AGREEMENT AND PLAN OF MERGER

Exhibit 2.4

 

AGREEMENT AND PLAN OF MERGER

 

BY AND AMONG

 

AMERIPATH, INC.,

 

PATHOLOGY ASSOCIATES OF INDIANA, P.C.

 

PATHOLOGY ASSOCIATES, P.C.

 

ALAN HALPERIN, M.D.

 

WOJCIECH SZANIAWSKI, M.D.

 

PAUL CHU, M.D.

 

AND

 

MARK JACOBSON, M.D.

 

DATED AS OF DECEMBER 3, 2004

MERGER AGREEMENT (the “ Agreement ”), dated as of December 3, 2004, by and among AmeriPath, Inc., a Delaware corporation, or its permitted assigns (“ AmeriPath ”), Pathology Associates, P.C. a New York professional corporation (the “ Practice ”), Pathology Associates of Indiana, P.C., an Indiana professional corporation (“ Survivor ”), Alan Halperin, M.D. (“Halperin”), Wojciech Szaniawski, M.D. (“Szaniawski”), Paul Chu, M.D. (“Chu”) and Mark Jacobson, M.D. (“Jacobson”).

 

WHEREAS , Halperin, Szaniawski, Chu and Jacobson (each a “ Seller ” and, together the “ Sellers ”) own all of the issued and outstanding shares of capital stock of the Practice (the “ NY Shares ”);

 

WHEREAS , the Sellers and AmeriPath desire to enter into a transaction pursuant to which the Practice becomes a direct or indirect wholly-owned subsidiary of AmeriPath and Sellers receive consideration as further described in this Agreement;

 

WHEREAS, pursuant to the merger contemplated by this Agreement (“the Merger”) the Practice is merging with and into the Survivor and all of the NY Shares are being canceled and exchanged for the “Merger Consideration” (as defined below);

 

WHEREAS, in connection with the transaction contemplated by this Agreement, (i) the Practice will file that certain Certificate of Merger with the State of New York, a copy of which is attached hereto as Exhibit A (the “ NY Certificate of Merger ”) and (ii) the Survivor will file that certain Articles of Merger with the State of Indiana, a copy of which is attached hereto as Exhibit B (the “ IN Articles of Merger ”);

 

WHEREAS , immediately following the Merger, the Survivor will enter into a merger agreement (“ Second Merger Agreement ”) pursuant to which Survivor will merge (the “ Second Merger”) with and into AmeriPath New York, LLC, a Delaware limited liability company and a wholly-owned subsidiary of AmeriPath ( “AP NY LLC”) ;

 

WHEREAS , in connection with the transaction contemplated hereunder: (i) each Seller will enter into a Termination and Release Agreement substantially in the form attached hereto as Exhibit C (the “ Termination and Release Agreement ”) with the Practice under which each Seller and AP NY LLC will terminate all prior agreements among them (including any employment agreements) and each Seller will release AP NY LLC from all liability with respect thereto and (ii) each Seller will enter into an employment agreement with the Practice substantially in the form attached hereto as Exhibit D (the “ Employment Agreement ”); and

 

WHEREAS , the Practice and AmeriPath have filed a Notification of Change in Laboratory Owner with the New York State Department of Health, a copy of which is attached hereto as Exhibit E (the “ NY Lab Notice ”).

NOW, THEREFORE , for and in consideration of the mutual benefits to be derived hereby and the premises, representations, warranties, covenants and agreements herein contained, AmeriPath, the Practice and the Sellers hereby agree, intending to be legally bound, as follows:

 

ARTICLE I

 

PURCHASE OF CAPITAL STOCK

 

1.1 Manner of Merger . Subject to the terms and conditions of this Agreement, and on the Effective Date (as defined in Section 7.3), the Practice shall be merged with and into Survivor, which shall be the surviving corporation. The corporate existence of Survivor with all its purposes, powers and objects shall continue unaffected and unimpaired by the Merger, and as the surviving corporation, Survivor shall be governed by the laws of the State of Indiana and succeed to all rights, assets, liabilities and obligations of the Practice as set forth in the Indiana Business Corporation Law. The separate existence and corporate organization of the Practice shall cease upon the Effective Date of the Merger and thereafter Survivor shall continue to exist under the laws of the State of Indiana. The Survivor, without further act or deed, shall (i) have the purposes and shall possess all the rights, privileges, immunities, powers, franchises and authority, both public and private, and be subject to all the restrictions, disabilities, duties and liabilities of the Practice and Survivor (together, the “ Constituent Corporations ”), and neither the rights of creditors nor any liens upon the property of either of them shall be impaired by the Merger; (ii) be vested with all assets and property, real, personal and mixed, and every interest therein, wherever located, belonging to each of the Constituent Corporations; and (iii) be liable for all of the obligations and liabilities of each of the Constituent Corporations, including without limitation any and all federal, state and/or municipal taxes, which shall not revert or in any way be impaired by reason of the Merger. The Survivor will be specifically responsible for the payment of all fees and franchise taxes required by law to be paid by the Practice and the Survivor will be obligated to pay such fees and franchise taxes if the same are not timely paid.

 

1.2 Articles of Incorporation, as Amended, Bylaws and Management of the Survivor .

 

(a) The Articles of Incorporation of Survivor as in effect immediately prior to the Effective Date of the Merger shall be the Articles of Incorporation of the Survivor until same shall thereafter be altered, amended or repealed in accordance with applicable law.

 

(b) The Bylaws of Survivor as in effect immediately prior to the Effective Date of the Merger shall be the Bylaws of the Survivor until same shall thereafter be altered, amended or repealed in accordance with applicable law, the Articles of Incorporation or such Bylaws of the Survivor.

 

(c) The directors and officers of Survivor immediately prior to the Effective Date of the Merger shall be the directors and officers of the Survivor.

 

1.3 The Status and Conversion of Shares . The manner of converting the shares of the Constituent Corporations shall be as follows:

 

(a) On the Effective Date of the Merger, each of the following events shall be deemed to occur simultaneously:

 

(i) Each share of the Class A common stock, par value $0.01 per share, of Survivor that is issued and outstanding immediately prior to the

 

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Effective Date of the Merger shall, by virtue of the Merger and without any action on the part of the holder thereof, remain issued and outstanding as in effect immediately prior to the Merger.

 

(ii) The Practice’s Class A Common Stock, par value $.01 per share (“ Class A NY Shares ”), issued and outstanding immediately prior to the Effective Date of the Merger, which Sellers represent is eighty (80) shares, shall be canceled in exchange for: (i) cash in the amount equal to the Adjusted Aggregate A Consideration; and (ii) Eight Hundred Nineteen Thousand Two Hundred Sixty (819,260) shares of common stock, $.01 par value per share of AmeriPath Holdings, Inc., a Delaware corporation (“AmeriPath Stock”). The term “Adjusted Aggregate A Consideration” means Eighteen Million One Hundred Thirty Three Thousand Two Hundred Twenty ($18,133,220) Dollars, minus Fifty Three and one third percent (53  ¹ / 3 %) of the COH Shortfall. For purposes of this Agreement, the COH Shortfall means the amount by which Two Hundred Fifty Thousand Dollars ($250,000) exceeds the actual cash on hand of the Practice at the Effective Date .

 

(iii) The Practice’s Class B Common Stock, par value $.01 per share (the “ Class B NY Shares ”), issued and outstanding immediately prior to the Effective Date of the Merger, which Sellers represent is seventy (70) shares, shall be canceled in exchange for (i) cash in the amount of the Adjusted Aggregate B Consideration and (ii) Seven Hundred Sixteen Thousand Eight Hundred Fifty Two (716,852) shares of AmeriPath Stock. The term “Adjusted Aggregate B Consideration” means Fifteen Million Eight Hundred Sixty Six Thousand Seven Hundred Eighty Dollars ($15,866,780) minus Forty Six and two third (46  ² / 3 %) percent of the COH Shortfall.

 

Schedule 1.3 sets forth the consideration to be provided in exchange for the cancellation of the Class A Shares and the Class B Shares, assuming that there is no COH Shortfall, after taking into account certain payments to professionals. Each of the Shareholders agrees to the payments described in Schedule 1.3 , including those made to professionals described therein.

 

1.4 Further Action . At and after the Effective Date, the officers and directors of AmeriPath and Survivor will be authorized to execute and deliver, in the name and on behalf of the Practice, any deeds, bills of sale, assignments or assurances and to take and do, in the name and on behalf of the Practice, any other actions and things to vest, perfect or confirm of record or otherwise in the Survivor 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 Survivor as a result of, or in connection with, the Merger.

 

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ARTICLE II

 

REPRESENTATIONS AND WARRANTIES OF THE SELLERS

 

Each Seller, makes the following representations and warranties to AmeriPath as of the date hereof and the Effective Date each of which shall be deemed material (and AmeriPath, in executing, delivering and consummating this Agreement, has relied upon the correctness and completeness of each of such representations and warranties notwithstanding independent investigation, if any); provided, however , that the liability of each Seller for a breach of the representations and warranties set forth herein will be determined in accordance with Article VI:

 

2.1 Organization, Qualification, etc. The Practice is a New York professional service corporation duly organized, validly existing and in good standing under the laws of the State of New York with full corporate power and authority to carry on its business as it is now being conducted and to own, operate and lease its properties and assets. The Practice is duly qualified or licensed to do business in and is in good standing in those jurisdictions in which the conduct of its business, or the ownership or lease of its properties, require it to be so qualified, registered, or licensed and the failure of which would cause a Material Adverse Effect. True, complete and correct copies of the articles of incorporation and bylaws, as amended and as presently in effect, for the Practice are attached hereto as Schedules 2.1-A and 2.1-B .

 

2.2 Subsidiaries . Except as set forth on Schedule 2.2 , the Practice has no Subsidiaries (as defined in Section 7.3 ) or has any investment or other equity interest in, or any outstanding loan or advance to or from, any Person, including any officer, director, shareholder, or Affiliate (as defined in Section 7.3 ).

 

2.3 Capital Stock . Immediately prior to the Merger, the authorized capital stock of the Practice consists of (a) Five Hundred (500) shares of Class A Common Stock, of which eighty (80) shares are issued and outstanding and (b) Five Hundred (500) shares of Class B Common Stock, of which seventy (70) shares are issued and outstanding. True, complete and correct stock record books of the Practice have been delivered to AmeriPath for inspection prior to the date hereof and each remains unchanged and true, complete and correct, and contains all of the transactions in the capital stock of the Practice. Immediately prior to the Merger, the NY Shares constitute all of the issued and outstanding shares of capital stock of the Practice.

 

2.4 Corporate Record Books . The corporate minute books of the Practice that have been made available to AmeriPath, are true, complete and correct.

 

2.5 Title to Stock . As of immediately prior to the Merger, the NY Shares are owned beneficially and of record by the Sellers, are duly authorized, validly issued and fully paid, nonassessable, and are free of all Liens (as defined in Section 7.3 ) or any preemptive or similar rights. Each Seller is permitted to own the NY Shares under applicable law. Upon delivery of the purchase price to the Sellers at the Effective Date, the Sellers will convey to AmeriPath good and marketable title to the NY Shares free and clear of all Liens, preemptive rights or other limitations whatsoever, including any claim by any prior stockholder of the Practice.

 

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2.6 Options and Rights . Other than the buy-in to the Practice with respect to Damian DiCostanzo which is described in Schedule 2.6 hereof there are (a) no outstanding subscriptions, options, warrants, rights, securities, contracts, commitments, understandings or arrangements under which the Practice is bound or obligated to issue any additional shares of its capital stock or rights to purchase shares of its capital stock and (b) no agreements, arrangements or understandings between the Sellers and the Practice and any other Person regarding the NY Shares (including the transfer, disposition, holding or voting thereof), other than as set forth hereunder.

 

2.7 Authorization, Etc. The Practice has full corporate power and authority and the Sellers have full power and capacity to enter into this Agreement and the other agreements and documents contemplated hereby (including, without limitation, the Termination and Release Agreement and the Employment Agreement) and to perform its or his obligations hereunder and thereunder. The execution, delivery and performance of this Agreement and all other agreements and transactions contemplated hereby have been duly authorized by the board of directors and stockholders of the Practice and no other corporate proceedings on the part of the Practice are necessary to authorize, adopt and approve this Agreement or any other document or agreement contemplated hereby, or the transactions contemplated hereby and thereby. No other actions or proceeding on the part of the Sellers are necessary to authorize, adopt and approve this Agreement or any other document or agreement contemplated hereby, or the transactions contemplated hereby and thereby. The Sellers are authorized to sell the NY Shares in accordance with this Agreement. Each Seller is entering into this Agreement (and any other agreement contemplated hereby) on his own volition, free from any undue influence or coercion. Upon execution and delivery of this Agreement (and the other agreements and documents contemplated hereby) by the parties hereto, this Agreement and all other such agreements shall constitute the legal, valid and binding obligations of the Practice and the Sellers (to the extent each is a party to such other agreements), enforceable against each such party in accordance with their respective terms, except as such enforceability may be qualified by equitable principles or pursuant to laws affecting the enforceability of creditor’s rights.

 

2.8 No Violation . The execution and delivery by the Practice and the Sellers of this Agreement and any and all other agreements contemplated hereby and the fulfillment of and compliance with the respective terms hereof and thereof by the Practice and the Sellers, do not and will not, except as set forth on Schedule 2.8 attached hereto, (a) conflict with or result in a breach of the terms, conditions or provisions of, (b) constitute a default or event of default under (with due notice, lapse of time or both), (c) result in the creation of any Lien upon the NY Shares or any assets of the Practice pursuant to, (d) give any third party the right to accelerate any obligation under, (e) result in a violation of, or (f) require any authorization, consent, approval, exemption or other action by or notice to any court or Authority or other Person pursuant to, the Certificate of Incorporation or bylaws of the Practice or any Regulation, Order or material Contract (as defined in Section 7.3 ) to which the Practice or any Seller is subject. Any consents or approvals indicated in Schedule 2.8 have been obtained by the Practice or the Sellers, as the case may be or waived in writing by AmeriPath on or prior to the Effective Date. Each of the Practice and the Sellers will comply with all applicable Regulations and Orders in connection with the execution, delivery and performance of this Agreement and the transactions contemplated hereby.

 

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2.9 Financial Statements . Attached as Schedule 2.9 hereto are the following financial statements of the Practice prepared on a cash basis (i) balance sheets as of the last day of the fiscal years ended December 31, 2002 and 2003 and a balance sheet as of September 30, 2004 (such date, the “ Balance Sheet Date ”) (collectively, the “ Balance Sheets ”) and (ii) statements of revenues and expenses and related schedules thereto for the fiscal years ended December 31, 2002 and 2003 and for the nine (9) months ended September 30, 2004 (collectively, the “ Statements of Revenues and Expenses ” and together with the Balance Sheets, the “ Financial Statements ”). The Balance Sheets for the Practice have been prepared in a manner consistent with prior practices, are derived from the books and records of the Practice and fairly present the respective financial position of the Practice at the respective dates thereof, and the Statements of Revenues and Expenses have been prepared on a consistent basis, are derived from the books and records of the Practice and fairly present the results of operations of the Practice for the periods therein referred to, (except as stated therein or in the notes or schedules thereto). Except as set forth in Schedule 2.9(a) attached hereto, the Practice has no material liability, whether accrued, absolute or contingent, that is not reflected in the applicable Financial Statements or expressly set forth in this Agreement or in the Schedules attached to this Agreement, other than (i) liabilities incurred since the Balance Sheet Date in the ordinary course of business and (ii) liabilities covered by insurance or reinsurance (a complete and detailed description of which is provided in Schedule 2.9(b) ).

 

2.10 Accounts Payable; Accounts Receivable . Schedule 2.10(a) sets forth a complete list of the accounts payable and accrued expenses for the Practice as of October 31, 2004. Schedule 2.10(b) sets forth an aging summary of all of the accounts receivable of the Practice immediately prior to the Effective Date. All such accounts receivable are valid, genuine and subsisting, arose out of the bona fide performance of services or other business transactions and are not subject to defenses, set-offs or counterclaims.

 

2.11 Employees . Schedule 2.11 is an accurate list of all officers, directors and key employees (including all of the full-time dermatopathologists) of the Practice, listing all employment agreements with such officers, directors and key employees and the rate of compensation (and the portions thereof attributable to salary, bonus and other compensation, respectively) of each of such persons (i) as of the Balance Sheet Date and (ii) as of the date hereof. The Practice has provided to AmeriPath true, complete and correct copies of all employment agreements for persons listed in Schedule 2.11 and the Practice is not in default under any of such employment agreements in any material respect. Except as set forth on Schedule 2.11 , no officer or employee of the Practice receives a total annualized salary, bonus and other compensation from the Practice of $50,000 or more. Since the Balance Sheet Date, except for (x) bonuses paid to certain key employees of the Practices immediately prior to the Merger which are described in Schedule 2.11 (y) the ordinary salary increases described in Schedule 2.11 which are consistent with prior practices, and (z) and the unpaid 2004 year end bonuses to be paid to all employees of the Practice consistent with past practice which bonuses are identified on Schedule 2.11, there have been no increases in the compensation payable or any special bonuses to any officer, director or employee of the Practice. As of the date hereof, except for the Vacation Liabilities and the unpaid 2004 year end bonuses to be paid to all employees of the Practice consistent with past practice and as set forth in Schedule 2.11 , the Practice has paid all debts owing to its respective employees for services rendered on its behalf.

 

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The Practice has been at all times, and currently is, in compliance with all material Orders, and is in compliance in all material respects with all federal, state and local Regulations, affecting employment and employment practices of the Practice (including those Regulations promulgated by the Equal Employment Opportunity Commission), including terms and conditions of employment and wages and hours. Except as set forth in Schedule 2.11 , (i) the Practice is not bound by or subject to (and none of its assets or properties is bound by or subject to) any arrangement with any labor union, (ii) no employees of the Practice are represented by any labor union or covered by any collective bargaining agreement, (iii) no campaign to establish such representation is in progress and (iv) there is no pending or threatened labor dispute involving the Practice and any group of its respective employees nor has the Practice experienced any labor interruptions over the past three years. The Practice believes its relationship with its employees to be good.

 

2.12 Absence of Certain Changes . Since the Balance Sheet Date, except as set forth in Schedule 2.12 , there has not been (a) any Material Adverse Change; (b) any damage, destruction or loss, whether covered by insurance or not, having a Material Adverse Effect; (c) any payment by the Practice to, or any notice to or acknowledgment by the Practice of any amount due or owing to, the Practice’s self-insured carrier, if any, in connection with any self-insured amounts or liabilities under health insurance covering employees of the Practice, in each case, in excess of a reserve therefor on the Balance Sheets; (d) any declaration, setting aside or payment of any dividend or distribution (whether in cash, stock or property) in respect of the capital stock of the Practice, or any redemption or other acquisition of such capital stock by the Practice; (e) any increase in the rate of compensation or in the benefits payable or to become payable by the Practice to its respective directors, officers, employees or consultants; (f) except as expressly contemplated otherwise hereby, any amendment, modification or termination of any existing, or entering into any new, Contract or plan relating to any salary, bonus, insurance, pension, health or other employee welfare or benefit plan for or with any directors, officers, employees or consultants of the Practice; (g) any entry into any material Contract not in the ordinary course of business, including without limitation relating to any borrowing or capital expenditure having a value or cost in excess of $25,000; (h) any disposition by the Practice of any asset having a value in excess of $25,000; (i) any adverse change in the sales patterns, pricing policies, accounts receivable or accounts payable relating to the Practice; or (j) any write-down of the value of any inventory having an aggregate value in excess of $25,000, or write-off, as uncollectible, of any notes, trade accounts or other receivables having an aggregate value in excess of $25,000; or (k) any change by the Practice in accounting methods or principles.

 

2.13 Contracts .

 

(a) Except as set forth in Schedule 2.13(a) hereto, the Practice is not a party to or subject to any written or oral:

 

(i) pension, profit sharing, bonus, retirement, stock option, stock purchase or other plan providing for deferred or other compensation to employees or any other employee benefit plan (other than as set forth in Schedule 2.19 hereto), or any Contract with any labor union;

 

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(ii) employment or consultation Contract (other than as set forth on Schedule 2.11 ), which is not terminable on notice of 30 days or less by the Practice without penalty or other financial obligation;

 

(iii) Contract containing covenants or agreements limiting the freedom of the Sellers or the Practice or any of its employees to compete in any line of business presently conducted by the Sellers or the Practice with any Person or to compete in any such line of business in any area;

 

(iv) Contract with the Sellers or with any Affiliate thereof (except for any Contract disclosed in Schedule 2.11 );

 

(v) Contract relating to or providing for loans to officers, directors, employees or Affiliates of the Practice;

 

(vi) Contract under which the Practice has advanced or loaned, or is obligated to advance or loan, funds to any Person;

 

(vii) Contract relating to the incurrence, assumption or guarantee of any indebtedness, obligation or liability (in respect of money or funds borrowed), or otherwise pledging, granting a security interest in or placing a Lien on any asset of the Practice;

 

(viii) guarantee or endorsement of any obligation;

 

(ix) Contract under which the Practice is lessee of or holds or operates any property, real or personal, owned by any other party, except for any lease of real or personal property under which the aggregate annual rental payments do not exceed $25,000;

 

(x) Contract pursuant to which the Practice is lessor of or permits any third party to hold or operate any property, real or personal, owned or controlled by the Practice;

 

(xi) assignment, license, indemnification or Contract with respect to any intangible property (including, without limitation, any Proprietary Rights (as defined in Section 7.3 hereto));

 

(xii) Contract which prohibits, restricts or limits in any way the payment of dividends or distributions by the Practice;

 

(xiii) Contract under which it has granted any Person any registration rights (including piggyback rights) or other with respect to any securities;

 

(xiv) Contract for the purchase, acquisition or supply of inventory or other property or assets, whether for resale or otherwise (other than for ordinary course agreements for consideration not exceeding $25,000);

 

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(xv) Contracts with independent agents, brokers, dealers or distributors;

 

(xvi) sales, commissions, advertising or marketing Contracts;

 

(xvii) Contracts with Persons with which, directly or indirectly, the any Seller also has a Contract;

 

(xviii) Contract with any hospital, physician or other health care provider or facility, or other Contract with any Person relating to professional services (including without limitation, any Contract pursuant to which the cost of providing health care services to the patients covered by such Contract is assumed in whole or in part by the Sellers or the Practice or such provider); or

 

(xix) any other Contract which is material to the operations or business prospects of the Practice, which involves aggregate payments by or to the Practice of $25,000 or more.

 

(b) Except as set forth on Schedule 2.8 , no consent of any party to any material Contract is required in connection with the execution, delivery or performance of this Agreement, or the consummation of the transactions contemplated hereby.

 

(c) The Practice has performed in all material respects all obligations required to be performed by it and is not in default in any respect under or in breach of nor in receipt of any claim of default or breach under any material Contract required to be listed on Schedule 2.13(a) or any other Schedule to this Agreement; no event has occurred which, with the passage of time or the giving of notice or both, would result in a default, breach or event of non-compliance by the Practice or any Seller under any material Contract to which the Practice is subject (including without limitation all performance bonds, warranty obligations or otherwise); none of the Sellers nor the Practice has any knowledge of any breach or anticipated breach by the other parties to any such Contract to which the Practice is a party or of any event which, with the passage of time or the giving of notice or both, would result in a default, breach or event of non-compliance by any third party under any material contract to which the Practice is subject.

 

2.14 True and Complete Copies . Copies of all Contracts and documents delivered and to be delivered hereunder by the Sellers or the Practice are true and complete copies of such agreements, contracts and documents as in effect on the date hereof.

 

2.15 Title and Related Matters .

 

(a) The Practice has good and marketable title to all of its properties and assets reflected on the Balance Sheets or acquired after the dates thereof, except for properties sold or otherwise disposed of since the dates thereof in the ordinary course of business, free and clear of all Liens, except (i) statutory Liens not yet delinquent, (ii) such Liens as do not detract from or interfere with the present use of the properties or assets subject thereto or affected thereby, otherwise impair present business operations at such properties; or do not detract from the value of such properties and assets, taken as a whole, or (iii) as reflected in the Balance Sheets.

 

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(b) The Practice owns good and marketable title to all the personal property and assets, tangible or intangible, used in its business except as to those assets that are leased, all of which are leased under valid leases. The Practice is not in default under any such lease and to the knowledge of the Sellers, no other party is in default under any of such leases. None of the assets belonging to or held by the Practice are subject to any (i) Contracts of sale (other than this Agreement) or lease (with the Practice as lessor), or (ii) Liens. Except for normal breakdowns and servicing requirements, all machinery and equipment regularly used by the Practice in the conduct of its respective business is in good operating condition and repair, ordinary wear and tear excepted.

 

(c) There has not been, since the Balance Sheet Date, any sale, lease, transfer, assignment, pledge or any other disposition or distribution by the Practice of any of its assets or properties, except transactions in the ordinary and regular course of business or as otherwise consented to in writing by AmeriPath. Immediately after the Effective Date, the Practice will own, or have the unrestricted right to use, all properties and assets that are currently used in connection with the Business.

 

(d) Schedule 2.15 attached hereto sets forth a description of all real and personal property owned or leased by the Practice.

 

2.16 Litigation . Except as set forth in Schedule 2.16 , there is no Claim (as defined in Section 7.3 ) pending or threatened against any Seller or the Practice. There is no Order outstanding against any Seller or the Practice resulting in, or which, insofar as can reasonably be foreseen in the future, may result in a Material Adverse Change.

 

2.17 Tax Matters .

 

(a) The Practice has timely filed with the appropriate Taxing authorities all Tax Returns in all jurisdictions in which Tax Returns are required to be filed through the date hereof or appropriate extensions therefore have been appropriately obtained and have not expired, and such Tax Returns are correct and complete. All Taxes of the Practice (whether or not shown on any Tax Return) that have become due have been fully and timely paid. There are no Liens for any Taxes (other than a Lien for current real property or ad valorem Taxes not yet due and payable) on any of the assets of the Practice. No claim has ever been made by an authority in a jurisdiction where the Practice does not file a Tax Return that such entity may be subject to Taxes by that jurisdiction.

 

(b) The Practice has not received any notice of assessment or proposed assessment in connection with any Taxes, there are no pending disputes, claims, audits or examinations regarding any Taxes of the Practice or its assets and to the knowledge of the Practice and the Sellers, there are no threatened disputes, claims, audits or examination regarding any Taxes of the Practice or its assets; and (ii) the Practice has not waived any statute of limitations in respect of any Taxes or agreed to a Tax assessment or deficiency.

 

(c) The Practice has complied in all material respects with all applicable laws, rules and regulations relating to the withholding of Taxes and the payment thereof to appropriate

 

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authorities, including Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee or independent contractor, and Taxes required to be withheld and paid pursuant to Sections 1441 and 1442 of the Internal Revenue Code or similar provisions under foreign Law.

 

(d) The Practice is not a party to any Tax allocation or sharing agreement and the Practice has not been a member of an affiliated group filing a consolidated federal income Tax Return and has no Tax Liability of any person under Treasury Regulation Section 1.1502-6 or any similar provision of state, local or foreign Law, or as a transferee or successor, by contract or otherwise.

 

(e) During the five-year period ending on the date hereof, the Practice was not a distributing corporation or a controlled corporation in a transaction intended to be governed by Section 355 of the Internal Revenue Code.

 

(f) The Practice has not made any payments, is not obligated to make any payments, and is not a party to any contract that could obligate it to make any payments that could be disallowed as a deduction under Section 280G or 162(m) of the Internal Revenue Code. The Practice has not been a United States real property holding corporation within the meaning of Internal Revenue Code Section 897(c)(1)(A)(ii). The Practice has not been and will not be required to include any adjustment in taxable income for any Tax period (or portion thereof) pursuant to Section 481 of the Internal Revenue Code or any comparable provision under state or foreign Tax Laws as a result of transactions or events occurring prior to the Effective Date.

 

(g) The Sellers have taken all actions required to revoke the S Corporation election for the Practice effective immediately prior to the Effective Date.

 

2.18 Compliance with Law and Applicable Government and other Regulations . The Practice’s operations, equipment, practices, real property, plants, laboratories, structures, and other property, and all other aspects of its business and operations, has at all times complied with (i) all applicable material Regulations and Orders, including, but not limited to, Health Care Laws (as defined in Section 7.3 ) and (ii) all material all Regulations relating to the safe conduct of business, environmental protection, quality and labeling, antitrust, Taxes, consumer protection, privacy, patient confidentiality, equal opportunity, discrimination, health, sanitation, fire, zoning, building and occupational safety, except for any failure or failures to so comply that would not individually or in the aggregate have a Material Adverse Effect. There are no Claims pending, nor, to each of the Sellers’ knowledge, are there any Claims threatened, nor has any Seller or the Practice received any written notice, regarding any violations of any material Regulations and Orders enforced by any Authority claiming jurisdiction over the Practice, including any requirement of OSHA or any pollution and environmental control agency (including air and water).

 

(a) Schedule 2.18(a) attached hereto sets forth all permits, licenses, provider numbers, orders, franchises, registrations and approvals (collectively, “ Permits ”) from all federal, state, local and foreign governmental regulatory bodies held by each of the Practice and its respective employees. The Permits listed in Schedule 2.18(a) are the only Permits that are

 

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required for the Practice to conduct its business as presently conducted, except for those the absence of which would not have any Material Adverse Effect. Each such Permit is in full force and effect to the knowledge of the Practice and the Sellers and to the knowledge of the Practice and the Sellers no suspension or cancellation of any such Permit is threatened and to the knowledge of the Sellers and the Practice there is no basis for believing that such Permit will not be renewable upon expiration.

 

(b) The Practice and its employees have licenses to provide health care services in the jurisdictions set forth in (or in the Permits set forth in) Schedule 2.18(b) hereto, which licenses are all those necessary to conduct the business of the Practice in the jurisdictions in which the Practice presently operates. Schedule 2.18(b) also sets forth a true and complete description of the status of each such license. Except as set forth in Schedule 2.18(b) , there is no event, transaction, correspondence or circumstance which would have, a material adverse effect on one or more of such licenses.

 

2.19 ERISA and Related Matters .

 

(a) Benefit Plans; Obligations to Employees . Except as set forth in Schedule 2.11 , Schedule 2.13 and Schedule 2.19 hereto, neither the Practice nor any ERISA Affiliate (as defined below) of the Practice, is a party to or participates in or has any liability or contingent liability with respect to:

 

(i) any “employee welfare benefit plan” or “employee pension benefit plan” or “multi-employer plan” (as those terms are respectively defined in Sections 3(1), 3(2) and 3(37) of the Employee Retirement Security Act of 1974, as amended (“ERISA”));

 

(ii) any retirement or deferred compensation plan, incentive compensation plan, stock plan, unemployment compensation plan, vacation pay, severance pay, bonus or benefit arrangement, insurance or hospitalization program or any other fringe benefit arrangements for any employee, director, consultant or agent, whether pursuant to contract, arrangement, custom or informal understanding, which does not constitute an “employee benefit plan” (as defined in Section 3(3) of ERISA); or

 

(iii) any Employment Agreements not terminable on 30 days or less written notice, without further liability.

 

Any plan, arrangement or agreement required to be listed on Schedule 2.19 for which the Practice or any ERISA Affiliate of the Practice may have any liability or contingent liability is sometimes hereinafter referred to as a “ Benefit Plan ”. For purposes of this Section, the term “ ERISA Affiliate ” shall mean any trade or business, whether or not incorporated, that together with the Practice would be deemed a “ single employer ” within the meaning of Section 4001(b)(i) of ERISA.

 

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(b) Plan Documents and Reports . A true and correct copy of each of the Benefit Plans listed on Schedule 2.19 , and all contracts relating thereto, or to the funding thereof, including, without limitation, all trust agreements, insurance contracts, investment management agreements, subscription and participation agreements and record keeping agreements, each as in effect on the date hereof, has been supplied to AmeriPath. In the case of any Benefit Plan that is not in written form, AmeriPath has been supplied with an accurate description of such Benefit Plan as in effect on the date hereof. A true and correct copy of the three most recent annual reports and accompanying schedules, the three most recent actuarial reports, and the most recent summary plan description and Internal Revenue Service determination letter with respect to each such Benefit Plan, to the extent applicable, and a current schedule of assets (and the fair market value thereof assuming liquidation of any asset which is not readily tradable) held with respect to any funded Benefit Plan has been supplied to AmeriPath by the Practice, and there have been no material changes in the financial condition in the respective Plans from that stated in the annual reports and actuarial reports supplied.

 

(c) Compliance with Laws; Liabilities . As to all Benefit Plans, except as otherwise specified on Schedule 2.19(c) , the Practice is in compliance in all material respects with the terms of all Benefit Plans and every Benefit Plan is in compliance with all of the requirements and provisions of ERISA and all other laws and regulations applicable thereto, including without limitation the timely filing of all annual reports or other filings required with respect to such Benefit Plans. None of the assets of any Benefit Plan are invested in employer securities or employer real property, as those terms are defined in Section 407(d) of ERISA. There have been no “prohibited transactions” (as described in Section 406 of ERISA or Section 4975 of the Code) with respect to any Benefit Plan and neither the Practice nor any ERISA Affiliate thereof has otherwise engaged in any prohibited transaction. There has been no “accumulated funding deficiency” as defined in Section 302 of ERISA, nor has any reportable event as defined in Section 4043(b) of ERISA occurred with respect to any Benefit Plan. Actuarially adequate accruals for all obligations or contingent obligations under the Benefit Plans are reflected in Balance Sheets and such obligations include a pro rata amount of the contributions which would otherwise have been made in accordance with past practices for the plan years which include the Effective Date.

 

(d) Termination of Plans . Sellers and the Practice have terminated all Benefit Plans, effective on or prior to the Effective Date.

 

2.20 Intellectual Property .

 

(a) Except as set forth in Schedule 2.20 , none of the Sellers has and the Practice does not have has any service mark, trademark, domain name, patent or registered copyright related to the Business. None of the Sellers or the Practice have any pending applications with respect to any Proprietary Rights.

 

(b) To each of the Sellers’ knowledge, the Practice has the right to use each Proprietary Right used in connection with the operation of its business, including those listed in Schedule 2.20 , and except as otherwise set forth therein, each of such Proprietary Rights is, and will be on the Effective Date, free and clear of all royalty obligations and Liens. There are no

 

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Claims pending or to the knowledge of the Sellers and the Practice threatened, against the Sellers or the Practice that its use of any of the Proprietary Rights listed in Schedule 2.20 infringes the rights of any Person. Neither the Sellers nor the Practice has any knowledge of any conflicting use of any of such Proprietary Rights.

 

(c) The Practice is not a party in any capacity to any franchise, license or royalty agreement respecting any Proprietary Right and, to each of the Sellers’ knowledge, there is no violation by the Sellers or the Practice of the rights of others in respect to any Proprietary Right now used in the conduct of its business.

 

(d) Computer Systems and Software .

 

(i) Software . The software applications currently used by the Practice in the operation of its business (the “Software”) are set forth and described in Schedule 2.20(d) hereto. Except as disclosed in Schedule 2.20(d), none of the Software has been designed or developed (1) by the Sellers or the Practice or (2) on behalf of the Practice or the Sellers by any employee of or consultant to the Practice. The Practice has not licensed, distributed or in any other way disposed of or encumbered the Software. All Software is licensed from a third party licensor or constitutes “off-the-shelf” software and the Practice licenses all Software used by it in its business pursuant to valid licenses, each of which is in full force and effect on the date hereof. The Practice is not in material violation of or in material default under any of such licenses. All of the computer hardware owned or leased by the Practice has licensed software installed therein and such software is used in compliance with the applicable licenses.

 

(ii) No Errors; Nonconformity . To each of the Sellers’ knowledge, the Software is free from any significant software defect or programming or documentation error. The software operates and runs in a reasonable and efficient business manner and to each of the Sellers’ knowledge conforms to the specifications thereof.

 

2.21 Environmental Matters . Except as disclosed in Schedule 2.21 : (a) the Practice’s business does not violate any applicable Environmental Law (as defined in Section 7.3 ) and, to each of the Sellers’ knowledge, no condition or occurrence of any accident, happening or event has occurred which may result in a Claim against the Practice or its successor or which may create a liability or loss for the Practice or AmeriPath or which, with notice or the passage of time or both, would constitute a violation of any Environmental Law; (b) the Practice is in possession of all Environmental Permits (as defined in Section 7.3 ) required under any applicable Environmental Law for the conduct or operation of its business (or any part thereof), and the Practice is in compliance in all material respects with all of the requirements and limitations included in such Environmental Permits; (c) the Practice has not stored or used any pollutants, contaminants or hazardous or toxic wastes, substances or materials on or at any property or facility now or previously owned, leased or operated by it except for inventories of chemicals which are used or to be used in the ordinary course of its business (which inventories have been sorted or used in accordance with all applicable Environmental Permits and all Environmental

 

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Laws, including all so-called “Right to Know” laws); (d) the Practice has not received any notice from any Authority or any private Person that its business or the operation of any of its facilities is in violation of any Environmental Law or any Environmental Permit or that it is responsible (or potentially responsible) for the cleanup of any pollutants, contaminants, or hazardous or toxic wastes, substances or materials at, on or beneath any property or facility now or previously owned, leased or operated by it, or at, on or beneath any land adjacent thereto or in connection with any waste or contamination site; (e) the Practice is not the subject of any federal, state, local, or private Claim involving a demand for damages or other potential liability with respect to a violation of Environmental Laws or under any common law theories relating to operations or the condition of any facilities or property (including underlying groundwater) owned, leased, or operated by it; (f) the Practice has not buried, dumped, disposed, spilled or released any pollutants, contaminants or hazardous or toxic wastes, substances or materials on, beneath or adjacent to any property or facility now or previously owned, leased or operated by it or any property adjacent thereto; (g) no by-products of any process employed in the operation of the business of the Practice which may constitute pollutants, contaminants or hazardous or toxic wastes, substances or materials under any Environmental Law are currently stored or were stored by the Practice, or have been released or discharged by the Practice on any property or facility now or previously owned, leased or operated by the Practice or any property adjacent thereto, except for inventories of chemicals which are used or will be used in the ordinary course of its business (which inventories of chemicals have been sorted, used, handled and disposed of in compliance with all applicable Environmental Permits and all Environmental Laws, including all so-called “right to know” laws; (h) no property or facility now owned, leased or operated by the Practice, and to each of the Sellers’ knowledge, no property or facility previously owned, leased or operated by the Practice, is listed or proposed for listing on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any other federal or state list of sites requiring investigation or clean-up; (i) to the knowledge of the Sellers and the Practice, there are no underground storage tanks, active or abandoned, including petroleum storage tanks, on or under any property or facility now or previously owned, leased or operated by the Practice; (j) the Practice has not directly transported or directly arranged for the transportation of any Hazardous Material to any location which is listed or proposed for listing on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any federal or state list or which is the subject of federal, state or local enforcement actions or other investigations which may lead to material Claims against the Practice for any remedial work, damage to natural resources or personal injury, including Claims under CERCLA; and (k) to each of the Sellers’ knowledge, there are no polychlorinated biphenyls, radioactive materials or friable asbestos present at any property or facility now or previously owned or leased by the Practice. The Practice has timely filed all reports required to be filed with respect to all of its property and facilities and has generated and maintained all required data, documentation and records under all applicable Environmental Laws.

 

2.22 Dealings with Affiliates . Schedule 2.22 hereto sets forth a complete list, including the parties, of all Contracts to which the Practice is a party (or has been a party if such Contract is still in effect or could result in any liability to the Practice in accordance with its terms) and to which any of the Sellers, any relative or Affiliates of the Sellers or any Affiliates of the Practice is also a party.

 

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2.23 Banking Arrangements . Schedule 2.23 attached hereto sets forth the name of each bank or other institution in or with which the Practice has an account, credit line or safety deposit box, and a brief description of each such account, credit line or safety deposit box, including the names of all Persons currently authorized to draw thereon or having access thereto. The Practice has no liability or obligation relating to funds or money borrowed by or loaned to the Practice (whether under any credit facility, line of credit, loan, indenture, advance, pledge or otherwise).

 

2.24 Insurance . Schedule 2.24 attached hereto sets forth a list and brief description, including dollar amounts of coverage, of all policies of property, fire, liability, business interruption, workers’ compensation, and other forms of insurance held by the Practice immediately prior to the Merger, as well as a schedule of Claims that have been filed with the current insurance carrier within the twelve months prior to the date hereof or which are pending or unresolved as of the date hereof, including a history of such Claims and a description and estimated dollar amount of any unresolved Claims. Such policies are valid, outstanding and enforceable policies, and all premiums thereunder have been timely paid. The Sellers do not know of any state of facts, or of the occurrence of any event which might reasonably (a) form the basis for any Claim against the Practice not fully covered by insurance for liability on account of any express or implied warranty or tortuous omission or commission, or (b) result in material increase in insurance premiums of the Practice.

 

2.25 Consents . Schedule 2.25 , attached hereto, sets forth a complete list of consents of governmental and other regulatory agencies or authorities, foreign or domestic, required to be received by or on the part of the Sellers or the Practice to enable the Sellers or the Practice to enter into and carry out this Agreement or any other agreement or document contemplated hereby in all material respects. All such requisite consents have been obtained.

 

2.26 Inventories . The inventories, if any, reflected on the Balance Sheets and the inventories held by the Practice on the date hereof do not include any items which are not usable or salable. Except as set forth in Schedule 2.26 attached hereto, all of such inventories are owned free and clear and are not subject to any Lien and such inventories and supplies have been purchased by the Practice in the ordinary course of business, consistent with anticipated seasonal requirements, and the volumes of purchases thereof and orders therefore have not been reduced or otherwise changed in anticipation of the transactions contemplated by this Agreement.

 

2.27 Brokerage . Neither the Seller nor the Practice has employed any broker, finder, advisor, consultant or other intermediary in connection with this Agreement or the transactions contemplated by this Agreement who is or might be entitled to any fee, commission or other compensation from the Practice or from AmeriPath or its Affiliates, upon or as a result of the execution of this Agreement or the consummation of the transactions contemplated hereby, other than Shattuck Hammond Partners, LLC. Sellers hereby acknowledge and agree that the Sellers shall pay the fees, expenses and other amounts owed to Shattuck Hammond Partners, LLC in connection with the transactions contemplated hereunder.

 

2.28 Certain Payments . Except as set forth in Schedule 2.28 hereto, (a) none of (i) the Practice or any director, officer, employee, agent or representative thereof or (ii) any Person acting on behalf of any of them, has made, paid or received any unlawful bribes, kickbacks or

 

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other similar payments to or from any Person or Authority, (b) no contributions have been made by or on behalf of the Practice, directly or indirectly, to a domestic or foreign political party or candidate, (c) no Improper Foreign Payment (as defined in the Foreign Corrupt Practices Act) has been made, and (d) the internal accounting controls of the Practice are believed by its management to be adequate to detect any of the foregoing under current circumstances.

 

2.29 Participation in Audits . Except as set forth in Schedule 2.29 , the Practice has not been informed of any Recoupment Claims (as hereinafter defined) arising in connection with audits or reviews conducted by Medicaid, Medicare or private insurance companies. There is no basis for any Recoupment Claims based upon cost reports, claims or bills submitted or to be submitted in connection with services rendered by the Practice. For purposes of this Section 2.29 the term “ Recoupment Claim ” shall mean any recoupment or overpayment, set-off, penalty or fine pending or threatened by any third-party payor or governmental authority having jurisdiction over the Practice for amounts arising from or related to payments to the Practice for services rendered prior to the Effective Date.

 

2.30 Health Care Laws & Regulations .

 

(a) Fraud and Abuse . Except as set forth in Schedule 2.30(a) , the Practice or any of their respective officers, directors, employees, shareholders and providers, have not engaged in any activities which are prohibited under federal health care fraud and abuse statutes, including 42 U.S.C. Sections 1320a-7, 1320a-7a and 7b,