon shall duly take (subject to compliance with the provisions of
Section 3.1(e) (provided that Dianon shall have used reasonable efforts to
ensure that such representation is true and correct)) all lawful action
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to call, give notice of, convene and hold a meeting of its stockholders on a
date as soon as reasonably practicable (the "Dianon Stockholders Meeting") for
the purpose of obtaining the Dianon Stockholder Approvals.
(d) For purposes of this Agreement, a Change in the UroCor Recommendation
shall be deemed to include, without limitation, a recommendation by the UroCor
Board of Directors of a third party Acquisition Proposal with respect to
UroCor.
5.2 Access to Information/Employees.
(a) Upon reasonable notice, UroCor shall (and shall cause its Subsidiaries
to) afford to the officers, employees, accountants, counsel, financial advisors
and other representatives of Dianon reasonable access during normal business
hours, during the period prior to the Effective Time, to all its properties,
books, contracts, commitments, records, officers and employees and, during such
period, UroCor shall (and shall cause its Subsidiaries to) furnish promptly to
Dianon (a) a copy of each report, schedule, registration statement and other
document filed, published, announced or received by it during such period
pursuant to the requirements of Federal or state securities laws, as applicable
(other than documents which such party is not permitted to disclose under
applicable law), and (b) all other information concerning it and its business,
properties and personnel as Dianon may reasonably request (including
consultation on a regular basis with respect to litigation matters). Except as
required by law and without limiting in any way the continued efficacy of the
Confidentiality Agreement, any such information obtained pursuant to this
Section 5.2(a) will be used solely for the purpose of consideration or
performance of the transactions contemplated by this Agreement or any other
agreement related hereto and will be kept confidential by Dianon and all
Persons obtaining such information on Dianon's behalf or who obtain such
information from Dianon. Any investigation by Dianon shall not affect the
representation and warranties of UroCor.
(b) Upon reasonable notice, Dianon shall afford to the senior officers and
counsel of UroCor reasonable access during normal business hours, during the
period prior to the Effective Time, to all documents reasonably requested by
UroCor that Dianon has disclosed to the Department of Justice in response to
the subpoena dated November 14, 2000 issued by the United States Attorney's
Office for Connecticut. Except as required by law and without limiting in any
way the continued efficacy of the Confidentiality Agreement, any such
information obtained pursuant to this Section 5.2(b) will be used solely for
the purpose of consideration or performance of the transactions contemplated by
this Agreement or any other agreement related hereto and will be kept
confidential by UroCor and all Persons obtaining such information on UroCor's
behalf or who obtain such information from Dianon. Any investigation by UroCor
shall not affect the representation and warranties of Dianon.
5.3 Reasonable Efforts.
(a) Subject to the terms and conditions of this Agreement, each party will
use its reasonable efforts to take, or cause to be taken, all actions and to
do, or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to consummate and make
effective the Merger and the other transactions contemplated by this Agreement,
including the Alternative Merger Structure, if implemented, as soon as
practicable after the date hereof, including using reasonable efforts to
accomplish the following: (i) the taking of all reasonable acts necessary to
cause the conditions to closing to be satisfied as promptly as practicable;
(ii) preparing and filing as promptly as practicable all documentation to
obtain all necessary applications, notices, petitions, filings, tax ruling
requests and other documents; (iii) the obtaining as promptly as practicable of
all consents, waivers, licenses, orders, registrations, approvals, permits, tax
rulings and authorizations necessary or advisable to be obtained from any third
party and/or any Governmental Entity in order to consummate the Merger or any
of the other transactions contemplated by this Agreement, including the
Alternative Merger Structure, if implemented; and (iv) taking all reasonable
steps as may be necessary to obtain all such material consents, waivers,
licenses, registrations, permits, authorizations, tax rulings, orders and
approvals.
34
(b) In furtherance and not in limitation of clause (a) of this Section 5.3,
each party hereto agrees to make an appropriate filing of a pre-merger
Notification and Report Form pursuant to the HSR Act with respect to the
transactions contemplated hereby as promptly as practicable after the date
hereof and to supply as promptly as practicable any additional information and
documentary material that may be requested pursuant to the HSR Act and to take
all other actions necessary to cause the expiration or termination of the
applicable waiting periods under the HSR Act as soon as practicable. Nothing in
this Agreement shall require any of Dianon and its Subsidiaries or UroCor or
its Subsidiaries to sell, hold separate or otherwise dispose of or conduct its
business in a specified manner, or agree to sell, hold separate or otherwise
dispose of or conduct its business in a specified manner, or permit the sale,
holding separate or other disposition of, any assets of Dianon or its
Subsidiaries or UroCor or its Subsidiaries or the Surviving Corporation or the
conduct of its business in a specified manner, whether as a condition to
obtaining any approval from a Governmental Entity or any other Person or for
any other reason.
5.4 Standstill Agreement. UroCor hereby waives the provisions of Section 5
of the Confidentiality Agreement solely in connection with the transactions
contemplated hereby. In the event that this Agreement is terminated prior to
the Effective Time, such waiver shall be revoked and considered null and void.
5.5 Acquisition Proposals.
(a) UroCor shall not, nor shall it permit any of its Subsidiaries to, nor
shall it authorize or permit any of its directors, officers or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its Subsidiaries to, directly or
indirectly through another Person, (i) solicit, initiate or encourage
(including by way of furnishing information), or take any other action to
facilitate, any inquiries or the making of any proposal or offer other than the
Merger that constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal (as defined below) or (ii) enter into, continue or
otherwise participate in any discussions or negotiations regarding, or furnish
to any Person any information with respect to, or accept or implement any
Acquisition Proposal; provided, however, that if, prior to the time at which
the Required UroCor Vote shall have been obtained, a majority of the members of
the Board of Directors of UroCor determines in good faith (after consultation
with outside counsel) that failure to do so would result in a breach of the
fiduciary duties of such Board to UroCor's stockholders under applicable law,
UroCor may, in response to an Acquisition Proposal (as defined below) which did
not result from a breach of this Section 5.5, and which the Board of Directors
of UroCor determines is reasonably likely to result in a Superior Proposal, and
subject to providing prior written notice of its decision to take such action
to Dianon and compliance with Section 5.5, furnish information with respect to
UroCor and its Subsidiaries to any Person making such Acquisition Proposal
pursuant to a customary confidentiality agreement (provided that if such
confidentiality agreement contains provisions that are less restrictive than
the comparable provision in, or omits restrictive provisions, contained in the
Confidentiality Agreement, then the Confidentiality Agreement shall be deemed
amended to contain only such less restrictive provisions or to omit such
restrictive provisions as applicable) and participate in discussions or
negotiations regarding such Acquisition Proposal.
For purposes of this Agreement, "Superior Proposal" means any written
proposal not solicited in breach of this Section 5.5 by UroCor made by a third
party to consummate a tender offer, exchange offer, merger, consolidation or
similar transaction which would result in such third party (or its
stockholders) owning, directly or indirectly, all or substantially all of the
shares of UroCor Common Stock then outstanding (or of the surviving entity in a
merger) or all or substantially all of the assets of UroCor and its
Subsidiaries and otherwise on terms which a majority of the members of the
Board of Directors of UroCor determines in good faith (after consultation with
outside counsel and taking into consideration the advice of a financial advisor
of nationally recognized reputation) to be more favorable to UroCor's
stockholders, from a financial point of view, than the transactions
contemplated by this Agreement. In reaching such good faith determination, the
Board of Directors of UroCor shall give significant consideration to whether
any such third party proposal includes definitive financing and is reasonably
capable of being consummated.
For purposes of this Agreement, "Acquisition Proposal" means any inquiry,
proposal or offer from any Person other than Dianon relating to any direct or
indirect acquisition or purchase of more than 10% of the total
35
assets (including without limitation stock of Subsidiaries) of UroCor and its
Subsidiaries, taken as a whole, or any shares of any class or series of equity
securities of UroCor or any of its Subsidiaries constituting more than 10% of
the outstanding shares of UroCor Common Stock, any tender offer or exchange
offer involving more than 10% of the outstanding shares of UroCor Common Stock,
or any merger, reorganization, consolidation, share exchange, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving UroCor or any of its Subsidiaries, other than the transactions
contemplated by this Agreement.
(b) Neither UroCor nor the Board of Directors of UroCor nor any committee
thereof shall (i) make a Change in the UroCor Recommendation, (ii) approve or
recommend, or propose to approve or recommend, any Acquisition Proposal, (iii)
approve or recommend, or propose to approve or recommend, or execute or enter
into, any letter of intent, memorandum of understanding, agreement in
principle, merger agreement, acquisition agreement, option agreement, joint
venture agreement, partnership agreement or other similar agreement (each, an
"Acquisition Agreement"), or (iv)(x) redeem the UroCor Rights, (y) waive or
amend any provisions of the UroCor Rights Agreement or (z) take any action with
respect to, or make any determination under, the UroCor Rights Agreement, in
any such case to permit or facilitate the consummation of an Acquisition
Proposal, or propose or agree to do any of the foregoing constituting or
related to, or which is intended to or would reasonably be expected to lead to,
any Acquisition Proposal. Notwithstanding the foregoing, at any time prior to
the time at which the Required UroCor Vote shall have been obtained, in
response to a Superior Proposal which did not result from a breach of Section
5.5(a), the Board of Directors of UroCor may (subject to this sentence and the
definition of the term "Superior Proposal"), if a majority of the members of
the Board of Directors of UroCor determines in good faith (after consultation
with outside counsel) that failure to do so would result in a breach of the
fiduciary duties of such Board to UroCor's stockholders under applicable law,
subject to payment of the termination fee provided for in Section 7.2 (if
applicable), (i) make a Change in the UroCor Recommendation or (ii) cause
UroCor or any of its Subsidiaries to enter into a definitive written agreement
with respect to an Acquisition Proposal, but in each case referred to in the
foregoing clauses (i) and (ii), only if UroCor notifies Dianon, in writing at
least 72 hours prior to taking any such action, promptly of its intention to
take such action, specifying the material terms of such Acquisition Proposal
and identifying the Person making such Acquisition Proposal, and Dianon does
not make, on or before 5:00 p.m., Central Time, on the third Business Day
following receipt of such written notification, an offer that the Board of
Directors of UroCor determines, in good faith, after consultation with its
financial advisors, is at least as favorable to the stockholders of UroCor as
such Acquisition Proposal, it being understood that UroCor shall not enter into
any binding agreement with respect to such Acquisition Proposal prior to 5:00
p.m., Central Time, on the third Business Day following Dianon's receipt of
such written notification.
(c) In addition to the obligations of UroCor set forth in paragraphs (a) and
(b) of this Section 5.5, UroCor shall immediately (and no later than 24 hours
thereafter) advise Dianon orally and in writing of any request for information
or of any inquiry with respect to an Acquisition Proposal, the material terms
and conditions of such request, inquiry or Acquisition Proposal and the
identity of the Person making such request, inquiry or Acquisition Proposal.
UroCor will promptly keep Dianon informed of the status and details (including
amendments or changes or proposed amendments or changes) of any such request,
inquiry or Acquisition Proposal.
(d) Nothing contained in this Section 5.5 shall prohibit UroCor from taking
and disclosing to its stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any disclosure to UroCor's
stockholders if, in the good faith judgment of a majority of the members of the
Board of Directors of UroCor, after consultation with outside counsel, failure
so to disclose would be inconsistent with its obligations under applicable law;
provided, however, that, subject to Section 5.5(b), neither UroCor nor its
Board of Directors nor any committee thereof shall make a Change in the UroCor
Recommendation or approve or recommend, or propose to approve or recommend, an
Acquisition Proposal.
(e) UroCor agrees that it will, and will cause its officers, directors and
representatives to, immediately cease and cause to be terminated any
activities, discussions or negotiations existing as of the date of this
Agreement
36
with any parties conducted heretofore with respect to any Acquisition Proposal.
UroCor agrees that it will use reasonable efforts to promptly inform its
directors, officers, key employees, agents and representatives of the
obligations undertaken in this Section 5.5.
5.6 S-8 Registration Statement. Dianon shall prepare and file with the SEC a
Registration Statement on Form S-8 (the "S-8 Registration Statement")
registering the issuance of Dianon Common Stock issuable on exercise of the
Assumed Stock Options to be converted pursuant to Section 1.8, and shall use
its best efforts to cause the S-8 Registration Statement to become effective on
or prior to the Effective Time. If necessary to permit re-offers and resales by
holders of the Assumed Stock Options, Dianon also shall prepare a "re-offer
prospectus" (as that term is used in General Instruction C-1 of Form S-8) and
file the re-offer prospectus with a post-effective amendment to the S-8
Registration Statement and cause any such post-effective amendment to become
effective and remain effective for such period as is necessary to permit such
re-offers and resales.
5.7 Special UroCor Employee Bonus Plan. Prior to the Effective Time, UroCor
may pay up to an aggregate of $1,200,000 under the UroCor 2001 Bonus Plan
solely to the employees listed in Section 5.7 of the UroCor Disclosure Schedule
and thereafter shall, prior to the Effective Time, terminate such plan.
5.8 Fees and Expenses. Subject to Section 7.2, whether or not the Merger is
consummated, all Expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
Expenses. As used in this Agreement, "Expenses" includes all out-of-pocket
expenses (including, without limitation, all fees and expenses of counsel,
accountants, investment bankers, experts and consultants to a party hereto and
its affiliates) incurred by a party or on its behalf in connection with or
related to the authorization, preparation, negotiation, execution and
performance of this Agreement and the transactions contemplated hereby,
including the preparation, printing, filing and mailing of the Joint Proxy
Statement/Prospectus and the solicitation of stockholder approvals and all
other matters related to the transactions contemplated hereby.
5.9 Directors' and Officers' Indemnification and Insurance. (a) Dianon
agrees that all rights to indemnification and exculpation from liabilities for
acts or omissions occurring at or prior to the Effective Time now existing in
favor of the current or former directors or officers of UroCor and its
Subsidiaries as provided in their respective articles of organization or
by-laws and any indemnification agreements of UroCor (as each is in effect on
the date hereof and provided such indemnification agreements are disclosed in
the UroCor Disclosure Schedule), shall be assumed by the Surviving Corporation
in the Merger, without further action, as of the Effective Time and shall
survive the Merger and shall continue in full force and effect in accordance
with their terms.
(b) The Surviving Corporation shall, at its option, either (i) maintain for
a period of not less than six years after the Effective Time, UroCor's current
directors' and officers' liability insurance covering acts or omissions
occurring prior to the Effective Time ("D&O Insurance") with respect to those
Persons who are currently covered by UroCor's directors' and officers'
liability insurance policy on terms with respect to such coverage and amount no
less favorable than those of such policy in effect on the date hereof or (ii)
cause to be provided coverage no less favorable to such directors or officers,
as the case may be, than the D&O Insurance, in each case so long as the annual
premium therefor would not be in excess of $240,000 (the "Maximum Premium"). If
the existing or substituted directors' and officers' liability insurance
expires, is terminated or canceled during such six-year period, the Surviving
Corporation will obtain as much D&O Insurance as can be obtained for the
remainder of such period for an annualized premium not in excess of the Maximum
Premium. UroCor represents that the last premium it paid for D&O Insurance
prior to the date of this Agreement was $285,000 for the two-year period ending
November 2001. At the option of Dianon, Dianon may assume the obligations of
the Surviving Corporation set forth in Sections 5.9(a) and 5.9(b), and
thereafter the Surviving Corporation shall not have any further obligations
pursuant to this Section 5.9(b) for so long as Dianon continues to so assume
the obligations of the Surviving Corporation.
37
(c) The provisions of this Section 5.9 are (i) intended to be for the
benefit of, and will be enforceable by, each indemnified party, his or her
heirs and his or her representatives and (ii) in addition to, and not in
substitution for, any other rights to indemnification or contribution that any
such Person may have by contract or otherwise.
5.10 Public Announcements. Dianon and UroCor will consult with each other
before issuing, and provide each other the opportunity to review, comment upon
and concur with, any press release or other public statements with respect to
the transactions contemplated by this Agreement, including the Merger, and
shall not issue any such press release or make any such public statement prior
to such consultation, except as either party may determine is required by
applicable law, the SEC, court process or by obligations pursuant to any
listing or quotation agreement with any national securities exchange or
national trading system; provided, however, that each party may respond to
inquiries from stockholders, financial analysts and media representatives in a
manner consistent with its past practice and applicable laws and regulations.
The parties agree that the initial press release to be issued with respect to
the transactions contemplated by this Agreement shall be in the form heretofore
agreed to by the parties.
5.11 Accountant's Letters. UroCor shall use reasonable efforts to cause to
be delivered to Dianon two letters from UroCor's independent public
accountants, one dated approximately the date on which the Form S-4 shall
become effective and one dated the Closing Date, each addressed to UroCor and
Dianon, in form reasonably satisfactory to Dianon and customary in scope for
comfort letters delivered by independent public accountants in connection with
registration statements similar to the Form S-4. Dianon shall use reasonable
efforts to cause to be delivered to UroCor two letters from Dianon's
independent public accountants, one dated approximately the date on which the
Form S-4 shall become effective and one dated the Closing Date, each addressed
to UroCor and Dianon, in form reasonably satisfactory to UroCor and customary
in scope for comfort letters delivered by independent public accountants in
connection with registration statements similar to the Form S-4.
5.12 Listing of Shares of Dianon Common Stock. Dianon shall use its
reasonable efforts to cause the shares of Dianon Common Stock to be issued in
the Merger and the shares of Dianon Common Stock to be reserved for issuance
upon exercise of the Assumed Stock Options to be approved for quotation on the
Nasdaq, prior to the Closing Date.
5.13 Affiliates. Not less than 45 days prior to the Effective Time, UroCor
shall deliver to Dianon a letter identifying all Persons who, in the judgment
of UroCor, may be deemed at the time this Agreement is submitted for adoption
by the stockholders of UroCor, "affiliates" of UroCor for purposes of Rule 145
under the Securities Act and applicable SEC rules and regulations, and such
list shall be updated as necessary to reflect changes from the date thereof.
UroCor shall use reasonable efforts to cause each Person identified on such
list to deliver to Dianon not less than 30 days prior to the Effective Time, a
written agreement substantially in the form attached as Exhibit 5.13 hereto (an
"Affiliate Agreement").
5.14 Tax Treatment. The parties intend the Merger to qualify as
reorganization under Section 368(a) of the Code. Each party and its affiliates
shall use reasonable efforts to cause the Merger to so qualify and to obtain
the opinions of Fulbright & Jaworski L.L.P., counsel to UroCor, and Cadwalader,
Wickersham & Taft, counsel to Dianon, to the effect that the Merger will be
treated for U.S. federal income tax purposes as a "reorganization" within the
meaning of Section 368(a) of the Code, and that Dianon and UroCor will each be
a party to that reorganization within the meaning of Section 368(b) of the
Code. For purposes of the tax opinions described in Sections 6.2(c) and 6.3(c)
of this Agreement, each of Dianon and UroCor shall provide representation
letters substantially in the form of Exhibits 6.2(c)(2) and 6.2(c)(3), each
dated on or about the date that is no more than two Business Days prior to the
date the Proxy Statement is mailed to the stockholders of UroCor and reissued
no more than two Business Days prior to the Closing Date. Each of Dianon and
UroCor and each of their respective affiliates shall not take any action or
fail to take any action, cause any action to be taken or not taken, or suffer
to exist any condition, which action, failure to take action or condition would
prevent, or would be reasonably likely to prevent, the Merger from qualifying
as a reorganization within the meaning of Section 368(a) of the Code.
38
5.15 UroCor Employee Stock Purchase Plan. On or before July 1, 2001, UroCor
shall take such actions as are necessary to amend the UroCor 1997 ESP Plan to
provide that (a) at the Effective Time, the offering period under the UroCor
1997 ESP Plan in which the Effective Time occurs shall expire, (b) no shares of
UroCor Common Stock shall be purchased with respect to such offering period and
(c) at the Effective Time, UroCor shall pay to each participant in the UroCor
1997 ESP Plan in cash an amount equal to the aggregate amount of such
participant's payroll deduction contributions accumulated during such offering
period through the Effective Time.
ARTICLE VI CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of UroCor, Dianon and Merger Sub to effect the Merger
are subject to the satisfaction or waiver on or prior to the Closing Date of
the following conditions:
(a) Stockholder Approval. (i)UroCor shall have obtained the Required UroCor
Vote and (ii) Dianon shall have obtained the Dianon Stockholder Approvals.
(b) No Injunctions or Restraints, Illegality. No Laws shall have been
adopted or promulgated, and no temporary restraining order, preliminary or
permanent injunction or other order issued by a court or other Governmental
Entity of competent jurisdiction shall be in effect, (i) having the effect of
making the Merger illegal or otherwise prohibiting consummation of the Merger
or (ii) which otherwise, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect on Dianon and its Subsidiaries
(including the Surviving Corporation and its Subsidiaries), taken together
after giving effect to the Merger.
(c) HSR Act. The waiting period (and any extension thereof) applicable to
the Merger under the HSR Act shall have been terminated or shall have expired.
(d) Governmental and Regulatory Approvals. Other than the filing provided
for under Section 1.3 and filing pursuant to the HSR Act (which is addressed in
Section 6.1(c)), all consents, approvals and actions of, filings with and
notices to any Governmental Entity required of Dianon, UroCor or any of their
Subsidiaries to consummate the Merger, the Share Issuance and the other
transactions contemplated hereby, the failure of which to be obtained or taken,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on Dianon and its Subsidiaries (including the Surviving
Corporation and its Subsidiaries), taken together after giving effect to the
Merger, shall have been obtained. No consents, approvals, actions, filings or
notices related to any antitrust requirements of any jurisdiction, except as
set forth in Section 6.1(c) hereof, shall be a condition of closing under this
Section 6.1(d).
(e) Nasdaq Listing. The shares of Dianon Common Stock to be issued in the
Merger and such other shares to be reserved for issuance in connection with the
Merger, including shares of Dianon Common Stock issuable on exercise of the
Assumed Stock Options, shall have been approved for quotation on the Nasdaq.
(f) Effectiveness of the Form S-4. The Form S-4 shall have been declared
effective by the SEC under the Securities Act. No stop order suspending the
effectiveness of the Form S-4 shall have been issued by the SEC and no
proceedings for that purpose shall have been initiated or threatened by the
SEC.
(g) No Litigation by Governmental Entities. There shall not be pending or
threatened any suit, action or proceeding by any Governmental Entity, (i)
challenging the acquisition by Dianon or Merger Sub of any shares of UroCor
Common Stock, seeking to restrain or prohibit consummation of the Merger,
seeking to place limitations on the ownership of shares of UroCor Common Stock
(or shares of common stock of the Surviving
39
Corporation) by Dianon or Merger Sub, (ii) seeking to prohibit or limit the
ownership or operation by UroCor or Dianon and their respective Subsidiaries of
any material portion of the business or assets of UroCor or Dianon and their
respective Subsidiaries taken as a whole, or to compel UroCor or Dianon and
their respective Subsidiaries to dispose of or hold separate any material
portion of the business or assets of UroCor or Dianon and their respective
Subsidiaries taken as a whole, as a result of the Merger or any of the other
transactions contemplated by this Agreement or (iii) seeking to prohibit Dianon
or any of its Subsidiaries from effectively controlling in any material respect
the business or operations of UroCor or Dianon and their respective
Subsidiaries taken as a whole.
6.2 Additional Conditions to Obligations of Dianon and Merger Sub. The
obligations of Dianon to effect the Merger are subject to the satisfaction of,
or waiver by Dianon, on or prior to the Closing Date of the following
conditions:
(a) Representations and Warranties. Each of the representations and
warranties of UroCor set forth in this Agreement that is qualified as to
materiality or Material Adverse Effect shall be true and correct, and each of
the representations and warranties of UroCor set forth in this Agreement that
is not so qualified shall be true and correct in all material respects, in each
case as of the date of this Agreement and as of the Closing Date as though made
on and as of the Closing Date (except to the extent in either case that such
representations and warranties speak as of another date), and Dianon shall have
received a certificate of the chief executive officer and the chief financial
officer of UroCor to such effect.
(b) Performance of Obligations of UroCor. UroCor shall have performed or
complied with all agreements and covenants required to be performed by it under
this Agreement at or prior to the Closing Date that are qualified as to
materiality or Material Adverse Effect and shall have performed or complied in
all material respects with all other agreements and covenants required to be
performed by it under this Agreement at or prior to the Closing Date that are
not so qualified, and Dianon shall have received a certificate of the chief
executive officer and the chief financial officer of UroCor to such effect.
(c) Tax Opinion. Dianon shall have received from Cadwalader, Wickersham &
Taft, counsel to Dianon, on or before the date the Form S-4 shall become
effective and, subsequently, on the Closing Date, a written opinion dated as of
such dates substantially in the form of Exhibit 6.2(c)(1). In rendering such
opinion, counsel to Dianon shall be entitled to rely upon information,
representations and assumptions provided by Dianon and UroCor substantially in
the form of Exhibits 6.2(c)(2) and 6.2(c)(3) (allowing for such amendments to
the representations as counsel to Dianon deems reasonably necessary).
(d) UroCor Rights Agreement. No Stock Acquisition Date or Distribution Date
(as such terms are defined in the UroCor Rights Agreement) shall have occurred
pursuant to the UroCor Rights Agreement.
(e) Governmental Inquiry. Subsequent to the date hereof, no event or
circumstance shall have occurred relating to any governmental review or inquiry
concerning any product or business practice which is likely to result in a
Material Adverse Effect on UroCor or its prospects.
(f) Legal Opinion. Dianon shall have received from Fulbright & Jaworski
L.L.P., counsel to UroCor, a written opinion dated as of the Closing Date
opining as to the matters set forth in Exhibit 6.2(f).
(g) No Pending Litigation. All suits, actions, proceedings and claims
described in Section 6.2(g) of the UroCor Disclosure Schedule (the "Pending
Proceedings") shall have been fully and finally resolved, UroCor shall have
entered into a definitive settlement agreement with all parties to any such
Pending Proceeding, each Pending Proceeding shall have been dismissed with
prejudice, and each Governmental Entity to each Pending Proceeding shall have
agreed to refrain maintaining any administrative claim or action with respect
to UroCor and the subject matter of any such Pending Proceeding.
40
6.3 Additional Conditions to Obligations of UroCor. The obligations of
UroCor to effect the Merger are subject to the satisfaction of, or waiver by
UroCor, on or prior to the Closing Date of the following additional conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Dianon set forth in this Agreement that is qualified as to
materiality or Material Adverse Effect shall be true and correct, and each of
the representations and warranties of Dianon set forth in this Agreement that
is not so qualified shall be true and correct in all material respects, in each
case as of the date of this Agreement and as of the Closing Date as though made
on and as of the Closing Date (except to the extent in either case that such
representations and warranties speak as of another date), and UroCor shall have
received a certificate of the chief executive officer and the chief financial
officer of Dianon to such effect.
(b) Performance of Obligations of Dianon. Dianon shall have performed or
complied with all agreements and covenants required to be performed by it under
this Agreement at or prior to the Closing Date that are qualified as to
materiality or Material Adverse Effect and shall have performed or complied in
all material respects with all other agreements and covenants required to be
performed by it under this Agreement at or prior to the Closing Date that are
not so qualified, and UroCor shall have received a certificate of the chief
executive officer and the chief financial officer of Dianon to such effect.
(c) Tax Opinion. UroCor shall have received from Fulbright & Jaworski
L.L.P., counsel to UroCor, on or before the date the Form S-4 shall become
effective and, subsequently, on the Closing Date, a written opinion dated as of
such dates substantially in the form of Exhibit 6.3(c)(1). In rendering such
opinion, counsel to UroCor shall be entitled to rely upon information,
representations and assumptions provided by Dianon and UroCor substantially in
the form of Exhibits 6.2(c)(2) and 6.2(c)(3) (allowing for such amendments to
the representations as counsel to UroCor deems reasonably necessary).
(d) Dianon Rights Agreement. No Share Acquisition Date or Distribution Date
(as such terms are defined in the Dianon Rights Agreement) shall have occurred
pursuant to the Dianon Rights Agreement.
(e) Governmental Inquiry. Subsequent to the date hereof, no event or
circumstance shall have occurred relating to any governmental review or inquiry
concerning any product or business practice which is likely to result in a
Material Adverse Effect on Dianon or its prospects.
(f) Legal Opinion. UroCor shall have received from Cadwalader, Wickersham &
Taft, counsel to Dianon and Merger Sub, a written opinion dated as of the
Closing Date opining as to the matters set forth in Exhibit 6.3(f).
ARTICLE VII TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, by action taken or authorized by the Board of Directors of the
terminating party or parties, and except as provided below, whether before or
after approval of the matters presented in connection with the Merger by the
stockholders of UroCor or Dianon:
(a) by mutual written consent of Dianon and UroCor; or
(b) by either UroCor or Dianon:
(i) if the Effective Time shall not have occurred on or before December
31, 2001 (the "Termination Date"); provided, however, that the right to
terminate this Agreement under this Section 7.1(b)(i) shall not be available
to any party whose failure to fulfill any obligation under this Agreement
(including without limitation such party's obligations set forth in Section
5.3) has been the cause of, or resulted in, the failure of
41
the Effective Time to occur on or before the Termination Date and provided
further that if on the Termination Date the conditions to Closing set forth
in Sections 6.1(c) or 6.1(d) shall not have been fulfilled but all other
conditions to Closing shall be fulfilled or shall be capable of being
fulfilled on the Termination Date then the Termination Date shall be
automatically extended to March 31, 2002; or
(ii) if any Governmental Entity (i) shall have issued an order, decree or
ruling or taken any other action (which the parties shall have used their
reasonable efforts to resist, resolve or lift, as applicable, in accordance
with Section 5.3) permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement, and such order,
decree, ruling or other action shall have become final and nonappealable or
(ii) shall have failed to issue an order, decree or ruling or to take any
other action (which order, decree, ruling or other action the parties shall
have used their reasonable efforts to obtain, in accordance with Section
5.3), in the case of each of (i) and (ii) which is necessary to fulfill the
conditions set forth in Sections 6.1(c) and (d), as applicable, and such
denial of a request to issue such order, decree, ruling or take such other
action shall have become final and nonappealable; provided, however, that
the right to terminate this Agreement under this Section 7.1(b) shall not be
available to any party whose failure to comply with Section 5.3 has been the
cause of such action or inaction; or
(iii) if the approval of the stockholders of either UroCor or Dianon
contemplated by this Agreement shall not have been obtained by reason of the
failure to obtain the required vote at a duly held meeting of stockholders
or of any adjournment thereof at which the vote was taken; or
(iv) if the Board of Directors of UroCor, after complying with Section
5.5(b), authorizes UroCor to enter into a definitive written agreement with
a third party with respect to an Acquisition Proposal that the Board of
Directors has determined is a Superior Proposal; or
(c) by Dianon, if there shall have been a breach by UroCor of any of its
representations, warranties, covenants or obligations contained in this
Agreement, which breach would result in the failure to satisfy the conditions
set forth in Section 6.2(a) or Section 6.2(b), and in any such case such breach
shall be incapable of being cured or, if capable of being cured, shall not have
been cured within 30 days after written notice thereof shall have been received
by the party alleged to be in breach; or
(d) by Dianon:
(i) (A) if UroCor shall have failed to make the UroCor Recommendation or
effected a Change in the UroCor Recommendation (or resolved to take any such
action), whether or not permitted by the terms hereof, or shall have
materially breached its obligations under this Agreement by reason of a
failure to call or hold the UroCor Stockholders Meeting in accordance with
Section 5.1(b), (B) if UroCor or any of its directors, officers employees,
investment bankers, financial advisors, attorney, accountant or other
representative shall have breached Section 5.5, (C) if the Board of
Directors of UroCor or any committee thereof shall approve or recommend, or
make any disclosure to the stockholders of UroCor, whether or not permitted
pursuant to Section 5.5, that has the effect of approving or recommending,
to the stockholders of UroCor an Acquisition Proposal, (D) if, after an
Acquisition Proposal shall have been made public, the Board of Directors of
UroCor fails to affirm its recommendation of the Merger and this Agreement
as promptly as practicable (but in any event within three Business Days)
after any request from Dianon or (E) if a tender offer or exchange offer
constituting an Acquisition Proposal is commenced, and the Board of
Directors of UroCor fails to recommend against acceptance of such offer by
the stockholders of UroCor (including by taking no position with respect to
the acceptance of such offer by the stockholders of UroCor); or
(ii) if any Person shall have consummated a tender offer or an exchange
offer or other transaction constituting an Acquisition Proposal; or
(e) by UroCor, if there shall have been a breach by Dianon of any of its
representations, warranties, covenants or obligations contained in this
Agreement, which breach would result in the failure to satisfy the conditions
set forth in Section 6.3(a) or Section 6.3(b), and in any such case such breach
shall be incapable of
42
being cured or, if capable of being cured, shall not have been cured within 30
days after written notice thereof shall have been received by the party alleged
to be in breach.
7.2 Effect of Termination.
(a) In the event of termination of this Agreement by either UroCor or Dianon
as provided in Section 7.1, this Agreement shall forthwith become void and
there shall be no liability or obligation on the part of Dianon or UroCor or
their respective officers or directors except with respect to Section 3.1(l),
Section 3.2(l), the covenants set forth in Section 5.2 to keep confidential
certain information, the second sentence of Section 5.4, Section 5.8, this
Section 7.2 and Article VIII, which provisions shall survive such termination,
and except that, notwithstanding anything to the contrary contained in this
Agreement, neither Dianon nor UroCor shall be relieved or released from any
liabilities or damages arising out of its willful material breach of this
Agreement.
(b) In the event that this Agreement is terminated pursuant to (1)
Section7.1(b)(iii) in respect of the approval of the stockholders of UroCor not
being obtained and prior to the meeting of UroCor stockholders at which a vote
is taken to approve this Agreement any Person shall have made or publicly
announced an intention to make an Acquisition Proposal with respect to UroCor,
(2) Section 7.1(d), (3) Section 7.1(c) and within 12 months of such termination
UroCor enters into a definitive agreement with a third party with respect to an
Acquisition Proposal, or (4) Section 7.1(b)(iv), then in any such case UroCor
shall promptly, but in no event later than the date of such termination, pay to
Dianon a termination fee equal to $5,128,000 (the "Termination Fee"), payable
by wire transfer of same day funds; provided, however, that with respect to
clause (3), such fee shall be payable only as provided above and in such case
no later than three Business Days after the date a definitive agreement with a
third party with respect to an Acquisition Proposal is executed. UroCor
acknowledges that the agreements contained in this Section 7.2(b) are an
integral part of the transactions contemplated by this Agreement, and that,
without these agreements, Dianon would not enter into this Agreement;
accordingly, if UroCor fails promptly to pay the amounts due pursuant to this
Section 7.2(b), and, in order to obtain such payment, Dianon commences a suit
which results in a judgment against UroCor for the amounts set forth in this
Section 7.2(b), UroCor shall pay to Dianon its reasonable costs and expenses
(including attorneys' fees and expenses) in connection with such suit, together
with interest on the amounts set forth in this Section 7.2(b) at the prime rate
of Citibank, N.A. in effect on the date such payment was required to be made.
(c) UroCor shall reimburse Dianon for all expenses incurred by Dianon and
Merger Sub in connection with this Agreement, the Merger and the other
transactions contemplated by this Agreement up to a maximum amount of
$1,000,000 in the event this Agreement is terminated by Dianon in the
circumstances described in Section 7.2(b), within two Business Days after being
notified by Dianon. All payments made pursuant to this Section 7.2(c) shall be
made by wire transfer of same day funds.
7.3 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the Merger
by the stockholders of UroCor and Dianon, but, after any such approval, no
amendment shall be made which by law or in accordance with the rules of any
relevant stock exchange requires further approval by such stockholders without
such further approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
7.4 Extension; Waiver. At any time prior to the Effective Time, the parties
hereto, by action taken or authorized by their respective Boards of Directors,
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (ii) waive
any inaccuracies in the representations and warranties contained herein or in
any document delivered pursuant hereto and (iii) waive compliance with any of
the agreements or conditions contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth
in a written instrument signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of those rights.
43
ARTICLE VIII GENERAL PROVISIONS
8.1 Non-Survival of Representations, Warranties and Agreements. None of the
representations, warranties, covenants and other agreements in this Agreement
or in any instrument delivered pursuant to this Agreement, including any rights
arising out of any breach of such representations, warranties, covenants and
other agreements, shall survive the Effective Time, except for those covenants
and agreements contained herein and therein (including Section 5.9) that by
their terms apply or are to be performed in whole or in part after the
Effective Time and this Article VIII.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (a) on the date of delivery if delivered
personally, or by telecopy or telefacsimile, upon confirmation of receipt, (b)
on the first Business Day following the date of dispatch if delivered by a
recognized next-day courier service, or (c) on the tenth Business Day following
the date of mailing if delivered by registered or certified mail, return
receipt requested, postage prepaid. All notices hereunder shall be delivered as
set forth below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice:
(a)if to Dianon or Merger Sub, to: DIANON Systems, Inc. 200 Watson
Boulevard Stratford, CT 06615 Fax: (203) 381-4017 Attention: Chief
Financial Officer
witha copy to:
Cadwalader,Wickersham & Taft
100Maiden Lane
NewYork, New York 10038
Fax:(212) 504-6666
Attention:Dennis J. Block, Esq.
(b)if to UroCor to: UroCor, Inc. 840 Research Parkway Oklahoma City, OK
73104 Fax: (405) 290-4059 Attention: Chief Financial Officer
witha copy to:
Fulbright& Jaworski L.L.P.
1301McKinney, Suite 5100
Houston,Texas 77010
Fax:(713) 651-5246
Attention:Robert E. Wilson, Esq.
8.3 Interpretation. When a reference is made in this Agreement to Sections,
Exhibits or Schedules, such reference shall be to a Section of or Exhibit or
Schedule to this Agreement unless otherwise indicated. The table of contents
and headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
Whenever the words "include", "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation.
44
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties, including by facsimile, it
being understood that all parties need not sign the same counterpart.
8.5 Entire Agreement; No Third Party Beneficiaries. (a) This Agreement, the
Confidentiality Agreement, and the other agreements of the parties referred to
herein constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof.
(b) This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement, other than
Section 5.9 (which is intended to be for the benefit of the Persons covered
thereby and may be enforced by such Persons). For purposes of clarity, nothing
in Sections 1.8, 5.7 and 5.9 is intended to confer upon any UroCor employee,
any benefits under any benefits plan, programs, policies or other arrangements,
including, but not limited to, the right to employment or continued employment
with Dianon for any period by reason of this Agreement.
8.61 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware (without giving effect to
choice of law principles thereof).
8.7 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any law or public policy,
all other terms and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner in order
that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
8.8 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto, in whole
or in part (whether by operation of law or otherwise), without the prior
written consent of the other party, and any attempt to make any such assignment
without such consent shall be null and void, except that Merger Sub may assign,
in its sole discretion, any or all of its rights, interests and obligations
under this Agreement to any direct wholly owned Subsidiary of Dianon without
the consent of UroCor, but no such assignment shall relieve Merger Sub of any
of its obligations under this Agreement. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns.
8.9 Submission to Jurisdiction; Waivers. Each of Dianon, Merger Sub and
UroCor irrevocably agrees that any legal action or proceeding with respect to
this Agreement or for recognition and enforcement of any judgment in respect
hereof brought by another party hereto or its successors or assigns may be
brought and determined in the Chancery or other Courts of the State of
Delaware, and each of Dianon, Merger Sub and UroCor hereby irrevocably submits
with regard to any such action or proceeding for itself and in respect to its
property, generally and unconditionally, to the nonexclusive jurisdiction of
the aforesaid courts. Each of Dianon, Merger Sub and UroCor hereby irrevocably
waives, and agrees not to assert, by way of motion, as a defense, counterclaim
or otherwise, in any action or proceeding with respect to this Agreement, (a)
any claim that it is not Personally subject to the jurisdiction of the
above-named courts for any reason other than the failure to lawfully serve
process (b) that it or its property is exempt or immune from jurisdiction of
any such court or from any legal process commenced in such courts (whether
through service of notice, attachment prior to judgment, attachment in aid of
execution of judgment, execution of judgment or otherwise), and (c) to the
fullest extent permitted by applicable law, that (i) the suit, action or
proceeding in any such court is brought in an inconvenient forum,
45
(ii) the venue of such suit, action or proceeding is improper and (iii) this
Agreement, or the subject matter hereof, may not be enforced in or by such
courts.
8.10 Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms. It is accordingly agreed that the parties
shall be entitled to specific performance of the terms hereof, this being in
addition to any other remedy to which they are entitled at law or in equity.
8.11 Definitions. As used in this Agreement:
(a) "beneficial ownership" or "beneficially own" shall have the meaning
under Section 13(d) of the Exchange Act and the rules and regulations
thereunder.
(b) "Board of Directors" means the Board of Directors of any specified
Person and any committees thereof.
(c) "Business Day" means any day on which banks are not required or
authorized to close in the City of New York.
(d) "Confidentiality Agreement" means the Confidentiality Agreement, dated
as of August 29, 2000, between Dianon and UroCor.
(e) "known" or "knowledge" means, with respect to any party, the knowledge
of such party's executive officers after reasonable inquiry.
(f) "Material Adverse Effect" means, with respect to any entity, any event,
change, circumstance, effect, occurrence, condition, development or state of
facts that is or is reasonably likely to be materially adverse to (i) the
business, assets, financial condition or results of operations of such entity
and its Subsidiaries taken as a whole, other than any event, change,
circumstance, effect, occurrence, condition, development or state of facts
relating (x) to the economy or financial markets in general or (y) in general
to the industries in which such entity operates and not specifically relating
to (or having the effect of specifically relating to or having a materially
disproportionate effect (relative to most other industry participants) on) such
entity or (ii) the ability of such entity to consummate the transactions
contemplated by this Agreement. All references to Material Adverse Effect on
Dianon or its Subsidiaries contained in this Agreement shall be deemed to refer
solely to Dianon and its Subsidiaries without including its ownership of UroCor
and its Subsidiaries after the Merger.
(g) "the other party" means, with respect to UroCor, Dianon or Merger Sub,
and with respect to Dianon or Merger Sub, UroCor.
(h) "Person" means an individual, corporation, limited liability company,
partnership, association, trust, unincorporated organization, other entity or
group (as defined in the Exchange Act).
(i) "Subsidiary" when used with respect to any party means any corporation
or other organization, whether incorporated or unincorporated, (i) of which
such party or any other subsidiary of such party is a general partner
(excluding partnerships, the general partnership interests of which held by
such party or any subsidiary of such party do not have a majority of the voting
interests in such partnership) or (ii) at least a majority of the securities or
other interests of which having by their terms ordinary voting power to elect a
majority of the Board of Directors or others performing similar functions with
respect to such corporation or other organization is directly or indirectly
owned or controlled by such party or by any one or more of its subsidiaries, or
by such party and one or more of its subsidiaries.
46
IN WITNESS WHEREOF, Dianon, Merger Sub and UroCor have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
DIANON SYSTEMS, INC.
Kevin C. Johnson
By:
-----------------------------------
Name: Kevin C. Johnson
Title: President and Chief
Executive Officer
UROCOR ACQUISITION CORP.
Kevin C. Johnson
By:
-----------------------------------
Name: Kevin C. Johnson
Title: President
UROCOR, INC.
Michael W. George
By:
-----------------------------------
Name: Michael W. George
Title: President and Chief
Executive Officer
47
INDEX OF DEFINED TERMS
Acquisition Agreement.............. 5.5(b)
Acquisition Proposal............... 5.5(a)
Actions............................ 3.1(h)(i)
affiliate.......................... 2.13
Affiliate Agreement................ 5.13
Agreement.......................... Recitals
Alternative Merger Structure....... 1.1(b)
Assumed Stock Option............... 1.8
beneficial ownership............... 8.11(a)
beneficially own................... 8.11(a)
Blue Sky Laws...................... 3.1(c)(iii)
Board of Directors................. 8.11(b)
Business Day....................... 8.11(c)
Certificate........................ 1.7(b)
Certificate of Merger.............. 1.3
Change in the UroCor Recommendation 5.1(b)
Closing............................ 1.2
Closing Date....................... 1.2
COBRA.............................. 3.1(s)
Code............................... Recitals
Confidentiality Agreement.......... 8.11(d)
Contract........................... 3.1(c)(ii)
D&O Insurance...................... 5.9(b)
Determination Date................. 1.7(a)
DGCL............................... 1.1(a)
Dianon............................. Recitals
Dianon Benefit Agreements.......... 3.1(q)
Dianon Benefit Plans............... 3.1(q)
Dianon Board Approval.............. 3.1(f)
Dianon Common Stock................ Recitals
Dianon Commonly Controlled Entity.. 3.1(q)
Dianon Disclosure Schedule......... 3.1
Dianon Market Price................ 1.7(a)(ii)
Dianon Multiemployer Pension Plan.. 3.1(r)(iii)
Dianon Pension Plans............... 3.1(r)(i)
Dianon Permits..................... 3.1(h)(ii)
Dianon Rights...................... 3.1(b)(i)
Dianon Rights Agreement............ 3.1(b)(i)
Dianon SEC Reports................. 3.1(d)(i)
Dianon Stock Option Plans.......... 3.1(b)(i)
Dianon Stock Options............... 3.1(b)(i)
Dianon Stockholder Approvals....... 3.1(c)(i)
Dianon Stockholders Meeting........ 5.1(c)
Dianon Voting Debt................. 3.1(b)(ii)
Effective Time..................... 1.3
Environmental Laws................. 3.1(j)
Environmental Liabilities.......... 3.1(j)
ERISA.............................. 3.1(r)(i), 3.2(s)(i)
48
Exchange Act..................... 3.1(c)(iii)
Exchange Agent................... 2.1
Exchange Fund.................... 2.1
Exchange Ratio................... 1.7(a)
Expenses......................... 5.8
Form S-4......................... 5.1(a)
GAAP............................. 3.1(d)(i)
Governmental Entity.............. 3.1(c)(iii)
Hazardous Materials.............. 3.1(j)
HSR Act.......................... 3.1(c)(iii)
Intellectual Property Rights..... 3.1(k)(i)
Joint Proxy Statement/Prospectus. 5.1(a)
knowledge........................ 8.11(e)
known............................ 8.11(e)
Liens............................ 3.1(a)(ii)
Material Adverse Effect.......... 8.11(f)
Maximum Premium.................. 5.9(b)
Merger........................... Recitals
Merger Consideration............. 1.7(a)
Merger Sub....................... Recitals
Nasdaq........................... 1.7(a)
Necessary Consents............... 3.1(c)(iii)
Pending Proceedings.............. 6.2(g)
Person........................... 8.11(h)
Primary UroCor Executive......... 3.2(s)(vi)
Random Trading Days.............. 1.7(a)
SEC.............................. 2.13
Securities Act................... 2.13
Share Issuance................... 3.1(c)(i)
Subsidiary....................... 8.11(a)
Superior Proposal................ 5.5(a)
Surviving Corporation............ 1.1(a)
Tax.............................. 3.1(n)(viii)
Tax Return....................... 3.1(n)(viii)
Taxes............................ 3.1(n)(viii)
Termination Date................. 7.1(b)(i)
Termination Fee.................. 7.2(b)
the other party.................. 8.11(g)
UroCor........................... Recitals
UroCor 1997 ESP Plan............. 3.2(b)(i)
UroCor 2001 Bonus Plan........... 3.2(i)
UroCor Benefit Agreements........ 3.2(r)
UroCor Benefit Plans............. 3.2(r)
UroCor Board Approval............ 3.2(f)
UroCor Commonly Controlled Entity 3.2(r)
49
UroCor Common Stock.............. Recitals
UroCor Disclosure Schedule....... 3.2
UroCor Multiemployer Pension Plan 3.2(s)(iii)
UroCor Pension Plans............. 3.2(s)(i)
UroCor Permits................... 3.2(h)(ii)
UroCor Recommendation............ 5.1(b)
UroCor Rights.................... 3.2(b)(i)
UroCor Rights Agreement.......... 3.2(b)(i)
UroCor SEC Reports............... 3.2(d)(i)
UroCor Stock Option Plans........ 3.2(b)(i)
UroCor Stock Options............. 3.2(b)(i)
UroCor Stockholders Meeting...... 5.1(b)
UroCor Voting Debt............... 3.2(b)(ii)
Violation........................ 3.1(c)(ii)
WARN Act......................... 3.1(s)
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Annex B
[LETTERHEAD OF LAZARD FRERES & CO. LLC]
June 28, 2001
The Board of Directors
Dianon Systems Inc.
200 Watson Boulevard
Stratford, CT 06615
Dear Members of the Board:
We understand that Dianon Systems Inc. (the "Company"), Dianon Acquisition
Corp. ("Merger Sub"), and UroCor Inc. (the "Subject Company") have entered into
an Agreement and Plan of Merger, dated as of June 28, 2001 (the "Merger
Agreement"), pursuant to which the Company will acquire the Subject Company
(the "Acquisition").
Pursuant to the Merger Agreement, upon consummation of the Acquisition, each
issued and outstanding share of common stock, par value $.0l per share (the
"Subject Company Common Stock"), of the Subject Company (other than shares of
Subject Company Common Stock owned by the Company or Merger Sub or held by the
Subject Company) together with the associated UroCor Rights (as defined in the
Merger Agreement) shall be converted into the right to receive a number of
shares of common stock, par value $.01 per share (the "Company Common Stock"),
of the Company equal to the Exchange Ratio (as defined below) and the
associated Dianon Rights (as defined in the Merger Agreement), together with
any cash in lieu of fractional shares of Company Common Stock. Pursuant to the
Merger Agreement, the "Exchange Ratio" shall be an amount determined as
follows: (i) if the Dianon Market Price (as defined in the Merger Agreement) is
less than or equal to $44.29, the Exchange Ratio shall equal 0.4064, and (ii)
if the Dianon Market Price is greater than $44.29, the Exchange Ratio shall
equal a quotient (rounded to four decimal points), the numerator of which is
$18.00, and the denominator of which is the Dianon Market Price. The terms and
conditions of the Acquisition are more fully set forth in the Merger Agreement.
You have requested our opinion as to the fairness, from a financial point of
view, to the Company of the Exchange Ratio. In connection with this opinion, we
have:
. Reviewed the financial terms and conditions of the Merger Agreement;
. Analyzed certain historical business and financial information
relating to the Company and the Subject Company;
. Reviewed financial projections for the Company that were not provided
by the Company but were contained in certain securities analysts'
research reports that were recommended for review by management of the
Company;
. Reviewed various financial forecasts and other data provided to us by
management of the Subject Company and by management of the Company
relating to the Subject Company's business;
. Held discussions with members of the senior management of the Company
and the Subject Company with respect to the businesses and prospects
of the Company and the Subject Company, respectively, the strategic
objectives of each, and possible benefits which might be realized
following the Acquisition;
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. Held discussions with members of the senior management of the Company
and the Subject Company with respect to the businesses and prospects
of the Company and the Subject Company, respectively, the strategic
objectives of each, and possible benefits which might be realized
following the Acquisition;
. Reviewed the synergistic savings and benefits and the timing of their
occurrence as projected by the Company to be realized by the combined
entities in connection with the Acquisition;
. Reviewed public information with respect to certain other companies in
lines of businesses we believe to be generally comparable to the
businesses of the Company and the Subject Company;
. Reviewed the historical stock prices and trading volumes of the
Company Common Stock and the Subject Company Common Stock; and
. Conducted such other financial studies, analyses and investigations as
we deemed appropriate.
We have relied upon the accuracy and completeness of the foregoing
information, and have not assumed any responsibility for any independent
verification of such information or any independent valuation or appraisal of
any of the assets or liabilities of the Company or the Subject Company, or
concerning the solvency of, or issues relating to solvency concerning, either
of the foregoing entities. With respect to financial forecasts, including the
synergistic savings and benefits projected to be realized following the
Acquisition and the timing thereof, we have assumed that they have been
reasonably prepared on bases reflecting, or otherwise reasonably reflect, the
best currently available estimates and judgments of management of the Company
and management of the Subject Company as to the future financial performance of
the Company and the Subject Company. We assume no responsibility for and
express no view as to such forecasts or the assumptions on which they are
based.
Further, our opinion is necessarily based on economic, monetary, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof. In rendering this opinion, we did not address the relative
merits of the Acquisition, any alternative potential transaction or the
Company's underlying decision to effect the Acquisition.
In rendering our opinion, we have assumed that the Acquisition will be
consummated on the terms described in the Merger Agreement without any waiver
of any material term or condition by the Company and that the Acquisition will
be accounted for as a purchase under U.S. generally accepted accounting
principles and will qualify as a tax free reorganization for U.S. federal
income tax purposes. We have also assumed that the synergistic savings and
benefits of the Acquisition projected by the management of the Company will be
realized both in scope and timing and that the governmental investigation of
the Subject Company (and all related claims) relating to claims submitted by
the Subject Company to Medicare and other federal health care programs have
been resolved on terms that would not adversely effect the value of the Subject
Company. In addition, we have assumed that obtaining the necessary regulatory
approvals for the Acquisition will not have an adverse effect on the Company or
Subject Company.
Lazard Freres & Co. LLC is acting as investment banker to the Company in
connection with the Acquisition and will receive a fee for our services, a
substantial portion of which is contingent upon the consummation of the
Acquisition. Lazard Freres & Co. LLC provides a full range of financial
advisory and security services and, in the course of our trading and market
making activities, may from time to time effect transactions and hold
securities, including derivative securities, of the Company or Subject Company
for our own account and for the accounts of customers.
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Our engagement and the opinion expressed herein are for the benefit of the
Company's Board of Directors and our opinion is rendered to the Company's Board
of Directors in connection with its consideration of the Acquisition. This
opinion is not intended to and does not constitute a recommendation to any
holder of the Company Common Stock as to whether such holder should vote for
the Acquisition. It is understood that this letter may not be disclosed or
otherwise referred to without our prior consent, except for its inclusion its
entirety in filings the Company may be required to make with the Securities and
Exchange Commission and except as may otherwise be required by law or by a
court of competent jurisdiction.
Based on and subject to the foregoing, we are of the opinion that, as of the
date hereof, the Exchange Ratio is fair to the Company from a financial point
of view.
Very truly yours,
LAZARD FRERES & CO. LLC
By /s/ Kenneth M. Jacobs
----------------
Kenneth M. Jacobs
Managing Director
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Annex C
[Letterhead of U.S. Bancorp Piper Jaffray Inc.]
June 27, 2001
Board of Directors
UroCor, Inc.
840 Research Parkway
Oklahoma City, OK 73104
Members of the Board:
You have requested our opinion as of the date hereof as to the fairness,
from a financial point of view, to the holders of common stock of UroCor, Inc.
(the "Company") of the Exchange Ratio (as defined below) set forth in the draft
Agreement and Plan of Merger (the "Agreement") proposed to be entered into
among the Company, Dianon Systems, Inc. ("Parent") and UroCor Acquisition
Corp., a wholly owned subsidiary of Parent ("Merger Sub"). The Agreement
contemplates the merger (the "Merger") of Merger Sub with and into the Company,
or the merger of Company into Parent, pursuant to which, among other things,
each share of common stock of the Company will be converted into the right to
receive an amount of shares of common stock of Parent equal to the Exchange
Ratio. As contemplated by the Agreement, (i) if the average daily closing stock
price of Parent for selected dates within a specified time period ending prior
to the closing date of the Merger (the "Parent Stock Market Price") is less
than or equal to $44.29, the Exchange Ratio would be equal to 0.4064 and (ii)
if the Parent Stock Market Price is greater than $44.29, the Exchange Ratio
would be equal to a quotient, the numerator of which is $18.00 and the
denominator of which is the Parent Stock Market Price. The Merger and the other
transactions contemplated in the Agreement are collectively referred to as the
"Transaction." The terms and conditions of the Transaction are more fully set
forth in the Agreement.
U.S. Bancorp Piper Jaffray Inc. ("U.S. Bancorp Piper Jaffray"), as a
customary part of our investment banking business, is engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
underwriting and secondary distributions of securities, private placements and
valuations for estate, corporate and other purposes. We will receive a fee from
the Company for providing this opinion. This opinion fee is not contingent upon
the consummation of the Transaction. The Company has also agreed to indemnify
us against certain liabilities in connection with our services. In the ordinary
course of our business, we and our affiliates may actively trade securities of
the Company for our own account or the account of our customers and,
accordingly, we may at any time hold a long or short position in such
securities.
In arriving at our opinion, we have undertaken such review, analyses and
inquiries, as we deemed necessary and appropriate under the circumstances. We
have reviewed the draft dated June 27, 2001 of the Agreement and have assumed
that the executed Agreement will be in all material respects identical to the
last draft reviewed by us. We also have reviewed financial and other
information that was publicly available or furnished to us by the Company and
Parent, including information provided during discussions with the management
of each company. In addition, we have compared certain financial data of the
Company and Parent with various other companies whose securities are traded in
public markets, reviewed prices and premiums paid in certain other business
combinations and conducted other financial studies, analyses and investigations
as we deemed appropriate for purposes of this opinion.
We have relied upon and assumed the accuracy and completeness of the
financial statements and other information provided by the Company and Parent
or otherwise made available to us and have not assumed responsibility
independently to verify such information. We have further relied upon the
assurances of the Company's and Parent's respective management that the
information provided has been prepared on a reasonable
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basis in accordance with industry practice, and, with respect to financial
planning data, reflects the best currently available estimates and judgment of
the Company's and Parent's respective management and that they are not aware of
any information or facts that would make the information provided to us
incomplete or misleading. We have assumed that that the Transaction will
qualify as a reorganization under the United States Internal Revenue Code.
Without limiting the generality of the foregoing, for the purpose of this
opinion, we have assumed that neither the Company nor Parent is party to any
pending transaction, including any external financing, recapitalization,
acquisition or merger, other than the Transaction or in the ordinary course of
business. In arriving at our opinion, we have assumed that all the necessary
regulatory approvals and consents required for the Transaction will be obtained
in a manner that will not adversely affect the Company or Parent. For purposes
of this opinion, we have also assumed that no transactions in securities of
Parent or the Company will occur before the closing date of the Merger or as a
result of the Transaction, including without limitation the exercise of any
preemptive rights, participation rights or rights of first refusal by the
stockholders of either company. We have also assumed the Transaction will be
consummated pursuant to the terms of the Agreement without amendments thereto
and without waiver by any party of any conditions or obligations thereunder.
In arriving at our opinion, we have not performed any appraisals or
valuations of any specific assets or liabilities of the Company or Parent, and
have not been furnished with any such appraisals or valuations. We express no
opinion regarding the liquidation value of the Company or any other entity.
Without limiting the generality of the foregoing, we have undertaken no
independent analysis of any pending or threatened litigation, possible
unasserted claims or other contingent liabilities, to which the Company, Parent
or any of their respective affiliates is a party or may be subject and, at the
Company's direction and with its consent, our opinion makes no assumption
concerning, and therefore does not consider, the possible assertions of claims,
outcomes or damages arising out of any such matters. We have assumed that the
terms of the Transaction are the most beneficial terms from the Company's
perspective that could under the circumstances be negotiated among the parties
to the Transaction, and no opinion is expressed as to whether any alternative
transaction might produce consideration for the Company's stockholders in
excess of the amount contemplated in the Transaction.
This opinion is necessarily based upon the information available to us and
facts and circumstances as they exist and are subject to evaluation on the date
hereof; events occurring after the date hereof could materially affect the
assumptions used in preparing this opinion. We are not expressing any opinion
herein as to the price at which shares of common stock of the Company or Parent
have traded or may trade at any future time. We have not undertaken to reaffirm
or revise this opinion or otherwise comment upon any events occurring after the
date hereof and do not have any obligation to update, revise or reaffirm this
opinion.
This opinion is directed to the Board of Directors of the Company and is not
intended to be and does not constitute a recommendation to any stockholder of
the Company. We were not requested to opine as to, and this opinion does not
address, the basic business decision to proceed with or effect the Transaction.
Except with respect to the use of this opinion in connection with the
prospectus/proxy statement relating to the Merger, this opinion shall not be
published or otherwise used, nor shall any public references to us be made,
without our prior written approval.
Based upon and subject to the foregoing and based upon such other factors as
we consider relevant, it is our opinion that as of the date hereof, other than
in respect of Parent, the Exchange Ratio is fair, from a financial point of
view, to the holders of common stock of the Company.
Sincerely,
/s/ U.S. BANCORP PIPER JAFFRAY INC.
U.S. BANCORP PIPER JAFFRAY INC.
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Annex D
DIANON SYSTEMS, INC. AUDIT COMMITTEE CHARTER
Organization
There shall be a committee of the Board of Directors of Dianon Systems, Inc.
(the "Corporation") to be known as the Audit Committee. The Audit Committee
shall be composed of at least three directors who are independent and
experienced in accordance with the rules of the National Association of
Securities Dealers ("NASD"). The Audit Committee shall be governed by a Charter
approved by the Board of Directors.
Statement of Policy
The Audit Committee shall provide assistance to the Board of Directors
relating to corporate accounting, reporting practices of the Corporation, and
the quality and integrity of the financial reports of the Corporation. In so
doing, the Audit Committee shall maintain free and open communications between
the directors, the auditing firm engaged by the Corporation (the "outside
auditors"), persons performing the internal audit function (the "internal
auditors") and the financial management of the Corporation.
Responsibilities
The Audit Committee's role is one of oversight. Management of the
Corporation and the outside auditors have more detailed information about the
Corporation as the result of their responsibilities in preparing the
Corporation's financial statements and performing audits thereon. As such, the
Audit Committee is not providing expert or special assurances as to the
Corporation's financial statements or the outside auditor's professional
review, but is responsible for providing oversight of these functions. In
carrying out its responsibilities, the Audit Committee believes its policies
and procedures should remain flexible, in order to best react to changing
conditions and to assure the directors and stockholders that the corporate
accounting and reporting practices of the Corporation are in accordance with
regulatory requirements and are of the highest quality.
In carrying out these responsibilities, the Audit Committee will:
. Meet at least quarterly, and more frequently as appropriate, and provide
sufficient opportunity for the internal auditors and outside auditors to
meet with the members of the Audit Committee without members of
management present. The Audit Committee shall regularly make reports to
the Board of Directors.
. Review the Audit Committee Charter annually and recommend any changes to
the Board of Directors for their approval.
. Evaluate the performance and recommend to the Board of Directors the
selection and, where appropriate, the replacement of the outside
auditors, who shall be ultimately accountable to the Board of Directors
and the Audit Committee.
. Review and discuss with the Corporation's outside auditors the written
disclosures regarding the outside auditor's independence in accordance
with Independence Standards Board Standard No. 1. Based upon this review
and discussion, the Audit Committee will recommend to the Board of
Directors any action appropriate to satisfy itself as to the
independence of the outside auditor.
. Meet with the outside auditors and financial management of the
Corporation to review the scope of the proposed audit for the current
year and the audit procedures to be utilized. At the conclusion of each
such audit, discuss with the auditors the matters required to be
discussed by Statement on Auditing Standards No. 61, including any
comments or recommendations of the outside auditors, and including
assurance that no matter has arisen with respect to Section 10A of the
Securities Exchange Act of 1934.
D-1
. Review with the outside auditors, the internal auditors and financial
and accounting personnel, the adequacy and effectiveness of the
accounting and financial controls of the Corporation, and elicit any
recommendations for the improvement of such internal control procedures
or particular areas where new or more detailed controls or procedures
are desirable.
. Review the internal audit function of the Corporation, including the
independence and authority of reporting obligations, the proposed audit
plans for the coming year and the coordination of such plans with the
outside auditors.
. Receive prior to each meeting at which the subject is discussed, a
summary of findings from completed internal audits and a progress report
on the proposed internal audit plan, with explanations for any
deviations from the original plan.
. Review annually with financial management and the Corporation's outside
auditors, the Corporation's accounting policies in light of the
Corporation's current operations, generally accepted accounting
principles and Securities and Exchange Commission ("SEC") rules and
regulations.
. Ensure review of the Corporation's interim financial information by the
Corporation's outside auditors in accordance with applicable generally
accepted auditing standards prior to the inclusion of such information
on SEC Form 10-Q.
. Review with management and the outside auditors the Corporation's
year-end audited financial statements to determine whether to recommend
to the Board of Directors that the Corporation's audited financial
statements shall be included in its SEC Form 10-K.
. Prepare with assistance of management, the outside auditors and, where
appropriate, legal counsel, the Audit Committee Report for inclusion in
the Corporation's annual proxy statement in accordance with applicable
SEC regulations.
. Ensure compliance with the written certification required by NASD rules
annually or upon any change in Audit Committee membership.
. Discuss periodically with management and the Corporation's legal counsel
the Corporation's Code of Conduct and, as appropriate, the compliance of
the Corporation's subsidiaries and employees with the Code of Conduct
and applicable legal requirements.
. Ensure that a copy of this charter is included in the Corporation's
annual proxy statement at least once every three years.
D-2
Annex E
DIANON SYSTEMS, INC.
2001 STOCK INCENTIVE PLAN
SECTION 1. Purposes
The purposes of the Dianon Systems, Inc. 2001 Stock Incentive Plan (the
"Plan") are (i) to enable Dianon Systems, Inc. (the "Company") and its Related
Companies (as defined below) to attract, retain and reward employees and
strengthen the existing mutuality of interests between such employees and the
Company's stockholders by offering such employees an equity interest in the
Company, and (ii) to enable the Company to pay part of the compensation of its
Outside Directors (as defined in Section 5.2) in the form of equity of the
Company, thereby increasing such directors' proprietary interests in the
Company. For purposes of the Plan, a "Related Company" means any corporation,
partnership, joint venture or other entity in which the Company owns, directly
or indirectly, at least a 20% beneficial ownership interest. In addition, for
purposes of this Plan, the term "Stock" shall refer to the common stock of the
Company, par value $.01 per share.
SECTION 2. Types of Awards
2.1 Awards under the Plan may be in the form of (i) Stock Options; (ii)
Stock Appreciation Rights; (iii) Restricted Stock; (iv) Deferred Stock; (v)
Bonus Stock; (vi) Loans; and/or (vii) Tax Offset Payments. One or more types of
awards may be granted, which may be independent or granted in tandem. If two
awards are granted in tandem, the award holder may exercise (or otherwise
receive the benefit of) one award only to the extent he or she relinquishes the
tandem award.
2.2 Outside Directors shall receive Stock Options, Limited Stock
Appreciation Rights and Stock Grants as provided in Section 15. In addition,
Outside Directors may be granted discretionary awards in one or more of the
forms set forth in Section 2.1.
SECTION 3. Administration
3.1 The Plan shall be administered (i) by the Compensation Committee of the
Company's Board of Directors (the "Board") or such other committee of directors
as the Board shall designate (the "Committee"), with respect to awards to
persons other than Outside Directors, and (ii) by the Board with respect to
awards to Outside Directors (except as provided in Section 4.5). The Committee
shall consist of not less than two directors each of whom is an Outside
Director. The members of the Committee shall serve at the pleasure of the
Board.
3.2 For purposes of this Plan the term "Granting Authority" shall mean (i)
the Board of Directors with respect to awards to Outside Directors (except as
provided in Section 4.5), and (ii) the Committee with respect to all other
awards. The Granting Authority shall have the following authority with respect
to awards under the Plan within its jurisdiction: to grant such awards to
persons eligible to receive them under the Plan; to adopt, alter and repeal
such administrative rules, guidelines and practices governing the Plan as it
shall deem advisable; to interpret the terms and provisions of the Plan and any
award granted by it under the Plan; and to otherwise supervise the
administration of the Plan. In particular, and without limiting its authority
and powers, the Granting Authority shall have the authority with respect to the
awards within its jurisdiction:
(a) to determine whether and to what extent any award or combination of
awards will be granted hereunder, including whether any awards will be
granted in tandem with each other;
(b) to select the eligible persons to whom awards will be granted;
(c) to determine the number of shares of the Stock of the Company to be
covered by each award granted hereunder subject to the limitations contained
herein;
(d) to determine the terms and conditions of any award granted hereunder,
including, but not limited to, any vesting or other restrictions based on
such performance objectives (the "Performance Objectives") and such other
factors as the Granting Authority may establish, and to determine whether
the Performance Objectives and other terms and conditions of the award are
satisfied;
(e) to determine the treatment of awards upon an award holder's
retirement, disability, death, termination for cause or other termination of
employment or service with the Company or Related Company;
E-1
(f) to determine pursuant to a formula or otherwise the fair market value
of the Stock on a given date; provided, however, that if the Granting
Authority fails to make such a determination, fair market value of the Stock
on a given date shall be the closing sale price on a given date, or if no
such sale of Stock occurs on such date, the weighted average of the closing
sale prices on the nearest trading dates before and after such date;
(g) to determine that amounts equal to the amount of any dividends
declared with respect to the number of shares covered by an award (i) will
be paid to the award holder currently or (ii) will be deferred and deemed to
be reinvested or (iii) will otherwise be credited to the award holder, or
that the award holder has no rights with respect to such dividends;
(h) to determine whether, to what extent, and under what circumstances
Stock and other amounts payable with respect to an award will be deferred
either automatically or at the election of an award holder, including
providing for and determining the amount (if any) of deemed earnings on any
deferred amount during any deferral period;
(i) to provide that the shares of Stock received as a result of an award
shall be subject to a right of first refusal, pursuant to which the award
holder shall be required to offer to the Company any shares that the award
holder wishes to sell, subject to such terms and conditions as the Granting
Authority may specify;
(j) to amend the terms of any award (including those granted under
Section 15), prospectively or retroactively; provided, however, that no
amendment shall impair the rights of the award holder without his or her
written consent; and
(k) to substitute new Stock Options for previously granted Stock Options,
or for options granted under other plans or agreements, in each case
including previously granted options having higher option prices.
3.3 The Committee shall have the right to designate awards as "Performance
Awards." Awards so designated shall be granted and administered in a manner
designed to preserve the deductibility of the compensation resulting from such
awards in accordance with Section 162(m) of the Internal Revenue Code (the
"Code"). The grant or vesting of a Performance Award shall be subject to the
achievement of Performance Objectives established by the Committee based on one
or more of the following criteria, in each case applied to the Company on a
consolidated basis and/or to a business unit and which the Committee may use as
an absolute measure, as a measure of improvement relative to prior performance,
or as a measure of comparable performance relative to a peer group of
companies: sales, operating profits, operating profits before interest expense
and taxes, net earnings, earnings per share, return on equity, return on
assets, return on invested capital, total stockholder return, cash flow, debt
to equity ratio, market share, stock price, economic value added, and market
value added.
The Performance Objectives for a particular Performance Award relative to a
particular fiscal year shall be established by the Committee in writing no
later than 90 days after the beginning of such year. The Committee's
determination as to the achievement of Performance Objectives relating to a
Performance Award shall be made in writing. The Committee shall have discretion
to modify the Performance Objectives or vesting conditions of a Performance
Award only to the extent that the exercise of such discretion would not cause
the Performance Award to fail to qualify as "performance-based compensation"
within the meaning of Section 162(m) of the Code.
3.4 All determinations made by the Granting Authority pursuant to the
provisions of the Plan shall be final and binding on all persons, including the
Company and Plan participants.
3.5 The Committee may from time to time delegate to one or more officers of
the Company any or all of its authorities granted hereunder except with respect
to awards granted to persons subject to Section 16 of the Securities Exchange
Act of 1934 or Performance Awards. The Committee shall specify the maximum
number of shares that the officer or officers to whom such authority is
delegated may award.
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3.6 All awards granted under this Plan shall be evidenced by a grant
certificate and the terms and conditions of the award shall be set forth in a
written agreement between the Company and the award recipient.
SECTION 4. Stock Subject to Plan
4.1 The total number of shares of Stock which may be awarded or issued
pursuant to the exercise of an award granted under this Plan shall be 640,000,
of which 500,000 shall be used for awards to employees and 140,000 shall be
used for awards to Outside Directors (all subject to adjustment as provided
below). Such shares may consist of authorized but unissued shares or treasury
shares. The exercise of a Stock Appreciation Right for cash or the payment of
any other award in cash shall not count against this share limit.
4.2 To the extent a Stock Option terminates without having been exercised,
or an award terminates without the award holder having received payment of the
award, or shares awarded are forfeited, the shares subject to such award shall
again be available for distribution in connection with future awards under the
Plan. Shares of Stock equal in number to the shares surrendered in payment of
the option price, and shares of Stock which are withheld in order to satisfy
federal, state or local tax liabilities, shall not count against the above
limit, and shall again be available for grants under the Plan.
4.3 (a) No employee shall be granted Stock Options, Stock Appreciation
Rights, Restricted Stock, Deferred Stock, and/or Bonus Stock, or any
combination of the foregoing with respect to more than 50,000 shares of Stock
in any fiscal year (subject to adjustment as provided in Section 4.5). No
employee shall be granted a Tax Offset Payment in any fiscal year with respect
to more than the number of shares of Stock covered by awards granted to such
employee in such fiscal year.
(b) For purposes of Section 162(m) of the Code, no key employee shall be
granted Stock Options or Stock Appreciation Rights with respect to more than
50,000 shares of Stock in any fiscal year (subject to adjustment as provided in
Section 4.5).
4.4 The maximum number of shares of Stock that may be issued under this Plan
pursuant to the exercise of Options intended to be Incentive Stock Options
shall be 500,000 shares.
4.5 In the event of any merger, reorganization, consolidation, sale of
substantially all assets, recapitalization, stock dividend, stock split,
spin-oft split-up, split-off distribution of assets or other change in
corporate structure affecting the Stock, a substitution or adjustment shall be
made by the Granting Authority in the aggregate number of shares reserved for
issuance under the Plan, the number of shares as to which awards may be granted
to any individual in any calendar year, the number and type of shares subject
to outstanding awards and the amounts to be paid by award holders or the
Company, as the case may be, with respect to outstanding awards; provided,
however, that no such adjustment shall increase the aggregate value of any
outstanding award. In the event any change described in this Section 4.5
occurs, the Granting Authority shall make appropriate adjustment in the awards
previously granted and to be granted to Outside Directors under the Plan;
provided that no such adjustment shall increase the aggregate value of any
outstanding award.
SECTION 5. Eligibility
5.1 Key employees of the Company or a Related Company, including key
employees who are officers and/or directors of the Company, are eligible to be
granted awards under the Plan, other than under Section 15. Employees shall be
selected for participation in the Plan from time to time by the Committee, in
its sole discretion, from among those key employees eligible to participate in
this Plan.
5.2 Awards under Section 15 of the Plan shall be made solely to Outside
Directors, which term shall mean any director of the Company other than one who
is an employee of the Company or a Related Company. The Board, in its
discretion, may also grant other awards under the Plan in one or more of the
forms set forth in Section 2.1 to one or more Outside Directors.
SECTION 6. Stock Options
6.1 The Stock Options awarded under the Plan may be of two types: (i)
Incentive Stock Options within the meaning of Section 422 of the Code or any
successor provision thereto (which may be granted only to employees); and (ii)
Non-Qualified Stock Options. To the extent that any Stock Option does not
qualify as an Incentive Stock Option, it shall constitute a Non-Qualified Stock
Option.
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6.2 Subject to the following provisions, Stock Options awarded under the
Plan shall be in such form and shall have such terms and conditions as the
Granting Authority may determine:
(a) Option Price. The option price per share of Stock purchasable under a
Stock Option shall be determined by the Granting Authority, and may be less
than the fair market value of the Stock on the date of the award of the
Stock Option.
(b) Option Term. The term of each Stock Option shall be fixed by the
Granting Authority.
(c) Exercisability. Stock Options shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by the
Granting Authority. The Granting Authority may waive such exercise
provisions or accelerate the exercisability of the Stock Option at any time
in whole or in part.
(d) Method of Exercise. Stock Options may be exercised in whole or in
part at any time during the option period by giving written notice of
exercise to the Company specifying the number of shares to be purchased,
accompanied by payment of the purchase price. Payment of the purchase price
shall be made in such manner as the Granting Authority may provide in the
award, which may include cash (including cash equivalents), delivery of
shares of Stock already owned by the optionee for at least six months,
"cashless exercise" (which may be either (i) a broker-assisted cash exercise
effected in accordance with rules adopted by the Granting Authority or (ii)
a direction to the Company to withhold shares of Stock, otherwise
deliverable to the option holder with respect to the Option, having a fair
market value on the date of exercise equal to the option price), or in any
other manner permitted by law determined by the Granting Authority, or any
combination of the foregoing. If the Granting Authority determines that a
Stock Option may be exercised using shares of Restricted Stock, then unless
the Granting Authority provides otherwise, the shares received upon the
exercise of a Stock Option which are paid for using Restricted Stock shall
be restricted in accordance with the original terms of the Restricted Stock
award.
(e) No Stockholder Rights. An optionee shall have neither rights to
dividends or other rights of a stockholder with respect to shares subject to
a Stock Option until the optionee has given written notice of exercise and
has paid for such shares.
(f) Surrender Rights. The Granting Authority may provide that options may
be surrendered for cash upon any terms and conditions set by the Granting
Authority.
(g) Non-transferability. Unless otherwise provided by the Granting
Authority, (i) Stock Options shall not be transferable by the optionee other
than by will or by the laws of descent and distribution, and (ii) during the
optionee's lifetime, all Stock Options shall be exercisable only by the
optionee or, in the event of the optionee's disability, by his or her
guardian or legal representative.
(h) Termination of Service. Following the termination of an optionee's
service with the Company or a Related Company, the Stock Option shall be
exercisable to the extent determined by the Granting Authority. The Granting
Authority may provide different post-termination exercise provisions with
respect to termination of service for different reasons. The Granting
Authority may provide that, notwithstanding the option term fixed pursuant
to Section 6.2(b), a Stock Option which is outstanding on the date of an
optionee's death shall remain outstanding for an additional period after the
date of such death.
6.3 Notwithstanding the provisions of Section 6.2, no Incentive Stock Option
shall (i) have an option price which is less than 100% of the fair market value
of the Stock on the date of the award of the Incentive Stock Option, (ii) be
exercisable more than ten years after the date such Incentive Stock Option is
awarded, or (iii) be awarded more than ten years after the Effective Date (as
defined below) of the Plan specified in Section 19. No Incentive Stock Option
granted to an employee who owns more than 10% of the total combined voting
power of all classes of stock of the Company or any of its parent or subsidiary
corporations, as defined in Section 424 of the Code, shall (A) have an option
price which is less than 110% of the fair market value of the Stock on the date
of award of the Incentive Stock Option or (B) be exercisable more than five
years after the date such Incentive Stock Option is awarded.
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6.4 A Stock Option granted to a key employee under this Plan will not be
considered an Incentive Stock Option to the extent that such Stock Option,
together with any earlier Stock Option granted to such employee under this or
any other plan of the Company that is intended to be an Incentive Stock Option,
permits the exercise for the first time in any calendar year of shares of Stock
having a fair market value in excess of $100,000 (determined at the time of
grant).
SECTION 7. Stock Appreciation Rights
7.1 A Stock Appreciation Right shall entitle the holder thereof to receive
payment of an amount, in cash, shares of Stock or a combination thereof, as
determined by the Granting Authority, equal in value to the excess of the fair
market value of the number of shares of Stock as to which the award is granted
on the date of exercise over an amount specified by the Granting Authority. Any
such award shall be in such form and shall have such terms and conditions as
the Granting Authority may determine. The grant shall specify the number of
shares of Stock as to which the Stock Appreciation Right is granted.
7.2 The Granting Authority may provide that a Stock Appreciation Right may
be exercised only within the 60-day period following occurrence of a Change of
Control (as defined in Section 17.2) (such Stock Appreciation Right being
referred to herein as a Limited Stock Appreciation Right). The Granting
Authority may also provide that in the event of a Change of Control the amount
to be paid upon exercise of a Stock Appreciation Right shall be based on the
Change of Control Price (as defined in Section 17.3).
SECTION 8. Restricted Stock
Subject to the following provisions, all awards of Restricted Stock shall be
in such form and shall have such terms and conditions as the Granting Authority
may determine:
(a) The Restricted Stock award shall specify the number of shares of
Restricted Stock to be awarded, the price, if any, to be paid by the
recipient of the Restricted Stock and the date or dates on which, or the
conditions upon the satisfaction of which, the restrictions shall lapse and
the Restricted Stock will vest. The grant and/or the vesting of Restricted
Stock may be conditioned upon the completion of a specified period of
service with the Company or a Related Company, upon the attainment of
specified Performance Objectives or upon such other criteria as the Granting
Authority may determine.
(b) Stock certificates representing the Restricted Stock awarded under
the Plan shall be registered in the award holder's name, but the Granting
Authority may direct that such certificates be held by the Company on behalf
of the award holder. Except as may be permitted by the Granting Authority,
no share of Restricted Stock may be sold, transferred, assigned, pledged or
otherwise encumbered by the award holder until such share has vested in
accordance with the terms of the Restricted Stock award. At the time
Restricted Stock vests, a certificate for such vested shares shall be
delivered to the award holder (or his or her designated beneficiary in the
event of death), free of all restrictions.
(c) The Granting Authority may provide that the award holder shall have
the right to vote or receive dividends on Restricted Stock. Unless the
Granting Authority provides otherwise, Stock received as a dividend on, or
in connection with a stock split of, Restricted Stock shall be subject to
the same restrictions as the Restricted Stock.
(d) Except as may be provided by the Granting Authority, in the event of
an award holder's termination of service before all of his or her Restricted
Stock has vested, or in the event any conditions to the vesting of
Restricted Stock have not been satisfied prior to any deadline for the
satisfaction of such conditions set forth in the award, the shares of
Restricted Stock which have not vested shall be forfeited, and the Granting
Authority may provide that (i) any purchase price paid by the award holder
shall be returned to the award holder or (ii) a cash payment equal to the
Restricted Stock's fair market value on the date of forfeiture, if lower,
shall be paid to the award holder.
(e) The Granting Authority may waive, in whole or in part, any or all of
the conditions to receipt of, or restrictions with respect to, any or all of
the award holder's Restricted Stock, other than Performance Awards whose
vesting was made subject to satisfaction of one or more Performance
Objectives (except that the Committee may waive conditions or restrictions
with respect to Performance Awards if such waiver would not cause the
Performance Award to fail to qualify as "performance-based compensation"
within the meaning of Section 162(m) of the Code).
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SECTION 9. Deferred Stock Awards
Subject to the following provisions, all awards of Deferred Stock shall be
in such form and shall have such terms and conditions as the Granting Authority
may determine:
(a) The Deferred Stock award shall specify the number of shares of
Deferred Stock to be awarded and the duration of the period (the "Deferral
Period") during which, and the conditions under which, receipt of the Stock
will be deferred. The Granting Authority may condition the grant or vesting
of Deferred Stock, or receipt of Stock or cash at the end of the Deferral
Period, upon the attainment of specified Performance Objectives or such
other criteria as the Granting Authority may determine.
(b) Except as may be provided by the Granting Authority, Deferred Stock
awards may not be sold, assigned, transferred, pledged or otherwise
encumbered during the Deferral Period.
(c) At the expiration of the Deferral Period, the award holder (or his or
her designated beneficiary in the event of death) shall receive (i)
certificates for the number of shares of Stock equal to the number of shares
covered by the Deferred Stock award, (ii) cash equal to the fair market
value of such Stock, or (iii) a combination of shares and cash, as the
Granting Authority may determine.
(d) Except as may be provided by the Granting Authority, in the event of
an award holder's termination of service before the Deferred Stock has
vested, his or her Deferred Stock award shall be forfeited.
(e) The Granting Authority may waive, in whole or in part, any or all of
the conditions to receipt of, or restrictions with respect to, Stock or cash
under a Deferred Stock award, other than with respect to Performance Awards
(except that the Committee may waive conditions or restrictions with respect
to Performance Awards if such waiver would not cause the Performance Award
to fail to qualify as "performance based compensation" within the meaning of
Section 162(m) of the Code).
SECTION 10. Bonus Stock
The Granting Authority may award Bonus Stock subject to such terms and
conditions as the Granting Authority shall determine. The grant of Bonus Stock
may be conditioned upon the attainment of specified Performance Objectives or
upon such other criteria as the Granting Authority may determine. The Granting
Authority may waive such conditions in whole or in part other than with respect
to Performance Awards (except that the Committee may waive conditions or
restrictions with respect to Performance Awards if such waiver would not cause
the Performance Award to fail to qualify as "performance-based compensation"
within the meaning of Section 162(m) of the Code). In making a determination
with respect to the terms and conditions of a Bonus Stock award, the Granting
Authority shall also have the right to eliminate or reduce the amount of Bonus
Stock otherwise payable under an award. Unless otherwise specified by the
Granting Authority, no money shall be paid by the recipient for the Bonus
Stock. Alternatively, the Granting Authority may offer the award holder the
opportunity to purchase Bonus Stock at a discount from its fair market value.
The Bonus Stock award shall be satisfied by the delivery of the designated
number of shares of Stock which are not subject to restriction.
SECTION 11. Loans
The Granting Authority may provide that the Company shall make, or arrange
for, a loan or loans with respect to the exercise of any Stock Option awarded
under the Plan, with respect to the payment of the purchase price, if any, of
any Restricted Stock awarded hereunder or with respect to any taxes arising
from an award hereunder; provided, however, that the Company shall not loan
more than the sum of (i) the excess of the purchase or exercise price of an
award over the par value of any shares of Stock awarded plus (ii) the amount of
any taxes arising from such award. The Granting Authority shall have full
authority to decide whether a loan will be made hereunder and to determine the
amount, term and provisions of any such loan, including the interest rate
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to be charged, whether the loan will be with or without recourse against the
borrower, any security for the loan, the terms on which the loan is to be
repaid and the conditions, if any, under which the loan may be forgiven.
SECTION 12. Tax Offset Payments
The Granting Authority may provide for a Tax Offset Payment by the Company
with respect to one or more awards granted under the Plan. The Tax Offset
Payment shall be in an amount specified by the Granting Authority, which shall
not exceed the amount necessary to pay the federal, state, local and other
taxes payable with respect to the applicable award and the receipt of the Tax
Offset Payment, assuming that the award holder is taxed at the maximum tax rate
applicable to such income. The Tax Offset Payment shall be paid solely in cash.
SECTION 13. Election to Defer Awards
The Granting Authority may permit an employee or Outside Director to elect
to defer receipt of an award (other than an award pursuant to Section 15) for a
specified period or until a specified event, upon such terms as are determined
by the Granting Authority.
SECTION 14. Tax Withholding
14.1 Each employee shall, no later than the date as of which the value of an
award first becomes includible in such person's gross income for applicable tax
purposes, pay to the Company, or make arrangements satisfactory to the
Committee regarding payment of, any federal, state, local or other taxes of any
kind required by law to be withheld with respect to the award. The obligations
of the Company under the Plan shall be conditional on such payment or
arrangements, and the Company (and, where applicable, any Related Company),
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the employee.
14.2 To the extent permitted by the Committee, and subject to such terms and
conditions as the Committee may provide, an employee may elect to have the
withholding tax obligation, or any additional tax obligation with respect to
any awards hereunder, satisfied by (i) having the Company withhold shares of
Stock otherwise deliverable to such person with respect to the award or (ii)
delivering to the Company shares of unrestricted Stock previously owned by the
person for at least six months.
SECTION 15. Automatic Stock Options and Limited Stock Appreciation Rights.
15.1 Outside Directors shall be granted Stock Options as follows:
(a) Existing Directors. On the first trading day following the approval
of this Plan by the Company's stockholders, a Stock Option to purchase
20,000 shares of Stock, subject to adjustment as provided in Section 4.5,
shall be granted automatically to each Outside Director who is then a member
of the Board.
(b) Triennial Option Grants. On each three-year anniversary of the date
of grant of the Stock Options granted pursuant to Section 15.1(a), a Stock
Option to purchase 20,000 shares of Stock, subject to adjustment as provided
in Section 4.5, shall be granted automatically to each Outside Director who
is then a member of the Board.
(c) Initial Grants for New Outside Directors. Each new Outside Director
who has not been granted a Stock Option pursuant to Section 15.1(a) or
Section 15.1(b), upon the first trading day coincident with or immediately
following the effective date of his or her election as an Outside Director,
shall be granted a Stock Option to purchase a pro-rated number of shares of
Stock. The pro-rated number of shares of Stock with respect to which a Stock
Option shall be granted shall be equal to 20,000, subject to adjustment as
provided in Section 4.5, times a fraction, the numerator of which is the
number of whole months remaining (if any) until the next triennial Stock
Option grant under Section 15.1(b) and the denominator of which is
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36. A "whole" month will include the month in which the Outside Director is
elected or appointed where the date of election or appointment is on or
before the tenth of the month.
(d) For purposes of this Section 15.1, the term trading day shall mean a
day on which the Stock is traded on a national securities exchange, on the
Nasdaq National Market, or in the over-the-counter market.
(e) Notwithstanding the foregoing, if on any date on which Stock Options
are to be granted under this Section 15.1 the remaining shares available for
issuance to Outside Directors under the Plan are insufficient to enable each
Outside Director to receive a Stock Option to purchase the applicable number
of shares of Stock set forth above, each Outside Director who is entitled to
be granted a Stock Option pursuant to this Section 15.1 on such date shall
be granted a Stock Option to purchase his or her pro-rata portion of such
remaining shares.
15.2 Stock Options granted under this Section 15 shall be Non-Qualified
Stock Options, and shall have the following terms and conditions:
(a) Option Price. The option price per share of Stock purchasable under
the Stock Option shall be equal to the closing sales price of the Stock on
the date the Stock Option is granted.
(b) Term of Option. The term of the Stock Option shall be ten years from
the date of grant, subject to earlier termination in the event of
termination of service as a director, as set forth in paragraphs (f) and (g)
below.
(c) Exercisability. Each Stock Option pursuant to Section 15.1 shall
become exercisable as to one-third of the total number of shares of Stock
covered by the Stock Option, on a cumulative basis, on each of the first,
second and third anniversaries of the date of grant if the holder thereof
has been an Outside Director at all times since such date of grant. The
minimum number of shares with respect to which a Stock Option may be
exercised is the lesser of 100 shares or the number of shares then subject
to the Stock Option.
(d) Method of Exercise. The Stock Options may be exercised in whole or in
part at any time during the option period by giving written notice of
exercise to the Company specifying the number of shares to be purchased,
accompanied by payment of the purchase price. Payment of the purchase price
shall be made in cash (including cash equivalents) or by delivery of shares
of Stock already owned by the optionee for at least six months, or by any
combination of the foregoing. Shares delivered upon payment of the exercise
price shall be valued at the average of the high and low sale prices of the
Stock on the date of exercise (or, if the Stock is not traded on such date,
at the weighted average of the high and low prices on the nearest trading
dates before and after such date).
(e) Termination of Service as Director. If an optionee's service as a
director is terminated for any reason, such director's Stock Options may be
exercised for five years following such termination of service (but not
beyond the Option term), but only to the extent such Options were vested on
the date of termination of service.
(f) Change of Control. Notwithstanding any other provision of the Plan,
upon the occurrence of a Change of Control (as defined in Section 17.2), all
Stock Options outstanding at the time of such Change of Control shall become
immediately vested and exercisable and shall remain exercisable for five
years after the director's termination of service (but not beyond the option
term).
(g) Non-transferability. No Stock Option shall be transferable by the
optionee other than by will or by the laws of descent and distribution.
During an optionee's lifetime, all Stock Options shall be exercisable only
by the optionee or, in the event of the optionee's disability, by his or her
guardian or legal representative.
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(h) Stockholder Rights. The holder of a Stock Option shall, as such, have
none of the rights of a stockholder.
15.3 Limited Stock Appreciation Rights in Tandem with Options. Each Stock
Option granted to an Outside Director under this Section 15 shall be granted in
tandem with a Limited Stock Appreciation Right which may be exercised only
within the 60-day period following a Change of Control. Upon exercise of the
Limited Stock Appreciation Right, the holder shall receive, for each share with
respect to which the Limited Stock Appreciation Right is exercised, an amount
equal in value to the excess of the Change of Control Price (as defined in
Section 17.3) over the exercise price of the related Stock Option. The Limited
Stock Appreciation Right shall be payable solely in cash, and shall be paid
within 30 days of the exercise of the Limited Stock Appreciation Right. Upon
the exercise of the Limited Stock Appreciation Right, the Stock Option granted
in tandem with such Right shall expire.
SECTION 16. Amendments and Termination
The Board may discontinue the Plan at any time and may amend it from time to
time. No amendment or discontinuation of the Plan shall adversely affect any
award previously granted without the award holder's written consent. Amendments
may be made without stockholder approval except as required to satisfy Section
422 of the Code, Section 162(m) of the Code, or other NASDAQ, stock exchange,
or regulatory requirements.
SECTION 17. Change of Control
17.1 In the event of a Change of Control, unless otherwise determined by the
Granting Authority at the time of grant or by amendment (with the award
holder's consent) of such grant:
(a) all outstanding Stock Options and all outstanding Stock Appreciation
Rights (including Limited Stock Appreciation Rights) awarded under the Plan
shall become fully exercisable and vested;
(b) the restrictions and deferral limitations applicable to any
outstanding Restricted Stock and Deferred Stock awards under the Plan shall
lapse and such shares and awards shall be deemed fully vested; and
(c) to the extent the cash payment of any award is based on the fair
market value of Stock, such fair market value shall be the Change of Control
Price.
17.2 A "Change of Control" shall be deemed to occur on:
(a) the date that any person or group deemed a person under Sections
3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934 (other than the
Company and its subsidiaries as determined immediately prior to that date)
has become the beneficial owner, directly or indirectly (with beneficial
ownership determined as provided in rule 13d-3, or any successor rule, under
the Securities Exchange Act of 1934) of securities of the Company
representing 25% or more of the total combined voting power of all classes
of stock of the Company having the right under ordinary circumstances to
vote at an election of the Board, unless such person has acquired 80% or
more of such securities directly from the Company;
(b) the date on which one-third or more of the members of the Board shall
consist of persons other than Current Directors (for these purposes a
"Current Director" shall mean any member of the Board on the Effective Date
and any member of the Board whose nomination or election has been approved
by a majority of the Current Directors then on the Board);
(c) the date of approval by the stockholders of the Company of an
agreement providing for the merger or consolidation of the Company with
another corporation where (i) the stockholders of the Company, immediately
prior to the merger or consolidation, would not beneficially own,
immediately after the merger or consolidation, shares entitling such
stockholders to 50% or more of all votes (without
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consideration of the rights of any class of stock to elect directors by a
separate class vote) to which all stockholders of the corporation issuing
cash or securities in the merger or consolidation would be entitled in the
election of directors, or (ii) where the members of the Board, immediately
prior to the merger or consolidation, would not, immediately after the
merger or consolidation, constitute a majority of the board of directors of
the corporation issuing cash or securities in the merger; or
(d) the date of approval by the stockholders of the Company of an
agreement providing for the sale or other disposition of all or
substantially all of the assets of the Company.
17.3 "Change of Control Price" means the highest price per share paid in any
transaction reported in the Nasdaq National Market or on any national
securities exchange where the Stock is traded, or paid or offered in any
transaction related to a Change of Control at any time during the 90-day period
ending with the Change of Control. Notwithstanding the foregoing sentence, in
the case of Stock Appreciation Rights granted in tandem with Incentive Stock
Options, the Change of Control Price shall be the highest price paid on the
date on which the Stock Appreciation Right is exercised.
SECTION 18. General Provisions
18.1 Each award under the Plan shall be subject to the requirement that, if
at any time the Granting Authority shall determine that (i) the listing,
registration or qualification of the Stock subject or related thereto upon any
securities exchange or under any state or federal law, or (ii) the consent or
approval of any government regulatory body or (iii) an agreement by the
recipient of an award with respect to the disposition of Stock is necessary or
desirable (in connection with any requirement or interpretation of any federal
or state securities law, rule or regulation) as a condition of, or in
connection with, the granting of such award or the issuance, purchase or
delivery of Stock thereunder, such award shall not be granted or exercised, in
whole or in part, unless such listing, registration, qualification, consent,
approval or agreement shall have been effected or obtained free of any
conditions not acceptable to the Granting Authority.
18.2 Nothing set forth in this Plan shall prevent the Board from adopting
other or additional compensation arrangements. Neither the adoption of the Plan
nor any award hereunder shall confer upon any employee of the Company, or of a
Related Company, any right to continued employment, and no award shall confer
upon any Outside Director any right to continued service as a director.
18.3 Determinations by the Granting Authority under the Plan relating to the
form, amount, and terms and conditions of awards need not be uniform, and may
be made selectively among persons who receive or are eligible to receive awards
under the Plan, whether or not such persons are similarly situated.
18.4 No member of the Board or the Committee, nor any officer or employee of
the Company acting on behalf of the Board or the Committee, shall be personally
liable for any action, determination or interpretation taken or made with
respect to the Plan, and all members of the Board or the Committee and all
officers or employees of the Company acting on their behalf shall, to the
extent permitted by law, be fully indemnified and protected by the Company in
respect of any such action, determination or interpretation.
SECTION 19. Effective Date of Plan
The Plan was adopted by the Company's Board of Directors on August 1, 2001,
and shall be effective as of such date (the "Effective Date"), subject to the
approval of the Plan by the Company's stockholders at the 2001 Annual Meeting
of Stockholders.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Indemnification Under Dianon's Certificate of Incorporation and Delaware
Law. Article Tenth of Dianon's certificate of incorporation provides for the
indemnification of directors or officers, to the fullest extent permitted by
the General Corporation Law of the State of Delaware. The General Corporation
Law of the State of Delaware provides for the indemnification of directors and
officers under certain conditions.
Dianon D&O Insurance. The directors and officers of Dianon are insured under
a policy of directors' and officers' liability insurance.
Merger Agreement Provisions Relating To UroCor and Dianon Directors and
Officers. Dianon is obligated, for six years after the merger, to maintain in
effect UroCor's current directors' and officers' liability insurance (but the
annual premiums for such insurance may not exceed $240,000) covering acts or
omissions occurring prior to the effective time of the merger. Dianon will
cause the surviving corporation in the merger to maintain in its certificate of
incorporation or by-laws for a period of 6 years the current provisions
regarding indemnification of officers, directors and employees.
Item 21. Exhibits and Financial Statement Schedules.
(a) List of Exhibits
Exhibit Description
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2.1 Agreement and Plan of Merger dated as of June 28, 2001 among DIANON Systems, Inc., UroCor,
Inc. and UroCor Acquisition Corp., which is attached as Annex A to the Joint Proxy Statement/
Prospectus included in this Registration Statement.
3.1 Restated Certificate of Incorporation of the Registrant, as amended through June 12, 1991
(incorporated herein by reference to Exhibit 3.1 of the Registrant's Registration Statement
No. 33-41226).
3.2 Restated By-laws of the Registrant, as amended through February 2, 1997 (incorporated herein by
reference to Exhibit 4.2 of the Registrant's Registration Statement No. 333-18817).
4.1 Rights Agreement, dated as of April 29, 1994, between the Registrant and American Stock Transfer
and Trust Company, as Rights Agent (incorporated by reference to Exhibit 1 in the Registrant's
Form 8-K dated April 29, 1994, filed with the Securities and Exchange Commission on May 9,
1994).
4.2 Amendment dated as of October 4, 1995 to Rights Agreement, dated as of April 29, 1994, between
the Registrant and American Stock Transfer and Trust Company, as Rights Agent (incorporated by
reference to Exhibit No. 1 in the Registrant's Form 8-K dated October 30, 1995, filed with the
Securities and Exchange Commission on November 8, 1995).
5 Opinion of Cadwalader, Wickersham & Taft regarding the validity of the securities being registered.*
8.1 Opinion of Cadwalader, Wickersham & Taft regarding material federal income tax consequences
relating to the merger.*
8.2 Opinion of Fulbright & Jaworski L.L.P. regarding material federal income tax consequences relating
to the merger.*
21 Subsidiaries of the Registrant.*
23.1 Consent of Arthur Andersen LLP (for the Registrant)
23.2 Consent of Arthur Andersen LLP (for UroCor, Inc.)
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Exhibit Description
- ------- -----------
23.3 Consent of Cadwalader, Wickersham & Taft (included in the opinions filed as Exhibit 5 and Exhibit
8.1 to this Registration Statement).
23.4 Consent of Fulbright & Jaworski L.L.P. (included in the opinion filed as Exhibit 8.2 to this
Registration Statement).
23.5 Consent of Lazard Freres & Co. LLC (included in the opinion attached as Annex B to the Joint Proxy
Statement/Prospectus included in this Registration Statement)
23.6 Consent of U.S. Bancorp Piper Jaffray Inc.*
99.1 Form of Dianon Proxy Card.*
99.2 Form of UroCor Proxy Card.*
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* Previously filed.
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(5) That every prospectus (i) that is filed pursuant to paragraph (4)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a) (3) of the Securities Act of 1933 and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part
of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be
S4-II-2
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(6) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(7) To respond to requests for information that is incorporated by
reference into the joint proxy statement/prospectus pursuant to Item 4,
10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the
date of responding to the request.
(8) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
S4-II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Stratford, State of Connecticut, on
September 7, 2001.
DIANON SYSTEMS, INC.
(Registrant)
/s/ KEVIN C. JOHNSON
By: _________________________________
Kevin C. Johnson
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed below by the following persons in the capacities indicated on
September 7, 2001.
Signature Title
--------- -----
/s/ KEVIN C. JOHNSON President and Chief Executive Officer and a
- ----------------------------- Director
Kevin C. Johnson
/s/ DAVID R. SCHREIBER Senior Vice President, Finance and Chief Financial
- ----------------------------- Officer (Principal Financial and Accounting
David R. Schreiber Officer) and a Director
/s/ JOHN P. DAVIS Director
- -----------------------------
John P. Davis
/s/ G.S. BECKWITH GILBERT Director
- -----------------------------
G.S. Beckwith Gilbert
/s/ BRUCE K. CROWTHER Director
- -----------------------------
Bruce K. Crowther
/s/ E. TIMOTHY GEARY Director
- -----------------------------
E. Timothy Geary
/s/ JEFFREY L. SKLAR Director
- -----------------------------
Jeffery L. Sklar, M.D., Ph.D.
/s/ JAMES T. BARRY Director
- -----------------------------
James T. Barry
S4-II-4
EXHIBIT INDEX
Exhibit Description
- ------- -----------
2.1 Agreement and Plan of Merger dated as of June 28, 2001 among DIANON Systems, Inc., UroCor,
Inc. and UroCor Acquisition Corp., which is attached as Annex A to the Joint Proxy Statement/
Prospectus included in this Registration Statement.
3.1 Restated Certificate of Incorporation of the Registrant, as amended through June 12, 1991
(incorporated herein by reference to Exhibit 3.1 of the Registrant's Registration Statement
No. 33-41226).
3.2 Restated By-laws of the Registrant, as amended through February 2, 1997 (incorporated herein by
reference to Exhibit 4.2 of the Registrant's Registration Statement No. 333-18817).
4.1 Rights Agreement, dated as of April 29, 1994, between the Registrant and American Stock Transfer
and Trust Company, as Rights Agent (incorporated by reference to Exhibit 1 in the Registrant's
Form 8-K dated April 29, 1994, filed with the Securities and Exchange Commission on May 9,
1994).
4.2 Amendment dated as of October 4, 1995 to Rights Agreement, dated as of April 29, 1994, between
the Registrant and American Stock Transfer and Trust Company, as Rights Agent (incorporated by
reference to Exhibit No. 1 in the Registrant's Form 8-K dated October 30, 1995, filed with the
Securities and Exchange Commission on November 8, 1995).
5 Opinion of Cadwalader, Wickersham & Taft regarding the validity of the securities being registered.*
8.1 Opinion of Cadwalader, Wickersham & Taft regarding material federal income tax consequences
relating to the merger.*
8.2 Opinion of Fulbright & Jaworski L.L.P. regarding material federal income tax consequences relating
to the merger.*
21 Subsidiaries of the Registrant.*
23.1 Consent of Arthur Andersen LLP (for the Registrant).
23.2 Consent of Arthur Andersen LLP (for UroCor, Inc.).
23.3 Consent of Cadwalader, Wickersham & Taft (included in the opinions filed as Exhibit 5 and
Exhibit 8.1 to this Registration Statement).
23.4 Consent of Fulbright & Jaworski L.L.P. (included in the opinion filed as Exhibit 8.2 to this
Registration Statement).
23.5 Consent of Lazard Freres & Co. LLC (included in the opinion attached as Annex B to the Joint Proxy
Statement/Prospectus included in this Registration Statement).
23.6 Consent of U.S. Bancorp Piper Jaffray Inc.*
99.1 Form of Dianon Proxy Card.*
99.2 Form of UroCor Proxy Card.*
- --------
* Previously filed.