-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H4pguJr//v8gyqnPNTbnhl4dC/VoOoQHwEgYLvGurJdoaruWd5oouUxHrzTLP7zl lcFIVpvSKWuVsMEJe0o1WA== 0000950146-96-002148.txt : 19961126 0000950146-96-002148.hdr.sgml : 19961126 ACCESSION NUMBER: 0000950146-96-002148 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 27 FILED AS OF DATE: 19961125 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORNING CLINICAL LABORATORIES INC CENTRAL INDEX KEY: 0001022079 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 161387862 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-15867 FILM NUMBER: 96671583 BUSINESS ADDRESS: STREET 1: ONE MALCLOM AVE CITY: TETERBORO STATE: NJ ZIP: 07601 BUSINESS PHONE: 2013935143 MAIL ADDRESS: STREET 1: ONE MALCOLM AVE CITY: TETERBORO STATE: NJ ZIP: 07601 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DPD HOLDINGS INC CENTRAL INDEX KEY: 0000835472 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MEDICAL LABORATORIES [8071] IRS NUMBER: 954415490 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-15867-01 FILM NUMBER: 96671584 BUSINESS ADDRESS: STREET 1: ONE MALCOM AVE CITY: TETERBORO STATE: NJ ZIP: 07608 BUSINESS PHONE: 2013935000 FORMER COMPANY: FORMER CONFORMED NAME: UNILAB CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: DMC INTERNATIONAL INC DATE OF NAME CHANGE: 19881121 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NICHOLS INSTITUTE DIAGNOSTICS CENTRAL INDEX KEY: 0000921948 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MEDICAL LABORATORIES [8071] IRS NUMBER: 952955451 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-15867-02 FILM NUMBER: 96671585 BUSINESS ADDRESS: STREET 1: 33608 ORTEGA HIWAY CITY: SAN JUAN CAPISTRANO STATE: CA ZIP: 92690 BUSINESS PHONE: 7147284000 MAIL ADDRESS: STREET 1: 33608 ORTEGA HWY CITY: SAN JUAN CAPISTRANO STATE: CA ZIP: 92690-6130 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORNING CLINICAL LABORATORIES INC /CT/ CENTRAL INDEX KEY: 0001026673 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-15867-03 FILM NUMBER: 96671586 BUSINESS ADDRESS: STREET 1: PO BOX ONE MALCOLM AVENUE CITY: TELEBORO STATE: NJ ZIP: 07608 BUSINESS PHONE: 2013935143 MAIL ADDRESS: STREET 1: 3 STERLING DRIVE CITY: WALLINGFORD STATE: CT ZIP: 06492 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORNING CLINICAL LABORATORIES INC /MA/ CENTRAL INDEX KEY: 0001026674 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-15867-04 FILM NUMBER: 96671587 BUSINESS ADDRESS: STREET 1: PO BOX ONE MALCOLM AVENUE CITY: TELEBORO STATE: NJ ZIP: 07608 BUSINESS PHONE: 2013935143 MAIL ADDRESS: STREET 1: 415 MASSACHUSETTS AVE CITY: CAMBRIDGED STATE: MA ZIP: 02139 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORNING CLINICAL LABORATORIES INC /MD/ CENTRAL INDEX KEY: 0001026675 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-15867-05 FILM NUMBER: 96671588 BUSINESS ADDRESS: STREET 1: PO BOX ONE MALCOLM AVENUE CITY: TELEBORO STATE: NJ ZIP: 07608 BUSINESS PHONE: 2013935143 MAIL ADDRESS: STREET 1: 1901 SULPHUR SPRINGS RD CITY: BALTIMORE STATE: MD ZIP: 21227 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORNING CLINICAL LABORATORIES INC /MI/ CENTRAL INDEX KEY: 0001026676 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-15867-06 FILM NUMBER: 96671589 BUSINESS ADDRESS: STREET 1: PO BOX ONE MALCOLM AVENUE CITY: TELEBORO STATE: NJ ZIP: 07608 BUSINESS PHONE: 2013935143 MAIL ADDRESS: STREET 1: 4444 GIDDINGS RD CITY: AUBURN HILLS STATE: MI ZIP: 48326 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORNING CLINICAL LABORATORIES OF PENNSYLVANIA INC /DE/ CENTRAL INDEX KEY: 0001026677 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-15867-07 FILM NUMBER: 96671590 BUSINESS ADDRESS: STREET 1: PO BOX ONE MALCOLM AVENUE CITY: TELEBORO STATE: NJ ZIP: 07608 BUSINESS PHONE: 2013935143 MAIL ADDRESS: STREET 1: 875 GREENTREE RD STREET 2: 4 PARKWAY CENTER CITY: PITTSBURGHLS STATE: PA ZIP: 15220 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORNING MRL INC CENTRAL INDEX KEY: 0001026678 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-15867-08 FILM NUMBER: 96671591 BUSINESS ADDRESS: STREET 1: PO BOX ONE MALCOLM AVENUE CITY: TELEBORO STATE: NJ ZIP: 07608 BUSINESS PHONE: 2013935143 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORNING NICHOLS INSTITUTE INC CENTRAL INDEX KEY: 0001026679 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-15867-09 FILM NUMBER: 96671592 BUSINESS ADDRESS: STREET 1: PO BOX ONE MALCOLM AVENUE CITY: TELEBORO STATE: NJ ZIP: 07608 BUSINESS PHONE: 2013935143 MAIL ADDRESS: STREET 1: 33608 ORTEGA HWY CITY: SAN JUAN CAPISTRANO STATE: CA ZIP: 926690-613 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAMON CLINCAL LABORATORIES INC /MA/ CENTRAL INDEX KEY: 0001026680 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-15867-10 FILM NUMBER: 96671593 BUSINESS ADDRESS: STREET 1: PO BOX ONE MALCOLM AVENUE CITY: TELEBORO STATE: NJ ZIP: 07608 BUSINESS PHONE: 2013935143 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DEYOR CPF METPATH INC CENTRAL INDEX KEY: 0001026681 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-15867-11 FILM NUMBER: 96671594 BUSINESS ADDRESS: STREET 1: PO BOX ONE MALCOLM AVENUE CITY: TELEBORO STATE: NJ ZIP: 07608 BUSINESS PHONE: 2013935143 MAIL ADDRESS: STREET 1: 875 GREENTREE CENTER STREET 2: 4 PARKWAY CENTER CITY: PITTSBURGH STATE: PA ZIP: 15220 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NOMAD MASSACHUSSETTS INC CENTRAL INDEX KEY: 0001026683 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-15867-12 FILM NUMBER: 96671595 BUSINESS ADDRESS: STREET 1: PO BOX ONE MALCOLM AVENUE CITY: TELEBORO STATE: NJ ZIP: 07608 BUSINESS PHONE: 2013935143 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIAGNOSTIC REFERENCE SERVICE INC CENTRAL INDEX KEY: 0001026684 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-15867-13 FILM NUMBER: 96671596 BUSINESS ADDRESS: STREET 1: PO BOX ONE MALCOLM AVENUE CITY: TELEBORO STATE: NJ ZIP: 07608 BUSINESS PHONE: 2013935143 MAIL ADDRESS: STREET 1: 1901 SULPHUR SPRING RD CITY: BALTIMORE STATE: MD ZIP: 21227 FILER: COMPANY DATA: COMPANY CONFORMED NAME: METWEST INC CENTRAL INDEX KEY: 0001026685 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-15867-14 FILM NUMBER: 96671597 BUSINESS ADDRESS: STREET 1: PO BOX ONE MALCOLM AVENUE CITY: TELEBORO STATE: NJ ZIP: 07608 BUSINESS PHONE: 2013935143 MAIL ADDRESS: STREET 1: 4771 REGENT BOULEVARD CITY: IRVING STATE: TX ZIP: 75063 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHGATE MEDICAL SERVICES INC CENTRAL INDEX KEY: 0001026686 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-15867-15 FILM NUMBER: 96671598 BUSINESS ADDRESS: STREET 1: PO BOX ONE MALCOLM AVENUE CITY: TELEBORO STATE: NJ ZIP: 07608 BUSINESS PHONE: 2013935143 MAIL ADDRESS: STREET 1: 875 GREENTREE RD STREET 2: 4 PARKWAY CENTER CITY: PITTSBURGH STATE: PA ZIP: 15220 S-1/A 1 FORM S-1/A As filed with the Securities and Exchange Commission on November 25, 1996 Registration No. 333-15867 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 CORNING CLINICAL LABORATORIES INC. (to be renamed Quest Diagnostics Incorporated) (Exact name of registrant as specified in its charter)
Delaware 8071 16-1387862 (State of other jurisdiction (Primary Standard Industrial (I.R.S. Employer of Incorporation or organization) Classification Code Number) Identification Number)
One Malcolm Avenue Teterboro, New Jersey 07608 (201) 393-5000 (Address, including zip code, and telephone number, including area code, of each registrant's principal executive offices) Raymond C. Marier General Counsel Corning Clinical Laboratories Inc. One Malcolm Avenue Teterboro, New Jersey 07608 (201) 393-5000 (Address, including zip code, and telephone number, including area code, of agent for service) See Table of Subsidiary Guarantor Registrants
Stephen T. Giove with copies to: Robert W. Reeder, III Shearman & Sterling Sullivan & Cromwell 599 Lexington Avenue 125 Broad Street New York, New York 10022 New York, New York 10004 (212) 848-4000 (212) 558-4000
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, 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, please 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(c) 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 delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: [ ] CALCULATION OF REGISTRATION FEE
Proposed maximum Amount Proposed maximum aggregate Title of to be offering price offering Amount of securities to be registered registered per note(2) price(2) registration fee -------------------------------------------------------- ---------------- ---------------- ----------------- % Senior Subordinated Notes due 2006(1) $150,000,000 100% $150,000,000 $45,455(3)
(1) The Guarantees of the payment of the principal and interest on the Notes are also being registered hereby. Pursuant to Rule 457(n), no registration fee is required with respect to the Guarantees. (2) Estimated pursuant to Rule 457(a), solely for the purpose of computing the registration fee. (3) Fee of $45,455 previously paid on November 8, 1996. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine. TABLE OF ADDITIONAL REGISTRANTS
Primary Standard State or Other Industrial Jurisdiction of Classification I.R.S. Employer Incorporation Code Identification Name or Organization Number Number - ------------------------------------------------------------- ---------------- ---------------- -------------------- Corning Clinical Laboratories Inc. (MI) Michigan 8071 38-1882750 Corning Nichols Institute Inc. California 8071 95-2701802 Damon Clinical Laboratories Inc. Massachusetts 8071 04-2449994 Corning Clinical Laboratories Inc. (CT) Connecticut 8071 06-1460613 Corning Clinical Laboratories Inc. (MA) Massachusetts 8071 04-3248020 Corning Clinical Laboratories of Pennsylvania Inc. Delaware 8071 22-3137283 Deyor CPF/Metpath, Inc. Ohio 8071 34-1464777 Southgate Medical Services, Inc. Ohio 8071 34-0944454 Corning MRL Inc. Delaware 8071 81-0496712 DPD Holdings Inc. Delaware 8071 93-0988106 Metwest Inc. Delaware 8071 33-0363316 Corning Clinical Laboratories Inc. (MD) Maryland 8071 52-0890739 Nichols Institute Diagnostics California 8071 95-2955451 Nomad-Massachusetts, Inc. Massachussets 8071 04-2704542 Quest Diagnostics Incorporated (MI) Michigan 8071 22-3471689 Quest Diagnostics Incorporated (MD) Maryland 8071 22-3471687 CLMP Inc. Delaware 8071 51-031423 Diagnostic Reference Services, Inc. Maryland 8071 Application pending Pathology Building Partnership Maryland 8071 Application pending
The principal executive office and telephone number of each of the above registrants is One Malcolm Avenue, Teterboro, New Jersey 07608, (201) 393-5000. Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold and offers to buy may not be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy and there shall not be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. [end red herring] Subject to Completion Dated November 25, 1996 Prospectus [LOGO] Quest Diagnostics Incorporated $150,000,000 % Senior Subordinated Notes due 2006 Interest payable June 15 and December 15 Issue Price: % Interest on the Notes is payable on June 15 and December 15 of each year, commencing June 15, 1997. The Notes are subject to redemption on or after December 15, 2001, in whole or in part, at the option of the Company, at the redemption prices set forth herein. As discussed below, the Notes are also subject to redemption at a premium, at the option of the Company, in case the Distributions do not occur prior to March 31, 1997. Upon a Change of Control (as defined), holders of the Notes may require the Company to purchase all or a portion of the Notes at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest (if any) to the date of purchase. In addition, in the event of certain asset sales, the Company may be required to make an offer to purchase Notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest (if any) to the date of purchase, with the net proceeds of such asset sales. See "Description of the Notes--Optional Redemption" and "--Repurchase at the Option of Holders." The Notes will be unsecured senior subordinated obligations of the Company and will be fully and unconditionally guaranteed (the "Senior Subordinated Guarantees") on a senior subordinated basis by all of the Restricted Subsidiaries of the Company (collectively, "the Guarantors"). The Notes and the Senior Subordinated Guarantees will be subordinated in right of payment to all existing and future Senior Debt and Senior Guarantees of the Company and the Guarantors, respectively, will rank pari passu in right of payment with all unsecured senior subordinated indebtedness and all unsecured senior subordinated guarantees of the Company and the Guarantors, respectively, and will rank senior in right of payment to any future indebtedness and guarantees of the Company and the Guarantors, respectively, that may be subordinated thereto. The Notes are effectively subordinated to all existing and future indebtedness and other liabilities of the Company's Subsidiaries that are Unrestricted Subsidiaries, and thus not Guarantors, and would be so subordinated to all existing and future indebtedness of the Guarantors if the Senior Subordinated Guarantees were avoided or subordinated in favor of the Guarantors' other creditors. The Notes will be issued only in registered form in denominations of $1,000 and integral multiples thereof. See "Description of the Notes." The Notes are being offered in connection with the Distributions of the Company's Common Stock and the Covance Common Stock to holders of Corning Common Stock. The net proceeds of the Notes offering will be used to repay, prior to the Distributions, certain indebtedness owed by the Company to Corning. The closing of the offering of the Notes is anticipated to occur prior to the Distributions. If as a result of an event outside the control of Corning, the Company and Covance, the Distributions do not occur prior to March 31 , 1997, the Notes will be subject to redemption, as a whole and not in part, at the option of the Company, prior to June 30, 1997, at a redemption price equal to 101% of the principal amount of the Notes plus accrued and unpaid interest, if any, to the date fixed for redemption. See "The Distributions" and "Descriptionof the Notes--Optional Redemption." See "Risk Factors" beginning on page 15 for certain considerations relevant to an investment in the Notes. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting Discount and Proceeds to Price to Public (1) Commissions (2) Company (1)(3) Per Note % % % Total $ $ $
(1) Plus accrued interest, if any, from , 1996. (2) The Company and Corning have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. (3) Before deducting expenses payable by the Company estimated at $ . The Notes are being offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters. The Underwriters withhold the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of the Notes will be made in New York, New York, against payment therefor in immediately available funds on or about December , 1996. J.P. Morgan & Co. Goldman, Sachs & Co. Lazard Freres & Co. LLC December , 1996. Map of the United States and Mexico indicating the locations of Quest Diagnostics Regional Labs, Headquarters, Branch labs and Esoteric lab. Map heading - Quest Diagnostics' Geographic Coverage. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. No person has been authorized to give any information or to make any representation other than those contained in this Prospectus, and if given or made, such information or representation must not be relied upon as having been authorized by the Company or by any of the Underwriters. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, the Notes in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date hereof. Table of Contents
Page --------- Available Information 4 Prospectus Summary 5 Risk Factors 15 The Distributions 21 Use of Proceeds 25 Capitalization 26 Selected Historical Financial Data 27 Pro Forma Financial Information 31 Management's Discussion and Analysis of Financial Condition and Results of Operations 38 Business 46 Management 66 Security Ownership by Certain Beneficial Owners and Management 76 Description of the Credit Facility 77 Description of the Notes 79 Underwriting 99 Validity of the Notes and Guarantees 100 Experts 100 Index to Financial Statements F-1
Until , 1997 (90 days after the date of this Prospectus), all dealers effecting transactions in the Notes, whether or not participating in this distribution, may be required to deliver a Prospectus. This is in addition to the obligations of dealers to deliver a Prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. 3 Available Information The Company has filed a Registration Statement on Form 10 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), registering its common stock, and will as of the effective date of the Form 10 become subject to the informational requirements of the Exchange Act, and in accordance therewith will file reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Reports, proxy statements and other information filed by the Company with the Commission can be inspected and copies made at the public reference facilities of the Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the Commission's Regional Offices: 7 World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60611. Copies of such materials can be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 at the prescribed rates. In addition, the Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically, such as the Company. The address of the Commission's Web site is http://www.sec.gov. The Company has applied for listing of its common stock on the New York Stock Exchange ("NYSE") and, with such listing, such reports, proxy statements and other information regarding the Company may also be inspected and copied at the offices of the NYSE, 20 Broad Street, New York, New York 10005. The Company and the Guarantors have filed with the Commission a joint Registration Statement on Form S-1 (the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Notes and the Guarantees offered hereby. This Prospectus omits information contained in the Registration Statement in accordance with the rules and regulations of the Commission. Reference is hereby made to the Registration Statement and related exhibits for further information with respect to the Company the Guarantors, the Notes and the Guarantees offered hereby. Statements contained herein concerning the provisions of any document are not necessarily complete and, in each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement or otherwise filed with the Commission. Each such statement is qualified in its entirety by such reference. Copies of the Registration Statement and the exhibits thereto may be inspected, without charge, at the offices of the Commission, or obtained at prescribed rates from the Public Reference Section of the Commission, at the addresses set forth above. The Company has agreed to furnish holders of Notes its annual reports containing financial statements audited by independent auditors and quarterly reports containing unaudited financial information for the first three quarters of each year for as long as the Notes remain outstanding. 4 Prospectus Summary This Summary is qualified by the more detailed information (including the financial statements and related notes) set forth elsewhere in this Prospectus which should be read in its entirety. Unless the context indicates, or it is specifically indicated otherwise, all references to (i) "Corning" include Corning Incorporated, a New York corporation, and its consolidated subsidiaries, (ii) "Quest Diagnostics" or the "Company" include Corning Clinical Laboratories Inc. (to be renamed Quest Diagnostics Incorporated prior to the Distributions), a Delaware corporation, and its direct and indirect subsidiaries (other than Covance) and assume that the Distributions have occurred, and (iii) "Covance" include Covance Inc. (formerly Corning Pharmaceutical Services Inc.), a Delaware corporation, and its direct and indirect subsidiaries and assume that the Distributions have occurred. Capitalized terms used but not defined in this Summary are defined elsewhere in this Prospectus. The Company Quest Diagnostics is one of the largest independent clinical laboratory testing companies in the United States. Quest Diagnostics offers a broad range of routine and specialty ("esoteric") testing services used by the medical profession in the diagnosis, monitoring and treatment of disease and other medical conditions. Quest Diagnostics' network, which processes approximately 60 million requisitions for diagnostic tests annually, consists of 17 regional laboratories across the United States and the Corning Nichols Institute ("Nichols") esoteric testing laboratory in San Juan Capistrano, California. In addition, Quest Diagnostics has 14 branch laboratories in the United States as well as one branch laboratory in Mexico City (branch laboratories are smaller than regional laboratories), approximately 200 "STAT" laboratories and approximately 850 patient service centers located throughout the United States. For the year ended December 31, 1995 and the nine months ended September 30, 1996, Quest Diagnostics had net revenues of $1,629 million and $1,231 million, respectively, and Adjusted EBITDA (income (loss) before income taxes plus net interest expense, depreciation and amortization and restructuring and other special charges) of $177 million and $135 million, respectively. Quest Diagnostics operates 24 hours a day, 365 days a year, utilizing a fully integrated collection and processing system. Quest Diagnostics generally performs and reports most routine procedures within 24 hours, employing a variety of sophisticated and computerized laboratory testing instruments. Quest Diagnostics provides daily pickup of specimens from most customers principally through an in-house courier system. The specimens are sent to one of the Company's laboratories where one or more tests are performed. Each patient specimen is accompanied by a test requisition form, which is completed by the customer, that indicates the tests to be performed and provides the necessary billing information. Each specimen and related requisition form is checked for completeness and then given a unique bar-coded identification number. Once the appropriate information is entered into the computer system, the tests are performed and the results are delivered to the doctor, primarily through computer interface or manually. Corning entered the clinical laboratory business in 1982 with the acquisition of MetPath Inc. ("MetPath"), which was founded in 1967 and was one of the first laboratories to expand beyond a regional market. Since January 1993, Quest Diagnostics has acquired over thirty laboratories, including Damon Corporation ("Damon"), Bioran Medical Laboratory ("Bioran") and Maryland Medical Laboratory, Inc. ("MML"). In 1994, Quest Diagnostics enhanced its presence in the esoteric testing market through the acquisition of Nichols, a preeminent clinical laboratory with a leading reputation for esoteric testing and test innovations. While Corning's ownership provided the Company with the capital to grow through acquisitions and to become one of the nation's largest independent clinical laboratory testing companies, the management of both Corning and Quest Diagnostics believe that Quest Diagnostics will be more competitive and operate more successfully in the future as an independent company, with a strong, focused and experienced management team to concentrate on customer needs. Independence will also enable Quest Diagnostics to motivate its employees by offering equity-based incentives tied directly to the performance of the Company and individual performance. Quest Diagnostics' management team has implemented a new business strategy, which focuses the business around three key strategic areas: clinical operations, customer focus and technological leadership and excellence. The Clinical Laboratory Testing Industry Clinical testing is a critical component in the delivery of quality health care service to patients. Currently, clinical laboratory testing is the first step in determining how a significant amount of all health care dollars are spent. Quest Diagnostics believes that in 1995 the entire United States clinical laboratory industry had revenues exceeding $30 billion. The clinical laboratory industry consists primarily of three types of providers: hospital-affiliated laboratories, independent 5 clinical laboratories, such as Quest Diagnostics, and physician-office laboratories. The Company believes that in 1995 approximately 56% of the clinical testing revenues in the United States were attributable to hospital-affiliated laboratories, approximately 36% were attributable to independent clinical laboratories and approximately 8% were attributable to physicians in their offices and laboratories. Quest Diagnostics believes that consolidation will continue in the clinical laboratory testing business. In addition, Quest Diagnostics believes that it and the other large independent clinical laboratory testing companies may have the opportunity to increase their share of the overall clinical laboratories testing market due to a number of external factors, including cost efficiencies afforded by large-scale automated testing, Medicare reimbursement reductions and the growth of managed health care entities which require low-cost testing services and large service networks. In addition, legal restrictions on physician referrals and the ownership of laboratories as well as increased regulation of laboratories are expected to contribute to the continuing consolidation of the industry. Quest Diagnostics believes that a number of factors are likely to positively influence the volume of clinical laboratory testing performed in the United States in the future, including (1) the general aging of the population in the United States; (2) an expanded base of scientific knowledge which has led to the development of more sophisticated specialized tests and an increase in the awareness of physicians of the value of clinical laboratory testing as a cost-effective means of early detection of disease and monitoring of treatment; (3) an increase in the number and types of tests which are, due to advances in technology and increased cost efficiencies, readily available on a more affordable basis to physicians; (4) expanded substance-abuse testing by corporations and governmental agencies; and (5) increased testing for sexually transmitted diseases such as AIDS. The impact of these factors is expected to be offset in part by increased controls over the utilization of clinical laboratory tests by both Medicare and the private sector, particularly managed care organizations. Business Strategy Quest Diagnostics' overall goal is to be recognized by its customers, employees and competitors as the best provider of comprehensive and innovative clinical testing, information and services. To achieve this, Quest Diagnostics' management team has focused the business around three key strategic areas: clinical operations, customer focus and technological leadership and excellence. (bullet) Best Supplier. Quest Diagnostics seeks to be the best supplier of the highest quality and the lowest-cost testing services. Health care providers and patients expect accurate, timely and consistent laboratory test results at a fair price. (bullet) Lowest-cost provider. Quest Diagnostics' average cost per requisition varies significantly among its regional laboratories; there is an approximately $7.00 difference in cost per requisition between the most efficient regional laboratory and the average, and an approximately $13.00 difference in cost per requisition between the most and the least efficient regional laboratories. In many cases, these variations do not relate to testing volumes or mixes, space costs, service requirements or regional labor cost differences. To reduce costs, Quest Diagnostics has begun to replicate the best practices from each region throughout its national network. Management expects to achieve significant cost savings within the next three years as these programs are fully implemented. * (bullet) Highest Quality Provider. Quest Diagnostics is dedicated to providing accurate and timely test results and to being viewed by its customers as the highest quality provider of clinical testing services. Quest Diagnostics believes that implementation of best practices already developed in certain regions will permit the Company to be viewed by its customers as the highest quality provider of clinical testing services. (bullet) Preferred Provider. Quest Diagnostics seeks to be the preferred provider of laboratory testing services to existing and new health care networks on a selective basis determined by profitability of accounts. Quest Diagnostics believes that it will become the preferred provider to these networks as (1) large networks typically prefer to utilize large independent clinical laboratories that can service them on a national or regional basis and (2) the Company continues to pursue its primary strategy of becoming the highest quality, lowest-cost provider. To achieve this, Quest Diagnostics will employ a rigorous national and regional process to both select and pursue customers and allocate resources to support these efforts. (bullet) Account Profitability. Quest Diagnostics intends to refocus its sales efforts on pursuing and keeping profitable accounts. Quest Diagnostics is actively reviewing the profitability of its current accounts, including those with managed care organizations, and will either increase pricing or eliminate accounts that cannot be serviced profitably. *This is a forward looking statement and is based on current expectations. Actual results may vary materially from those projected. See "Business- Important Factors Regarding Forward Looking Statements." In particular, see factors (a), (d) and (j). 6 (bullet) Regional Profitability. Quest Diagnostics presently believes that it has the leading market share among independent clinical laboratories in most routine testing markets of the northeast, mid-Atlantic and midwest regions. Approximately 65% of Quest Diagnostics' revenues and almost all of its EBITDA is generated from markets in which the Company believes that it has the leading market share. In most of these markets, Quest Diagnostics believes that it also is the lowest cost provider. Quest Diagnostics is evaluating its strategic alternatives relative to units whose profitability does not meet its internal goals. These alternatives may include joint ventures, alliances, or dispositions. Quest Diagnostics believes that, while the clinical laboratory industry is becoming national in scope, the Company can subcontract with other clinical laboratories to perform testing for national accounts in any markets in which the Company chooses not to compete. (bullet) Leading Innovator. Quest Diagnostics intends to remain a leading innovator in the clinical laboratory industry by continuing to introduce new tests, technology and services. Through its relationship with the academic community and pharmaceutical and biotechnology firms and a research and development budget exceeding $15 million per year, Quest Diagnostics believes it is one of the leaders in transferring innovation from academic biotechnology laboratories to the market. Recent developments By a plea agreement and civil agreement and release dated October 9, 1996, between the Department of Justice ("DOJ") and Damon, all federal criminal matters within the scope of the various federal investigations against Damon, and all claims including the civil qui tam cases underlying the civil investigations were settled for an aggregate of $119 million, which sum was reimbursed to Quest Diagnostics by Corning. The Damon settlement does not exclude Quest Diagnostics from future participation in any federal health care programs on account of Damon's practices. Quest Diagnostics' aggregate reserve with respect to all governmental and private claims was $215 million at September 30, 1996 and is estimated to be reduced to $85 million as of the Distribution Date as a result of the payment of settled claims, primarily the Damon settlement of $119 million. Based on information available to management and Quest Diagnostics' experience with past settlements (including the fact that the aggregate amount of the Damon settlement was significantly in excess of established reserves) management has reassessed its reserve levels and believes that its current level of reserves is adequate. However, it is possible that additional information may become available which may cause the final resolution of these matters to be in excess of established reserves by an amount which could be material to Quest Diagnostics' results of operations and, for non-indemnified claims, Quest Diagnostics' cash flows in the period in which such claims are settled. While none of the governmental or nongovernmental investigations or claims is covered by insurance, Quest Diagnostics does not believe that these matters will have a material adverse effect on Quest Diagnostics' overall financial condition. Corning Indemnity In connection with the Distributions, Corning will agree to indemnify Quest Diagnostics against all monetary penalties, fines or settlements arising out of any governmental claims arising out of alleged violations of applicable federal fraud and health care statutes and relating to billing practices of Quest Diagnostics and its predecessors that have been settled or are pending on the Distribution Date. Corning will also indemnify Quest Diagnostics for 50% of the aggregate of all judgment or settlement payments made by Quest Diagnostics that are in excess of $42.0 million in respect of claims by private parties (i.e., nongovernmental parties such as private insurers) that relate to indemnified or previously settled governmental claims and that allege overbillings by Quest Diagnostics or any existing subsidiaries of Quest Diagnostics, for services provided prior to the Distribution Date; provided, however, such indemnification for nongovernmental claims will not exceed $25.0 million in the aggregate and all amounts indemnified against by Corning for the benefit of Quest Diagnostics will be calculated on a net after-tax basis. Such indemnification will not cover (i) any governmental claims that arise after the Distribution Date pursuant to service of subpoena or other notice of such investigation after the Distribution Date, (ii) any nongovernmental claims unrelated to the indemnified governmental claims or investigations, (iii) any nongovernmental claims not settled prior to five years after the Distribution Date, (iv) any consequential or incidental damages relating to the billing claims, including losses of revenues and profits as a consequence of exclusion for participation in federal or state health care programs or (v) the fees and expenses of litigation. 7 The Distributions On May 13, 1996, the board of directors of Corning approved a plan to distribute to Corning shareholders the clinical laboratory testing business being conducted by Quest Diagnostics and the contract research business being conducted by Quest Diagnostics' wholly owned subsidiary, Covance (together, the "Distributions"). The Distributions will be effected by distributing all of the outstanding shares of Quest Diagnostics common stock (the "Quest Diagnostics Common Stock") to holders of Corning common stock (the "Corning Common Stock"), followed immediately by the distribution of all of the common stock of Covance (the "Covance Common Stock") to those same holders, as holders of Quest Diagnostics Common Stock. It is expected that the Distributions will be made on or before December 31, 1996 (the date on which the Distributions are to be made, the "Distribution Date"). Prior to the consummation of the offering of the Notes contemplated hereby (the "Offering"), the Company will enter into a $450 million senior, secured credit facility (the "Credit Facility"), among the Company, the lenders listed therein, NationsBank, N.A., as Issuing Bank, Wachovia Bank of Georgia, N.A., as Swingline Bank, and Morgan Guaranty Trust Company of New York, as Administrative Agent. The Credit Facility will be comprised of a $300 million six-year amortizing term loan ("Tranche A Loan"), a $50 million seven-year term loan ("Tranche B Loan" and together with the Tranche A Loan, the "Term Loans") and a $100 million six-year revolving working capital facility (the "Working Capital Facility"). Corning currently has approximately $1.2 billion of Quest Diagnostics intercompany debt. Approximately $ million of net proceeds from the Offering, together with the $350 million of borrowings under the Term Loans, will be paid to Corning in satisfaction of a portion of the outstanding intercompany debt. Corning will contribute the remaining intercompany debt to Quest Diagnostics' capital. Borrowings under the Working Capital Facility, substantially all of which is expected to be available as of the Distribution Date, will provide for future working capital needs and other general corporate purposes. 8 The Offering
Securities Offered $150,000,000 aggregate principal amount of % Senior Subordinated Notes due December 15, 2006 (the "Notes"). Maturity Date December 15, 2006. Interest Payment Date June 15 and December 15, commencing June 15, 1997. Optional Redemption by the Company The Notes will be redeemable, in whole or in part, at the option of the Company at any time on or after December 15, 2001, at the redemption prices set forth herein, plus accrued and unpaid interest, if any, to but excluding the date fixed for redemption. In addition, if as a result of an event outside the control of Corning, Quest Diagnostics and Covance, the Distributions do not occur prior to March 31, 1997, the Notes will be subject to redemption, as a whole and not in part, at the option of Quest Diagnostics, prior to June 30, 1997, at a redemption price equal to 101% of the principal amount of the Notes, plus accrued and unpaid interest, if any, to but excluding the date fixed for redemption. See "Description of the Notes--Optional Redemption." Change of Control Offer Upon a Change of Control, the Company has the obligation to offer to purchase all the outstanding Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to but excluding the date of purchase. See "Description of the Notes-- Repurchase at the Option of Holders--Change of Control" for a discussion of the circumstances in which the Company may not be required to make an offer to purchase upon a Change of Control. Offers to Purchase In the event of certain asset sales, the Company will be required to offer to repurchase the Notes at 100% of their principal amount, plus accrued and unpaid interest, if any, to but excluding the date of purchase with the net proceeds of such asset sales. Subordination The Notes will be general unsecured obligations of the Company and will be subordinated in right of payment to all existing and future Senior Debt of the Company, including all indebtedness of the Company under the Credit Facility. The Notes will rank Pari Passu in right of payment with any other senior subordinated indebtedness of the Company. 9 Subsidiary Guarantees The Notes will be guaranteed, jointly and severally, and fully and unconditionally, on a senior subordinated basis by the Guarantors (the "Senior Subordinated Guarantees"). The obligations of any Guarantor with respect to its Senior Subordinated Guarantee will be subordinated in right of payment, to the same extent as the obligations of the Company in respect of the Notes, to all existing and future Senior Guarantees, which will include the guarantees of the Credit Facility. The Senior Subordinated Guarantees would also be subordinated to all existing and future indebtedness of the Guarantors if the Senior Subordinated Guarantees were avoided or subordinated in favor of the Guarantors' other creditors. See "Risk Factors--Fraudulent Conveyance." The obligations of a Guarantor under its Senior Subordinated Guarantee will be released in certain circumstances, including if the Guarantor ceases to guarantee the Credit Facility. See "Description of the Notes--Senior Subordinated Guarantees." Principal Covenants The indenture under which the Notes are issued (the "Indenture") will impose certain limitations on the ability of the Company and its subsidiaries to, among other things, incur additional indebtedness, pay dividends or make certain other restricted payments, consummate certain asset sales, enter into certain transactions with affiliates, incur indebtedness that is subordinate in right of payment to any Senior Debt and senior in right of payment to the Notes, enter into leases, incur liens, merge or consolidate with any other person, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the assets of the Company. Use of Proceeds The Company intends to use the proceeds from the sale of the Notes, together with the proceeds of borrowings under the Credit Facility, to repay certain intercompany indebtedness owed to Corning. See "Use of Proceeds." The Distributions The Notes are being offered in connection with the Distributions of the Quest Diagnostics Common Stock and the Covance Common Stock to holders of Corning Common Stock. The closing of the offering of the Notes is anticipated to occur prior to the Distributions. Risk Factors See "Risk Factors" for a discussion of certain factors that should be considered in connection with an investment in the Notes.
10 Summary Financial Data The following table summarizes certain historical and pro forma financial data of Quest Diagnostics at the dates and for each of the periods indicated. The selected financial data as of and for each of the years ended December 31, 1995, 1994 and 1993 have been derived from the audited combined financial statements of (the "Audited Financial Statements") and the notes thereto included elsewhere herein. The selected financial data as of and for the three and nine months ended September 30, 1996 and 1995 have been derived from the unaudited interim combined financial statements of Quest Diagnostics (the "Interim Financial Statements" and, together with the Audited Financial Statements, the "Financial Statements") and the notes thereto included elsewhere herein. In the opinion of Quest Diagnostics management, the unaudited interim combined financial statements include all adjustments, consisting of only normal recurring adjustments, that are necessary for a fair presentation of the financial position and results of operations for these periods. The unaudited interim results of operations for the three and nine months ended September 30, 1996 are not necessarily indicative of the results for the entire year ending December 31, 1996. The selected pro forma financial data have been derived from the unaudited pro forma combined financial information of Quest Diagnostics for the year ended December 31, 1995 and for the three and nine months ended September 30, 1996 (the "Pro Forma Financial Information") and the notes thereto included elsewhere herein. The pro forma statement of operations data gives effect to the Distributions and the Accounting Policy Change (as defined below) as if they had occurred on January 1, 1995 and the pro forma balance sheet data gives effect to the Distributions and the Accounting Policy Change as if they had occurred on September 30, 1996. The pro forma financial data does not purport to represent what Quest Diagnostics' results of operations would have been if the Distributions and the Accounting Policy Change had in fact occurred on such dates, nor does it purport to indicate the future financial position or results of future operations of Quest Diagnostics. The pro forma adjustments are based upon currently available information and certain assumptions that Quest Diagnostics management believes to be reasonable. The summary historical and pro forma financial data set forth below should be read in conjunction with "Selected Historical Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Financial Statements and the notes thereto and the Pro Forma Financial Information and the notes thereto. 11
Three Months Ended September 30, Nine Months Ended September 30, ------------------------------------------------------------------------------------------------ Pro Forma Historical Pro Forma Historical ------------------------------- ------------------------------- 1996(a) 1996 1995 1996(a) 1996 1995 --------------- --------------- --------------- ---------------- ---------------- -------------- (in thousands, except share, per share and percentage data) Statement of Operations Data: Net revenues $ 405,352 $ 405,352 $ 399,959 $ 1,231,290 $1,231,290 $1,239,474 Costs and expenses: Cost of services 255,390 255,390 240,868 768,809 768,809 735,984 Selling, general and administrative 125,190 125,190 181,346(c) 371,439 371,439 399,635(c) Provision for restructuring and other special charges(d) 155,730 155,730 201,730 201,730 45,885 Interest expense, net 12,189 19,866 20,927 36,938 59,887 61,529 Amortization of intangible assets 7,672 10,328 11,293 23,803 31,772 33,678 Other, net 1,837 1,837 1,930 (198) (198) 4,429 --------------- --------------- --------------- ---------------- ---------------- -------------- Total 558,008 568,341 456,364 1,402,521 1,433,439 1,281,140 --------------- --------------- --------------- ---------------- ---------------- -------------- Income (loss) before taxes (152,656) (162,989) (56,405) (171,231) (202,149) (41,666) Income tax expense (benefit) (40,521) (43,553) (17,810) (34,215) (43,280) (3,642) --------------- --------------- --------------- ---------------- ---------------- -------------- Income (loss) before cumulative effect of change in accounting principle (112,135) (119,436) (38,595) (137,016) (158,869) (38,024) Cumulative effect of change in accounting principle --------------- --------------- --------------- ---------------- ---------------- -------------- Net income (loss) $ (112,135) $ (119,436) $ (38,595) $ (137,016) $ (158,869) $ (38,024) =============== =============== =============== ================ ================ ============== Pro forma shares outstanding(e) 28,901,735 28,901,735 Pro forma net loss per share $ (3.88) $ (4.74) Balance Sheet Data (at end of period): Cash $ 40,000 $ 48,319 $ 46,908 $ 40,000 $ 48,319 $ 46,908 Working capital 306,741 114,718 129,319 306,741 114,718 129,319 Total assets 1,612,459 1,886,378 1,896,058 1,612,459 1,886,378 1,896,058 Long-term debt 515,494 1,219,900 1,114,367 515,494 1,219,900 1,114,367 Total debt 517,379 1,231,785 1,226,211 517,379 1,231,785 1,226,211 Stockholder's equity 604,099 132,670 320,576 604,099 132,670 320,576 Ratio of earnings to fixed charges -- (f) -- (f) -- (f) -- (f) -- (f) -- (f) Supplemental Data: Net cash provided by operating activities $ 25,236 $ 25,236 $ 38,202 $ 41,937 $ 41,937 $ 53,789 Net cash used in investing activities (7,904) (7,904) (17,044) (53,097) (53,097) (77,911) Net cash provided by (used in) financing activities (6,618) (6,618) (18,006) 23,033 23,033 32,311 Bad debt expense $ 30,539 $ 30,539 $ 85,831(c) $ 81,891 $ 81,891 $ 127,297(c) Bad debt expense as a % of net revenues 7.5% 7.5% 21.5% 6.7% 6.7% 10.3% Rent expense $ 12,515 $ 12,515 $ 11,860 $ 37,315 $ 37,315 $ 35,060 Capital expenditures 11,912 11,912 16,441 58,802 58,802 56,062 Depreciation expense $ 14,672 $ 14,672 $ 14,275 $ 43,460 $ 43,460 $ 42,358 EBITDA(g) $ (118,123)(h) $ (118,123)(h) $ (9,910)(c) $ (67,030)(h) $ (67,030)(h) $ 95,899(c) EBITDA as a % of net revenues (29.1%) (29.1%) (2.5%) (5.4%) (5.4%) 7.7% Adjusted EBITDA(i) $ 37,607 $ 37,607 $ (9,910)(c) $ 134,700 $ 134,700 $ 141,784(c) Adjusted EBITDA as a % of net revenues 9.3% 9.3% (2.5%) 10.9% 10.9% 11.4% Supplemental Ratio Data: Adjusted EBITDA/interest expense, net 3.1x 3.6x (Adjusted EBITDA-capital expenditures)/interest expense, net 2.1x 2.1x (Total debt--cash)/annualized adjusted EBITDA 3.2x 2.7x
(Footnotes on page 14) 12
Year Ended December 31, ----------------------------------------------------------- Pro Forma Historical ------------------------------------------- 1995(a) 1995 1994(b) 1993 --------------- --------------- ------------- ------------- (in thousands, except share, per share and percentage data) Statement of Operations Data: Net revenues $ 1,629,388 $1,629,388 $1,633,699 $1,416,338 Costs and expenses: Cost of services 980,232 980,232 969,844 805,729 Selling, general and administrative 523,271(c) 523,271(c) 411,939 363,579 Provision for restructuring and other special charges(d) 50,560 50,560 79,814 99,600 Interest expense, net 50,748 82,016 63,295 41,898 Amortization of intangible assets 34,031 44,656 42,588 28,421 Other, net 6,221 6,221 3,464 6,423 --------------- --------------- ------------- ------------- Total 1,645,063 1,686,956 1,570,944 1,345,650 --------------- --------------- ------------- ------------- Income (loss) before taxes (15,675) (57,568) 62,755 70,688 Income tax expense (benefit) 6,835 (5,516) 34,410 25,929 --------------- --------------- ------------- ------------- Income (loss) before cumulative effect of change in accounting principle (22,510) (52,052) 28,345 44,759 Cumulative effect of change in accounting principle (10,562) --------------- --------------- ------------- ------------- Net income (loss) $ (22,510) $ (52,052) $ 28,345 $ 34,197 =============== =============== ============= ============= Pro forma shares outstanding(e) 28,901,735 Pro forma net loss per share $ (0.78) Balance Sheet Data (at end of period): Cash $ 36,446 $ 38,719 $ 39,410 Working capital 200,740 214,358 139,771 Total assets 1,853,385 1,882,663 1,861,162 Long-term debt 1,195,566 1,153,054 1,025,787 Total debt 1,207,714 1,165,626 1,123,307 Stockholder's equity 295,801 386,812 395,509 Ratio of earnings to fixed charges -- (f) -- (f) 1.77(f) 2.20(f) Supplemental Data: Net cash provided by operating activities $ 85,828 $ 85,828 $ 37,963 $ 99,614 Net cash used in investing activities (93,087) (93,087) (46,186) (473,687) Net cash provided by (used in) financing activities 4,986 4,986 7,532 392,956 Bad debt expense $ 152,590(c) $ 152,590(c) $ 59,480 $ 47,240 Bad debt expense as a % of net revenues 9.4% 9.4% 3.6% 3.3% Rent expense $ 46,900 $ 46,900 $ 49,400 $ 46,900 Capital expenditures 74,045 74,045 93,354 65,317 Depreciation expense $ 56,857 $ 56,857 $ 46,929 $ 38,058 EBITDA(g) $ 125,961(c) $ 125,961(c) $ 215,567 $ 179,065 EBITDA as a % of net revenues 7.7% 7.7% 13.2% 12.6% Adjusted EBITDA(i) $ 176,521(c) $ 176,521(c) $ 295,381 $ 278,665 Adjusted EBITDA as a % of net revenues 10.8% 10.8% 18.1% 19.7% Supplemental Ratio Data: Adjusted EBITDA/interest expense, net 3.5x (Adjusted EBITDA-capital expenditures)/ interest expense, net 2.0x
(Footnotes on page 14) 13 (Footnotes for preceding pages) (a) Adjusted to reflect the pro forma effects of the Distributions and the Accounting Policy Change. See "Selected Historical Financial Data" and "Pro Forma Financial Information." (b) In August 1993, Quest Diagnostics acquired Damon, a national clinical testing laboratory with approximately $280 million in annualized revenue, excluding Damon's California-based laboratories which were sold in April 1994. In November 1993, Quest Diagnostics acquired certain clinical-testing laboratories of Unilab Corporation ("Unilab"), with approximately $90 million in annualized revenue. The Damon and Unilab acquisitions were accounted for as purchases. Quest Diagnostics acquired MML, Nichols Institute and Bioran in June, August and October 1994, respectively, and accounted for these acquisitions as poolings of interest. Results presented include the results of Quest Diagnostics, MML, Nichols Institute and Bioran on a pooled basis. The increase in 1994 net revenues compared to 1993 net revenues was primarily due to the Damon and Unilab acquisitions. (c) Includes a third quarter 1995 charge of $62.0 million to increase the reserve for doubtful accounts and allowances resulting from billing systems implementation and integration problems at certain laboratories and increased regulatory requirements. (d) Provision for restructuring and other special charges includes charges for restructurings primarily for workforce reduction programs, the write-off of fixed assets and the costs of exiting a number of leased facilities. Other special charges is primarily comprised of settlement reserves for claims related to billing practices. See Note 5 to the Audited Financial Statements and Notes 2 and 3 to the Interim Financial Statements. (e) Includes the issuance of approximately 28.0 million shares of Quest Diagnostics Common Stock in the Quest Diagnostics Spin-Off Distribution and the issuance of an estimated 900,000 shares into the Quest Diagnostics employee stock ownership plan. (f) For purposes of this calculation, earnings consist of pretax income from continuing operations plus fixed charges. Fixed charges consist of interest expense and one-third of rental expense, representing that portion of rental expense deemed representative of the interest factor. Earnings were insufficient to cover fixed charges by the following amounts (in thousands):
Three Months Ended September 30, Nine Months Ended September 30, Year Ended December 31, ----------------------------------- ---------------------------------- -------------------------- Pro Forma Historical Pro Forma Historical Pro Forma Historical ------------ --------------------------------- --------------------- ------------ ------------- 1996 1996 1995 1996 1996 1995 1995 1995 $152,656 $162,989 $56,405 $171,231 $202,149 $41,666 $15,675 $57,568
(g) EBITDA represents income (loss) before income taxes plus net interest expense and depreciation and amortization. EBITDA is presented because management believes it is an accepted financial indicator of a company's ability to service and incur debt. EBITDA does not represent net income or cash flows from operations as those terms are defined by generally accepted accounting principles and does not necessarily indicate whether cash flows will be sufficient to fund cash needs or service debt. (h) 1996 EBITDA includes charges of $142 million and $188 million for the three months and nine months ended September 30, 1996, respectively, related to charges to establish additional reserves for the Damon and other related claims. In October 1996, Corning contributed $119 million to Quest Diagnostics' capital to fund the settlement of billing issues related to Damon and has agreed to indemnify Quest Diagnostics against certain related and similar claims pending at the Distribution Date. (i) Adjusted EBITDA represents income (loss) before income taxes plus net interest expense, depreciation and amortization and restructuring and other special charges. EBITDA and Adjusted EBITDA include bad debt expense. Adjusted EBITDA is presented because management believes it is an accepted financial indicator of a company's ability to service and incur debt. Adjusted EBITDA does not represent net income or cash flows from operations as those terms are defined by generally accepted accounting principles and does not necessarily indicate whether cash flows will be sufficient to fund cash needs or service debt. 14 Risk Factors Prospective purchasers of the Notes should consider carefully the following factors, as well as the other information set forth or incorporated in this Prospectus, in deciding whether to purchase the Notes. Subordination; Ranking of the Notes as Unsecured Obligations.The Notes will be unsecured senior subordinated obligations of Quest Diagnostics and will be unconditionally guaranteed on a senior subordinated basis by all of the Restricted Subsidiaries of Quest Diagnostics. The Notes and the Senior Subordinated Guarantees will be subordinated in right of payment to all existing and future Senior Debt (as defined under "Description of the Notes--Certain Definitions") and Senior Guarantees (as defined under "Description of the Notes--Certain Definitions"), respectively, of the Company and the Guarantors, will rank Pari Passu (as defined under "Description of the Notes--Certain Definitions") in right of payment with all unsecured senior subordinated indebtedness and all unsecured senior subordinated guarantees of Quest Diagnostics and the Guarantors, respectively, and will rank senior in right of payment to any future indebtedness or guarantees of Quest Diagnostics and the Guarantors, respectively, that may be subordinated thereto. Upon any payment or distribution of assets of Quest Diagnostics to creditors upon any liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors, marshalling of assets and liabilities or any bankruptcy, insolvency or similar proceedings of Quest Diagnostics, the holders of Senior Debt will be entitled to receive payment in full of the principal of (and premium, if any) and interest on such Senior Debt, including all amounts due or to become due on all Senior Debt, or provision will be made for payment in cash or cash equivalents or otherwise, before the Holders of Notes are entitled to receive any payments, subject to certain exceptions. See "Description of the Notes--Subordination." The Notes and the Senior Subordinated Guarantees will be effectively subordinated in right of payment to all existing and future secured indebtedness of Quest Diagnostics and the Guarantors, respectively, to the extent of the collateral securing such indebtedness. On a pro forma basis, as of September 30, 1996, after giving effect to the Distributions, the sale of the Notes and the application of the proceeds thereof and $350.0 million of borrowings under the Term Loans, there was $367 million of Senior Debt of Quest Diagnostics outstanding. All of the borrowings under the Credit Facility have been guaranteed by the Guarantors on a senior basis. While the Indenture will limit, subject to the certain financial tests, the amount of additional Debt that Quest Diagnostics and its Restricted Subsidiaries can incur, there is no other limitation on the amount of Senior Debt that may be incurred. In addition, Quest Diagnostics may from time to time hereafter incur additional Debt constituting Senior Debt, including $100.0 million under the Working Capital Facility, substantially all of which is anticipated to be available at the Distribution Date. Substantial Operations at Subsidiary Level; Structural Subordination.Quest Diagnostics holds substantial assets and conducts substantial operations through its Subsidiaries. Quest Diagnostics thus derives a substantial portion of its operating income and cash flow from its Subsidiaries and must rely substantially upon distributions from its Subsidiaries to generate the funds necessary to meet its obligations, including the payment of principal of and interest on the Notes. Although the Indenture generally prohibits Quest Diagnostics from permitting its Restricted Subsidiaries to allow restrictions on their ability to pay dividends and other amounts to Quest Diagnostics, any such restrictions could materially and adversely affect Quest Diagnostics' ability to service and repay its debts, including the Notes. The Notes are effectively subordinated to all existing and future indebtedness and other liabilities of Quest Diagnostics' Subsidiaries (if any) that are Unrestricted Subsidiaries, and thus not Guarantors, and would be so subordinated to all existing and future indebtedness of the Guarantors if the Senior Subordinated Guarantees were avoided or subordinated in favor of the Guarantors' other creditors. See "--Fraudulent Conveyance." The aggregate net revenues and net loss from the Unrestricted Subsidiaries for the year ended December 31, 1995 were $21.7 million and $0.5 million, respectively. The Unrestricted Subsidiaries had an aggregate book value of $0.1 million at December 31, 1995. The aggregate net revenues and net income for the Unrestricted Subsidiaries was less than 3% of the Company's net revenues and net income for the nine months ended September 30, 1996. The Unrestricted Subsidiaries had an aggregate net book value of less than 3% of the Company's net book value at September 30, 1996. The obligation of a Guarantor under its Senior Subordinated Guarantee will be released if (i) such Guarantor ceases to be a Restricted Subsidiary, (ii) such Guarantor ceases to guarantee the Credit Facility, (iii) the Notes are defeased and discharged or (iv) all or substantially all of the assets of such Guarantor or all of the Capital Stock of such Guarantor is sold (including by issuance, merger, consolidation or otherwise) by the Company or any of its Subsidiaries in a transaction complying with the provisions described under "Certain Covenants--Repurchase at the Option of Holders--Asset Dispositions." Fraudulent Conveyance.The Senior Subordinated Guarantees may be subject to review under federal or state fraudulent transfer law. To the extent that a court were to find that (x) the Senior Subordinated Guarantees were incurred by any Guarantor with intent to hinder, delay or defraud any present or future creditor, or a Guarantor contemplated insolvency with a design to 15 prefer one or more creditors to the exclusion in whole or in part of others, or (y) any Guarantor did not receive fair consideration or reasonably equivalent value for issuing its Senior Subordinated Guarantees and any Guarantor (i) was insolvent, (ii) was rendered insolvent by reason of the issuance of the Senior Subordinated Guarantees, (iii) was engaged or about to engage in a business or transaction for which the remaining assets of a Guarantor constituted unreasonably small capital to carry on its business or (iv) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they matured, a court could avoid or subordinate the Senior Subordinated Guarantees in favor of a Guarantor's creditors. If the Senior Subordinated Guarantees are subordinated, payments of principal and interest on the Notes generally would be subject to the prior payment in full of all indebtedness of the Guarantors. Among other things, a legal challenge of the Senior Subordinated Guarantees on fraudulent conveyance grounds may focus on the benefits, if any, realized by a Guarantor as a result of the issuance by Quest Diagnostics of the Notes. The extent (if any) to which a particular Guarantor may be deemed to have received such benefits may depend on Quest Diagnostics' use of the Offering proceeds, including the extent (if any) to which such proceeds or benefits therefrom benefit the Guarantor. None of the proceeds from the Offering will be contributed to the Restricted Subsidiaries. See "Use of Proceeds." The measure of insolvency for purposes of the foregoing will vary depending on the law of the applicable jurisdiction. Generally, however, an entity would be considered insolvent if the sum of its debts (including contingent or unliquidated debts) is greater than all of its property at a fair valuation or if the present fair saleable value of its assets is less than the amount that will be required to pay its probable liability under its existing debts as such debts become absolute and matured. Based upon financial and other information currently available to it, Quest Diagnostics presently believes that the Senior Subordinated Guarantees are being incurred for proper purposes and in good faith, and that the Guarantors (i) are solvent and will continue to be solvent after issuing the Senior Subordinated Guarantees, (ii) will have sufficient capital for carrying on their business after such issuance and (iii) will be able to pay their debts as they mature. There can be no assurance, however, that a court would necessarily agree with these conclusions, or determine that any particular Guarantor received fair consideration or reasonably equivalent value for issuing its Senior Subordinated Guarantee. Financial Impact of the Distributions. While Quest Diagnostics has a substantial operating history, it has not operated as an independent company since 1982. As a Corning subsidiary, Quest Diagnostics' working capital requirements have been financed by Corning and Quest Diagnostics' major acquisitions have been financed through the issuance of Corning Common Stock and borrowings from Corning. Subsequent to the Distributions, Quest Diagnostics' activities will no longer be financed by Corning. In addition, it is anticipated that the rating of Quest Diagnostics' long-term debt will be non-investment grade. This may impact, among other things, Quest Diagnostics' ability to raise capital, fund working capital requirements or expand, through acquisitions or otherwise, and could thereby have an adverse effect on Quest Diagnostics' operating earnings and cash flow. Substantial Leverage and Debt Service Requirements. After the Distributions and as a result of the incurrence of debt under the Credit Facility and the issuance of Notes, Quest Diagnostics will have substantial debt. At September 30, 1996, after giving effect to the transactions and adjustments described in "Pro Forma Financial Information," Quest Diagnostics would have had $517 million of total debt and total capitalization of $1,120 million, on a pro forma basis, and Quest Diagnostics' total debt as a percentage of total capitalization would have been approximately 46%. In addition to creating significant debt service obligations for Quest Diagnostics, the terms of the Credit Facility will contain customary affirmative and negative covenants that will, among other things, require Quest Diagnostics to maintain certain financial tests and ratios and will restrict Quest Diagnostics' ability to make asset dispositions, incur additional indebtedness, make certain payments and investments, transact with affiliates or enter into mergers or consolidate. See "Description of the Credit Facility." The degree to which Quest Diagnostics is leveraged could have important consequences to holders of the Notes, including the following: (1) Quest Diagnostics' ability to obtain additional financing in the future for working capital, capital expenditures, product development, acquisitions, general corporate purposes or other purposes may be impaired; (ii) a substantial portion of Quest Diagnostics' and its subsidiaries' cash flow from operations must be dedicated to the payment of the principal of and interest on its indebtedness; (iii) the Credit Facility will contain certain restrictive financial and operating covenants, including, among others, requirements that Quest Diagnostics satisfy certain financial ratios; (iv) a significant portion of borrowings will be at floating rates of interest, causing Quest Diagnostics to be vulnerable to increases in interest rates; (v) Quest Diagnostics' degree of leverage may make it more vulnerable in a downturn in general economic conditions; and (vi) Quest Diagnostics' financial position may limit its flexibility in responding to changing business and economic conditions. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" and "Description of the Credit Facility." Recent Losses. Quest Diagnostics incurred net losses of $52 million for the year ended December 31, 1995 and $158.9 million for the nine months ended September 30, 1996. The 1995 net loss includes the provision of $33 million for restructuring charges (primarily relating to workforce reduction programs and the cost of exiting a number of leased facilities) and $17.6 million of special charges related to settlements of governmental billing claims. The net loss for the 1996 period reflects the 16 provision of $188 million for additional reserves primarily relating to the investigation of pre-acquisition billing practices of Damon and Nichols and $13.7 million to write off capitalized software as a result of its decision to abandon the billing system which had been intended as a new company-wide billing system. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." There can be no assurance that Quest Diagnostics' operations will be profitable in the future. Intense Competition. The independent clinical laboratory industry in the United States is intensely competitive. Quest Diagnostics believes that in 1995 approximately 56% of the revenues of the clinical laboratory testing industry was generated by hospital-affiliated laboratories, approximately 36% by independent clinical laboratories and 8% by thousands of individual physicians in their offices and laboratories. Independent clinical laboratories fall into two separate categories: (1) smaller, generally local, laboratories that generally offer fewer tests and services and have less capital than the larger laboratories, and (2) larger laboratories such as Quest Diagnostics that provide a broader range of tests and services. Quest Diagnostics has two major competitors that operate in the national market--SmithKline Beecham Clinical Laboratories, Inc. ("SmithKline") and Laboratory Corporation of America Holdings, Inc. ("LabCorp"). Both SmithKline and LabCorp are affiliated with larger corporations that have greater financial resources than Quest Diagnostics. There are also many independent clinical laboratories that operate regionally and that compete with Quest Diagnostics in these regions. In addition, hospitals are in general both competitors and customers of independent clinical laboratories. The independent clinical laboratory testing industry has experienced intense price competition over the past several years, which has negatively impacted Quest Diagnostics' profitability. The following factors, among others, are often used by health care providers in selecting a laboratory: (i) pricing of the laboratory's testing services; (ii) accuracy, timeliness and consistency in reporting test results; (iii) number and type of tests performed; (iv) service capability and convenience offered by the laboratory; and (v) its reputation in the medical community. See "Business--The Clinical Laboratory Testing Industry" and "Business--Competition." Role of Managed Care. Managed care organizations play a significant role in the health care industry and their role is expected to increase over the next several years. Managed care organizations typically negotiate capitated payment contracts, whereby a clinical laboratory receives a fixed monthly fee per covered individual, regardless of the number or cost of tests performed during the month (excluding certain tests, such as esoteric tests and anatomic pathology services). Laboratory services agreements with managed care organizations have historically been priced aggressively due to competitive pressure 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 under the managed care plan. However, as the number of patients covered under managed care plans continues to increase, there is less such fee-for-service business and, accordingly, less high margin business to offset the low margin (and often unprofitable) managed care business. Furthermore, increasingly, physicians are affiliated with more than one managed care organization and as a result may be required to refer clinical laboratory tests to different clinical laboratories, depending on the coverage of their patients. As a result, a clinical laboratory might not receive any fee-for-service testing from such physicians. See "Business--Customers and Payors" and "Business--Effect of the Growth of the Managed Care Sector on the Clinical Laboratory Business." During the nine months ended September 30, 1996, services to managed care organizations under capitated rate agreements accounted for approximately 6% of Quest Diagnostics' net revenues from clinical laboratory testing and approximately 15% of the tests performed by Quest Diagnostics. Quest Diagnostics is currently reviewing its pricing structures for agreements with managed care organizations and intends to insure that all of its future agreements with managed care organizations are profitably priced. However, there can be no assurance that Quest Diagnostics will be able to increase the prices charged to managed care organizations or that Quest Diagnostics will not lose market share in the managed care market to other clinical laboratories who continue to aggressively price laboratory services agreements with managed care organizations. Quest Diagnostics may experience declines in per-test revenue as managed care organizations continue to increase their share of the health care insurance market. Reliance on Medicare/Medicaid Reimbursements. Approximately 23% and 22% of Quest Diagnostics' net revenues for the year ended December 31, 1995 and the nine months ended September 30, 1996, respectively, were attributable to tests performed for Medicare and Medicaid beneficiaries. Quest Diagnostics' business and financial results depend substantially on reimbursements paid to Quest Diagnostics under these programs. Quest Diagnostics is legally required to accept the government's reimbursement for most Medicare and Medicaid testing as payment in full. Such reimbursements are generally made pursuant to fee schedules, which are subject to certain limitations the levels of which have declined steadily since late 1984. Congress enacted a phased-in set of reductions in the reimbursement limitations as part of its 1993 budget legislation that reduced the Medicare national limitations in 1994 to 84% of the 1984 national median, in 1995 to 80% of the 1984 national median and in 1996 to 76% of the 1984 national median. In 1995, both houses of Congress passed a bill (the Medicare Preservation Act) that would have reduced the fee cap schedule from 75% to 65% of the 1984 national median, but the bill was vetoed by the President. Effective January 1, 1996, the Health Care Financing Administration ("HCFA") adopted a new policy on reimbursement for chemistry panel tests. As of January 1, 1996, 22 automated tests (rather than 19 tests) became reimbursable by Medicare as part of an automated chemistry profile. An additional allowance of $0.50 per test is authorized when more than 19 tests are billed in a panel. HCFA retains the authority to expand in the future the list of tests included in a panel. 17 Effective as of March 1, 1996, HCFA eliminated its prior policy of permitting payment for all tests contained in an automated chemistry panel when at least one of the tests in the panel is medically necessary. Under the new policy, Medicare payment will not exceed the amount that would be payable if only the tests that are "medically necessary" had been ordered. In addition, since 1995 most Medicare carriers have begun to require clinical laboratories to submit documentation supporting the medical necessity, as judged by ordering physicians, for many commonly ordered tests. Quest Diagnostics expects to incur additional reimbursement reductions and additional costs associated with the implementation of these requirements of HCFA and Medicare carriers. The amount of the reductions in reimbursements and additional costs cannot be determined at this time. These and other proposed changes affecting the reimbursement policy of Medicare and Medicaid programs could have a material adverse effect on the business, financial condition, results of operations or prospects of Quest Diagnostics. See "Business--Regulation and Reimbursement--Regulation of Reimbursement for Clinical Laboratory Services." A failure of Quest Diagnostics to properly and promptly process its bills to Medicare may result in an increase in Quest Diagnostics' bad debt expense. See "Business--Billing" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations." Billing. Quest Diagnostics' billings have been hampered by both the industry-wide phenomenon of frequently missing or incorrect billing information and increasingly stringent payor requirements, as well as the existence of multiple billing information systems which have resulted in large part from Quest Diagnostics' growth through acquisitions. Quest Diagnostics' standard billing system has been implemented in seven of its 22 billing sites, which seven sites account for 35% of the Company's net revenues. Quest Diagnostics is beginning to convert the remaining non-standard billing systems to the standard SYS system. See "Business--Information Systems" and "--Billing." Standardizing its billing systems presents conversion risk to Quest Diagnostics as key databases and masterfiles are transferred to the SYS system and because the billing workflow is interrupted during the conversion, which may cause backlogs. Government Investigations and Related Claims. As discussed under "Business--Government Investigations and Related Claims," Quest Diagnostics has settled various government and private claims (i.e., nongovernmental claims such as those by private insurers) totalling approximately $195 million relating primarily to industry-wide billing and marketing practices that had been substantially discontinued by late 1992. Specifically, Quest Diagnostics has entered into, (i) for an aggregate of approximately $180 million, five settlements with the Office of the Inspector General ("OIG") of the Department of Health and Human Services ("HHS") and the DOJ and two settlements with state governments with respect to Medicare and Medicaid marketing and billing practices of Quest Diagnostics and certain companies acquired by Quest Diagnostics prior to their acquisition and (ii) thirteen settlements relating to private claims totalling approximately $15 million. In addition, there are pending investigations by the OIG and DOJ into billing and marketing practices at three regional laboratories operated by Nichols prior to its acquisition by Quest Diagnostics. There are no private claims presently pending. By issuance of civil subpoenas in August 1993, the government began a formal investigation of Nichols. The investigation of Nichols remains open. Remedies available to the government include exclusion from participation in the Medicare and Medicaid programs, criminal fines, civil recoveries plus civil penalties and asset forfeitures. Although application of such remedies and penalties could materially and adversely affect Quest Diagnostics' business, financial condition, results of operations and prospects, management believes that the possibility of this happening is remote. Quest Diagnostics derived approximately 23% and 22% of its net revenues for the year ended December 31, 1995 and the nine months ended September 30, 1996, respectively, from Medicare and Medicaid programs. In connection with the Distributions, Corning will agree to indemnify Quest Diagnostics against all monetary penalties, fines or settlements for any governmental claims arising out of alleged violations of applicable federal fraud and health care statutes and relating to billing practices of Quest Diagnostics and its predecessors that have been settled or are pending on the Distribution Date. Corning will also agree to indemnify Quest Diagnostics for 50% of the aggregate of all judgment or settlement payments made by Quest Diagnostics that are in excess of $42.0 million in respect of claims by private parties (i.e., nongovernmental parties such as private insurers) that relate to indemnified or previously settled governmental claims and that allege overbillings by Quest Diagnostics or any existing subsidiaries of Quest Diagnostics, for services provided prior to the Distribution Date; provided, however, such indemnification will not exceed $25.0 million in the aggregate and all amounts indemnified against by Corning for the benefit of Quest Diagnostics will be calculated on a net after-tax basis. However, such indemnification will not cover (i) any governmental claims that arise after the Distribution Date, (ii) any nongovernmental claims unrelated to the indemnified governmental claims or investigations, (iii) any nongovernmental claims not settled prior to five years after the Distribution Date, (iv) any consequential or incidental damages relating to the billing claims, including losses of revenues and profits as a consequence of exclusion for participation in federal or state health care programs or (v) the fees and expenses of litigation. Quest Diagnostics will control the defense of any governmental claim or investigation unless Corning elects to assume such defense. However, in the case of all nongovernmental claims related to indemnified governmental claims related to alleged overbillings, Quest Diagnostics will control the defense. All disputes under the Transaction Agreement are subject to binding arbitration. See "The Distributions--Transaction Agreement." 18 Quest Diagnostics' aggregate reserve with respect to all governmental and private claims, including litigation costs of approximately $6.6 million, was $215 million at September 30, 1996 and is estimated to be reduced to $85 million as of the Distribution Date as a result of the payment of settled claims, primarily the Damon settlement of $119 million. Based on information available to management and Quest Diagnostics' experience with past settlements (including the fact that the aggregate amount of the Damon settlement was significantly in excess of established reserves) management has reassessed its reserve levels and believes that its current level of reserves is adequate. However, it is possible that additional information (such as the indication by the government of criminal activity, additional tests being questioned or other changes in the government theories of wrongdoing) may become available which may cause the final resolution of these matters to be in excess of established reserves by an amount which could be material to Quest Diagnostics' results of operation and, for non-indemnified claims, Quest Diagnostics' cash flows in the period in which such claims are settled. While none of the governmental or nongovernmental investigations or claims is covered by insurance Quest Diagnostics does not believe that these matters will have a material adverse effect on the Company's overall financial condition. Government Regulation. The clinical laboratory industry is subject to extensive governmental regulations at the federal, state and local levels. See "Business--Regulation and Reimbursement." At the federal level, Quest Diagnostics' laboratories are required to be certified under the Clinical Laboratory Improvement Amendments of 1988 ("CLIA") and approved to participate in the Medicare/Medicaid programs. Currently, all clinical laboratories, including most physician-office laboratories ("POLs"), are required to comply with CLIA. However, the Medicare Preservation Act, passed in 1995 by both Houses of Congress, would have largely exempted POLs from having to comply with CLIA (except with respect to pap smear tests). Although this provision was not maintained by the House-Senate conference and was not included in the subsequent legislation, it could be reintroduced at any time. The exemption of POLs from CLIA would significantly reduce their costs, making them more financially viable and a greater competitive challenge to Quest Diagnostics and would more likely encourage physicians to establish laboratories in their offices. A wide array of Medicare/Medicaid fraud and abuse provisions apply to clinical laboratories participating in such programs. Penalties for violations of these federal laws include exclusion from participation in the Medicare/Medicaid programs, asset forfeitures, civil and criminal penalties. Civil penalties for a wide range of offenses may be up to $2,000 per item and twice the amount claimed. These penalties will be increased effective January 1, 1997 to up to $10,000 per item plus three times the amount claimed. In the case of certain offenses, exclusion from participation in Medicare and Medicaid is a mandatory administrative penalty. The OIG interprets these fraud and abuse administrative provisions liberally and enforces them aggressively. Provisions in a bill enacted in August 1996 are likely to expand the federal government's involvement in curtailing fraud and abuse due to the establishment of (i) an anti-fraud and abuse trust fund funded through the collection of penalties and fines for violations of such laws and (ii) a health care anti-fraud and abuse task force. See "Business--Regulation and Reimbursement." Potential Liability under the Spin-Off Tax Indemnification Agreements. Quest Diagnostics will enter into the Corning/Quest Diagnostics Spin-Off Tax Indemnification Agreement (as defined under "The Distributions--Spin-Off Tax Indemnification Agreements") that will prohibit Quest Diagnostics for a period of two years after the Distribution Date from taking certain actions, including a sale of 50% or more of the assets of Quest Diagnostics or engaging in certain equity or financing transactions, that might jeopardize the favorable tax treatment of the Distributions under section 355 of the Internal Revenue Code, as amended (the "Code"), and will provide Corning with certain rights of indemnification against Quest Diagnostics. Quest Diagnostics may also have indemnification obligations under the Corning/Quest Diagnostics Spin-Off Tax Indemnification Agreement in the case of the acquisition of, or tender or purchase offer by another person for, 20% or more of the outstanding Quest Diagnostics Common Stock. The Corning/Quest Diagnostics Spin-Off Tax Indemnification Agreement will also require Quest Diagnostics to take such actions as Corning may reasonably request to preserve the favorable tax treatment provided for in any rulings obtained from the Internal Revenue Service ("IRS") in respect of the Distributions. Quest Diagnostics and Covance will enter into the Covance/Quest Diagnostics Spin-Off Tax Indemnification Agreement (as defined under "the Distributions--Spin-Off Tax Indemnification Agreements") that will be essentially the same as the Corning/Quest Diagnostics Spin-Off Tax Indemnification except that Quest Diagnostics will make representations to and indemnify Covance as opposed to Corning. If obligations of Quest Diagnostics under either agreement were breached and primarily as a result thereof the Distributions do not receive favorable tax treatment under Code section 355, Quest Diagnostics would be required to indemnify Corning or Covance, as the case may be, for Taxes imposed and such indemnification obligations could exceed the net asset value of Quest Diagnostics at such time. See "The Distributions--Spin-Off Tax Indemnification Agreements." Professional Liability Litigation. As a general matter, providers of clinical laboratory testing services may be subject to lawsuits alleging negligence or other similar legal claims, which suits could involve claims for substantial damages. Damages assessed in connection with, and the costs of defending any such actions could be substantial. Litigation could also have an adverse impact on Quest Diagnostics' client base. Quest Diagnostics maintains liability insurance (subject to maximum limits and self-insured retentions) for professional liability claims. This insurance does not cover liability for any of the investigations described under "--Government 19 Investigations and Related Claims" and "Business--Government Investigations and Related Claims." While there can be no assurance, Quest Diagnostics management believes that the levels of coverage are adequate to cover currently estimated exposures. Although Quest Diagnostics believes that it will be able to obtain adequate insurance coverage in the future at acceptable costs, there can be no assurance that Quest Diagnostics will be able to obtain such coverage or will be able to do so at an acceptable cost or that Quest Diagnostics will not incur significant liabilities in excess of policy limits. Absence of a Prior Public Market. The Notes are a new issue of securities with no established trading market. Quest Diagnostics does not intend to list the Notes on any national securities exchange. While the Underwriters have informed Quest Diagnostics that they intend to make a market in the Notes, they are not obligated to do so and may discontinue such market making at any time without notice. Accordingly, there can be no assurance as to the liquidity of any markets that may develop for the Notes. Dependence on Key Employees. Quest Diagnostics' affairs are managed by a small number of key management personnel, the loss of any of whom could have an adverse impact on Quest Diagnostics. There can be no assurance that Quest Diagnostics can retain its key managerial and technical employees or that it can attract, assimilate or retain other skilled technical personnel in the future. See "Business--Recent Organizational Changes" and "Management." Certain Antitakeover Effects. Quest Diagnostics' amended and restated certificate of incorporation (the "Certificate") and by-laws (the "By-Laws"), and the Delaware General Corporation Law ("DGCL"), contain several provisions that could have the effect of delaying, deferring or preventing a change in control of Quest Diagnostics in a transaction not approved by the board of directors of Quest Diagnostics (the "Board"), or, in certain circumstances, by the disinterested members of the Board. In addition, an acquisition of certain securities or assets of Quest Diagnostics within two years after the Distribution Date might jeopardize the tax treatment of the Distributions and could result in Quest Diagnostics being required to indemnify Corning and Covance. See "--Potential Liability under the Spin-Off Tax Indemnification Agreements." 20 The Distributions Overview of and Reasons for the Distributions The Notes are being offered prior to but in connection with the distributions to holders of common stock with attached preferred share purchase rights (the "Corning Common Stock") of Corning of all of the outstanding common stock with attached preferred stock purchase rights, of (i) Quest Diagnostics, which will be, at the time of such distributions, a direct wholly owned subsidiary of Corning, and (ii) Covance, which currently is and, at the time of such distributions, will be a direct wholly owned subsidiary of Quest Diagnostics. The distribution (the "Quest Diagnostics Spin-Off Distribution") of all the outstanding common stock with attached preferred stock purchase rights of Quest Diagnostics (the "Quest Diagnostics Common Stock") to the holders of Corning Common Stock will be immediately followed by the distribution (the "Covance Spin-Off Distribution" and, together with the Quest Diagnostics Spin-Off Distribution, the "Distributions") of all of the outstanding common stock with attached preferred stock purchase rights of Covance (the "Covance Common Stock") to the holders of Quest Diagnostics Common Stock. Since the Covance Spin-Off Distribution will be immediately after (but on the same day as) the Quest Diagnostics Spin-Off Distribution, each holder of Corning Common Stock will, immediately after the Distributions, not only hold shares of Corning Common Stock but also shares of Quest Diagnostics Common Stock and Covance Common Stock. The Distributions will occur at 11:59 p.m. on December 31, 1996 (the "Distribution Date"). Application will be made to list the shares of Quest Diagnostics Common Stock and Covance Common Stock on the New York Stock Exchange ("NYSE") under the symbols "DGX" and "CVD," respectively, subject to official notice of the Distributions. The Distributions are subject to the satisfaction of several conditions including the receipt of a favorable IRS ruling (as defined below). Prior to the closing of the Offering, Quest Diagnostics transferred to Corning approximately $350 million of initial borrowings under the Credit Facility in partial repayment of certain intercompany indebtedness owed by Quest Diagnostics to Corning (the "Intercompany Debt"). On the closing date of the Offering, Quest Diagnostics will transfer the approximately $___ million net proceeds from the Offering to Corning in repayment of additional Intercompany Debt. Corning will cancel the Intercompany Debt as a contribution to the capital of Quest Diagnostics. See "Use of Proceeds." Closing Document Escrow Arrangements It is currently anticipated that the Offering will close prior to the Distributions. At the time of the closing of the Offering, all of the conditions to the consummation of the Distributions under the Transaction Agreement (as described below under "--Transaction Agreement") will have been satisfied or waived, and all of the operative agreements necessary to effect the Distributions will have been executed and placed in escrow with , as Escrow Agent (the "Escrow Agent"), pursuant to the terms of an Escrow Agreement, dated the closing date of the Offering (the "Escrow Agreement"), among Quest Diagnostics, Corning, Covance and the Escrow Agent. The Escrow Agreement will require the Escrow Agent to release the documents placed in escrow on the Distribution Date. If as a result of an event outside the control of Corning, Quest Diagnostics or Covance, the Distributions do not occur prior to March 31, 1997, the Notes will be subject to redemption, as a whole and not in part, at the option of Quest Diagnostics, prior to June 30, 1997, at a redemption price equal to 101% of the principal amount of the Notes plus accrued and unpaid interest at the date fixed for redemption. Transaction Agreement Corning, Quest Diagnostics and Covance will enter into the Transaction Agreement (the "Transaction Agreement") providing for, among other things, certain conditions precedent to the Distributions, certain corporate transactions required to effect the Distributions and other arrangements between Corning, Quest Diagnostics and Covance subsequent to the Distributions. The Transaction Agreement will provide for, among other things, assumptions of liabilities and cross-indemnities designed to allocate generally, effective as of the Distribution Date, financial responsibility for the liabilities arising out of or in connection with (i) the clinical laboratory business to Quest Diagnostics and its subsidiaries, (ii) the contract research business to Covance and its subsidiaries and (iii) all other business conducted by Corning prior to the Distribution Date to Corning and its subsidiaries other than Quest Diagnostics and Covance. The Transaction Agreement will provide that Corning, Quest Diagnostics and Covance will use their respective commercially reasonable efforts to achieve an allocation of consolidated indebtedness of Corning and an agreed upon capital structure after the Distributions of Corning, Quest Diagnostics and Covance. In addition to the specific indemnity described below, Corning, Quest Diagnostics and Covance are obligated under the Transaction Agreement to indemnify and hold harmless each other in respect of Indemnifiable Losses (as defined therein) arising out of or otherwise relating to the management or conduct of their respective businesses or the breach of any provision of the Transaction Agreement; provided, however, that Quest Diagnostics 21 will have no obligation to indemnify or hold harmless Corning in respect of Indemnifiable Losses arising out of any governmental claims or investigations described in the next paragraph. As discussed under "Business--Government Investigations and Related Claims," Quest Diagnostics is subject to several governmental investigations. Any amounts paid by Quest Diagnostics to settle these investigations, or as a result of a judgment relating to these investigations, will be indemnified by Corning under the Transaction Agreement. Under the Transaction Agreement Corning will agree to indemnify Quest Diagnostics against all monetary penalties, fines or settlements arising out of any governmental criminal, civil or administrative investigations or claims that have been settled prior to or are pending as of the Distribution Date, pursuant to service of subpoena or other notice of such investigation to Quest Diagnostics, as well as any qui tam proceeding for which a complaint was filed prior to the Distribution Date whether or not Quest Diagnostics has been served with such complaint or otherwise been notified of the pendency of such action, to the extent that such investigations or claims arise out of or are related to alleged violations of federal fraud and health care statutes identified in the Transaction Agreement by reason of Quest Diagnostics or any company acquired by Quest Diagnostics billing any federal program or agency for services rendered to beneficiaries of such program or agency. Corning will also indemnify Quest Diagnostics for 50% of the aggregate of all judgment or settlement payments made by Quest Diagnostics that are in excess of $42.0 million in respect of claims by private parties (i.e., nongovernmental parties such as private insurers) that relate to indemnified or previously settled governmental claims and that allege overbillings by Quest Diagnostics or any existing subsidiaries of Quest Diagnostics for services provided prior to the Distribution Date; provided, however, such indemnification for private claims will terminate five years after the Distribution Date (whether or not settled) and will not exceed $25.0 million in the aggregate (reduced by certain tax benefits as described below). Quest Diagnostics' aggregate reserve with respect to all governmental and private claims, including litigation costs, was $215 million at September 30, 1996 and is estimated to be reduced to $85 million at the Distribution Date and as a result of the payment of settled claims, primarily the Damon settlement of $119 million. Corning will not indemnify Quest Diagnostics against any governmental claims that arise after the Distribution Date, even though relating to events prior to the Distribution Date, or to any private claims that do not relate to the indemnified or previously settled governmental claims or investigations that relate to post-Distribution Date billings. Corning will not indemnify Quest Diagnostics against consequential or incidental damages relating to the billing claims, including losses of revenues and profits as a consequence of any exclusion from participation in federal or state health care programs or the fees and expenses of the litigation, including attorneys' fees and expenses. All amounts indemnified against by Corning for the benefit of Quest Diagnostics will be calculated on a net after-tax basis by taking into account any deductions and other tax benefits realized by Quest Diagnostics (or a consolidated group of which Quest Diagnostics is a member after the Distributions (the "Quest Diagnostics Group")) in respect of the underlying settlement, judgment payment, or other loss (or portion thereof) indemnified against by Corning generally at the time and to the extent such deductions or tax benefits are deemed to reduce the tax liability of Quest Diagnostics or the Quest Diagnostics Group under the Transaction Agreement. The Transaction Agreement provides that, in the case of any claims for which Corning, Quest Diagnostics or Covance are entitled to indemnification, the indemnified party will control the defense of any claim unless the indemnifying party elects to assume such defense. However, in the case of all private claims related to indemnified governmental claims related to alleged overbillings, Quest Diagnostics will control the defense. Disputes under the Transaction Agreement are subject to binding arbitration. The Transaction Agreement will also provide that, except as otherwise set forth therein or in any other agreement, all costs or expenses incurred on or prior to the Distribution Date in connection with the Distributions will be allocated among the parties. Except as set forth in the Transaction Agreement or any related agreement, each party shall bear its own costs and expenses incurred after the Distribution Date. Spin-Off Tax Indemnification Agreements Corning and Quest Diagnostics will enter into a tax indemnification agreement (the "Corning/Quest Diagnostics Spin-Off Tax Indemnification Agreement") pursuant to which (1) Quest Diagnostics will represent to Corning that, to the best of its knowledge, the materials relating to Quest Diagnostics submitted to the IRS in connection with the request for ruling submitted to the IRS are complete and accurate in all material respects, (2) Quest Diagnostics will represent that it has no present intention to undertake the transactions described in part (3)(iii) hereafter or cease to engage in the active conduct of providing clinical laboratory testing services, (3) Quest Diagnostics will covenant and agree that for a period of two years following the Distribution Date (the "Restricted Period"), (i) Quest Diagnostics will continue to engage in the clinical laboratory testing business, (ii) Quest Diagnostics will continue to manage and own at least 50% of the assets which it owns directly and indirectly immediately after the Distribution Date and (iii) neither Quest Diagnostics, nor any related corporation nor any of their respective directors, officers or other representatives will undertake, authorize, approve, recommend, permit, facilitate, or enter into any contract, or consummate any transaction with respect to: (A) the issuance of Quest Diagnostics Common Stock (including options and other 22 instruments convertible into Quest Diagnostics Common Stock) which would exceed fifty percent (50%) of the outstanding shares of Quest Diagnostics Common Stock immediately after the Distribution Date; (B) the issuance of any other instrument that would constitute equity for federal tax purposes ("Disqualified Quest Diagnostics Stock"); (C) the issuance of options and other instruments convertible into Disqualified Quest Diagnostics Stock; (D) any repurchases of Quest Diagnostics Common Stock, unless such repurchases satisfy certain requirements; (E) the dissolution, merger, or complete or partial liquidation of Quest Diagnostics or any announcement of such action; or (F) the waiver, amendment, termination or modification of any provision of the Quest Diagnostics Rights Plan (as defined therein) in connection with, or in order to permit or facilitate, any acquisition of Quest Diagnostics Common Stock or other equity interest in Quest Diagnostics, and (4) Quest Diagnostics will agree to indemnify Corning for Taxes (as defined below) arising from violations of (1), (2) or (3) above and for Taxes arising as a result of (A) an acquisition of 20% or more of the stock of Quest Diagnostics by a person or related persons during the Restricted Period or (B) the commencement of a tender or purchase offer by a third party for 20% or more of Quest Diagnostics stock. If obligations of Quest Diagnostics under this agreement were breached and as a result thereof one or both of the Distributions do not qualify for the treatment stated in the ruling Corning requested from the IRS (the "IRS Ruling"), Quest Diagnostics would be required to indemnify Corning for Taxes imposed and such indemnification obligations could exceed the net asset value of Quest Diagnostics at such time. Corning and Covance will enter into a tax indemnification agreement (the "Corning/Covance Spin-Off Tax Indemnification Agreement") pursuant to which (1) Covance will represent to Corning that to the best of its knowledge, the materials relating to Covance submitted to the IRS in connection with the request for ruling submitted to the IRS are complete and accurate in all material respects, (2) Covance will represent that it has no present intention to undertake the transactions described in part (3)(iii) hereafter or to cease to engage in the active conduct of providing contract research services, (3) Covance will covenant and agree that during the Restricted Period, (i) Covance will continue to engage in the contract research business, (ii) Covance will continue to manage and own at least 50% of the assets which it owns directly and indirectly immediately after the Distribution Date and (iii) neither Covance, nor any related corporations nor any of their respective directors, officers or other representatives will undertake, authorize, approve, recommend, permit, facilitate, or enter into any contract, or consummate any transaction with respect to: (A) the issuance of Covance Common Stock (including options and other instruments convertible into Covance Common Stock) which would exceed fifty percent (50%) of the outstanding shares of Covance Common Stock immediately after the Distribution Date; (B) the issuance of any other instrument that would constitute equity for federal tax purposes ("Disqualified Covance Stock"); (C) the issuance of options and other instruments convertible into Disqualified Covance Stock; (D) any repurchases of Covance Common Stock, unless such repurchases satisfy certain requirements; (E) the dissolution, merger, or complete or partial liquidation of Covance or any announcement of such action; or (F) the waiver, amendment, termination or modification of any provision of the Covance Rights Plan (as defined therein) in connection with, or in order to permit or facilitate, any acquisition of Covance Common Stock or other equity interest in Covance and (4) Covance will agree to indemnify Corning for Taxes arising from violations of (1), (2) or (3) above and for Taxes arising as a result of (A) an acquisition of 20% or more of the stock of Covance by a person or related persons during the Restricted Period or (B) the commencement of a tender or purchase offer by a third party for 20% or more of Quest Diagnostics stock. If obligations of Covance under this agreement were breached and as a result thereof one or both of the Distributions do not qualify for the treatment stated in the IRS Ruling, Covance would be required to indemnify Corning for Taxes imposed and such indemnification obligations could exceed the net asset value of Covance at such time. Quest Diagnostics and Covance will enter into a second tax indemnification agreement (the "Covance/Quest Diagnostics Spin-Off Tax Indemnification Agreement") which will be essentially the same as the Corning/Quest Diagnostics Spin-Off Tax Indemnification Agreement except that Quest Diagnostics will make representations to and indemnify Covance as opposed to Corning. If obligations of Quest Diagnostics under this agreement were breached and as a result thereof one or both of the Distributions do not qualify for the treatment stated in the IRS Ruling, Quest Diagnostics would be required to indemnify Covance for Taxes imposed and such indemnification obligations could exceed the net asset value of Quest Diagnostics at such time. Quest Diagnostics and Covance will enter into a tax indemnification agreement (the "Quest Diagnostics/Covance Spin-Off Tax Indemnification Agreement") which will be essentially the same as the Corning/Covance Spin-Off Tax Indemnification Agreement except that Covance will make representations to and indemnify Quest Diagnostics as opposed to Corning. If obligations of Covance under this agreement were breached and as a result thereof one or both of the Distributions do not qualify for the treatment stated in the IRS Ruling, Covance would be required to indemnify Quest Diagnostics for Taxes imposed and such indemnification obligations could exceed the net asset value of Covance at such time. The Spin-Off Tax Indemnification Agreements will also require (i) Quest Diagnostics to take such actions as Corning may reasonably request and (ii) Covance to take such actions as Corning and Quest Diagnostics may reasonably request to preserve the favorable tax treatment provided for in any rulings obtained from the IRS in respect of the Distributions. 23 Tax Sharing Agreement Corning, Quest Diagnostics and Covance will enter into a tax sharing agreement (the "Tax Sharing Agreement") which will allocate responsibility for federal income and various other taxes ("Taxes") among the three companies. The Tax Sharing Agreement provides that, except for Taxes arising as a result of the failure of either or both of the Distributions to qualify for the treatment stated in the IRS Ruling (which Taxes are allocated either pursuant to the Spin-Off Tax Indemnification Agreements or as described below), Corning is liable for and will pay the federal income taxes of the consolidated group that includes Quest Diagnostics and Covance and their subsidiaries, provided, however, that Quest Diagnostics and Covance are required to reimburse Corning for taxes for periods beginning after December 31, 1995 in which they are members of the Corning consolidated group and for which tax returns have not been filed as of the Distribution Date. This reimbursement obligation is based on the hypothetical separate federal tax liability of Quest Diagnostics and Covance, including their respective subsidiaries, calculated on a separate consolidated basis, subject to certain adjustments. Under the Tax Sharing Agreement, in the case of adjustments by a taxing authority of a consolidated federal income tax or certain other tax returns prepared by Corning which includes Quest Diagnostics or Covance, then, subject to certain exceptions, Corning is liable for and will pay any tax assessments, and is entitled to any tax refunds, resulting from such audit. The Tax Sharing Agreement further provides that, if either of the Distributions fails to qualify for the tax treatment stated in the IRS Ruling (for reasons other than those indemnified against under one or more of the Spin-Off Tax Indemnification Agreements), Taxes imposed upon or incurred by Corning, Quest Diagnostics or Covance as a result of such failure are to be allocated among Corning, Quest Diagnostics and Covance in such a manner as will take into account the extent to which the actions or inactions of each may have contributed to such failure, and Corning, Quest Diagnostics and Covance each will indemnify and hold harmless the other from and against the taxes so allocated. If it is determined that none of the companies contributed to the failure of such distribution to qualify for the tax treatment stated in the IRS Ruling, the liability for taxes will be borne by each in proportion to its relative average market capitalization as determined by the average closing price for the common stock of each during the 20 trading-day period immediately following the Distribution Date. In the event that either of the Distributions fails to qualify for the tax treatment stated in the IRS Ruling and the liability for taxes as a result of such failure is allocated among Corning, Quest Diagnostics and Covance, the liability so allocated to Quest Diagnostics or Covance could exceed the net asset value of Quest Diagnostics or Covance, respectively. 24 Use of Proceeds The net proceeds to Quest Diagnostics from the Offering are estimated to be approximately $ . The net proceeds from the Offering, together with approximately $350 million of borrowings under the Term Loans of the Credit Facility, will be used to repay approximately $ million of Intercompany Debt owed to Corning. Corning will contribute to the equity capital of Quest Diagnostics any Intercompany Debt owed in excess of the approximately $ million of Intercompany Debt being repaid. After completion of the foregoing transactions, Quest Diagnostics will not owe any Intercompany Debt to Corning. The Intercompany Debt currently bears interest at a weighted average interest rate of approximately 7% per annum and matures at various dates through 2013. 25 Capitalization The following table sets forth Quest Diagnostics' capitalization as of September 30, 1996 giving effect to (i) the consummation of the Offering and the estimated initial borrowings under the Credit Facility, (ii) the Distributions and (iii) the Accounting Policy Change (as defined below), as if such transactions occurred on such date. This table should be read in conjunction with the Financial Statements and notes thereto and the Pro Forma Financial Information (as defined below) and notes thereto included elsewhere herein. Historical combined and pro forma combined financial information may not be indicative of Quest Diagnostics' future capitalization as an independent company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business."
Pro Forma Historical Adjustments Pro Forma ------------- --------------- -------------- (in thousands) Cash $ 48,319 $ (8,319)(a) $ 40,000 ============= =============== ============== Short-term Debt: Current portion of long-term debt $ 11,885 $ (10,000)(b) $ 1,885(h) Revolving credit facility (c) ------------- --------------- -------------- Total Short-term Debt $ 11,885 $ (10,000) $ 1,885 ============= =============== ============== Long-term Debt: Term loans $ 15,494 $ 350,000 (b) $ 365,494(h) Notes 150,000 (b) 150,000 Payable to Corning 1,204,406 (8,319)(a) (447,669)(b) (748,418)(d) ------------- --------------- -------------- Total Long-term Debt 1,219,900 (704,406) 515,494 ------------- --------------- -------------- Stockholder's Equity: Contributed capital 297,823 748,418 (d) 11,250 (e) 150,000 (f) 1,207,491 Accumulated deficit (163,158) (13,239)(e) (425,000)(g) (601,397) Cumulative translation adjustment 1,801 1,801 Market valuation adjustment (3,796) (3,796) ------------- --------------- -------------- Total Stockholder's Equity 132,670 471,429 604,099 ------------- --------------- -------------- Total Capitalization $1,352,570 $ (232,977) $1,119,593 ============= =============== ==============
(a) Historically, Quest Diagnostics has participated in Corning's centralized treasury and cash management processes. Cash received from operations was generally transferred to Corning on a daily basis. Cash disbursements for operations and investments were funded as needed from Corning. The cash balance at the Distribution Date will range from $30 million to $40 million. The pro forma adjustment to cash and payable to Corning represents the reduction to bring cash to the Distribution Date range. (b) The pro forma adjustment to current portion of long-term debt, term loans, Notes, and payable to Corning reflects borrowings by Quest Diagnostics, immediately prior to the Quest Diagnostics Spin-Off Distribution, to repay Corning for certain income tax liabilities and intercompany borrowings. The assumed interest rates on these borrowings are 7.50% and 11.50% for the Credit Facility and the Notes, respectively. (c) The Credit Facility will include a revolving credit facility of $100 million which can be used to fund working capital and investment activities. Quest Diagnostics management believes that the entire revolving credit facility will be available at the Distribution Date. (d) The pro forma adjustment to payable to Corning and contributed capital of $748.4 million reflects Corning's capital contribution to Quest Diagnostics of the estimated remaining intercompany borrowings. (e) The pro forma adjustment to contributed capital and accumulated deficit represents costs directly related to the Quest Diagnostics Spin-Off Distribution that Quest Diagnostics expects to record coincident with the Quest Diagnostics Spin-Off Distribution. These costs, which are estimated at $20.2 million ($13.2 million after tax), include approximately $9.0 million related to professional advisory and financing commitment fees and $11.2 million related to the establishment of an employee stock ownership plan. This amount is subject to change based on the market price of the Quest Diagnostics Common Stock on the Distribution Date. (f) The pro forma adjustment to contributed capital represents the estimated capital contribution related to Corning's indemnification under the Transaction Agreement. See "The Distributions--Transaction Agreement." As a result of funding settled claims, primarily the Damon settlement of $119 million, the receivable from Corning is estimated to approximate $25 million at the Distribution Date. (g) Coincident with the Quest Diagnostics Spin-Off Distribution, Quest Diagnostics will adopt a new accounting policy for evaluating and measuring the recoverability of intangible assets based on a fair value approach (the "Accounting Policy Change"). The pro forma adjustment to accumulated deficit represents the estimated impact of the Accounting Policy Change. Quest Diagnostics management estimates the charge to reduce the carrying value of intangible assets to fair value will be in the range of $400 million to $450 million. The midpoint of the range has been utilized for the preparation of the Unaudited Pro Forma Combined Balance Sheet. (h) The current portion of long-term debt and the term loans, exclusive of the pro forma adjustment, consists primarily of a mortgage note payable and capital lease obligations. 26 Selected Historical Financial Data The following table presents selected historical financial data of Quest Diagnostics at the dates and for each of the periods indicated. The selected financial data as of and for each of the years ended December 31, 1995, 1994 and 1993 have been derived from the Audited Financial Statements and the notes thereto included elsewhere herein. The selected financial data as of and for the three and nine months ended September 30, 1996 and 1995 (the "Interim Financial Statements" and, together with the Audited Financial Statements, the "Financial Statements") and the years ended December 31, 1992 and 1991 have been derived from the unaudited combined financial statements of Quest Diagnostics. In the opinion of management, the unaudited combined financial statements include all adjustments, consisting only of normal recurring adjustments, that are necessary for a fair presentation of the financial position and results of operations for these periods. The unaudited interim results of operations for the three and nine months ended September 30, 1996 are not necessarily indicative of the results for the entire year ending December 31, 1996. The selected financial data should be read in conjunction with the Financial Statements and notes thereto, and the Pro Forma Financial Information and notes thereto included elsewhere herein. Historical combined financial data may not be indicative of Quest Diagnostics' future performance as an independent company. See the Financial Statements and notes thereto and Pro Forma Financial Information. See also "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." 27
Three Months Ended Nine Months Ended September 30, September 30, ------------------------------- ------------------------------ 1996 1995 1996 1995 ---------------- -------------- --------------- -------------- (in thousands, except percentage data) Statement of Operations Data: Net revenues $ 405,352 $ 399,959 $1,231,290 $1,239,474 Costs and expenses: Cost of services 255,390 240,868 768,809 735,984 Selling, general and administrative 125,190 181,346(b) 371,439 399,635 (b) Provision for restructuring and other special charges(c) 155,730 201,730 45,885 Interest expense, net 19,866 20,927 59,887 61,529 Amortization of intangible assets 10,328 11,293 31,772 33,678 Other, net 1,837 1,930 (198) 4,429 ---------------- -------------- --------------- -------------- Total 568,341 456,364 1,433,439 1,281,140 ---------------- -------------- --------------- -------------- Income (loss) before taxes (162,989) (56,405) (202,149) (41,666) Income tax expense (benefit) (43,553) (17,810) (43,280) (3,642) ---------------- -------------- --------------- -------------- Income (loss) before cumulative effect of change in accounting principle (119,436) (38,595) (158,869) (38,024) Cumulative effect of change in accounting principle ---------------- -------------- --------------- -------------- Net income (loss) $ (119,436) $ (38,595) $ (158,869) $ (38,024) ================ ============== =============== ============== Balance Sheet Data (at end of period): Cash $ 48,319 $ 46,908 $ 48,319 $ 46,908 Working capital 114,718 129,319 114,718 129,319 Total assets 1,886,378 1,896,058 1,886,378 1,896,058 Long-term debt 1,219,900 1,114,367 1,219,900 1,114,367 Total debt 1,231,785 1,226,211 1,231,785 1,226,211 Stockholder's equity 132,670 320,576 132,670 320,576 Ratio of earnings to fixed charges -- (d) -- (d) -- (d) -- (d) Supplemental Data: Net cash provided by operating activities $ 25,236 $ 38,202 $ 41,937 $ 53,789 Net cash used in investing activities (7,904) (17,044) (53,097) (77,911) Net cash provided by (used in) financing activities (6,618) (18,006) 23,033 32,311 EBITDA(e) $ (118,123)(f) $ (9,910)(b) $ (67,030)(f) $ 95,899 (b) EBITDA as a % of net revenues (29.1)% (2.5)% (5.4)% 7.7% Adjusted EBITDA(g) $ 37,607 $ (9,910)(b) $ 134,700 $ 141,784 (b) Adjusted EBITDA as a % of net revenues 9.3% (2.5)% 10.9% 11.4%
(Footnotes on page 30) 28
Year Ended December 31, -------------------------------------------------------------------- 1995 1994(a) 1993 1992 1991 -------------- ------------- -------------------------- ----------- (in thousands, except percentage data) Statement of Operations Data: Net revenues $1,629,388 $1,633,699 $1,416,338 $1,228,964 $941,116 Costs and expenses: Cost of services 980,232 969,844 805,729 657,354 553,810 Selling, general and administrative 523,271(b) 411,939 363,579 334,665 193,934 Provision for restructuring and other special charges(c) 50,560 79,814 99,600 13,000 Interest expense, net 82,016 63,295 41,898 31,775 14,205 Amortization of intangible assets 44,656 42,588 28,421 21,359 16,556 Other, net 6,221 3,464 6,423 16,300 6,636 -------------- ------------- -------------------------- ----------- Total 1,686,956 1,570,944 1,345,650 1,074,453 785,141 -------------- ------------- -------------------------- ----------- Income (loss) before taxes (57,568) 62,755 70,688 154,511 155,975 Income tax expense (benefit) (5,516) 34,410 25,929 52,115 52,128 -------------- ------------- -------------------------- ----------- Income (loss) before cumulative effect of change in accounting principle (52,052) 28,345 44,759 102,396 103,847 Cumulative effect of change in accounting principle (10,562) -------------- ------------- -------------------------- ----------- Net income (loss) $ (52,052) $ 28,345 $ 34,197 $ 102,396 $103,847 ============== ============= ========================== =========== Balance Sheet Data (at end of period): Cash $ 36,446 $ 38,719 $ 39,410 $ 20,528 $ 24,068 Working capital 200,740 214,358 139,771 161,759 126,406 Total assets 1,853,385 1,882,663 1,861,162 1,024,806 764,087 Long-term debt 1,195,566 1,153,054 1,025,787 431,624 270,682 Total debt 1,207,714 1,165,626 1,123,307 474,175 287,973 Stockholder's equity 295,801 386,812 395,509 408,149 291,973 Ratio of earnings to fixed charges --(d) 1.77(d) 2.20(d) 4.44(d) 5.83(d) Supplemental Data: Net cash provided by operating activities $ 85,828 $ 37,963 $ 99,614 $ 101,077 $ -- (h) Net cash used in investing activities (93,087) (46,186) (473,687) (203,884) -- (h) Net cash provided by (used in) financing activities 4,986 7,532 392,956 99,267 -- (h) EBITDA(e) $ 125,961(b) $ 215,567 $ 179,065 $ 242,527 $213,593 EBITDA as a % of net revenues 7.7% 13.2% 12.6% 19.7% 22.7% Adjusted EBITDA(g) $ 176,521(b) $ 295,381 $ 278,665 $ 255,527 $213,593 Adjusted EBITDA as a % of net revenues 10.8% 18.1% 19.7% 20.8% 22.7%
(Footnotes on page 30) 29 (Footnotes for preceding pages) (a) In August 1993, Quest Diagnostics acquired Damon, a national clinical-testing laboratory with approximately $280 million in annualized revenues, excluding Damon's California-based laboratories, which were sold in April 1994. In November 1993, Quest Diagnostics acquired certain clinical-testing laboratories of Unilab, with approximately $90 million in annualized revenues. The Damon and Unilab acquisitions were accounted for as purchases. Quest Diagnostics acquired MML, Nichols and Bioran Medical Laboratory ("Bioran") in June, August and October 1994, respectively, and accounted for these acquisitions as poolings of interest. Results presented include the results of Quest Diagnostics, MML, Nichols and Bioran on a pooled basis. The increase in 1994 net revenues compared to 1993 net revenues was primarily due to the Damon and Unilab acquisitions. (b) Includes a third quarter 1995 charge of $62.0 million to increase the reserve for doubtful accounts and allowances resulting from billing systems implementation and integration problems at certain laboratories and increased regulatory requirements. (c) Provision for restructuring and other special charges includes charges for restructurings primarily for work force reduction programs, the write-off of fixed assets and the costs of exiting a number of leased facilities. Other special charges is primarily comprised of settlement reserves for claims related to billing practices. See Note 5 to the Audited Financial Statements and Notes 2 and 3 to the Interim Financial Statements. (d) For purposes of this calculation, earnings consist of pretax income from continuing operations plus fixed charges. Fixed charges consist of interest expense and one-third of rental expense, representing that portion of rental expense deemed representative of the interest factor. Earnings were insufficient to cover fixed charges by the following amounts (in thousands):
Three months Ended September 30, Nine months Ended September 30, Year Ended December 31, ----------------------------------------------- ----------------------------------------------- ----------------------- 1996 1995 1996 1995 1995 $162,989 $56,405 $202,149 $41,666 $57,568
(e) EBITDA represents income (loss) before income taxes plus net interest expense, depreciation and amortization. EBITDA is presented because management believes it is a widely accepted financial indicator of a company's ability to service and incur debt. EBITDA does not represent net income or cash flows from operations as those terms are defined by generally accepted accounting principles and does not necessarily indicate whether cash flows will be sufficient to fund cash needs or service debt. (f) 1996 EBITDA includes charges of $142 million and $188 million for the three months and nine months ended September 30, 1996, respectively, related to charges to establish additional reserves for settlement issues. In October 1996, Corning contributed $119 million to Quest Diagnostics' capital to fund the settlement of billing issues related to Damon and has agreed to indemnify Quest Diagnostics against certain related and similar claims pending at the Distribution Date. (g) Adjusted EBITDA represents income (loss) before income taxes plus net interest expense, depreciation and amortization and restructuring and other special charges. EBITDA and Adjusted EBITDA include bad debt expense. Adjusted EBITDA is presented because management believes it is an accepted financial indicator of a company's ability to service and incur debt. Adjusted EBITDA does not represent net income or cash flows from operations as those terms are defined by generally accepted accounting principles and does not necessarily indicate whether cash flows will be sufficient to fund cash needs or service debt. (h) 1991 cash flow data, on a basis restated for poolings, is not available. 30 Pro Forma Financial Information The unaudited pro forma combined statements of operations for the three and nine months ended September 30, 1996 and for the year ended December 31, 1995 present the results of operations of Quest Diagnostics assuming that the Distributions and the Accounting Policy Change had been completed as of January 1, 1995. The unaudited pro forma combined balance sheet as of September 30, 1996 presents the combined financial position of Quest Diagnostics assuming that the Distributions and the Accounting Policy Change had been completed on that date. In the opinion of Quest Diagnostics management, the unaudited pro forma combined financial information for the year ended December 31, 1995 and the three and nine months ended September 30, 1996 (the "Pro Forma Financial Information") includes all material adjustments necessary to restate Quest Diagnostics' historical results. The adjustments required to reflect such assumptions are described in the Notes to the Pro Forma Financial Information and are set forth in the "Pro Forma Adjustments" column. The Pro Forma Financial Information should be read in conjunction with the Financial Statements and notes thereto included elsewhere herein. The Pro Forma Financial Information presented is for informational purposes only and may not necessarily reflect the future results of operations or financial position or what the results of operations or financial position would have been had the Distributions and the Accounting Policy Change occurred as assumed herein, or had Quest Diagnostics been operated as an independent company during the periods shown. 31 Quest Diagnostics Incorporated Unaudited Pro Forma Combined Statement of Operations Three Months Ended September 30, 1996
Pro Forma Historical Adjustments Pro Forma ------------------- ------------------- ------------------- (in thousands, except share and per share data) Net revenues $ 405,352 $ $ 405,352 Costs and expenses Cost of services 255,390 255,390 Selling, general and administrative 125,190 0 (a) 125,190 Provision for restructuring and other special charges 155,730 155,730 Interest expense, net 19,866 (7,677)(b) 12,189 Amortization of intangible assets 10,328 (2,656)(c) 7,672 Other, net 1,837 1,837 ------------------- ------------------- ------------------- Loss before taxes (162,989) 10,333 (152,656) Income tax (benefit) provision (43,553) 3,032 (d) (40,521) ------------------- ------------------- ------------------- Net loss $(119,436) $ 7,301 $ (112,135) =================== =================== =================== Pro forma shares outstanding 28,901,735 (e) =================== Pro forma net loss per share $ (3.88)(f) ===================
The accompanying notes to unaudited pro forma combined financial information are an integral part hereof. 32 Quest Diagnostics Incorporated Unaudited Pro Forma Combined Statement of Operations Nine Months Ended September 30, 1996
Pro Forma Historical Adjustments Pro Forma ------------------- ------------------- ------------------- (in thousands, except share and per share data) Net revenues $1,231,290 $ $ 1,231,290 Costs and expenses Cost of services 768,809 768,809 Selling, general and administrative 371,439 0 (a) 371,439 Provision for restructuring and other special charges 201,730 201,730 Interest expense, net 59,887 (22,949)(b) 36,938 Amortization of intangible assets 31,772 (7,969)(c) 23,803 Other, net (198) (198) ------------------- ------------------- ------------------- Loss before taxes (202,149) 30,918 (171,231) Income tax (benefit) provision (43,280) 9,065 (d) (34,215) ------------------- ------------------- ------------------- Net loss $ (158,869) $ 21,853 $ (137,016) =================== =================== =================== Pro forma shares outstanding 28,901,735 (e) =================== Pro forma net loss per share $ (4.74)(f) ===================
The accompanying notes to unaudited pro forma combined financial information are an integral part hereof. 33 Quest Diagnostics Incorporated Unaudited Pro Forma Combined Statement of Operations Year Ended December 31, 1995
Pro Forma Historical Adjustments Pro Forma --------------- -------------- ---------------- (in thousands, except share and per share data) Net revenues $1,629,388 $ $ 1,629,388 Costs and expenses Cost of services 980,232 980,232 Selling, general and administrative 523,271 0 (a) 523,271 Provision for restructuring and other special charges 50,560 50,560 Interest expense, net 82,016 (31,268)(b) 50,748 Amortization of intangible assets 44,656 (10,625)(c) 34,031 Other, net 6,221 6,221 --------------- -------------- ---------------- Loss before taxes (57,568) 41,893 (15,675) Income tax (benefit) provision (5,516) 12,351 (d) 6,835 --------------- -------------- ---------------- Net loss $ (52,052) $ 29,542 $ (22,510) =============== ============== ================ Pro forma shares outstanding 28,901,735 (e) ================ Pro forma net loss per share $ (0.78)(f) ================
The accompanying notes to unaudited pro forma combined financial information are an integral part hereof. 34 Quest Diagnostics Incorporated Unaudited Pro Forma Combined Balance Sheet September 30, 1996
Pro Forma Historical Adjustments Pro Forma ------------- --------------- ------------- (in thousands) Assets Current Assets: Cash and cash equivalents $ 48,319 $ (8,319)(g) $ 40,000 Accounts receivable 323,171 323,171 Inventories 25,559 25,559 Deferred taxes on income 126,906 9,400 (h) 136,306 Due from Corning Incorporated 150,000 (i) 150,000 Prepaid expenses and other assets 25,217 25,217 ------------- --------------- ------------- Total current assets 549,172 151,081 700,253 Property, plant and equipment, net 293,490 293,490 Intangible assets, net 1,001,500 (425,000)(j) 576,500 Other assets 42,216 42,216 ------------- --------------- ------------- Total Assets $1,886,378 $ (273,919) $1,612,459 ============= =============== ============= Liabilities and Stockholder's Equity Current Liabilities: Accounts payable and accrued expenses $ 374,058 $ 9,000 (k) $ 383,058 Current portion of long-term debt 11,885 (10,000)(h) 1,885 Income taxes payable 34,212 (18,632)(h) (7,011)(k) 8,569 Due to Corning Incorporated and affiliates 14,299 (14,299)(h) ------------- --------------- ------------- Total current liabilities 434,454 (40,942) 393,512 Long-term debt, third-party 15,494 500,000 (h) 515,494 Payable to Corning 1,204,406 (8,319)(g) (447,669)(h) (748,418)(l) Other liabilities 99,354 99,354 ------------- --------------- ------------- Total liabilities 1,753,708 (745,348) 1,008,360 ------------- --------------- ------------- Stockholder's Equity: Contributed capital 297,823 150,000 (i) 11,250 (k) 748,418 (l) 1,207,491 Accumulated deficit (163,158) (425,000)(j) (13,239)(k) (601,397) Cumulative translation adjustment 1,801 1,801 Market valuation adjustment (3,796) (3,796) ------------- --------------- ------------- Total stockholder's equity 132,670 471,429 604,099 ------------- --------------- ------------- Total Liabilities and Stockholder's Equity $1,886,378 $ (273,919) $1,612,459 ============= =============== =============
The accompanying notes to unaudited pro forma combined financial information are an integral part hereof. 35 Quest Diagnostics Incorporated Notes to Unaudited Pro Forma Combined Financial Information Statements of Operations (a) The historical financial statements include substantially all of the costs incurred by Corning on Quest Diagnostics' behalf and reflect all of its costs of doing business. Quest Diagnostics management does not expect administrative costs to increase as a result of being an independent, public company. (b) The pro forma adjustment to interest expense, net represents the difference between historical intercompany interest expense and interest expense on the third party debt to be incurred in connection with the Quest Diagnostics Spin-Off Distribution. Quest Diagnostics will borrow, immediately prior to the Quest Diagnostics Spin-Off Distribution, approximately $500 million in long-term debt to repay Corning for certain intercompany borrowings. The debt is assumed to consist of $350 million of borrowings under the Credit Facility and $150 million of Notes. The assumed interest rates on these new borrowings are 7.50% and 11.50% for the Credit Facility and the Notes, respectively. If the interest rate on the Credit Facility fluctuates by 1/8%, interest expense fluctuates by approximately $440,000 annually. Depending on market conditions at the time of the Offering and the consummation of the Credit Facility, the total combined debt amount, the interest rates, and the amounts of each of the Credit Facility and the Notes may vary from that indicated herein. (c) The pro forma adjustment to amortization of intangible assets represents the estimated reduction of amortization expense due to the Accounting Policy Change. Most of Quest Diagnostics' intangible assets resulted from business combinations in 1993 accounted for as purchases. Significant changes in the clinical laboratory and health care industries subsequent to 1993 have caused the fair value of Quest Diagnostics' intangible assets to be significantly less than their carrying value. Quest Diagnostics management believes that a valuation of intangible assets based on the amount for which each regional laboratory could be sold in an arms-length transaction is preferable to using projected undiscounted pre-tax cash flows. Quest Diagnostics believes fair value is a better indicator of the extent to which the intangible assets may be recoverable and therefore may be impaired. Quest Diagnostics management estimates that the reduction of amortization expense will approximate between $10.0 million and $11.3 million annually and $2.5 million and $2.8 million quarterly. The midpoint of the range has been utilized for the preparation of the Unaudited Pro Forma Combined Statements of Operations. (d) The pro forma adjustment to income tax (benefit) provision represents the estimated income tax impact of the pro forma reduction in interest expense at the incremental tax rate of 39.5%. The pro forma amortization expense reduction will not impact income taxes as the amortization is not deductible for tax purposes. (e) The pro forma common shares outstanding represents Quest Diagnostics management's current estimate of the number of shares to be outstanding after the Quest Diagnostics Spin-Off Distribution. Management's estimate includes (a) the issuance of approximately 28.0 million shares of Quest Diagnostics Common Stock at an exchange ratio of one share of Quest Diagnostics Common Stock issued for every eight shares of Corning Common Stock outstanding at September 30, 1996 and (b) the issuance of an estimated 900,000 shares into the employee stock ownership plan. Quest Diagnostics management's estimate of shares outstanding is subject to change as the result of normal issuances and repurchases of Corning Common Stock prior to the date of the Quest Diagnostics Spin-Off Distribution and finalization of the proposed structure of the employee stock ownership plan. (f) Pro forma net loss per share is computed by dividing net loss by the pro forma shares outstanding during each period. Common stock equivalents are not included in the loss per share computation because they do not result in material dilution. Historical net loss per share data is not presented as Quest Diagnostics' historical capital structure is not comparable to periods subsequent to the Quest Diagnostics Spin-Off Distribution. Balance Sheet (g) Historically, Quest Diagnostics has participated in Corning's centralized treasury and cash management processes. Cash received from operations was generally transferred to Corning on a daily basis. Cash disbursements for operations and investments were funded as needed from Corning. The cash balance at the Distribution Date will range from $30 million to $40 million. The pro forma adjustment to cash and payable to Corning represents the reduction to bring cash to the Distribution Date range. (h) The pro forma adjustment to deferred taxes on income, current portion of long-term debt, income taxes payable, due to Corning Incorporated and affiliates, long-term debt third party and payable to Corning reflects borrowings by Quest Diagnostics, immediately prior to the Quest Diagnostics Spin-Off Distribution, to repay Corning for certain income tax liabilities and intercompany borrowings. The debt is assumed to consist of $350 million of bank borrowings under the Credit Facility and $150 million of Notes. (i) The pro forma adjustment to due from Corning Incorporated and contributed capital represents the estimated receivable from Corning and capital contribution related to Corning's indemnification obligations relating to governmental claims under the Transaction Agreement. The receivable from Corning is estimated to approximate $25 million at the Distribution Date. The reduction from $150 million at September 30, 1996 to $25 million at the Distribution Date is due to the fund- 36 ing by Corning of indemnified claims, primarily the Damon settlement of $119 million, subsequent to September 30, 1996 and before the Distribution Date. The remaining receivable will be paid by Corning upon the settlement of the underlying, indemnified claims which is expected to occur within the next twelve months. (j) The pro forma adjustment to intangible assets, net and accumulated deficit represents the estimated impact of the Accounting Policy Change. Quest Diagnostics management estimates the charge to reduce the carrying value of intangible assets to fair value will be in the range of $400 million to $450 million. The midpoint of the range has been utilized for the preparation of the Unaudited Pro Forma Combined Balance Sheet. This charge has not been reflected in the Unaudited Pro Forma Combined Statements of Operations because it is non-recurring. See additional discussion on Quest Diagnostics' planned change in accounting policy in note (c) above. (k) The pro forma adjustment to accounts payable and accrued expenses, income taxes payable, contributed capital and accumulated deficit represents costs directly related to the Quest Diagnostics Spin-Off Distribution that Quest Diagnostics expects to record coincident with the Quest Diagnostics Spin-Off Distribution. These costs, which are estimated at $20.2 million ($13.2 million after tax), include approximately $9 million related to professional advisory and financing commitment fees and $11.2 million related to the establishment of an employee stock ownership plan. This amount is subject to change based on the market price of the Quest Diagnostics Common Stock on the Distribution Date. This charge has not been reflected in the Unaudited Pro Forma Statements of Operations because it is nonrecurring. (l) The pro forma adjustment to payable to Corning and contributed capital of $748.4 million reflects Corning's capital contribution to Quest Diagnostics of the estimated remaining intercompany borrowings. 37 Management's Discussion and Analysis of Financial Condition and Results of Operations Overview In the last several years, Quest Diagnostics' business has been affected by significant government regulation, price competition and rapid change resulting from payors' efforts to control cost, utilization and delivery of health care services. As a result of these factors, Quest Diagnostics' profitability has been impacted by changes in the volume of testing, the prices and costs of its services, the mix of payors and the level of bad debt expense. Payments for clinical laboratory services are made by government, managed care organizations, insurance companies, physicians and patients. Increased government regulation focusing on health care cost containment has reduced prices and added costs for the clinical laboratory industry by increasing complexity and adding new regulatory requirements. Also, in recent years there has been a significant shift away from traditional fee-for-service health care to managed health care, as employers and other payors of health care costs aggressively move the populations they control into lower cost plans. Managed care organizations typically negotiate capitated payment contracts whereby Quest Diagnostics receives a fixed monthly fee per covered individual for all services included under the contract. Capitated contract arrangements shift the risks of additional routine testing beyond that covered by the capitated payment to the clinical laboratory. The managed care industry is growing as well as undergoing rapid consolidation which has created large managed care companies that control the delivery of health care services for millions of people, and have significant bargaining power in negotiating fees with providers, including clinical laboratories. These market factors have had a significant adverse impact on prices in the clinical laboratory industry, and are major contributors to Quest Diagnostics' decline in profitability over the last two years. This growth of managed care and use of capitated agreements are expected to continue for the foreseeable future. See "Risk Factors--Role of Managed Care" and "Business--Effect of the Growth of the Managed Care Sector on the Clinical Laboratory Business." A substantial portion of Quest Diagnostics' growth has come from acquisitions in the last four years. The largest of these acquisitions were the purchases of Damon and certain operations of Unilab in 1993 and the acquisitions of MML, Nichols Institute and Bioran in 1994. As a result of these acquisitions, Quest Diagnostics has recorded a number of special charges for restructuring and integration costs since 1993. See Note 5 to the Audited Financial Statements and Notes 2 and 3 to the Interim Financial Statements. The MML, Nichols Institute and Bioran transactions were accounted for as poolings of interests. The accompanying financial statements of Quest Diagnostics have been restated to include the results of operations of these pooled entities on a combined basis for all periods presented. The results of operations for Damon and Unilab, as well as all other acquisitions accounted for as purchases, have been included since their respective dates of acquisition. Acquisitions accounted for as purchases have generated large amounts of goodwill which are not deductible for tax purposes, giving rise to a high effective income tax rate and increased sensitivity of the income tax rate to changes in pre-tax income. See Note 4 to the Audited Financial Statements. The clinical laboratory industry is subject to seasonal fluctuations in operating results. Quest Diagnostics' cash flows are influenced by seasonal factors. During the summer months, year-end holiday periods and other major holidays, volume of testing declines, reducing net revenues and resulting cash flows below annual averages during the third and fourth quarters of the year. Winter months are also subject to declines in testing volume due to inclement weather, which varies in severity from year to year. The clinical laboratory industry is labor intensive. Approximately half of Quest Diagnostics' total costs and expenses are associated with employee compensation and benefits. Cost of services, which have approximated sixty percent of net revenues over the past several years, consists principally of costs for obtaining, transporting and testing specimens. Selling, general and administrative expenses consist principally of the cost of the sales force, billing operations (including bad debt expense), and general management and administrative support. Results of Operations Three Months Ended September 30, 1996 Compared with Three Months Ended September 30, 1995. Earnings for the third quarter of 1996 were significantly below those for the prior year due principally to the impact of special charges. Before special charges, earnings were significantly above the prior year level, which included a $62 million charge to operations to increase accounts receivable reserves. Net Revenues Net revenues increased by $5.4 million, or 1.3%, over the three months ended September 30, 1995 due to increased revenues from Quest Diagnostics' nonclinical testing businesses. Volume of clinical testing increased by 1.8% but was offset by average price declines of 1.7%. The majority of the price decline resulted from changes in reimbursement policies of various third-party payors, shifts in volume to lower-priced managed care business and intense price competition in the industry. Also contributing to the price 38 decline was a reduction in Medicare fee schedules effective January 1, 1996, which accounted for approximately a 1% decrease in net revenues. Costs and Expenses Cost of services increased by $14.5 million from the prior period and as a percentage of net revenues increased to 63.0% in 1996 from 60.2% in 1995. These increases were due principally to the effects of declining prices and increases in salaries and wages associated with improving customer service levels, and wage adjustments. Selling, general and administrative expense decreased by $56.2 million from the prior period and as a percentage of revenues decreased to 30.9% in 1996 from 45.3% in 1995. These decreases were due principally to a reduction in bad debt expense, which decreased by $55.3 million, from $85.8 million to $30.5 million, and as a percentage of net revenues decreased from 21.5% to 7.5%. The reduction in bad debt expense results primarily from the unusually high level of bad debt expense in the prior year, which included a charge of $62.0 million to increase receivables reserves. Quest Diagnostics has established, and maintains, rigorous programs to improve the effectiveness of Quest Diagnostics' billing and collection operations. The established programs include standard policies and procedures, employee training programs and regular reporting and tracking of key measures by senior management. The implementation of these programs during the fourth quarter of 1995 has aided in reducing bad debt expense. However, additional requirements to provide documentation of the "medical necessity" of testing have added to the backlog of unbilled receivables and caused third quarter 1996 bad debt expense as a percentage of revenues to increase above the rate Quest Diagnostics had experienced during the first two quarters of 1996. Additional efforts to collect medical necessity documentation are currently being made and are expected to lower bad debt expense below the 1996 third quarter rate during 1997.* During the third quarter of 1996, Quest Diagnostics recorded a $142.0 million charge to establish additional reserves associated with government and other claims primarily related to billing practices at certain laboratories of Damon and Nichols prior to their acquisition by Quest Diagnostics. Subsequent to the third quarter, Quest Diagnostics entered into an agreement with the DOJ to pay $119.0 million to settle all federal and Medicaid claims related to the billing by Damon of certain blood test series for federally sponsored health care programs. This payment was fully reserved as part of the third quarter charge. Quest Diagnostics' aggregate reserve with respect to all governmental and nongovernmental claims, including litigation costs, was $215 million at September 30, 1996, and is estimated to be reduced to $85 million at the Distribution Date as a result of the payment of settled claims, primarily the Damon settlement of $119.0 million. Although management believes that established reserves for both indemnified and non-indemnified claims are sufficient, it is possible that the final resolution of these matters could be in excess of established reserves by an amount which could be material to Quest Diagnostics' results of operation and, for non-indemnified claims, Quest Diagnostics' cash flows in the periods in which such claims are settled. Quest Diagnostics does not believe that these matters will have a material adverse effect on Quest Diagnostics' overall financial condition. See "Risk Factors--Government Investigations and Related Claims" and "Business--Government Investigations and Related Claims." Additionally, in the third quarter Quest Diagnostics recorded a charge of $13.7 million to write off capitalized software as a result of its decision to abandon the billing system which had been intended as its company-wide billing system. Management now plans to standardize billing systems using a system already implemented in seven of its sites. See "Risk Factors--Billing," "Business--Information Systems" and "Business--Billing" and Note 3 to the Interim Financial Statements. Net interest expense declined from the prior year's level due to lower average borrowings during 1996. Amortization of intangible assets decreased below the prior year's level due to certain intangible assets having been fully amortized. Quest Diagnostics' effective tax rate is significantly impacted by goodwill amortization which is not deductible for tax purposes and which had the effect of decreasing the tax benefit rate for the third quarter of 1996. Nine Months Ended September 30, 1996 Compared with Nine Months Ended September 30, 1995. Earnings were substantially below those for the prior year due principally to special charges, price declines, increases in salaries and wages, higher bad debt expense, and unusually severe winter weather experienced during the first quarter of 1996. Net Revenues Net revenues decreased by $8.2 million, or .7%, from the prior period, principally due to average price declines of approximately 3.4%, partially offset by an increase in clinical testing of 1.2% and increased revenues from Quest Diagnostics' nonclinical testing businesses. Adversely affecting the volume growth was unusually severe winter weather in the northeastern and central parts of the United States during the first quarter of 1996. The majority of the price declines resulted from changes in reimbursement policies of various third-party payors, shifts in volume to lower-priced managed care business, and intense price competition in the industry. Also contributing to the price declines was a reduction in Medicare fee schedules effective January 1, 1996, which accounted for approximately a 1% decrease in net revenues. * This is a forward looking statement and is based on current expectations. Actual results may vary materially from those projected. See "Business--Important Factors Regarding Forward Looking Statements." In particular see factors (c), (d), (j) and (k). 39 Costs and Expenses Cost of services increased by $32.8 million from the prior period and as a percentage of net revenues increased to 62.4% in 1996 from 59.4% in 1995. These increases were due principally to the effects of declining prices and increases in salaries and wages associated with improving customer service levels, and wage adjustments. Selling, general and administrative expense decreased by $28.2 million from the prior period and as a percentage of net revenues decreased to 30.2% in 1996 from 32.2% in 1995. These decreases were due principally to a reduction in bad debt expense, which decreased, by $45.4 million, from $127.3 million to $81.9 million, and as a percentage of net revenues decreased from 10.3% to 6.7%, partially offset by costs associated with developing and implementing strategic action plans and operating improvement plans. The reduction in bad debt expense results primarily from the unusually high level of bad debt expense in the prior year, which included a charge of $62.0 million to increase receivables reserves. Quest Diagnostics has established, and maintains, rigorous programs to improve the effectiveness of Quest Diagnostics' billing and collection operations. The established programs include standard policies and procedures, employee training programs and regular reporting and tracking of key measures by senior management. The implementation of these programs during the fourth quarter of 1995 has aided in reducing bad debt expense. However, additional requirements to provide documentation of the "medical necessity" of testing have added to the backlog of unbilled receivables and caused third quarter 1996 bad debt expense as a percentage of revenues to increase above the rate Quest Diagnostics had experienced during the first two quarters of 1996. Additional efforts to collect medical necessity documentation are currently being made and are expected to lower bad debt expense below the 1996 third quarter rate during 1997.* In the second quarter of 1996, as a consequence of an investigation begun in 1993, the DOJ notified Quest Diagnostics that it has taken issue with payments related to certain tests received by Damon from federally funded health care programs prior to the acquisition of Damon by Quest Diagnostics. Quest Diagnostics management met with the DOJ several times to evaluate the substance of the government's allegations. A special charge of $46.0 million was recorded in the second quarter of 1996 to establish additional reserves equal to management's estimate, at that time, of the low end of the range of potential amounts which could be required to satisfy the government's claims. During the third quarter of 1996 Quest Diagnostics recorded a $142.0 million charge to establish additional reserves associated with government and other claims primarily related to billing practices at certain laboratories of Damon and Nichols prior to their acquisition by Quest Diagnostics. Subsequent to the third quarter, Quest Diagnostics entered into an agreement with the DOJ to pay $119.0 million to settle all federal and Medicaid claims related to the billing by Damon of certain blood test series for federally sponsored health care programs. This payment was fully reserved as part of the third quarter charge. Quest Diagnostics' aggregate reserve with respect to all governmental and nongovernmental claims, including litigation costs, was $215 million at September 30, 1996, and is estimated to be reduced to $85 million at the Distribution Date as a result of the payment of settled claims, primarily the Damon settlement of $119.0 million. Although management believes that established reserves for both indemnified and non-indemnified claims are sufficient, it is possible that the final resolution of these matters could be in excess of established reserves by an amount which could be material to Quest Diagnostics' results of operations and, for non-indemnified claims, Quest Diagnostics' cash flows in the periods in which such claims are settled. Quest Diagnostics does not believe that these matters will have a material adverse effect on Quest Diagnostics' overall financial condition. See "Risk Factors--Government Investigations and Related Claims" and "Business--Government Investigations and Related Claims." In the third quarter Quest Diagnostics recorded a charge of $13.7 million to write off capitalized software as a result of its decision to abandon the billing system which had been intended as its company-wide billing system. Management now plans to standardize billing systems using a system already implemented in seven of its sites. See "Risk Factors--Billing," "Business--Information Systems" and "Business--Billing" and Notes 3 to the Interim Financial Statements. In the second quarter of 1995, Quest Diagnostics recorded a provision for restructuring totalling $33 million primarily for work force reduction programs and the costs of exiting a number of leased facilities. Additionally, in the first quarter of 1995 Quest Diagnostics recorded a special charge of $12.8 million for the settlement of claims related to the inadvertent billing errors of certain laboratory tests that were not completely and/or successfully performed or reported due to insufficient samples and/or invalid results. Net interest expense remained relatively unchanged from the prior year level. Amortization of intangible assets decreased below the prior year level due to certain intangible assets having been fully amortized. A gain on the sale of several small investments and the favorable settlement of a contractual obligation, both of which occurred in 1996, accounted for the majority of the change in "other, net" compared to the prior year. * This is a forward looking statement and is based on current expectations. Actual results may vary materially from those projected. See "Business--Important Factors Regarding Forward Looking Statements." In particular see factors (c), (d), (j) and (k). 40 Quest Diagnostics' effective tax rate is significantly impacted by goodwill amortization which is not deductible for tax purposes. This had the effect of reducing the tax benefit rate of Quest Diagnostics in both 1996 and 1995. The effect of this non-deductibility is particularly apparent when amortization increases in proportion to pre-tax earnings, as was the case in 1995. Year Ended December 31, 1995 Compared with Year Ended December 31, 1994. Earnings for 1995 were significantly below those for the prior year as a result of price declines, higher bad debt expense, and the impact of restructuring and other special charges. The 1995 bad debt expense included a $62.0 million charge to increase accounts receivable reserves in the third quarter. Net Revenues Net revenues of $1.6 billion in fiscal 1995 remained essentially unchanged from the prior year. Average price declines, estimated to be 3.7%, were offset by estimated growth of approximately 4% in requisition volume. The majority of the price declines resulted from changes in reimbursement policies of various third-party payors, an accelerated shift in volume to lower-priced managed care business, and intense price competition in the industry. Also contributing to the price declines was a reduction in Medicare fee schedules effective January 1, 1995 which accounted for approximately a 1% decrease in net revenues. Costs and Expenses Cost of services increased $10.4 million from 1994 and as a percentage of net revenues increased to 60.2% in 1995 from 59.4% in 1994. These increases were due principally to the impact of price declines and the added cost of doing business in an increasingly complex environment. Partially offsetting these factors were synergies associated with the elimination of duplicate facilities, personnel and administrative functions of acquired entities, including Damon, MML and Nichols. Selling, general and administrative expense increased $111.3 million from 1994 and as a percentage of net revenues increased to 32.1% in 1995 from 25.2% in 1994. These increases resulted primarily from a higher level of bad debt expense during 1995. Excluding bad debt expense, selling, general and administrative expenses as a percentage of net revenues were approximately 22.7% as compared to 21.6% in 1994. Bad debt expense increased to $152.6 million or 9.4% of net revenues in 1995 from $59.5 million or 3.6% of net revenues in 1994. This increase resulted from an increase in ongoing bad debt expense of $31.0 million throughout 1995 and a $62.0 million charge to increase bad debt reserves in the third quarter of 1995. During 1995, ongoing bad debt expense increased from 4.4% of net revenues in the first quarter to 6.4% of net revenues in the fourth quarter. This increase is due principally to four developments that have complicated the billing process: (1) increased complexity in the health care system; (2) increased requirements in complying with fraud and abuse regulations; (3) deterioration in reimbursement as the payor mix shifts; and (4) changes in Medicare reimbursement policies. These four factors have placed additional requirements on the billing process, including the need for specific test coding, additional research on processing rejected claims that comply with prior practices, increased audits for compliance, and management of a large number of contracts which have very different information requirements for pricing and reimbursement. In addition to the changes in the billing process, in mid-1995, Quest Diagnostics experienced problems integrating billing operations from recent acquisitions into existing billing operations and experienced significant problems implementing a new billing system at its largest facility in Teterboro, New Jersey. These factors, along with the significant changes in the billing process discussed in the preceding paragraph, contributed to a significant increase in the backlog of unbilled receivables and a significant deterioration in the collection of receivables during the third quarter of 1995. As a result, Quest Diagnostics recorded a charge of $62 million in the third quarter to increase accounts receivable reserves. Quest Diagnostics has put in place a rigorous program to improve the effectiveness of its billing and collection operations and has stabilized the current billing system in Teterboro. See "Risk Factors--Billing" and "Business--Information Systems" and "Business--Billing." In the second quarter of 1995, Quest Diagnostics recorded a provision for restructuring totalling $33.0 million, consisting primarily of costs for work force reduction programs and exiting a number of leased facilities. In the first quarter of 1995, Quest Diagnostics recorded a special charge of $12.8 million for the settlement of claims related to inadvertent billing errors of certain laboratory tests that were not completely and/or successfully performed or reported due to insufficient samples and/or invalid results. In the third quarter of 1994, Quest Diagnostics recorded a provision for restructuring and other special charges totalling $79.8 million which included $48.2 million of integration costs, $21.6 million of transaction expenses, and $10.0 million of other reserves primarily related to the Nichols Institute, MML and Bioran acquisitions. See Note 5 to the Audited Financial Statements. Net interest expense increased by $18.7 million over the 1994 level due to an increase in average debt levels, resulting principally from funding investing activities and cash requirements associated with restructuring and other special charges. 41 Amortization expense increased principally due to additional intangible assets arising from acquisitions completed in 1994 and 1995. Quest Diagnostics' effective tax rate is significantly impacted by goodwill amortization which is not deductible for tax purposes. This had the effect of reducing the tax benefit rate to Quest Diagnostics in 1995 while increasing the overall tax rate in 1994. See Note 4 to the Audited Financial Statements. Year Ended December 31, 1994 Compared with Year Ended December 31, 1993. Earnings for 1994 were below those for the prior year due principally to price declines, which outpaced the cost efficiencies realized from the integration of acquisitions and other activities to reduce costs. Net Revenues Net revenues increased by $217.4 million, or 15.3%, over the prior year, due principally to the net impact of acquisitions and dispositions which increased net revenues by approximately $240 million. The net effect of average price declines, estimated at 4%, offset by an increase in requisition volume, estimated at 3%, accounted for the remaining change in net revenues. The majority of the price declines resulted from a shift in volume to lower-priced managed care business, changes in reimbursement policies of various third-party payors, and intense price competition. Also contributing to the price declines was a reduction in Medicare fee schedules effective January 1, 1994 which accounted for approximately a 1% decrease in net revenues. Costs and Expenses Cost of services increased $164.1 million over 1993 and as a percentage of net revenues increased to 59.4% in 1994 from 56.9% in 1993. These increases were due principally to the impact of price declines and the added cost of doing business in an increasingly complex environment. Partially offsetting these factors were synergies realized from integration of acquisitions. Selling, general and administrative expense increased $48.4 million over 1993 and as a percentage of net revenues decreased slightly from 25.7% in the prior year to 25.2%. Synergies associated with the elimination of duplicate facilities, personnel and administrative functions of acquired entities, primarily Damon, MML and Nichols, with those of Quest Diagnostics were partially offset by an increase in bad debt expense, which increased by $12.3 million, from $47.2 million to $59.5 million, and increased from 3.3% of net revenues in 1993 to 3.6% in 1994. In the third quarter of 1994, Quest Diagnostics recorded a provision for restructuring and other special charges totalling $79.8 million, which included $48.2 million of integration costs, $21.6 million of transaction expenses, and $10.0 million of other reserves primarily related to the Nichols Institute, MML and Bioran acquisitions. Integration costs represented the expected costs for closing clinical laboratories in certain markets where duplicate Quest Diagnostics and Nichols Institute, MML or Bioran facilities existed at the time of the acquisitions. In the third quarter of 1993, Quest Diagnostics recorded a provision for restructuring costs and other special charges totalling $99.6 million. The restructuring component of this special charge aggregated $56.6 million related principally to the integration of Quest Diagnostics' operations with those acquired in the Damon acquisition. The special charge consisted primarily of a $36.5 million charge to reflect the settlement and related legal expenses associated with a compromise agreement with the DOJ to settle claims brought on behalf of the OIG. In making the settlement, Quest Diagnostics did not admit any wrongdoing in connection with its marketing or business practices. See "Risk Factors--Government Investigations and Related Claims," "Business--Government Investigations and Related Claims" and Note 5 to the Audited Financial Statements. Net interest expense increased by $21.4 million over the prior year, due principally to increased borrowings associated with financing acquisitions and, to a lesser degree, increased borrowing rates. Amortization of intangibles increased due to additional intangible assets arising from acquisitions completed in 1993 and 1994. Quest Diagnostics' effective tax rate is significantly impacted by goodwill amortization which is not deductible for tax purposes, and has the effect of increasing the overall tax rate, particularly when amortization increases in proportion to pre-tax earnings. This situation was the principal contributor to the increase in the 1994 effective tax rate over the prior year. See Note 4 to the Audited Financial Statements. Liquidity and Capital Resources After the Distributions Concurrently with the Quest Diagnostics Spin-Off Distribution, Quest Diagnostics' debt will be restructured and equity recapitalized. Quest Diagnostics plans to complete the Offering and incur approximately $350 million of borrowings under the Credit Facility. The proceeds from these borrowings will be used to repay amounts owed to Corning. Amounts owed to Corning in excess of the proceeds from these borrowings will be contributed by Corning to Quest Diagnostics' capital. As a result of these 42 actions, management estimates that Quest Diagnostics' long-term debt will be reduced by approximately $720 million to approximately $515 million, and annual interest expense will be reduced by approximately $31 million. The Credit Facility will include a revolving credit facility of $100 million, substantially all of which is expected to be available for borrowing at the time of the Distributions. Quest Diagnostics estimates that it will invest approximately $20 million during the fourth quarter of 1996 for capital expenditures, principally related to facility upgrades and investments in information technology. Capital expenditures in 1997 are estimated to be approximately $95 million, of which approximately $10 to $15 million relates to the conversion of billing and laboratory systems to Quest Diagnostics' standard systems (see "Business--Information Systems"). Quest Diagnostics expects to expand its operations principally through internal growth and accelerated growth in strategic markets and related lines of business. Quest Diagnostics expects such activities will be funded from existing cash and cash equivalents, cash flow from operations, and borrowings under the revolving credit facility. Quest Diagnostics believes that the revolving credit facility will be sufficient to meet both its short-term and its long-term financing needs. As a result, Quest Diagnostics believes it has sufficient financial flexibility and sufficient access to funds to meet seasonal working capital requirements, capital expenditures and growth opportunities. Quest Diagnostics does not anticipate paying dividends on the Quest Diagnostics Common Stock in the foreseeable future. In addition, the Credit Facility prohibits Quest Diagnostics from paying cash dividends on the Quest Diagnostics Common Stock. Further, the Indenture under which the Notes will be issued will restrict Quest Diagnostics' ability to pay cash dividends on the Quest Diagnostics Common Stock based on a percentage of Quest Diagnostics' cash flow. Coincident with the Distributions, Quest Diagnostics plans to record a non-recurring charge of approximately $20 million associated with the Distributions. The largest component of the charge will be the cost of establishing an employee stock ownership plan. The remainder of the charge will consist principally of the costs for advisors and other fees associated with establishing Quest Diagnostics as a separate publicly traded entity. The amount of the charge is subject to change based on the price of the Quest Diagnostics Common Stock on the Distribution Date. Although Quest Diagnostics has no present acquisition agreements or arrangements, there may be acquisitions or other growth opportunities which will require additional external financing, and Quest Diagnostics may from time to time seek to obtain funds from public or private issuances of equity or debt securities. There can be no assurance that such financing will be available on terms acceptable to Quest Diagnostics. See "Risk Factors--Potential Liability under the Spin-Off Tax Indemnification Agreements" and "The Distributions--Spin-Off Tax Indemnification Agreements." Quest Diagnostics management believes that the recapitalization of Quest Diagnostics and the indemnification by Corning against monetary fines, penalties or losses from outstanding government claims, together with the successful implementation of its business strategy, will generate more predictable and improved cash flows.* Additionally, Quest Diagnostics management believes that these actions, together with Quest Diagnostics' leading market position or low cost provider status in a number of geographic regions accounting for the majority of its net revenues, will aid Quest Diagnostics in meeting the ongoing challenges in the clinical laboratory industry brought on by growth in managed care and increased regulatory complexity.* Prior to the Distributions Historically, Quest Diagnostics has financed its operations and growth with cash flow from operations, borrowings from Corning, and stock issued by Corning to finance certain acquisitions on behalf of Quest Diagnostics. Investing activities have included business acquisitions and capital expenditures for facility expansions and upgrades and information systems improvements. Replacement of laboratory equipment has typically been financed through operating leases. Net cash provided by operating activities for the nine months ended September 30, 1996 was below the level for the comparable period of the prior year, as a result of reduced earnings, partially offset by an improved collection rate of accounts receivable and a reduction in restructuring spending. This improvement in accounts receivable is a direct result of specific programs initiated in the fourth quarter of 1995 to improve billing operations. Although these programs are continuing, additional requirements of customers to provide documentation of the "medical necessity" of testing are expected to increase receivable levels in the future. The number of days sales outstanding in accounts receivable ("DSOs") for the clinical testing business is one measure used by Quest Diagnostics to monitor the effectiveness of its billing operations. DSOs were 74 days at September 30, 1996 and December 31, 1995, 81 days at December 31, 1994, and 90 days at December 31, 1993. * This is a forward looking statement and is based on current expectations. Actual results may vary materially from those projected. See "Business--Important Factors Regarding Forward Looking Statements." In particular see factors (a), (b), (c), (d), (e) and (j). 43 Net cash provided by operating activities during 1995 increased above the prior year despite reduced earnings, due primarily to changes in accounts payable and accrued expenses and reduced spending for restructuring integration and other special charges. Net cash provided by operating activities in 1994 declined from the 1993 level principally due to larger increases in accounts receivables and higher levels of spending for restructuring, integration and other special charges during 1994. Cash used for investing activities for the nine months ended September 30, 1996 was below the prior year level due to reduced acquisition activity and the sale of several small investments during 1996. Investing activities during 1995, 1994 and 1993 were funded principally by cash flow from operations and borrowings from Corning, and were principally for capital expenditures and acquisitions. Cash used in investing activities in 1995 exceeded the prior year level due principally to cash proceeds generated from the sale of certain California operations in 1994. See Note 3 to the Audited Financial Statements. Net cash provided by financing activities for the nine months ended September 30, 1996 was below the prior year level due primarily to reduced acquisition activity during 1996. Financing activities in 1995, 1994 and 1993 consisted principally of dividend payments to and net borrowing activities with Corning. Adjusted EBITDA Adjusted EBITDA represents income (loss) before income taxes plus net interest expense, depreciation and amortization and restructuring and other special charges. EBITDA and Adjusted EBITDA include bad debt expense. Adjusted EBITDA is presented because management believes it is an accepted financial indicator of a company's ability to service and incur debt. Adjusted EBITDA does not represent net income or cash flows from operations as those terms are defined by generally accepted accounting principles and does not necessarily indicate whether cash flows will be sufficient to fund cash needs or service debt. Adjusted EBITDA for the third quarter of 1996 was $37.6 million, or 9.3% of net revenues. Adjusted EBITDA in the prior year period was ($9.9) million. The improvement in Adjusted EBITDA was principally due to a decrease in selling, general and administrative expense (which decreased $56.2 million) and an increase in net revenues of $5.4 million, partially offset by an increase in cost of services (which increased $14.5 million). Adjusted EBITDA for the nine months ended September 30, 1996 was $134.7 million, or 10.9% of net revenues. Adjusted EBITDA in the prior year period was $141.8 million, or 11.4% of net revenues. The decline in Adjusted EBITDA was princi-pally due to a decrease in net revenues of $8.2 million and an increase in cost of services (which increased $32.8 million), partially offset by a decrease in selling, general and administrative expense (which decreased $28.2 million). Adjusted EBITDA for 1995 was $176.5 million, or 10.8% of net revenues. Adjusted EBITDA for the prior year period was $295.4 million, or 18.1% of net revenues. The decline in Adjusted EBITDA was principally due to an increase in cost of services (which increased $10.4 million) and an increase in selling, general and administrative expense (which increased $111.3 million). Adjusted EBITDA for 1994 was $295.4 million, or 18.1% of net revenues. Adusted EBITDA in the prior year period was $278.7 million, or 19.7% of net revenues. The increase in Adjusted EBITDA was principally due to an increase in revenues (which increased $217.4 million), partially offset by an increase in cost of services (which increased $164.1 million) and an increase in selling, general and administrative expenses (which increased $48.4 million). Changes in Accounting Policies Coincident with the Quest Diagnostics Spin-Off Distribution, Quest Diagnostics management will adopt a new accounting policy for evaluating the recoverability of intangible assets and measuring possible impairment under Statement of the Accounting Principles Board No. 17. Most of Quest Diagnostics' intangible assets resulted from purchase business combinations in 1993. Significant changes in the clinical laboratory and health care industries subsequent to 1993, including increased government regulation and movement from traditional fee-for-service care to managed cost health care, have caused the fair value of Quest Diagnostics' intangible assets to be significantly less than carrying value. Quest Diagnostics management believes that a valuation of intangible assets based on the amount for which each regional laboratory could be sold in an arms-length transaction is preferable to using projected undiscounted pre-tax cash flows. Quest Diagnostics believes fair value is a better indicator of the extent to which the intangible assets may be recoverable and therefore, may be impaired. This change in method of evaluating the recoverability of intangible assets will result in Quest Diagnostics recording a charge of between $400 million and $450 million coincident with the Quest Diagnostics Spin-Off Distribution to reflect the other than temporary impairment of intangible assets. This will result in a reduction of amortization expense of approximately $10 million to $11.3 million annually and $2.5 million to $2.8 million quarterly. See Note 15 to the Audited Financial Statements. In October 1995, the Financial Accounting Standards Board issued Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). This statement defines a fair value-based method of accounting for employee stock options and similar 44 equity investments and encourages adoption of that method of accounting for employee stock compensation plans. However, it also allows entities to continue to measure compensation cost for employee stock compensation plans using the intrinsic value-based method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Entities which elect to continue accounting for stock compensation plans utilizing APB 25 are required to disclose pro forma net income and earnings per share, as if the fair value-based method of accounting under SFAS 123 had been applied. Quest Diagnostics intends to account for stock compensation plans pursuant to APB 25 and, as such, will include the pro forma disclosures required by SFAS 123 in the financial statements beginning in 1996. Inflation Quest Diagnostics believes that inflation generally does not have a material adverse effect on its operations or financial condition because substantially all of its contracts are short-term. 45 Business Overview Quest Diagnostics is one of the largest clinical laboratory testing companies in the United States, offering a broad range of routine and esoteric testing services used by the medical profession in the diagnosis, monitoring and treatment of disease and other medical conditions. Quest Diagnostics currently processes approximately 60 million requisitions each year. Quest Diagnostics is the successor by merger to MetPath, a New York corporation organized in 1967. Corning acquired MetPath in 1982 and in 1992 merged MetPath into Quest Diagnostics, which had been organized in 1990 as a holding company for the clinical laboratory testing business and contract research business. In 1994, Quest Diagnostics expanded its presence in the esoteric testing market through the acquisition of Nichols Institute, now known as Corning Nichols Institute ("Nichols"), which is one of the leading esoteric clinical laboratories in the world. Upon the consummation of the Distributions, Corning Clinical Laboratories Inc. will adopt the name Quest Diagnostics Incorporated. Since its founding in 1967, Quest Diagnostics' clinical laboratory testing business has grown into a network of 17 regional laboratories across the United States, the Nichols esoteric testing laboratory in San Juan Capistrano, California and one branch laboratory in Mexico City. In addition, Quest Diagnostics has 14 smaller branch laboratories, approximately 200 "STAT" laboratories and approximately 850 patient service centers located throughout the United States. A substantial portion of this growth has resulted from acquisitions. See "--Acquisitions and Dispositions." The principal executive offices of Quest Diagnostics are located at One Malcolm Avenue, Teterboro, New Jersey 07608, telephone number: (201) 393-5000. Recent Organizational Changes Between 1990 and 1995, Corning tripled the size of its clinical laboratory testing business, principally through acquisitions. Historically, prior management pursued a strategy of growth through acquisitions, including diversification outside of the clinical laboratory testing business. As a result of difficult integrations and increased pricing pressures and regulatory complexity in the clinical testing industry, a new strategy was needed. In May 1995, Corning responded by appointing Kenneth Freeman, then an Executive Vice President of Corning, as President and Chief Executive Officer of Quest Diagnostics, who was charged with the responsibility to formulate a new strategy. Mr. Freeman has over 24 years of key financial and managerial experiences at Corning, including serving as the general manager of Corning's science products division and the President and Chief Executive Officer of Corning Asahi Video Products Company. Under Mr. Freeman's leadership, profitability of these operations increased. Mr. Freeman immediately suspended Quest Diagnostics' acquisition program. Under his direction, Quest Diagnostics began to refocus on its core clinical laboratory testing business and reorganize its senior management team. As a result, Quest Diagnostics is implementing the best practices in each region throughout Quest Diagnostics; standardizing processes and systems; analyzing the cost of serving various customers; intensifying efforts to correct persistent billing errors to both enhance customer satisfaction and reduce the cost of billing operations; enhancing its compliance program to audit and correct system defaults and to better train employees in the laws and rules governing the industry; and improving communications with employees by improving systems and the kind and amount of current information available to employees. Mr. Freeman revamped the senior management team by appointing four new senior executives and changing the responsibilities of five other senior executives. Additionally, approximately one-half of the existing laboratory facility general managers were replaced. Mr. Freeman also changed the management structure, appointing three of the senior executives to newly created key positions--Douglas VanOort, who will focus exclusively on laboratory operations, Don Hardison, who will focus on commercial activities, and Dr. Gregory Critchfield, who will lead the efforts in the science and medical areas and pursue innovations. All three report directly to Mr. Freeman. See "Management--Executive Officers." Quest Diagnostics believes that this new management structure will greatly enhance Quest Diagnostics' ability to pursue its business strategy. Mr. VanOort and the regional and facility operations leaders who report to him will focus their primary attention on laboratory operations, efficiencies and standardization. Mr. Hardison and the regional and local commercial leaders who report to him will develop and coordinate national, regional and local sales and marketing efforts, and will cultivate national and regional client relationships and provider alliances. Dr. Critchfield will pursue scientific excellence in the laboratory as well as seek out, develop and assimilate those new tests and technologies that will differentiate Quest Diagnostics and propel its growth in the future. This three-prong management structure is designed to implement Quest Diagnostics' business strategy to make Quest Diagnostics the best supplier (i.e., lowest-cost, highest quality) of quality testing services; the preferred provider of fairly priced and useful health care services and information; and the industry's leading innovator of new clinical tests, methodologies and services. 46 Business Strategy Quest Diagnostics' overall goal is to be recognized by its customers, employees and competitors as the best provider of comprehensive and innovative clinical testing, information and services. To achieve this, Quest Diagnostics has set several strategic goals and put in place organizational structures to implement them. Best Supplier. Quest Diagnostics seeks to be the best supplier of the highest quality and the lowest-cost testing services. Health care providers and patients expect accurate, timely and consistent laboratory test results at a fair price. (bullet) Lowest Cost Provider. Currently, approximately 28% of Quest Diagnostics' net revenues are from laboratories that Quest Diagnostics believes are the lowest-cost providers in their respective markets. Management believes that these laboratories are the lowest cost providers in their respective markets based on its knowledge of such markets and information obtained in acquiring other laboratories. Quest Diagnostics currently receives approximately 60 million requisitions for testing each year. Currently, Quest Diagnostics' average cost per requisition varies significantly among its regional laboratories: an approximately $7.00 difference in cost per requisition between the most efficient regional laboratory and the average and an approximately $13.00 difference in cost per requisition between the most and the least efficient regional laboratories. In many cases, these variations do not relate to testing volumes or mixes, space costs, service requirements or regional labor cost differences. To reduce costs, Quest Diagnostics has begun to replicate the best practices from each region throughout its national network. Standardization of equipment and supplies, as well as leveraging of Quest Diagnostics' purchasing power, is also part of this strategy. While Quest Diagnostics' overall program of standardization is in a preliminary stage, Quest Diagnostics has already selected its standard clinical instruments and has selected its national vendors for laboratory supplies, temporary services and personal computers. Management expects to achieve significant cost savings within the next three years as these programs are fully implemented, the majority of which are expected to be achieved by the end of 1998.* (bullet) Highest Quality Provider. Quest Diagnostics is dedicated to providing accurate and timely testing results and to being viewed by its customers as the highest quality provider of clinical testing services. Quest Diagnostics believes that implementation of best practices already developed in certain regions will permit Quest Diagnostics to be viewed by its customers as the highest quality provider of clinical testing services. For example, as part of its best practices policy, Quest Diagnostics is identifying the most common service failures in each regional laboratory and establishing procedures to substantially reduce these service failures. Management believes that implementing these best practices will increase the level of quality while lowering costs.** Historically, Quest Diagnostics' experience has been that the regions with the highest quality of services have also had the lowest costs. Preferred Provider. Quest Diagnostics seeks to be the preferred provider of laboratory testing services to existing and new health care networks on a selective basis determined by profitability of accounts. Quest Diagnostics believes that it will become the preferred provider to these networks as (1) large networks typically prefer to utilize large independent clinical laboratories that can service them on a national or regional basis and (2) Quest Diagnostics continues to pursue its primary strategy of becoming the highest quality, lowest cost provider. To achieve this, Quest Diagnostics will employ a rigorous national and regional process to identify prospective customers and to efficiently allocate resources to support these efforts. Quest Diagnostics will also pursue innovative alliances and seek to assist its partners in achieving their business objectives. (bullet) Account Profitability. Quest Diagnostics intends to refocus its sales efforts on pursuing and keeping profitable accounts. Quest Diagnostics is engaging in an active program with current accounts, including those with managed care organizations, to evaluate their profitability and either increase pricing or eliminate accounts that cannot be serviced profitably. Throughout the independent clinical laboratory industry, there are substantial differences in pricing among, as well as the cost of serving, various categories of payors and health care providers. Quest Diagnostics is beginning to provide clear pricing guidelines to its sales force and changing its commission structure so that compensation is tied to the profitability of (rather than revenues from) new business. Management expects to achieve significant benefits from these programs within the next three years, the majority of which are expected to be achieved by the end of 1998.*** * This is a forward looking statement and is based on current expectations. Actual results may vary materially from those projected. See "--Important Factors Regarding Forward Looking Statements." In particular see factors (c), (d), (g) and (j). ** This is a forward looking statement and is based on current expectations. Actual results may vary materially from those projected. See "--Important Factors Regarding Forward Looking Statements." In particular see factors (b), (c), (d), (f) and (j). *** This is a forward looking statement and is based on current expectations. Actual results may vary materially from those projected. See "--Important Factors Regarding Forward Looking Statements." In particular see factors (a), (b), (c), (d), (f) and (i). 47 (bullet) Regional Profitability. Quest Diagnostics presently believes that it has the leading market share among independent clinical laboratories in most routine testing markets of the northeast, mid-Atlantic and midwest regions. Approximately 65% of Quest Diagnostics' revenues and almost all of its EBITDA is generated from markets in which Quest Diagnostics believes that it has the leading market share. In most of these markets, Quest Diagnostics believes that it also is the lowest cost provider. Quest Diagnostics is evaluating its strategic alternatives relative to units whose profitability does not meet its internal goals. These alternatives may include joint ventures, alliances, or dispositions. Quest Diagnostics believes that, while the clinical laboratory industry is becoming national in scope, Quest Diagnostics can subcontract with other clinical laboratories to perform testing for national accounts in any markets in which Quest Diagnostics chooses not to compete. Quest Diagnostics may also make selected local acquisitions where appropriate. Leading Innovator. Quest Diagnostics intends to remain a leading innovator in the clinical laboratory industry by continuing to introduce new tests, technology and services. Through its relationship with the academic community and pharmaceutical and biotechnology firms and a research and development budget exceeding $15 million per year, Quest Diagnostics believes it is one of the leaders in transferring innovation from academic biotechnology laboratories to the market. For example, Quest Diagnostics (through its subsidiary Nichols) has been informed by its licensors that it is currently the only independent clinical laboratory that is using both molecular signal amplification (branched DNA) and polymerase chain reaction (PCR) technologies for HIV testing. These technologies permit the detection of lower levels of HIV than can be achieved using other technologies, which in turn permits health care providers to better tailor drug therapies for HIV-infected patients. Nichols continues to be one of the leading esoteric testing laboratories in the world. Nichols serves approximately 2,000 of the country's estimated 6,400 hospitals and counts among its largest customers both LabCorp and SmithKline. Quest Diagnostics hopes to leverage Nichols' existing relationships with hospitals into increased routine testing to hospitals, which continue to perform over half of the clinical laboratory testing in the United States. The Clinical Laboratory Testing Industry Clinical testing is a critical component in the delivery of quality health care service to patients. Currently, clinical laboratory testing is the first step in determining how a significant amount of all health care dollars are spent. Laboratory tests and procedures are used generally by physicians and other health care providers to assist in the diagnosis, evaluation, monitoring and treatment of diseases and other medical conditions through the measurement and analysis of chemical and cellular components in blood, tissues and other specimens. Clinical laboratory testing is generally categorized as either clinical testing, which is performed on body fluids such as blood and urine, or anatomical pathology testing, which is performed on tissue and other samples, including human cells. Clinical and anatomical pathology procedures are frequently ordered as part of regular physician office visits and hospital admissions. Most clinical laboratory tests ordered by health care providers are considered "routine" and can be performed by most independent clinical laboratories, while "esoteric" tests (which generally require more sophisticated equipment, materials and personnel) are generally referred to laboratories, such as the Nichols facility in San Juan Capistrano, that specialize in such tests. Quest Diagnostics believes that in 1995 the entire United States clinical laboratory industry had revenues exceeding $30 billion. The clinical laboratory industry consists primarily of three types of providers: hospital-affiliated laboratories, independent clinical laboratories, such as those owned by Quest Diagnostics, and physician-office laboratories. Quest Diagnostics believes that in 1995 approximately 56% of the clinical testing revenues in the United States were attributable to hospital-affiliated laboratories, approximately 36% were attributable to independent clinical laboratories and approximately 8% were attributable to physicians in their offices and laboratories. Quest Diagnostics believes that consolidation will continue in the clinical laboratory testing business. In addition, Quest Diagnostics believes that it and the other large independent clinical laboratory testing companies may have the opportunity to increase their share of the overall clinical laboratories testing market due to a number of external factors including cost efficiencies afforded by large-scale automated testing, Medicare reimbursement reductions and the growth of managed health care entities which require low-cost testing services and large service networks. In addition, legal restrictions on physician referrals and the ownership of laboratories as well as increased regulation of laboratories are expected to contribute to the continuing consolidation of the industry. Quest Diagnostics believes that a number of factors are likely to positively influence the volume of clinical laboratory testing performed in the United States in the future, including (1) the general aging of the population in the United States; (2) an expanded base of scientific knowledge which has led to the development of more sophisticated specialized tests and an increase in the awareness of physicians of the value of clinical laboratory testing as a cost-effective means of early detection of disease and monitoring of treatment; (3) an increase in the number and types of tests which are, due to advances in technology and increased cost efficiencies, readily available on a more affordable basis to physicians; (4) expanded substance-abuse testing by corporations and governmental agencies; and (5) increased testing for sexually transmitted diseases such as AIDS. The impact of these factors is expected to be offset in part by increased controls over the utilization of clinical laboratory tests by both Medicare and the private sector, particularly managed care organizations. 48 Quest Diagnostics believes that the clinical laboratory industry will continue to be subject to pricing pressures as a result of (1) continued growth of the managed care sector; (2) a shift toward capitated payment contracts within the managed care sector; and (3) decreases in Medicare reimbursement rates. In addition, increased regulatory requirements in the billing of Medicare are expected to result in reimbursement reductions and additional costs to clinical laboratory testing companies in the United States. Quest Diagnostics has formulated strategies to address these challenges. See "--Business Strategy." Services Quest Diagnostics' laboratory business is comprised of routine testing, which Quest Diagnostics management estimates currently generates approximately 88% of Quest Diagnostics' net revenues; and esoteric testing, which is performed at the Nichols facility in San Juan Capistrano and which Quest Diagnostics management estimates generates approximately 10% of Quest Diagnostics' net revenues. The balance of Quest Diagnostics' net revenues is derived principally from the manufacture of clinical laboratory test kits. Routine Testing Services and Operations. Routine tests, which are performed at Quest Diagnostics' regional laboratories, include procedures in the area of blood chemistry, hematology, urine chemistry, virology, tissue pathology and cytology. Commonly ordered individual tests include red and white blood cell counts, Pap smears, blood cholesterol level tests, AIDS-related tests, urinalyses, pregnancy tests, and alcohol and other substance-abuse tests. Routine test groups include tests to determine the function of the kidney, heart, liver and thyroid, as well as other organs, and several health screens that measure various important bodily health parameters. Quest Diagnostics provides services through 17 regional laboratories located in major metropolitan areas throughout the United States, as well as 14 branch laboratories, approximately 200 STAT laboratories and 850 patient service centers. Quest Diagnostics also operates a branch laboratory in Mexico. Regional laboratories offer a full line of routine clinical testing procedures. "STAT" laboratories are local laboratory facilities where Quest Diagnostics can quickly perform and report results of certain routine tests for customers that require such emergency testing services. "Branch laboratories" have a test menu that is smaller than that of regional laboratories but larger than that of STAT laboratories. A "patient service center" is a facility maintained by Quest Diagnostics, typically in or near a medical professional building, to which patients can be referred by physicians for specimen collection. Quest Diagnostics operates 24 hours a day, 365 days a year, utilizing a fully integrated collection and processing system. Quest Diagnostics generally performs and reports most routine procedures within 24 hours, employing a variety of sophisticated and computerized laboratory testing instruments. On an average work day, Quest Diagnostics processes approximately 220,000 requisitions. Quest Diagnostics provides daily pickup of specimens from most customers principally through an in-house courier system. The specimens are sent to one of Quest Diagnostics' laboratories (generally a regional or branch laboratory) where one or more tests are performed. Each patient specimen is accompanied by a test requisition form, which is completed by the customer, that indicates the tests to be performed and provides the necessary billing information. Each specimen and related requisition form is checked for completeness and then given a unique bar-coded identification number. The unique identification number assigned to each specimen helps to assure that the results are attributed to the correct patient. The requisition form is sent to a data entry department where a file is established for each patient and the necessary testing and billing information is entered. Once this information is entered into the computer system, the tests are performed and the results are entered, primarily through computer interface or manually, depending upon the type of testing equipment involved. Most of Quest Diagnostics' computerized testing equipment is directly linked with Quest Diagnostics' information systems. Most routine testing is performed and completed during the evening following receipt of the specimens to be tested, and test results are readied for distribution the following morning either electronically or by service representatives. Many customers have local printer capability enabling laboratory medical reports to be printed in their offices. Customers who request that they be called with a result are so notified in the morning. It is Quest Diagnostics' policy to notify the customer immediately if a life-threatening result is found at any point during the course of the testing process. Esoteric Testing Services and Operations. Through Nichols, Quest Diagnostics operates one of the leading esoteric clinical testing laboratories in the world. Esoteric tests are performed in cases where the information provided by routine tests is not specific enough or is inconclusive as to the existence or absence of disease or when a physician requires more information. Typically, unlike routine testing, only one test is performed per requisition. The logistics for esoteric testing are similar to that for routine testing except that, due to the complexity of the testing, approximately 60% of the tests are performed within 24 hours, with almost all of the rest being performed within one week. During 1995 Nichols performed approximately 3.9 million esoteric tests, of which 77% were referred by sources other than Quest Diagnostics regional laboratories. Esoteric tests generally require more sophisticated equipment and materials as well as more highly skilled personnel to perform test procedures and analyze results than what is required for routine testing. Consequently, esoteric tests are generally priced substantially higher than routine tests. New medical discoveries lead to the development of new esoteric tests. However, over time esoteric tests may become routine tests as a result of improved technology or increased volume. The volume of esoteric 49 tests required by most health care providers, including hospitals, is relatively low compared to the volume of routine tests. Because it is generally not cost effective for such health care providers to perform the low volume of esoteric tests in-house, a significant portion of esoteric tests are referred to clinical laboratories like Nichols that specialize in such tests. Some examples of esoteric testing procedures include capillary electrophoresis, cell culture technology, chemiluminescent immunoassays, certain enzyme immunoassays, flow cytometry, fluorescent in situ hybridization (FISH), inductively coupled plasma mass spectroscopy (ICPMS), molecular tissue pathology, molecular signal amplification (branched DNA), and polymerase chain reaction (PCR) technologies. Nichols's laboratory is comprised of 18 individual laboratory departments, which in the aggregate offer approximately 1,400 individual tests or "assays" in such fields as endocrinology, genetics, immunology, microbiology, molecular biology, oncology, serology, special chemistry and toxicology. Nichols believes that it has been one of the leaders in transferring technological innovation from academic biotechnology laboratories to the marketplace. Nichols was the first to introduce a number of esoteric tests, including immunoassay methods for measurement of circulating hormone levels and sensitive tests to predict breast cancer prognosis. Among more recent developments have been tests to detect a variety of tumor types, a common form of mental retardation, leukemia, cystic fibrosis, osteoporosis, hepatitis and neurological disorder and to monitor success of therapy in cancer and AIDS. The branched DNA and PCR technologies can be applied to a variety of infectious agents and permit the detection of lower levels of HIV than can be achieved under other technologies. The ability to measure the amount of HIV permits health care providers to better tailor drug therapies for HIV-infected patients. As part of its research and development efforts, Nichols maintains a relationship with the academic community through its Academic Associates program, under which approximately sixty scientists from academia and biotechnology firms work directly with Nichols's staff scientists to monitor and consult on existing test procedures and develop new esoteric test methods. In addition, Nichols relies on internal resources for the development of new tests as well as on license arrangements and co- development agreements with biotechnology companies and academic medical centers. Nichols also provides clinical laboratory testing in connection with pre-marketing clinical trials of pharmaceutical drugs. This testing is competitive with the testing performed by a subsidiary of Covance and is expected to continue in the future. Quest Diagnostics management estimates that net revenues from such testing accounted for less than 1% of Quest Diagnostics' net revenues in 1995. Diagnostics. Through its Nichols Institute Diagnostics ("NID") subsidiaries, which were acquired as a result of the acquisition of Nichols Institute in August 1994, Quest Diagnostics manufactures and markets clinical laboratory kits primarily for esoteric testing. Test kits are sold principally to hospital and clinical laboratories. Customers and Payors Quest Diagnostics provides testing services to a broad range of health care providers. The primary types of customers served by Quest Diagnostics are as follows: Independent Physicians and Physician Groups. Physicians requesting testing for their patients who are unaffiliated with a managed care plan remain the principal source of Quest Diagnostics' clinical laboratory business. Fees for clinical laboratory testing services rendered for these physicians are billed either to the physician, to the patient, or to the patient's third-party payor such as insurance companies, Medicare and Medicaid. In four states, including New York and Michigan, Quest Diagnostics is required to bill patients directly. The clinical laboratory industry is supporting legislative efforts to expand direct patient billing. Billings are typically on a fee-for-service basis. If the billings are to the physician, they are based on the laboratory's wholesale or customer fee schedule and are typically subject to negotiation. Otherwise, the billings are based on the laboratory's retail or patient fee schedule, subject to limitations on fees imposed by third parties and to negotiation by physicians on behalf of their patients. Medicare and Medicaid billings are based on fee schedules set by governmental authorities. See "--Regulation and Reimbursement." HMOs and Other Managed Care Groups. HMOs and other managed care organizations typically contract with a limited number of clinical laboratories and then designate the laboratory or laboratories to be used for tests ordered by their participating physicians. In an effort to control costs, the managed care groups generally negotiate discounts to the fees usually charged by such laboratories. Most testing for managed care organizations is being performed on a capitated basis. Under a capitated payment contract, the clinical laboratory and the managed care organization agree to a monthly payment per covered individual to cover all laboratory tests during the month, regardless of the number or cost of tests actually performed. Such contracts shift the risks of additional routine testing beyond that covered by the capitated payment to the clinical laboratory. In certain cases, however, the monthly payment may be subject to prospective or retroactive adjustment if the number of tests performed exceeds (or is less than) certain thresholds. The types of tests covered by capitated contracts are negotiated for each contract, with esoteric tests and anatomic pathology services generally not being covered under the capitation rate. Large regional and national HMOs and preferred provider organization networks typically prefer to utilize large independent clinical laboratories such as Quest Diagnostics that can service the managed care groups on a national or regional basis. See "--Effect of the Growth of the Managed Care Sector on the Clinical Laboratory Business." 50 Hospitals. Quest Diagnostics serves approximately 3,000 hospitals with services that vary from providing esoteric testing to management contracts, where Quest Diagnostics manages the hospital's laboratory for a fee. Hospitals generally maintain an on-site laboratory to perform testing on patients receiving care and refer less frequently needed procedures to outside laboratories. Hospitals are typically charged for such tests a negotiated fee-for-service which is based on the laboratory's customer fee schedule. Some hospitals actively encourage community physicians to send their testing to the hospital's laboratory. In addition, some hospitals have been purchasing physician practices and requiring that the physicians/employees send their testing to the hospital's affiliated laboratory. As a result, hospital-affiliated laboratories can be both a customer and a competitor for independent clinical laboratories such as Quest Diagnostics. Other Institutions. Quest Diagnostics also serves other institutions, including governmental agencies, such as the Department of Defense and prison systems, large employers and independent clinical laboratories that do not have the full range of Quest Diagnostics' testing capabilities. These institutions are typically charged on a negotiated or bid fee-for-service basis. Quest Diagnostics' services to employers principally involve the provision of substance abuse testing services. In 1995, no single customer or affiliated group of customers accounted for more than 2% of Quest Diagnostics' net revenues. Quest Diagnostics believes that the loss of any one of its customers would not have a material adverse effect on Quest Diagnostics' results of operations or cash flows. Payors. Most clinical laboratory testing is billed to a party other than the "customer" that ordered the test. Tests performed for various patients of a single physician may be billed to different payors besides the ordering physician, including third-party payors (generally an insurance company or managed care organization), Medicare, Medicaid or the patient. The following table sets forth current estimates of the breakdown by payor of Quest Diagnostics' total volume of requisitions and average approximate revenues per requisition:
Requisition Volume as % of Total Revenue Per Requisition --------------------- ------------------------- Patient 5%-10% $60-$80 Medicare & Medicaid 20%-25% $20-$25 Monthly Bill (Physician, Hospital, Employer, Other) 35%-40% $15-$35 Third Party Fee-For-Service 15%-20% $30-$40 Managed Care--Capitated 15%-20% $ 5-$15
For a discussion of the mix shift and the impact of the managed care sector on volume and price trends, see "--Effect of the Growth of the Managed Care Sector on the Clinical Laboratory Business." Average Revenue per Requisition Trends. Since the fourth quarter of 1995, declines in Quest Diagnostics' average revenue per requisition have moderated. Average revenue per requisition for the quarter ended September 30, 1996 was approximately 1.7% below the comparable period in 1995. This decline in revenue per requisition was smaller than the approximate 4.8% and 3.6% decline experienced in the first and second quarters of 1996, respectively. Since August of 1995, the company-wide average revenue per requisition has remained relatively stable and is effectively unchanged during the first three quarters of 1996. This trend is illustrated by the following chart: Average Revenue per Requisition as a Percentage of December 1994 Revenue per Requisition. [REPRESENTATION OF A LINE CHART GRAPHIC] Average Revenue per Requisition as a Percentage of December 1994 Revenue per Requisition Q1/95 98.6 Q2/95 97.6 Q3/95 95.8 Q4/95 95.1 Q1/96 93.9 Q2/96 94.1 Q3/96 94.2 51 Sales and Marketing Quest Diagnostics markets and services its customers through its direct sales force of approximately 430 sales representatives, 300 account representatives and 2,200 couriers. Most sales representatives market the mainstream or traditional routine laboratory services primarily to physicians, while others concentrate on individual market segments, such as hospitals or managed care organizations, or on testing niches, such as substance abuse testing. Quest Diagnostics' sales representatives are compensated through a combination of salaries, commissions and bonuses, at levels commensurate with each individual's qualifications and responsibilities. Commissions are based primarily upon the individual's results in generating new business for Quest Diagnostics. Quest Diagnostics is currently changing its commission structure so that compensation is tied to the profitability of (rather than revenues from) new business. See "--Business Strategy--Preferred Provider." Quest Diagnostics' account representatives interact with customers on an ongoing basis. Account representatives monitor the status of services being provided to customers, act as problem-solvers, provide information on new testing developments and serve as the customer's regular point of contact with Quest Diagnostics. Account representatives are compensated with a combination of salaries and bonuses commensurate with each individual's qualifications and responsibilities. Quest Diagnostics believes that the clinical laboratory service business is shifting away from the traditional direct sales structure and into one in which the purchasing decisions for laboratory services are increasingly made by managed care organizations, integrated health delivery systems, insurance plans, employers and by patients themselves. In view of these changes, Quest Diagnostics has completed a rigorous regional market strategy process and has reorganized its sales and marketing organization structure to support these strategies and emerging customers. Quest Diagnostics believes that, given the increasing regulation and complexity of the clinical laboratory marketplace, training of its sales force is of paramount importance. With this goal in mind, during 1995 Quest Diagnostics enhanced its comprehensive sales training program and compliance training. See "--Compliance Program." Effect of the Growth of the Managed Care Sector on the Clinical Laboratory Business The managed care industry is growing as well as undergoing rapid consolidation which has created large managed care companies that control the delivery of health care services for millions of people, and have significant bargaining power in negotiating fees with health care providers, including clinical laboratories. Quest Diagnostics believes that there are potential opportunities for large, low-cost, clinical laboratories such as Quest Diagnostics to capture additional testing volume from managed care organizations. The larger regional and national managed care organizations typically prefer to utilize large independent clinical laboratories, like Quest Diagnostics, that can service their organizations on a national or a regional basis. In addition, smaller laboratories are unlikely to be able to achieve the low cost structures necessary to profitably service managed care organizations. The growth of the managed care sector presents various challenges to independent clinical laboratories, including Quest Diagnostics. Managed care organizations typically negotiate capitated payment contracts, whereby the clinical laboratory receives a monthly fee per covered individual. The fixed monthly payment generally covers all laboratory tests (excluding certain tests, such as esoteric tests and anatomic pathology services) performed during the month, regardless of the number or cost of the tests performed. Unlike fee-for-service indemnity insurance, such contracts shift the risks of additional routine testing beyond that covered by the capitated payment to the clinical laboratory. In certain cases, however, the monthly payment may be subject to prospective or retroactive adjustment if the number of tests performed exceeds (or is less than) certain thresholds. Quest Diagnostics expects the amount of clinical laboratory testing performed for managed care organizations under capitated rate agreements to continue to grow. Laboratory services agreements with managed care organizations have historically been priced aggressively due to competitive pressures 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 under the managed care plan. However, as the number of patients covered under managed care plans continues to increase, there is less such fee-for-service business and, accordingly, less high margin business to offset the low margin (and often unprofitable) managed care business. Furthermore, increasingly, physicians are affiliated with more than one managed care organization and as a result may be required to refer clinical laboratory tests to different clinical laboratories, depending on the coverage of their patients. As a result, a clinical laboratory might not receive any fee-for-service testing from such physicians. The level of pricing charged to managed care organizations, including under capitated payment contracts, if continued, may adversely affect the pricing of the clinical laboratory industry. During the nine months ended September 30, 1996, services to managed care organizations under capitated rate agreements accounted for approximately 6% of Quest Diagnostics' net revenues from clinical laboratory testing and approximately 15% of 52 the number of tests performed by Quest Diagnostics. Quest Diagnostics believes that the prices charged by the independent clinical laboratory testing companies to managed care organizations can and must be increased. Quest Diagnostics is currently reviewing its pricing structures for agreements with managed care organizations and intends to insure that all such agreements are profitably priced. However, there can be no assurance that Quest Diagnostics will be able to increase the prices charged to managed care organizations or that Quest Diagnostics will not lose market share in the managed care market to other clinical laboratories who continue to aggressively price laboratory services agreements with managed care organizations. Quest Diagnostics believes that the growth of the managed care sector presents both challenges and opportunities. Quest Diagnostics, as part of its preferred provider strategy, will seek to capitalize on the opportunity and meet the challenge by seeking to secure large-volume, profitable managed care contracts through providing low cost, high quality testing services at rational prices. Expansion Opportunities Quest Diagnostics believes that there are several expansion opportunities. Quest Diagnostics believes that it can take advantage of these opportunities without incurring significant capital expenditures or deploying significant resources. Hospital Alliances. In response to the growth of the managed care sector and the developments described under "--Effect of the Growth of the Managed Care Sector on the Clinical Laboratory Business," many health care providers have established new alliances. Hospital-physician networks are emerging in many markets in order to offer comprehensive, integrated service capabilities, either to managed care plans or directly to employers. Since Quest Diagnostics has traditionally derived a substantial portion of its esoteric testing revenues from referrals from hospitals, which perform approximately half of all clinical laboratory tests in the United States, Quest Diagnostics established a hospital business venture group whose primary goal is to develop additional nontraditional hospital arrangements, including management and consulting agreements, shared service arrangements and joint ventures. Under federal cost containment legislation enacted in 1985, treatment provided to hospital inpatients covered by Medicare is classified into diagnosis-related groups ("DRGs") which prescribe the maximum reimbursable payments for all services, including laboratory testing services, provided on behalf of an inpatient under each DRG. As a result of this payment structure, and similar price constraints from managed care organizations and other third-party payors, hospitals have an economic incentive to seek the most cost-effective laboratory testing services for their patients. Quest Diagnostics believes that in many cases, by managing a hospital laboratory or entering into a joint venture with a hospital, Quest Diagnostics can improve a hospital laboratory's economic structure and preserve hospital capital that would be required for needed laboratory improvements while providing accurate and timely testing services due to greater economies of scale, increased utilization of expensive testing and data processing equipment through optimization of the mix between on-site and off-site testing and more efficient use of laboratory employees. Quest Diagnostics has several such arrangements with hospitals, including a joint venture with two hospitals in Erie, Pennsylvania that performs outreach testing and a management agreement with a group of approximately 25 hospitals in eastern Nebraska and Sioux City, Iowa. These two laboratory arrangements, which provide testing for both the hospitals and the commercial outreach markets in their geographical areas, serve as two of Quest Diagnostics' laboratory facilities. Quest Diagnostics also manages the laboratories at several hospitals in the eastern United States. However, despite the potential cost savings and additional revenues available to hospitals through such arrangements, Quest Diagnostics believes that only a small percentage of the hospitals in the United States have entered into such arrangements with independent clinical laboratories. Nonetheless, Quest Diagnostics expects to enter into alliances with various hospitals in the future and believes that this market has potential. As an alternative service for hospitals that are entering into integrated delivery systems, Quest Diagnostics is beginning to market consulting support and technical solutions for integrating diverse laboratory infrastructures, systems and data. Employer Market. Quest Diagnostics is considering expanding its business in the employer market to include the provision of laboratory services to large employers on a basis comparable to that offered to managed care organizations, whereby laboratory services paid under self-insured indemnity plans may be relatively fixed (rather than on a fee-for-service basis). These services could be offered in alliance with other service providers, including pharmaceutical benefits and diagnostic imaging services. Quest Diagnostics recently organized National Imaging Associates Inc. ("NIA"), a company offering diagnostic imaging benefit management services to employers, payors and managed care organizations. NIA seeks to carve out the imaging component of a health care plan service offering and manage it at lower cost through utilization controls and provider price concessions. Medical Information. The market need for medical information, particularly disease-specific information about provider practices and patient care, is growing rapidly. Large customers of clinical laboratories are increasingly interested in using information from clinical laboratory data on their covered population to answer financial, marketing and quality related questions. Integrated data from clinical laboratories and other health encounters provides additional insights to these questions. To meet these emerging needs, Quest Diagnostics created the Medical Informatics ("Medical Informatics") division which focuses solely on the medical information needs of managed care organizations, integrated healthcare delivery networks and other large cus- 53 tomers. Through internal development, Quest Diagnostics now has a portfolio of information products based primarily upon its extensive database. A combination of advanced information technology and experienced analytical and data integration skills provides the platform for delivery of these products. As market interest has increased, the Medical Informatics division has devoted experienced account executives to work with customers to meet their information needs. Current information products include provider profiles and benchmarks, high-risk patient registries based on customer disease management initiatives, normative comparisons with other populations, and quantitative clinical outcomes based on laboratory measures. Quest Diagnostics believes that health care customers will increasingly see value in the information obtained from clinical laboratory results. Information Systems The need for information systems to support laboratory, billing, customer service, logistics, medical data, and other business requirements is significant and will continue to place high demands on Quest Diagnostics' information systems staff. Quest Diagnostics has historically not standardized the billing, laboratory and other information systems at laboratories that it has acquired. As a result, Quest Diagnostics has numerous different information systems to handle billing, test result reporting and financial data and transactions. Quest Diagnostics believes that the efficient handling of information involving customers, patients, payors, and other parties will be critical to Quest Diagnostics' future success. To this end, Quest Diagnostics has chosen standard billing and laboratory systems. During the third quarter of 1996, Quest Diagnostics recorded a charge of $13.7 million to write off capitalized software as a result of its decision to abandon the billing system which had been intended as its company-wide billing system. Management now plans to standardize using a SYS billing system which has already been implemented in seven of its 22 billing sites, which seven sites account for 35% of Quest Diagnostics' net revenues. The standard laboratory system is already operational in nine of its 22 billing sites, which account for 30% of Quest Diagnostics' net revenues. Such sites are not necessarily the same sites as those with standard billing systems. Quest Diagnostics is beginning to convert the remaining nonstandard billing and laboratory systems to the standard systems, prioritized on an impact basis. The most critical conversions will be completed within three years. The New York/New Jersey (Teterboro) laboratory is the first priority and is expected to be converted by 1998. The conversion costs are expected to average approximately $3 million per billing system and $1 million to $3 million per laboratory system. As more billing sites are converted to the standard billing system, consolidation of billing sites is expected to occur, which will reduce overall conversion costs and improve billing efficiencies. Quest Diagnostics anticipates that the cost of converting all billing and laboratory systems to the standard systems over the next several years will cost between approximately $55 million and $85 million, depending on the number of billing consolidations that occur.* Quest Diagnostics does not anticipate that the conversion costs will result in a significant increase in capital expenditures over the levels spent during the last several years. Quest Diagnostics is developing systems that will permit managed care organizations and other providers to have electronic access to test orders and results for participating physicians, which will permit managed care organizations to better monitor and control the utilization of testing services. Billing Billing for laboratory services is a complicated process. Laboratories must bill different payors such as doctors, patients, insurance companies, Medicare, Medicaid and employer groups, all of whom have different billing requirements. Quest Diagnostics believes that less than 30% of its bad debt expense is attributable to specific credit or payment issues of its customers. The remainder of the bad debt expense is the result of many non-credit related issues which slow the billing process, create backlogs of unbilled requisitions and generally increase the aging of accounts receivable. A primary cause of bad debt expense is missing or incorrect billing information on requisitions. Typically approximately one-third of the requisitions that Quest Diagnostics receives either do not provide all the necessary data or provide incorrect data. Quest Diagnostics believes that this experience is similar to that of its primary competitors. Quest Diagnostics performs the requested tests and reports back the test results regardless of whether billing information has been provided at all or has been provided incorrectly. Quest Diagnostics subsequently attempts to obtain any missing information or rectify any incorrect billing information received from the health care provider. Among the many other factors complicating the billing process are pricing differences between the fee schedules of Quest Diagnostics and the payor, disputes between payors as to the party responsible for payment of the bill and auditing for specific compliance issues. Ultimately, if all issues are not resolved in a timely manner, the related receivables are written off to bad debt expense. * This is a forward looking statement and is based on current expectations. Actual results may vary materially from those projected. See "--Important Factors Regarding Forward Looking Statements." In particular see factors (d), (j) and (k). 54 Quest Diagnostics' bad debt expense has increased each year since 1993 due principally to four developments that have further complicated the billing process: (1) increased complexity in the health care system; (2) increased requirements in complying with fraud and abuse regulations; (3) deterioration in reimbursement as the payor mix shifts; and (4) changes in Medicare reimbursement policies. These four factors have placed additional requirements on the billing process, including the need for specific test coding, additional research on processing rejected claims that comply with prior practices, increased audits for compliance, and management of a large number of contracts which have very different information requirements for pricing and reimbursement. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Quest Diagnostics' billing has also been hampered by the existence of multiple billing information systems. In 1995 Quest Diagnostics had severe billing problems at its largest laboratory site in Teterboro, New Jersey. A new billing information system developed with outside consultants experienced significant implementation problems, including excessive downtime, which severely impacted Quest Diagnostics' ability to efficiently bill for its services from the Teterboro location. The problem was compounded by a lack of experienced staff as the result of work force reductions made to meet cost reduction initiatives undertaken in anticipation of greater efficiencies from the new billing information system. As a result of all of these factors, Quest Diagnostics recorded a charge to bad debt of $62 million in the third quarter of 1995. Of this amount, approximately $34 million was attributable to the Teterboro location. At the time of charge, the backlog of unbilled requisitions was estimated at over 2 million requisitions and DSOs for the clinical testing business were 90 days. In addition, significant backlogs existed in (1) reconciling cash received to payment of specific bills, (2) rejected claims that needed to be researched and (3) correspondence from customers attempting to resolve billing problems. Integration of a standardized billing system is a priority of Quest Diagnostics and Quest Diagnostics is in the process of integrating a billing system with proven reliability throughout its network. The SYS system is in use at seven of Quest Diagnostics' laboratories. Its reliability is evidenced by both the improvement in the laboratories' bad debt experience after SYS was implemented and the improved capability to handle new billing requirements as compared with non-SYS laboratories, such as Teterboro. For example, bad debt expense for the nine months ended September 30, 1996 for the combined SYS laboratories is 6.4% of sales, versus 7.1% for all other laboratories combined. The use of a standard system will also provide for operational efficiencies as redundant programming efforts are eliminated and the ability to consolidate billing sites will become more feasible. See "--Information Systems." Standardizing billing systems presents conversion risk to Quest Diagnostics as key databases and masterfiles are transferred to the SYS system and because the billing workflow is interrupted during the conversion, which may cause backlogs. Quest Diagnostics, however, has already completed seven conversions to this system and has retained key people who have been involved in those conversions. Quest Diagnostics has focused on improving its billing operations in the last year. Over the last twelve months, the backlog of unbilled requisitions has been reduced by approximately 30%, DSOs for the clinical testing business have been reduced to 74 days, bad debt expense as a percentage of net revenues has decreased, the percentage of requisitions received with missing billing information has been reduced by approximately 30% and backlogs in rejected claims, unapplied cash and customer correspondence have been significantly reduced. These improvements were achieved in spite of a higher level of information requirements necessary for correct billing, especially those bills relating to Medicare. However, additional requirements to provide documentation of the "medical necessity" of testing have added to the backlog of unbilled receivables and caused third quarter 1996 bad debt expense as a percentage of revenues to increase above the rate Quest Diagnostics had experienced during the first two quarters of 1996. See "--Regulation and Reimbursement--Regulation of Reimbursement for Clinical Laboratory Services." Acquisitions and Dispositions MetPath, Quest Diagnostics' predecessor, originally commenced operations in 1967 with laboratories only in the New York metropolitan area. Most of Quest Diagnostics' other regional laboratories have been added through acquisitions. Principally as the result of the acquisitions discussed below that were completed in 1993 and 1994, Quest Diagnostics' revenues have almost tripled since 1991. However, this increase in revenues is not reflected in the Financial Statements because several of the major acquisitions are accounted for as a pooling of interests. Acquisition activity has diminished significantly since May 1995, in part so that Quest Diagnostics could concentrate on the integration of the laboratory networks that had been acquired in 1993 and 1994. Quest Diagnostics may resume making acquisitions in the future, most likely focusing on acquisitions of smaller laboratories that can be folded into existing laboratories where Quest Diagnostics can expect to achieve significant cost savings and other benefits resulting from the elimination of redundant facilities and equipment and reductions in staffing or personnel. Quest Diagnostics is evaluating its strategic alternatives relative to units whose profitability does not meet its internal goals. These alternatives may include joint ventures, alliances or dispositions. However, there are no negotiations or definitive plans with respect to any such dispositions. 55 During 1994 Corning acquired three large clinical laboratory testing companies, each of which was accounted for as a pooling of interests. In June 1994, Corning acquired Maryland Medical Laboratory, Inc. ("MML"), a regional laboratory based in Baltimore, Maryland with approximately $90 million in annual revenues. In August 1994, Corning acquired the stock of Nichols Institute, a national esoteric clinical laboratory with approximately $280 million in annual revenues. In October 1994, Corning acquired Bioran, a regional laboratory based in Cambridge, Massachusetts with approximately $65 million in annual revenues. In August 1993, Corning acquired Damon, a national clinical testing laboratory with approximately $330 million in annualized revenue. The acquisition was accounted for as a purchase. The assets of Damon's California-based laboratories were sold in April 1994 to Physicians Clinical Laboratory Inc. In November 1993, Quest Diagnostics acquired the clinical testing laboratories of Unilab in Dallas, Denver and Phoenix, in exchange for Quest Diagnostics' then 43% ownership of Unilab and the assumption of approximately $70 million of indebtedness of Unilab. In a separate transaction, Quest Diagnostics transferred to Unilab Quest Diagnostics' investment in J.S. Pathology PLC, a clinical testing laboratory based in the United Kingdom, in exchange for a small equity interest in Unilab. Quest Diagnostics currently owns approximately 4% of Unilab's outstanding common stock. In May 1993, Corning acquired and contributed to Quest Diagnostics DeYor Laboratory Inc., a regional laboratory based in Ohio, Pennsylvania and Tennessee with approximately $20 million of annual revenues. This transaction was accounted for under the pooling of interests method, although Quest Diagnostics' consolidated financial statements for prior periods have not been restated since this acquisition is not material. See Note 3 to the Audited Financial Statements. In addition to the acquisitions discussed above, since January 1993 Quest Diagnostics has acquired approximately 25 other smaller clinical laboratories and customer lists, principally in assets acquisitions. Only one such acquisition has been completed since May 1995. Competition The clinical laboratory testing business is intensely competitive. Quest Diagnostics believes that in 1995 the entire United States clinical laboratory testing industry had revenues exceeding $30 billion; approximately 56% of such revenues were attributable to hospital-affiliated laboratories, approximately 36% were attributable to independent clinical laboratories and approximately 8% were attributable to physicians in their offices and laboratories. As recently as 1993, there were seven laboratories that provided clinical laboratory testing services on a national basis: Quest Diagnostics, SmithKline, National Health Laboratories Inc. ("NHL"), Roche Biomedical Laboratories Inc. ("Roche"), Damon, Allied Clinical Laboratories Inc. ("Allied") and Nichols Institute. In April 1995 Roche merged into NHL (under the name LabCorp), which had acquired Allied in June 1994. Quest Diagnostics acquired Nichols Institute in August 1994 and Damon in August 1993. In addition, in the last several years a number of large regional laboratories have been acquired by national clinical laboratories. There are presently three national independent clinical laboratories: Quest Diagnostics, which had approximately $1.63 billion in revenues from clinical laboratory testing in 1995; LabCorp, which had approximately $1.68 billion in revenues from clinical laboratory testing in 1995 on a pro forma basis, after giving effect to the April 1995 merger of Roche into NHL; and SmithKline, which had approximately $1.29 billion in revenues from clinical laboratory testing in 1995. Both LabCorp and SmithKline are affiliated with large corporations that have greater financial resources than Quest Diagnostics. SmithKline is wholly owned by SmithKline Beecham Ltd. and R. Hoffman La Roche S.A. beneficially owns approximately 49.9% of the outstanding capital stock of LabCorp. In addition to the three national clinical laboratories, Quest Diagnostics competes on a regional basis with many smaller regional independent clinical laboratories as well as laboratories owned by hospitals and physicians. Quest Diagnostics has the leading market share in most of the northeast, mid-Atlantic and midwest routine testing markets, while its market share is much lower in the routine testing market in the rest of the country. Approximately 65% of Quest Diagnostics' net revenues and almost all of its EBITDA currently is generated from markets in which Quest Diagnostics believes that it has the largest market share. In most of these markets Quest Diagnostics believes that it also is the lowest cost provider. Quest Diagnostics does not generally compete in the California routine testing market other than in the San Diego metropolitan area. Quest Diagnostics believes that the following factors, among others, are often used by health care providers in selecting a laboratory: (i) pricing of the laboratory's testing services; (ii) accuracy, timeliness and consistency in reporting test results; (iii) number and type of tests performed; (iv) service capability and convenience offered by the laboratory; and (v) its reputation in the medical community. Quest Diagnostics believes that it competes favorably with its principal competitors in each of these areas and is currently implementing strategies to improve its competitive position. See "--Business Strategy." Quest Diagnostics believes that consolidation will continue in the clinical laboratory testing business. In addition, Quest Diagnostics believes that it and the other large independent clinical laboratory testing companies will be able to increase their share of the overall clinical laboratories testing market due to a number of external factors including cost efficiencies afforded by large-scale automated testing, Medicare reimbursement reductions and the growth of managed health care entities which require low-cost testing services and large service networks. In addition, legal restrictions on physician referrals and the ownership of laboratories as well as increased regulation of laboratories are expected to contribute to the continuing consolidation of the industry. 56 Quality Assurance Quest Diagnostics maintains a comprehensive quality assurance program for all of its laboratories and patient service centers. The goal is to ensure optimal patient care by continually improving the processes used for collection, storage and transportation of patient specimens, as well as the precision and accuracy of analysis and result reporting. The Quest Diagnostics quality assurance efforts focus on: proficiency testing, process audits, statistical process control, credentialing and personnel training. Internal Quality Control and Audits. Quality control samples are processed in parallel with the analysis of patient specimens. The results of tests on such samples are then monitored to identify drift, shift or imprecision in the analytical processes. In addition, Quest Diagnostics administers an extensive internal program of "blind" proficiency testing. These samples are processed through the Quest Diagnostics system as routine patient samples, unknown to the laboratory as quality control samples. Samples are then handled, processed and reported with patient specimens. This provides a system to assure accuracy of the entire pre-and post-analytical testing process. Another element of the Quest Diagnostics comprehensive quality assurance program includes performance of internal process audits. External Proficiency Testing and Accreditation. All Quest Diagnostics laboratories participate in numerous externally conducted, blind sample quality surveillance programs. These include proficiency testing programs administered by the College of American Pathologists ("CAP"), as well as many state agencies. These programs supplement all other quality assurance procedures. All Quest Diagnostics laboratories are accredited by CAP. Accreditation includes on-site inspections and participation in the CAP Proficiency Test Program. CAP is an independent nongovernmental organization of board certified pathologists that offers an accreditation program to which laboratories may voluntarily subscribe. CAP is approved by HCFA to inspect clinical laboratories to determine compliance with the standards required by the Clinical Laboratory Improvement Amendments of 1988 ("CLIA"). Regulation and Reimbursement Overview. The clinical laboratory industry is subject to significant governmental regulation at the federal and state levels. All Quest Diagnostics laboratories and patient service centers are appropriately licensed and accredited by various state and federal agencies. The health care industry is undergoing significant change as third-party payors, such as Medicare (which principally serves patients 65 and older), Medicaid (which principally serves indigent patients), private insurers and large employers increase their efforts to control the cost, utilization and delivery of health care services. In an effort to address the problem of increasing health care costs, legislation has been proposed or enacted at both the federal and state levels to regulate health care delivery in general and clinical laboratories in particular. Some of the proposals include managed competition, global budgeting and price controls. Although the Clinton Administration's health care reform proposal, initially advanced in 1994, was not enacted, such proposal or other proposals may be considered in the future. In particular, Quest Diagnostics believes that reductions in reimbursement for Medicare services will continue to be implemented from time to time. Reductions in the reimbursement rates of other third-party payors are likely to occur as well. Quest Diagnostics cannot predict the effect health care reform, if enacted, would have on its business, and there can be no assurance that such reforms, if enacted, would not have a material adverse effect on Quest Diagnostics' business and operations. Regulation of Clinical Laboratory Operations. The CLIA standards were designed to ensure that all clinical laboratory testing services are uniformly accurate and of high quality by using a single set of requirements. On February 28, 1992, the final rules implementing CLIA were published in the Federal Register. These regulations extended federal oversight, with few exceptions, to virtually all clinical laboratories regardless of size, type, location or ownership of the laboratory. The regulations generally became effective in 1992. However, certain quality control and proficiency testing requirements are still being phased in. The standards for laboratory personnel, quality control, quality assurance and patient test management are based on complexity and risk factors. Laboratories categorized as "high" complexity are required to meet more stringent requirements than either "moderate" or "waived" (tests regarded as having a low potential for error and requiring little or no oversight) laboratories. Most of the Quest Diagnostics laboratories are categorized as high complexity and these laboratories are in compliance with the more stringent standards for personnel, quality control, quality assurance and patient test management. A few Quest Diagnostics laboratories are categorized as moderate complexity (some STAT laboratories) or waived (only patient service centers). The sanction for failure to comply with these regulations may be suspension, revocation or limitation of a laboratory's CLIA certificate necessary to conduct business, significant fines or criminal penalties. The loss of a license, imposition of a fine or future changes in such federal, state and local laws and regulations (or in the interpretation of current laws and regulations) could have a material adverse effect on Quest Diagnostics. 57 Quest Diagnostics is also subject to state regulation. CLIA permits states to adopt regulations that are more stringent than federal law. For example, state law may require that laboratory personnel meet certain more stringent qualifications, specify certain quality control standards, maintain certain records and undergo additional proficiency testing. For example, certain of Quest Diagnostics' laboratories are subject to the State of New York's clinical laboratory regulations, which contain provisions that are significantly more stringent than federal law. Quest Diagnostics believes it is in material compliance with the foregoing standards. See "--Compliance Program." Drug Testing. Drug testing for public sector employees is regulated by the Substance Abuse and Mental Health Services Administration ("SAMHSA") (formerly the National Institute on Drug Abuse), which has established detailed performance and quality standards that laboratories must meet in order to be approved to perform drug testing on employees of federal government contractors and certain other entities. To the extent that Quest Diagnostics' laboratories perform such testing, each must be certified by HHS as meeting SAMHSA standards. Seven of Quest Diagnostics' laboratories are SAMHSA certified. Controlled Substances. The use of controlled substances in testing for drug abuse is regulated by the federal Drug Enforcement Administration ("DEA"). All Quest Diagnostics laboratories using controlled substances for testing purposes are licensed by the DEA. Medical Wastes and Radioactive Materials. Quest Diagnostics is subject to licensing and regulation under federal, state and local laws relating to the handling and disposal of medical specimens and hazardous waste and radioactive materials as well as to the safety and health of laboratory employees. All Quest Diagnostics laboratories are operated in material compliance with applicable federal and state laws and regulations relating to disposal of all laboratory specimens. Quest Diagnostics utilizes outside vendors for disposal of specimens. Although Quest Diagnostics believes that it is currently in compliance in all material respects with such federal, state and local laws, failure to comply could subject Quest Diagnostics to denial of the right to conduct business, fines, criminal penalties and other enforcement actions. Occupational Safety. In addition to its comprehensive regulation of safety in the workplace, the federal Occupational Safety and Health Administration ("OSHA") has established extensive requirements relating to workplace safety for health care employers, including clinical laboratories, whose workers may be exposed to blood-borne pathogens such as HIV and the hepatitis B virus. These regulations, among other things, require work practice controls, protective clothing and equipment, training, medical follow-up, vaccinations and other measures designed to minimize exposure to chemicals and transmission of blood-borne and airborne pathogens. Specimen Transportation. Regulations of the Department of Transportation, the Public Health Service and the Postal Service apply to the surface and air transportation of clinical laboratory specimens. Regulation of Reimbursement for Clinical Laboratory Services. Containment of health care costs, including reimbursement for clinical laboratory services, has been a focus of ongoing governmental activity. In 1984, Congress established a Medicare fee schedule for clinical laboratory services performed for patients covered under Part B of the Medicare program. Subsequently, Congress imposed a national ceiling on the amount that would be paid under the Medicare fee schedule. Laboratories must bill the program directly and must accept the scheduled amount as payment in full for most tests performed on behalf of Medicare beneficiaries. In addition, state Medicaid programs are prohibited from paying more (and in most instances, pay significantly less) than the Medicare fee schedule for clinical laboratory testing services furnished to Medicaid recipients. In 1995, Quest Diagnostics derived approximately 20% and 3% of its net revenues from tests performed for beneficiaries of Medicare and Medicaid programs, respectively. Since 1984, Congress has periodically reduced the ceilings on Medicare reimbursement to clinical laboratories from previously authorized levels. In 1993, pursuant to the Omnibus Budget and Reconciliation Act of 1993 ("OBRA '93"), Congress reduced, effective January 1, 1994, the Medicare national fee schedule limitations from 88% of the 1984 national median to 76% of the 1984 national median, which reductions were phased in from 1994 through 1996 (to 84% in 1994, 80% in 1995 and 76% in 1996, in each case as a percentage of the 1984 national median). The 1996 reduction to 76% was implemented as scheduled on January 1, 1996. OBRA '93 also eliminated the provision for annual fee schedule increases based upon the consumer price index for 1994 and 1995. Medicare reimbursement reductions have a direct adverse effect on Quest Diagnostics' net earnings and cash flows. Quest Diagnostics cannot predict if additional Medicare reductions will be implemented. The Senate and House Medicare proposal (the Medicare Preservation Act of 1995) passed in October 1995 would have reduced the national limitation to 65% beginning in 1997 and would have eliminated all annual consumer price index adjustments through 2002. This reduction in laboratory reimbursement rates was retained in the House-Senate conference report agreed upon in November 1995. The President vetoed this bill in December 1995. Effective January 1, 1996, HCFA adopted a new policy on reimbursement for chemistry panel tests. As of January 1, 1996, 22 automated tests (rather than 19 tests) became reimbursable by Medicare as part of an automated chemistry profile. An additional allowance of $0.50 per test is authorized when more than 19 tests are billed in a panel. HCFA retains the authority to expand in the future the list of tests included in a panel. Effective as of March 1, 1996, HCFA eliminated its prior policy of 58 permitting payment for all tests contained in an automated chemistry panel when at least one of the tests in the panel is medically necessary. Under the new policy, Medicare payment will not exceed the amount that would be payable if only the tests that are "medically necessary" had been ordered. In addition, since 1995 most Medicare carriers have begun to require clinical laboratories to submit documentation supporting the medical necessity, as judged by ordering physicians, for many commonly ordered tests. Quest Diagnostics expects to incur additional reimbursement reductions and additional costs associated with the implementation of these requirements of HCFA and Medicare carriers. The amount of the reductions in reimbursements and additional costs cannot be determined at this time. See "--Billing." Major clinical laboratories, including Quest Diagnostics, use dual fee schedules: "client" fees charged to physicians, hospitals, and institutions with which a laboratory deals on a bulk basis and "patient" fees charged to individual patients and third-party payors, including Medicare and Medicaid, who generally require separate bills or claims for each requisition. Medicare and other third party payors also set maximum fees that they will pay which are substantially lower than the patient fees otherwise charged by Quest Diagnostics, but are generally higher than Quest Diagnostics' client fees, which may be subject to negotiation or discount. Federal and some state regulatory programs prohibit clinical laboratories from charging government programs more than certain charges to other customers. During 1992, in issuing final regulations implementing the federal statutory prohibition against charging Medicare substantially in excess of a provider's usual charge, the OIG declined to provide any guidance concerning the interpretation of this legislation, including whether or not discounting or the dual fee structure employed by clinical laboratories might raise issues under the provision. Medicare budget proposals developed by the Clinton Administration in 1993 and 1994, along with proposals incorporated in many major health reform bills considered by Congress in 1994, called for the reinstatement of 20% Medicare clinical laboratory co-insurance (which was last in effect in 1984). While co-insurance was in effect, clinical laboratories received from Medicare carriers only 80% of their Medicare reimbursement rates and were required to bill Medicare beneficiaries for the balance of the charges. A co-insurance proposal was not included in any of the Congressional Medicare reform packages considered to date in the 1995 and 1996 legislative sessions. However, it is still possible a co-insurance provision will be proposed in the future and, if enacted, such a proposal could materially adversely affect the revenues and costs of the clinical laboratory industry, including Quest Diagnostics, by exposing the testing laboratory to the credit of individuals and by increasing the number of bills. In addition, a laboratory could be subject to potential fraud and abuse violations if adequate procedures to bill and collect the co-insurance payments are not established and followed. Proposals have also been developed to procure Medicare and Medicaid laboratory testing services through competitive bidding mechanisms. To date, none of the Congressional Medicare reform packages introduced in the 1995 and 1996 legislative sessions have included a competitive bidding provision for clinical laboratory tests. However, President Clinton's Medicare reform proposal would have established competitive bidding for clinical laboratory services. If competitive bidding were implemented, such action could materially adversely affect the revenues of the clinical laboratory industry, including Quest Diagnostics. HCFA is currently developing a demonstration project to determine whether competitive bidding can be used to provide quality laboratory services at prices below current Medicare reimbursement rates. The demonstration is expected to be conducted in Kentucky and to commence in 1997. Future changes in federal, state and local regulations (or in the interpretation of current regulations) affecting governmental reimbursement for clinical laboratory testing could have a material adverse effect on Quest Diagnostics. Quest Diagnostics is unable to predict, however, whether and what type of legislation will be enacted into law. Fraud and Abuse Regulations. The Medicare and Medicaid anti-kickback laws prohibit clinical laboratories from, among other things, making payments or furnishing other benefits to influence the referral of tests billed to Medicare, Medicaid or other federal programs. Penalties for violations of these federal laws include exclusion from participation in the Medicare/ Medicaid programs, assets forfeitures, and civil and criminal penalties. Civil administrative penalties for a wide range of offenses may be up to $2,000 per item and twice the amount claimed. Under the Health Insurance Portability and Accountability Act of 1996 (the "Health Insurance Act"), the penalties will be increased, effective January 1, 1997 to up to $10,000 per item plus three times the amount claimed. In the case of certain offenses, exclusion from participation in Medicare and Medicaid is a mandatory penalty. The fraud and abuse provisions are interpreted liberally and enforced aggressively by various enforcing agencies of the federal government, including the Federal Bureau of Investigation ("FBI") and the OIG. According to public statements by the DOJ, health care fraud has been elevated to the second-highest priority of the DOJ, and FBI agents have been transferred from investigating counterintelligence activities to health care provider fraud. The OIG also is involved in such investigations and has, according to recent workplans, targeted certain laboratory practices for study, investigation and prosecution. The federal government's involvement in curtailing fraud and abuse is likely to increase as a result of the enactment in August 1996 of the Health Insurance Act which will require, by January 1, 1997, the U.S. Attorney General and the OIG to jointly establish a program to (a) coordinate federal, state and local enforcement programs to control fraud and abuse with respect to health care, (b) conduct 59 investigations, audits, evaluations and inspections relating to the delivery and payment for health care, (c) facilitate the enforcement of the health care fraud and abuse laws, (d) provide for the modification and establishment of safe harbors and to issue advisory opinions and Special Fraud Alerts and (e) provide for a data collection system for the reporting and disclosure of adverse actions taken against health care providers. The Health Insurance Act also authorizes the establishment of an anti-fraud and abuse trust fund funded through the collection of penalties and fines for violations of the health care anti-fraud laws as well as amounts authorized therefor by Congress. The Health Insurance Act also requires HHS to establish a program to encourage Medicare beneficiaries and others to report violations of the health care anti-fraud laws, including by paying to the reporting person a portion of any fines and penalties collected. In October 1994, the OIG issued a Special Fraud Alert, which set forth a number of practices allegedly engaged in by clinical laboratories and health care providers that the OIG believes violate the anti-kickback laws. These practices include providing employees to collect patient samples at physician offices if the employees perform additional services for physicians that are typically the responsibility of the physicians' staff; selling laboratory services to renal dialysis centers at prices that are below fair market value in return for referrals of Medicare tests which are billed to Medicare at higher rates; providing free testing to a physician's HMO patients in situations where the referring physicians benefit from lower utilization; providing free pickup and disposal of bio-hazardous waste for physicians for items unrelated to a laboratory's testing services; providing facsimile machines or computers to physicians that are not exclusively used in connection with the laboratory services performed; and providing free testing for health care providers, their families and their employees (professional courtesy testing). The OIG stressed in the Special Fraud Alert that when one purpose of the arrangements is to induce referral of program-reimbursed laboratory testing, both the clinical laboratory and the health care provider or physician may be liable under the anti-kickback laws and may be subject to criminal prosecution and exclusion from participation in the Medicare and Medicaid programs. The Special Fraud Alert was issued in part at the request of the American Clinical Laboratory Association, which requested clarification of certain of these rules. Quest Diagnostics does not believe that it has been negatively affected by the issuance of the Special Fraud Alert. Many of these statutes and regulations, including those relating to joint ventures and alliances, are vague or indefinite and have not been interpreted by the courts. In addition, regulators have generally offered little guidance to the clinical laboratory industry. Despite requests from the American Clinical Laboratory Association for clarification of the anti-fraud and abuse rules, since 1992, OIG has issued only two fraud alerts specifically with regard to clinical laboratory practices and has insisted that it lacked statutory authority to issue advisory opinions. Legislation requiring OIG to issue fraud alerts and advisory opinions was enacted in August 1996, and as a result Quest Diagnostics is hopeful that additional regulatory guidance will be given to the clinical laboratory industry. According to the 1995 work plan of the OIG, its recently established Office of Civil Fraud and Administrative Adjudication ("OCFAA") will be responsible for protecting the government-funded health care programs and deterring fraudulent conduct by health care providers through the negotiation and imposition of civil monetary penalties, assessments and program exclusions. The OCFAA works very closely with the DOJ, the Office of General Counsel of HHS and the OIG investigative and audit offices in combating fraud and abuse. In addition, the OIG stated in its 1995 work plan that it will determine the extent to which laboratories supply physicians' offices with phlebotomists (blood-drawing technicians), offer management services or medical waste pick-up to physicians, provide training to physicians or engage in other financial arrangements with purchasers of laboratories' services. The OIG will assess the potential benefits of such arrangements as well as the extent to which such arrangements might be unlawful. A federal "self-referral" law commonly known as the "Stark" law has, since 1992, generally prohibited (with certain exceptions) Medicare payments for laboratory tests referred by physicians who have (personally or through a family member) an investment interest in, or a compensation arrangement with, the testing laboratory. Since January 1995, these restrictions apply to Medicaid-covered services as well. Physicians may, however, be reimbursed by Medicare and Medicaid for testing performed by or under the supervision of the physician or the group practice to which the physician belongs. In addition, a physician may refer specimens to a laboratory owned by a company, such as Quest Diagnostics, whose stock is traded on a public exchange and which has stockholders' equity exceeding $75 million even if the physician owns stock of that company. An amendment to the Stark law in August 1993 makes it clear that ordinary day-to-day transactions between laboratories and their customers, including, but not limited to, discounts granted by laboratories to their customers, are not covered by the compensation arrangement provisions of the Medicare statute. Sanctions for laboratory violations of the prohibition include denial of Medicare payments, refunds, civil money penalties of up to $15,000 for each service billed in violation of the prohibition and exclusion from the Medicare and Medicaid programs. The 1995 House Medicare reform proposal contained, and the House-Senate report adopted, provisions that would significantly narrow the scope of the Stark anti-referral laws. That proposal would, among other changes, have ended the ban on physician 60 referrals to laboratories based on any "compensation arrangements" between the laboratory and the physician. The President vetoed this bill on December 6, 1995. Government Investigations and Related Claims Quest Diagnostics has settled various government and private claims (i.e., nongovernmental claims such as those by private insurers) totalling approximately $195 million relating primarily to industry-wide billing and marketing practices that had been substantially discontinued by late 1992. Specifically, Quest Diagnostics has entered into, (i) for an aggregate of approximately $180 million, five settlements with the OIG and the DOJ (including, the MetPath and the Damon settlements discussed below) and two settlements with state governments with respect to Medicare and Medicaid marketing and billing practices of Quest Diagnostics and certain companies acquired by Quest Diagnostics prior to their acquisition and (ii) thirteen settlements relating to private claims totalling approximately $15 million. In addition, there are pending investigations by the OIG and DOJ into billing and marketing practices at three regional laboratories operated by Nichols prior to its acquisition by Quest Diagnostics. There are no private claims presently pending. Government Settlements The MetPath Settlement. In September 1993, Quest Diagnostics (under the name MetPath Inc.) entered into an agreement with the DOJ and the OIG pursuant to which Quest Diagnostics paid a total of approximately $36 million in settlement of civil claims by the United States that the company had wrongfully induced physicians to order certain laboratory tests without their realizing that such tests would be billed to Medicare at rates higher than those the physicians believed were applicable. The Damon Settlement. By issuance of a civil subpoena in August 1993, the government began a formal investigation of Damon, a company acquired by Corning in August 1993. Subsequent to September 1993, several additional subpoenas were issued. By a plea agreement and civil settlement agreement and release dated October 9, 1996, between DOJ and Damon, all federal criminal matters within the scope of the various federal investigations against Damon, and all claims included in the civil qui tam cases underlying the civil investigations, were settled for an aggregate of $119 million, which sum was reimbursed to Quest Diagnostics by Corning. The settlement included base recoupments of approximately $40 million (which did not differ materially from management's estimate at June 30, 1996) and total criminal and civil payments in excess of base recoupments of approximately $80 million. At the time Quest Diagnostics began its settlement negotiations with DOJ in April 1996, it believed it had meritorious defenses to a number of charges and claims made by the government. Reserves established for such settlements in the second quarter of 1996 were based on Quest Diagnostics' and its counsel's belief that the merits of its factual and legal arguments would be given more weight by the government. Certain of these positions were ultimately rejected by criminal and civil prosecutors in the final rounds of negotiations which occurred in late September 1996, resulting in a total settlement substantially in excess of what had earlier been anticipated. The Damon settlement does not exclude Quest Diagnostics from future participation in any federal health care programs on account of Damon's practices. Other Governmental Settlements. In addition to the MetPath settlement and the Damon settlement, since 1992 Quest Diagnostics has settled five other federal and state billing-related claims for a total of approximately $25 million. Ongoing Government Investigations The Nichols Investigation. By issuance of a civil subpoena in August 1993, the government began a formal investigation of Nichols, a company acquired by Corning in August 1994. The investigation of Nichols remains open. While Quest Diagnostics has established reserves in respect of the Nichols investigations, at present there are no settlement discussions pending between DOJ and Quest Diagnostics regarding Nichols, and it is too early to predict the outcome of this investigation. Remedies available to the government include exclusion from participation in the Medicare and Medicaid programs, criminal fines, civil recoveries plus civil penalties and asset forfeitures. Although application of such remedies and penalties could materially and adversely affect Quest Diagnostics' business, financial condition, results of operations and prospects, management believes that the possibility of this happening is remote. Quest Diagnostics derived approximately 23% and 22% of its net revenues for the year ended December 31, 1995 and the nine months ended September 30, 1996, respectively, from Medicare and Medicaid programs. However, in light of the Corporate Integrity Agreement referred to below entered into between Quest Diagnostics and the OIG in connection with the Damon settlement, the fact that the matters being investigated were corrected with or before Quest Diagnostics' acquisition of Nichols and Quest Diagnostics' cooperation in this investigation, Quest Diagnostics believes the prospect of such exclusion on account of the investigation is remote. As discussed below, Corning has agreed to indemnify Quest Diagnostics against any monetary penalties, fines or settlements for any governmental claims that may arise as a result of the Nichols investigations. The Damon Officer Investigations. Quest Diagnostics understands that the Boston United States Attorney's Office has designated several former officers and employees of Damon as targets of its criminal investigation, and will seek indictments against them. Under the agreement and plan of merger under which Damon was acquired by Corning, Quest Diagnostics is obligated to 61 indemnify former officers and directors of Damon to the fullest extent permitted by Delaware law with respect to this investigation. These obligations will remain those of Quest Diagnostics and will not be indemnified by Corning. In addition, as part of the Damon settlement, Corning agreed to cooperate with DOJ in its continuing investigation of individuals formerly associated with Damon and, in connection therewith, Quest Diagnostics is providing additional information pursuant to several subpoenas. Other Government Investigations. In December 1995, Quest Diagnostics received a subpoena from the OIG seeking information as to Quest Diagnostics' policies in instances in which specimens were received and tested by a laboratory without first receiving or verifying specific test requisitions. While compliance with the subpoena is ongoing, Quest Diagnostics has concluded the occurrence of this practice was relatively rare and was engaged in primarily to preserve the integrity of test results from specimens subject to rapid deterioration. During 1996, Quest Diagnostics voluntarily self-reported to the government a few isolated events, involving billings of approximately $16 million, that may have resulted in overpayment by Medicare and Medicaid to Quest Diagnostics. It is Quest Diagnostics' policy to internally investigate all such incidents and to self-report and reimburse payors as appropriate. Although Quest Diagnostics has commenced internal investigations to quantify the amounts that may be recouped by the government and corrective action has been taken as to each such event, it is too early to predict the outcome of these disclosures to the government. As discussed below, Corning has agreed to indemnify Quest Diagnostics against any monetary penalties, fines or settlements for any governmental claims that may arise as a result of the investigations described in this paragraph. Outlook for Future Government Investigations The Damon settlement involved, and a settlement regarding Nichols is expected to involve, only matters predating Corning's acquisition of both such companies, and turned on, or will turn on, facts unique to those companies and other factors individual government enforcement personnel may take into account. However, recent experience in Quest Diagnostics' settlement of the Damon case and public announcements by various government officials indicate that the government's position on health care fraud is still hardening and collections of amounts greatly in excess of mere recoupment of overcharges from laboratories and other providers will be more prevalent. In addition, the newly adopted Health Insurance Act includes provisions to combat health care fraud and abuse will give federal enforcement personnel substantially increased funding, powers and remedies to pursue suspected fraud and abuse. In connection with the Damon settlement, Quest Diagnostics signed a Corporate Integrity Agreement pursuant to which Quest Diagnostics will maintain its corporate compliance program, modify certain of its marketing materials, make periodic reports to the OIG and take certain other steps to demonstrate Quest Diagnostics' integrity as a provider of services to federally sponsored health care programs. This agreement also includes an obligation to self-report instances of noncompliance that are uncovered by Quest Diagnostics, but also gives Quest Diagnostics the opportunity to obtain clearer guidance on matters of compliance and to resolve compliance issues directly with OIG. Importantly, the agreement gives Quest Diagnostics the opportunity to cure any asserted breaches and to otherwise initiate corrective actions, which Quest Diagnostics believes should help to avoid enforcement actions outside of the process provided in the agreement. See "--Compliance Program." Private Settlements and Claims Since 1992 Quest Diagnostics has settled thirteen private actions relating to the governmental settlements described above for an aggregate of approximately $15 million. There are no private claims presently pending. Corning Indemnity In connection with the Distributions, Corning will agree to indemnify Quest Diagnostics against all monetary penalties, fines or settlements for any governmental claims arising out of alleged violations of applicable federal fraud and health care statutes and relating to billing practices of Quest Diagnostics and its predecessors that have been settled or are pending on the Distribution Date. This includes the settlements described under "--Government Settlements" above and the claims described under "--Ongoing Government Investigations--The Nichols Investigation" and "--Other Government Investigations." Corning will also agree to indemnify Quest Diagnostics for 50% of the aggregate of all judgment or settlement payments made by Quest Diagnostics that are in excess of $42.0 million in respect of claims by private parties (i.e., nongovernmental parties such as private insurers) that relate to indemnified or previously settled governmental claims (such as the Damon settlement) and that allege overbillings by Quest Diagnostics or any existing subsidiaries of Quest Diagnostics, for services provided prior to the Distribution Date; provided, however, such indemnification will not exceed $25.0 million in the aggregate and that all amounts indemnified against by Corning for the benefit of Quest Diagnostics will be calculated on a net after-tax basis by taking into account any deductions and other tax benefits realized by Quest Diagnostics (or a consolidated group of which Quest Diagnostics is a member after the Distributions (the "Quest Diagnostics Group")) in respect of the underlying settlement, judgment payment, or other loss (or portion thereof) indemnified against by Corning generally at the time and to the extent such deductions or tax benefits are deemed to reduce the tax liability of Quest Diagnostics or the Quest Diagnostics Group. Corning will not indemnify Quest Diagnostics against (i) any governmental claims that arise after the Distribution Date pursuant to service of subpoena or other notice of such investigation after the Distribution Date, (ii) any nongovernmental claims unre- 62 lated to the indemnified governmental claims or investigations, (iii) any nongovernmental claims not settled prior to five years after the Distribution Date, (iv) any consequential or incidental damages relating to the billing claims, including losses of revenues and profits as a consequence of exclusion for participation in federal or state health care programs or (v) the fees and expenses of litigation. Quest Diagnostics will control the defense of any governmental claim or investigation unless Corning elects to assume such defense. However, in the case of all nongovernmental claims related to indemnified governmental claims related to alleged overbillings, Quest Diagnostics will control the defense. All disputes under the Transaction Agreement are subject to binding arbitration. See "The Distributions--Transaction Agreement." Quest Diagnostics' Reserves Quest Diagnostics' aggregate reserve with respect to all governmental and private claims, including litigation costs of approximately $6.6 million, was $215 million at September 30, 1996 and is estimated to be $85 million at the Distribution Date. The approximately $130 million reduction in the reserve is due to the subsequent payment of the Damon settlement ($119 million), the settlement of an investigation into billing of certain hematology indices (reserved at $7 million) and the settlement of a private claim (reserved at $6 million). These settlements have been or will be funded by contributions to Quest Diagnostics' capital by Corning. The $85 million reserve represents amounts for future government and private settlements of matters which are either presently pending or anticipated as a consequence of the government and private settlements and self-reported matters described above. Based on information available to management and Quest Diagnostics' experience with past settlements, especially the Damon settlement, and the fact that the aggregate amount of such settlement was significantly in excess of established reserves, management has reassessed its reserve levels and believes that its current level of reserves is adequate. However, it is possible that the additional information may become available (such as the indication by the government of criminal activity, additional tests being questioned or other changes in the government's theories of wrongdoing) which may cause the final resolution of these matters to be in excess of established reserves by an amount which could be material to Quest Diagnostics' results of operations and, for non-indemnified claims, Quest Diagnostics' cash flows in the period in which such claims are settled. While none of the governmental or nongovernmental investigations or claims is covered by insurance, Quest Diagnostics does not believe that these matters will have a material adverse effect on Quest Diagnostics' overall financial condition. Compliance Program Because of evolving interpretations of regulations and the national debate over health care, compliance with all Medicare, Medicaid and other government-established rules and regulations has become a significant concern throughout the clinical laboratory industry. Quest Diagnostics began the implementation of a compliance program early in 1993. The objective of the program is to develop aggressive and reliable compliance safeguards. Emphasis is placed on developing training programs for personnel intended to assure the strict implementation and observance of all applicable rules and regulations. Further, in-depth reviews of procedures, personnel and facilities are conducted to assure regulatory compliance throughout Quest Diagnostics. Quest Diagnostics' current compliance plan establishes a Compliance Committee of the Board and requires periodic reporting of compliance operations by management to the Compliance Committee. Such sharpened focus on regulatory standards and procedures will continue to be a priority for Quest Diagnostics in the future. Quest Diagnostics has established a comprehensive program designed to ensure that it is in compliance in all material respects with all statutes, regulations and other requirements applicable to its clinical laboratory operations. This program was publicly cited with approval by government officials at the time the Damon settlement was announced and characterized as a "model" for the industry. In addition, the government advised Quest Diagnostics representatives that Quest Diagnostics' compliance program, coupled with corrective action taken by Quest Diagnostics after its acquisition of Damon, greatly reduced the amounts of fines and penalties, and was influential in causing the OIG not to seek exclusion of Quest Diagnostics from future participation in governmental health care programs. Pursuant to the Damon settlement, Quest Diagnostics signed a five year Corporate Integrity Agreement with the OIG pursuant to which Quest Diagnostics will, among other things, maintain its corporate compliance program, make certain changes to its test order forms, provide certain additional notices to ordering physicians, provide to the OIG data on certain test ordering patterns, adopt certain pricing guidelines, audit laboratory operations, deliver annual reports on compliance activities, and investigate and report instances of noncompliance, including any corrective actions and disciplinary steps. Importantly, the agreement gives Quest Diagnostics the opportunity to cure any asserted breaches and to otherwise initiate corrective actions, which Quest Diagnostics believes should help to avoid enforcement actions outside of the process provided in the agreement. The agreement gives Quest Diagnostics the opportunity to obtain clearer guidance on matters of compliance and to resolve compliance issues directly with the OIG. Quest Diagnostics has been advised that its principal competitors will be obliged to execute similar agreements at the conclusion of investigations pending against them and that the OIG will likely publish to the clinical laboratory testing industry a guideline on the essential elements of a satisfactory compliance program. This latter step may help create a fairer competitive environment for Quest Diagnostics. None of the undertakings included in the agreement is expected to have any material adverse affect on Quest Diagnostics' business, financial condition, results of operations and prospects. The clinical laboratory testing industry is, however, subject to extensive regulation. Quest Diagnostics believes that it is in all material respects in compliance with all applicable statutes and regula- 63 tions. However, there can be no assurance that any statutes or regulations might not be interpreted or applied by a prosecutorial, regulatory or judicial authority in a manner that would adversely affect Quest Diagnostics. Potential sanctions for violation of these statutes and regulations include significant fines and the loss of various licenses, certificates and authorizations. Insurance Quest Diagnostics maintains liability insurance (subject to maximum limits and self-insured retentions) for claims, which may be substantial, that could result from providing or failing to provide clinical laboratory testing services, including inaccurate testing results. While there can be no assurance that coverage will be adequate to cover all future exposure, management believes that the present levels of coverage are adequate to cover currently estimated exposures. Although Quest Diagnostics believes that it will be able to obtain adequate insurance coverage in the future at acceptable costs, there can be no assurance that Quest Diagnostics will be able to obtain such coverage or will be able to do so at an acceptable cost or that Quest Diagnostics will not incur significant liabilities in excess of policy limits. Employees At September 30, 1996, Quest Diagnostics employed approximately 18,700 people. These include approximately 16,500 full-time employees and approximately 2,200 part-time employees. Quest Diagnostics has no collective bargaining agreements with any unions and believes that its overall relations with its employees are good. Seasonality During the summer months, year-end holiday periods and other major holidays, volume of testing declines, reducing net revenues and resulting cash flows below annual averages during the third and fourth quarters each year. Winter months are also subject to declines in testing volume due to inclement weather. As a result, comparisons of the results of successive quarters may not accurately reflect trends or results for the full year. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview." Properties Quest Diagnostics' principal laboratories (listed alphabetically by state) are located in the following metropolitan areas:
Location Type of Laboratory Leased or Owned - -------- ------------------ --------------- Phoenix, Arizona Regional Leased San Diego, California Regional Leased San Juan Capistrano, California Esoteric Owned Denver, Colorado Regional Leased New Haven, Connecticut Regional Owned Miami, Florida Branch Leased Tampa, Florida Regional Leased Atlanta, Georgia Regional Leased Chicago, Illinois Regional Leased Indianapolis, Indiana Branch Leased Baltimore, Maryland Regional Owned Boston, Massachusetts Regional Owned subject to put/call with option to lease Detroit, Michigan Regional Leased Grand Rapids, Michigan Branch Leased Kansas City, Missouri Branch Leased St. Louis, Missouri Regional Leased Billings, Montana Branch Leased Lincoln, Nebraska Regional Managed (hospital) Teterboro, New Jersey/New York, New York Regional Owned Albuquerque, New Mexico Branch Leased Buffalo, New York Branch Owned Long Island, New York Branch Leased Cleveland, Ohio Branch Owned Columbus, Ohio Branch Leased Portland, Oregon Regional Leased Erie, Pennsylvania Branch Leased by joint venture Philadelphia, Pennsylvania Regional Leased Pittsburgh, Pennsylvania Regional Leased Nashville, Tennessee Branch Owned Dallas, Texas Regional Leased El Paso, Texas Branch Leased Salt Lake City, Utah Branch Leased
64 Quest Diagnostics executive offices are located in Teterboro, New Jersey in the building that serves as Quest Diagnostics' regional laboratory in the New York City metropolitan area. Quest Diagnostics owns its branch laboratory facility in Mexico City. Quest Diagnostics believes that, in general, its laboratory facilities are suitable and adequate for its current and anticipated future levels of operation. Quest Diagnostics believes that if it were unable to renew the lease on any of its testing facilities, it could find alternative space at competitive market rates and relocate its operations to such new locations. Legal Proceedings In addition to the investigations described in "--Government Investigations and Related Claims," Quest Diagnostics is involved in various legal proceedings arising in the ordinary course of business. Some of the proceedings against Quest Diagnostics involve claims that are substantial in amount. Although it is not feasible to predict the outcome of such proceedings or any claims made against Quest Diagnostics, it does not anticipate that the ultimate liability of such proceedings or claims will have a material adverse effect on Quest Diagnostics' financial position or results of operations as they primarily relate to professional liability for which Quest Diagnostics believes it has adequate insurance coverage. Quest Diagnostics maintains professional liability insurance for its professional liability claims. See "--Insurance." IMPORTANT FACTORS REGARDING FORWARD LOOKING STATEMENTS Quest Diagnostics wishes to caution investors that the following factors are hereby identified as important factors that could cause Quest Diagnostics' actual financial results to differ materially from those projected, forecast, estimated, or budgeted by Quest Diagnostics in forward-looking statements. (a) Heightened competition, including the intensification of price competition. See "Risk Factors--Intense Competition." (b) Impact of changes in payor mix, including the shift from traditional, fee-for-service medicine to managed-cost health care. See "Risk Factors--Role of Managed Care." (c) Adverse actions by governmental or other third-party payors, including unilateral reduction of fee schedules payable to Quest Diagnostics. (d) The impact upon Quest Diagnostics' collection rates or general or administrative expenses resulting from compliance with Medicare administrative policies, including specifically the recent requirements of Medicare carriers to provide diagnosis codes for commonly ordered tests and the policy of HCFA to limit Medicare reimbursement for tests contained in automated chemistry panels to the amount that would have been paid if only the covered tests, determined on the basis of demonstrable "medical necessity," had been ordered. See "Risk Factors--Reliance on Medicare/Medicaid Reimbursements" and "Risk Factors--Government Regulation." (e) Adverse results from pending governmental investigations, including in particular significant monetary damages and/or exclusion from the Medicare and Medicaid programs and/or other significant litigation matters. Also, the absence of indemnification from Corning for private claims unrelated to the indemnified governmental claims or investigations and for private claims that are not settled within five years of the Distribution Date. See "Risk Factors--Government Investigations and Related Claims." (f) Failure to obtain new customers, retain existing customers or reduction in tests ordered or specimens submitted by existing customers. (g) Inability to obtain professional liability insurance coverage or a material increase in premiums for such coverage. (h) Denial of CLIA certification or other licensure of any of Quest Diagnostics' clinical laboratories under CLIA, by HCFA for Medicare and Medicaid programs or other federal, state and local agencies. See "Risk Factors--Government Regulation." (i) Adverse publicity and news coverage about Quest Diagnostics or the clinical laboratory industry. (j) Computer or other system failures that affect the ability of Quest Diagnostics to perform tests, report test results or properly bill customers. See "Risk Factors--Billing." (k) Development of technologies that substantially alter the practice of laboratory medicine. 65 Management Management Directors. Certain information with respect to the persons who will serve as directors of Quest Diagnostics following the Distributions is set forth below. Prior to the closing of the Offering and the Quest Diagnostics Spin-Off Distribution, one of the current directors will resign and the prospective directors listed below will be elected. As provided in the certificate of incorporation (the "Certificate"), the board of directors (the "Board") will be divided into three classes effective upon the Distributions and one class of the Board will be elected for a three-year term at each annual meeting of stockholders. Included in the information set forth below are the names of the directors of each class. The term for which each director will initially be elected has not yet been determined. Quest Diagnostics is contemplating the selection of additional independent directors, which selection may occur prior to the Distributions. Quest Diagnostics does not intend to hold an annual meeting of stockholders until the Spring of 1998. Name Age Kenneth W. Freeman 46 Van C. Campbell 58 David A. Duke 61 Gail R. Wilensky 53 Kenneth W. Freeman was elected President and Chief Executive Officer of Quest Diagnostics in May 1995 and has been a director of Quest Diagnostics since July 1995. Prior to 1995, he served in a variety of key financial and managerial positions at Corning, which he joined in 1972. He was elected controller and a vice president of Corning in 1985, senior vice president in 1987, and general manager of the Science Products Division in 1989. He was appointed president and chief operating officer of Corning Asahi Video Products Company in 1990. In 1993, he was elected executive vice president. Van C. Campbell is the Vice Chairman of Corning, which he joined in 1964. He was elected assistant treasurer in 1971, treasurer in 1972, a vice president in 1973, financial vice president in 1975 and senior vice president for finance in 1980. He became general manager of the Consumer Products Division in 1981. Mr. Campbell was elected vice chairman and a director in 1983 and during 1995 was appointed to the additional position of chairman of Corning Life Sciences, Inc. He is a director of Armstrong World Industries, Inc. and General Signal Corporation. Mr. Campbell has been a director of Quest Diagnostics since January 1991. David A. Duke is a Retired Vice Chairman of Corning. Dr. Duke joined Corning in 1962 and served in a succession of research and management positions. He was elected vice president--Telecommunications Products in 1980, elected a senior vice president in 1984 and named director of Research and Development in 1985. He became responsible for Engineering in March 1987 and was elected as a director and Vice Chairman of Corning in 1988. He resigned as a director of Corning in April 1996 and retired in June 1996. Dr. Duke is a director of Armco, Inc. Dr. Duke was a director of Quest Diagnostics from October 1994 to July 1996 and was re-elected a director of Quest Diagnostics in October 1996. Gail R. Wilensky is the John M. Olin Senior Fellow at Project HOPE, an international non-profit health foundation, which she joined in 1993. She is currently the chair of the Physician Payment Review Commission which advises Congress on physician payment and other Medicare issues. In 1992 and 1993, Dr. Wilensky served as a deputy assistant to the President for policy development relating to health and welfare issues. From 1990 to 1992, she was the administrator of the Health Care Financing Administration where she directed the Medicare and Medicaid programs. Dr. Wilensky is a director of Advance Tissue Sciences Inc., Capstone Pharmacy Inc., Coram Healthcare Corp., Neopath Inc., St. Jude Medical Corp., SMS Corporation, Syncor Corporation and United Healthcare Corporation. Directors' Compensation. Each director of Quest Diagnostics, other than a director who is an employee of Quest Diagnostics, will receive $18,000 annually for service as a director and will also be paid $1,000 for each meeting of the Board and $500 for each meeting of any committee thereof which he or she attends. In addition, directors serving as committee chairs would receive an additional annual retainer of $1500. Quest Diagnostics has adopted, effective the Distribution Date, a deferred compensation plan for directors pursuant to which each director may elect to defer until a date specified by him receipt of all or a portion of his compensation. Such plan provides that amounts deferred may be allocated to (i) a cash account upon which amounts deferred may earn interest, compounded quarterly, at the base rate of Citibank, N.A. in effect on certain specified dates, (ii) a market value account, the value of which will be based upon the market value of Quest Diagnostics Common Stock from time to time, or (iii) a combination of such accounts. All non-employee directors will be eligible to participate in the plan. 66 Quest Diagnostics has adopted, effective the Distribution Date, a restricted stock plan for non-employee directors, pursuant to which Quest Diagnostics will issue to each non-employee director elected 750 shares of Quest Diagnostics Common Stock for each year specified in the term of service for which such director was elected, subject to forfeiture and restrictions on transfer, and 5,000 shares upon such director's election, subject to forfeiture and restrictions on transfer. Committees of the Board of Directors. Prior to the Distributions, the Board is expected to establish and designate specific functions and areas of oversight to an Audit and Finance Committee, a Compensation Committee ("Compensation Committee") and a Compliance Committee. The Audit and Finance Committee will examine and consider matters relating to the financial affairs of Quest Diagnostics, including reviewing Quest Diagnostics' annual financial statements, the scope of the independent and internal audits and the independent auditor's letter to management concerning the effectiveness of Quest Diagnostics' internal financial and accounting controls. The Compensation Committee will make recommendations to the Board with respect to programs for human resource development and management organization and succession, determine senior executive compensation, make recommendations to the Board with respect to compensation matters and policies and employee benefit and incentive plans, administer such plans, and administer Quest Diagnostics' stock option and equity based plans and grant stock options and other rights under such plans. The Compliance Committee will oversee Quest Diagnostics' compliance program, which is administered by management's compliance council. The council will prepare for review and action by the Compliance Committee reports on such matters as audits and investigations. See "Business--Compliance Program." Executive Officers. In addition to Mr. Freeman, the following persons will serve as executive officers of Quest Diagnostics after the Distributions: Robert A. Carothers (60) will become Vice President and Chief Financial Officer at the Distribution Date. Mr. Carothers joined Corning in 1959 and has served in a number of key financial positions in the United States and Japan. He was elected Assistant Controller in 1991. In January 1996 he was appointed Assistant to the President of Quest Diagnostics. James D. Chambers (40) is Vice President-Billing. Mr. Chambers joined Corning in 1986 and has served in a variety of managerial and financial positions for Corning and its subsidiaries, becoming Assistant Treasurer in 1991. Mr. Chambers joined Quest Diagnostics in 1992 as Treasurer and served as Chief Financial Officer from 1994 through 1995. In 1995 Mr. Chambers assumed his current responsibilities overseeing Quest Diagnostics' billing process. At the Distribution Date, Mr. Chambers will also assume responsibility for investor relations. Gregory C. Critchfield, M.D. (45) is Senior Vice President, and Chief Medical and Science Officer. Dr. Critchfield joined Quest Diagnostics in 1995 as Chief Laboratory Officer and assumed his current responsibilities in May 1996. Dr. Critchfield has served as a consultant to the National Institutes of Health in the capacity of a reviewer for more than ten years and was selected as Study Section Chair of several Multidisciplinary Review Teams during the last two years. Prior to joining Quest Diagnostics, Dr. Critchfield was a clinical pathologist with Intermountain Health Care ("IHC") for eight years and served in various director positions with IHC Laboratory Services, including Director of Clinical Pathology. Dr. Critchfield also served as Chairman of the Department of Pathology at Utah Valley Regional Medical Center from 1994 through 1995. Kurt R. Fischer (41) is Vice President-Human Resources. Mr. Fischer joined Corning in 1976 and has served in a variety of Human Resources positions. He was appointed Human Resource Manager for the Research, Development and Engineering Group in 1986 and Director-Quality and Performance Management for the Specialty Materials Group in 1991. Mr. Fischer assumed his present responsibilities with Quest Diagnostics in December 1995. Delbert A. Fisher, M.D. (68) is Vice President of Corning Nichols Institute and currently serves as President of its Academic Associates, a select group of eminent physicians and scientists who advise the company on new medical and scientific developments. Dr. Fisher joined Nichols Institute in 1991 as President of its esoteric laboratory facility and assumed his present responsibilities in 1993. Prior to joining Nichols, he was a professor of pediatrics and the Associate Chairman of the Department of Pediatrics of the UCLA School of Medicine for 23 years. Raymond Gambino, M.D. (70) is Chief Medical Officer Emeritus. Dr. Gambino joined Quest Diagnostics in 1983 as President of the Eastern Region. From 1984 to 1994, Dr. Gambino served as Chief Medical Officer and Executive Vice President, at which time his appointment was changed to emeritus. He continues to serve Quest Diagnostics as a senior medical advisor. Don M. Hardison, Jr. (45) is Senior Vice President-Sales and Marketing, with overall responsibility for all commercial activities. Mr. Hardison joined Quest Diagnostics in January 1996. Prior to joining Quest Diagnostics, Mr. Hardison had 18 years experience in health care with subsidiaries of SmithKline Beecham and its predecessor entities, including seven years with the clinical laboratory division of SmithKline, where he held a succession of positions including Director of Marketing; Vice President of Sales-Northern; Vice President-General Manager of the Atlanta Operation; and Vice President of Sales and Marketing. 67 Paul A. Krieger, M.D. (50) is Vice President-Anatomic Pathology. Dr. Krieger joined Quest Diagnostics in 1975 and served as Vice President, Director of Anatomic Pathology at Quest Diagnostics' regional laboratory in Teterboro, New Jersey until 1995, when he was appointed to his present position. Concurrent with his employment with Quest Diagnostics, Dr. Krieger has served as an Adjunct Assistant Professor at the College of Physicians and Surgeons of Columbia University. Raymond C. Marier (51) is Vice President, Secretary and General Counsel. Mr. Marier joined Corning's Legal Department in 1973 as an Assistant Counsel, where he worked with a number of Corning's operating units, including its Medical and Science Products Divisions. He has held his present position since 1992. C. Kim McCarthy (41) is Vice President-Compliance and Government Affairs. Ms. McCarthy joined Quest Diagnostics in 1987 as Director of Federal Government Affairs and Legislative Counsel. She became Vice President of Public Affairs of Quest Diagnostics in 1992 and Senior Vice President of Corporate Affairs in 1994. Ms. McCarthy assumed her present responsibilities in June 1996. Alister W. Reynolds (39) is Vice President-Information Technology. Mr. Reynolds joined Quest Diagnostics in 1982 and has served in a variety of staff, executive and general management positions. Mr. Reynolds assumed his current responsibilities in 1995. Douglas M. VanOort (40) will become Senior Vice President-Operations at the Distribution Date. Mr. VanOort joined Corning in 1982 and has served in various finance, analysis and control positions. He became Vice President and Chief Financial Officer of Corning's Life Sciences division in 1990, Senior Vice President-Finance and New Business Development of Corning's Life Sciences division in 1993 and Executive Vice President and Chief Financial Officer of Quest Diagnostics in 1995. Executive Compensation Historical Compensation. The following table sets forth information with respect to annual and long-term compensation expected to be paid by Quest Diagnostics and its subsidiaries to each of the chief executive officer and the four other most highly compensated executive officers (the "named executive officers") of Quest Diagnostics for services to be rendered in all capacities in fiscal year 1996 and such compensation paid or accrued during the years ended December 31, 1995 and December 31, 1994 for services rendered by each of the named executive officers. All references in the following tables to stock and stock options relate to awards of, and options to purchase, Corning Common Stock. Summary Compensation Table
Annual Compensation -------------------------------------- Name and Other Annual Principal Position Year Salary(1) Bonus(2) Compensation(3) - ------------------------- --------- --------- --------- ---------------- Kenneth W. Freeman, 1996 385,000 211,750 10,440 President and Chief 1995 316,667 249,918 7,200 Executive Officer 1994 240,000 244,634 6,900 Robert A. Carothers, 1996 250,000 136,714 1,800 Vice President and 1995 173,000 68,337 -- Chief Financial Officer 1994 165,250 84,180 -- Gregory C. Critchfield, 1996 310,000 182,900 40,909 Senior Vice President 1995(6) 70,000 122,920 -- and Chief Medical and Science Officer Don M. Hardison, Jr., 1996 260,000 159,467 2,880 Senior Vice President- Sales and Manufacturing Douglas M. VanOort, 1996 325,000 178,750 2,880 Senior Vice President- 1995 251,912 56,754 7,200 Operations 1994 228,333 165,969 6,900
Long-Term Compensation ------------------------------------ Awards Payouts ------------------------- ----------- Restricted Securities Incentive Name and Stock Underlying Plan All Other Principal Position Awards(4) Options Payouts Compensation(5) - ------------------------- ------------ ------------ ----------- ---------------- Kenneth W. Freeman, -- -- -- 16,690 President and Chief 326,926 87,000 -- 14,057 Executive Officer 406,766 20,000 162,679 13,376 Robert A. Carothers, -- -- -- 8,254 Vice President and -- 16,500 -- 8,561 Chief Financial Officer -- 6,092 -- 7,557 Gregory C. Critchfield, -- 2,000 -- 65,690 Senior Vice President -- 3,000 -- 2,370 and Chief Medical and Science Officer Don M. Hardison, Jr., -- 24,000 -- 17,123 Senior Vice President- Sales and Manufacturing Douglas M. VanOort, -- -- -- 4,750 Senior Vice President- 98,626 60,000 -- 4,620 Operations 109,652 20,000 -- 4,178
(1) Reflects for 1996 current salaries on an annualized basis, including amounts deferred. (2) Reflects for 1996 projected performance-based annual cash compensation awards at target levels. (3) Includes dividends on shares of restricted stock granted but not earned within one year from date of grant and tax gross-up payments. (4) Messrs. Freeman, Carothers, Hardison and VanOort held an aggregate of 97,930, 2,500, 4,000 and 43,627 shares of restricted stock of Corning, respectively, having an aggregate value on September 30, 1996 of $3,819,270, $97,500, $156,000 and $1,701,453, respectively. Certain of such shares, net of forfeitures, were subject to performance-based 68 are subject to forfeiture conditions and transfer restrictions, except for 50% of such shares held by Mr. Freeman, will be forfeited, and in lieu thereof restricted shares and/or options to purchase shares of Quest Diagnostics Common Stock will thereafter be granted pursuant to the terms of the Quest Diagnostics Employee Equity Participation Plan (as defined below). Dividends are paid to such individuals on all shares of restricted Corning Common Stock held by them. (5) Includes the following amounts to be contributed by Quest Diagnostics to the Quest Diagnostics Profit Sharing Plan (as defined below) for 1996: $3,850 for Mr. Freeman, $4,283 for Mr. Hardison and $4,750 for Mr. VanOort. Also includes $12,840 automobile allowance received by each of Messrs. Freeman and Hardison and $9,480 for Dr. Critchfield. Also includes 50% of a $100,000 interest-free loan made by Quest Diagnostics to Dr. Critchfield together with imputed interest thereon, which loan is to be forgiven over a two-year period provided Dr. Critchfield continues to be employed by Quest Diagnostics and was made to assist Dr. Critchfield in relocating to the New Jersey area. (6) Dr. Critchfield commenced employment with Quest Diagnostics in October 1995. Option Grants. The following table sets forth certain information regarding options granted in 1995 (except for Mr. Hardison whose options were granted on February 7, 1996) to the named executive officers pursuant to Corning stock option plans. No other options were granted to the named executive officers in 1996. Employees of Quest Diagnostics who hold at the Distribution Date Corning stock options other than those granted on December 6, 1995 and February 7, 1996 will continue to hold Corning stock options following the Quest Diagnostics Spin-Off Distribution. It is anticipated that appropriate adjustments to the number of shares subject to options and to the exercise prices will be made to reflect the Quest Diagnostics Spin-Off Distribution. A portion of the options granted on December 6, 1995 and February 7, 1996 will be converted into options to purchase shares of Quest Diagnostics Common Stock ("New Options") under the Quest Diagnostics Stock Option Plan (as defined below). The remainder of the options granted on December 6, 1995 and February 7, 1996 will be cancelled. It is anticipated that such cancelled options will be replaced by options to be granted under the Quest Diagnostics Stock Option Plan. The exercise prices and the number of shares of Quest Diagnostics Common Stock subject to New Options will be determined as of the time of the Distributions so as to preserve the investment basis and intrinsic gain associated with the Corning options surrendered as of the date of the Quest Diagnostics Spin-Off Distribution. Generally, the expiration dates and the dates on which New Options are exercisable will be identical to those under the corresponding Corning options at the time of the Distributions. Certain New Options will provide that upon exercise of such option through the surrender of previously owned shares of Quest Diagnostics Common Stock, the participant will be entitled to receive options covering the same number of shares so surrendered, with an exercise price equal to the fair market value of the shares at the time of the exercise of the New Option. Option/SAR Grants in Fiscal Year 1995 (1)
Individual Grants ---------------------------------------------------- Number of % of Total Securities Options Underlying Granted Options to Employees Exercise Expiration Name Granted(2) in Fiscal Year Price Date ------------------------------ --------------------------- --------- ------------ Kenneth W. Freeman 87,000 2.6% 31.25 12/5/2005 Robert A. Carothers 1,500 0.0% 31.75 6/7/2005 15,000 0.4% 31.25 12/5/2005 Gregory C. Critchfield 3,000 0.1% 27.50 10/3/2005 Don M. Hardison, Jr. 24,000 0.7% 33.69 2/6/2006 Douglas M. VanOort 60,000 1.8% 31.25 12/5/2005 All Optionees as a Group (4) 3,389,100 100.0% 31.34 2005
Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term (3) ------------------------------------- Gain at Gain at Gain at Name 0% (4) 5% 10% ------------------------------ --------------------- ------------- Kenneth W. Freeman 0 1,709,807 4,332,987 Robert A. Carothers 0 29,951 75,902 0 294,794 747,067 Gregory C. Critchfield 0 51,884 131,484 Don M. Hardison, Jr. 0 508,499 1,288,636 Douglas M. VanOort 0 1,179,177 2,988,267 All Optionees as a Group (4) 0 66,797,662 169,278,390
(1) No SARs were granted. (2) The stock option agreements with Messrs. Freeman, Carothers (with respect to the 15,000 share grant), Hardison and VanOort provide that one-half of the options will become exercisable on February 1, 1999 and all options will become exercisable on February 1, 2000. The stock option agreement with Dr. Critchfield provides that one-half of the options will become exercisable on October 4, 1996 and all of the options will become exercisable on October 4, 1997. The stock option agreement with Mr. Carothers with respect to the 1,500 share grant provides that one-half of the options became exercisable on June 6, 1996 and all of the options will become exercisable on June 6, 1997. All such agreements also provide that an additional option may be granted when the optionee uses shares of Corning Common Stock to pay the purchase price of an option. The additional option will be exercisable for the number of shares tendered in payment of the 69 option price, will be exercisable at the then fair market value of the Corning Common Stock, will become exercisable only after the lapse of twelve months and will expire on the expiration date of the original option. (3) The dollar amounts set forth under these columns are the result of calculations at 0% and at the 5% and 10% rates established by the Commission and therefore are not intended to forecast future appreciation of Corning Common Stock. (4) No gain to the optionees is possible without an appreciation in stock price, an event which will also benefit all stockholders. If the stock price does not appreciate, the optionees will realize no benefit. Option Exercises and Fiscal Year-End Values. The following table sets forth the number of shares of Corning Common Stock covered by both exercisable and unexercisable stock options as of December 31, 1995, for the named executive officers. The named executive officers exercised no options in 1996. Aggregated Option/SAR Exercises in Fiscal Year 1995 and 1995 Fiscal Year-End Option/SAR Values (1)
Number of Securities Underlying Unexercised Value of Unexercised Options at In-the-Money Options Fiscal Year End At Fiscal Year End ------------------------------- ------------------------------- Shares Acquired Value Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable - ------------------------ --------------- ----------- -------------- ---------------- -------------- ---------------- Kenneth W. Freeman 0 0 103,500 127,000 827,784 107,500 Robert A. Carothers 0 0 12,483 15,749 0 0 Gregory C. Critchfield 0 0 0 5,000 0 10,688 Don M. Hardison, Jr. -- -- -- -- -- -- Douglas M. VanOort 0 0 11,500 88,000 19,729 55,750
(1) There are no SARs outstanding. Corporate Performance Plan Activity. Awards of performance-based shares of Corning Common Stock have been granted to Quest Diagnostics' executive officers pursuant to a series of performance-based plans (the "Corporate Performance Plan"). The Corporate Performance Plan provides the mechanisms to reward improvement in corporate performance as measured by net income, earnings per share and/or return on equity. Each year minimum, target and maximum goals are set and shares awarded (at target levels) which are subject to forfeiture in whole or in part if performance goals are not met. The percentage of awards that may be earned ranges from 0% to 150% of target. Shares earned remain subject to forfeiture and restrictions on transfer for two years following the end of the performance period. The following table sets forth the number of performance-based shares awarded under the Corporate Performance Plan. The dollar value of shares earned for 1995 is reflected in the "Restricted Stock Awards" column of the Summary Compensation Table. In late 1996, the Compensation Committee of the board of directors of Corning (the "Corning Board") will assess performance against goals, determine the number of shares earned of those granted on December 6, 1995 and February 7, 1996 and remove all possibility of forfeiture and restrictions on transfer from such shares. Corporate Performance Plan Activity Table
Number Number Number Grant of Shares Performance of Shares of Shares Vesting Date of Name Year Date Granted Period Forfeited Earned Earned Shares - ------------------------ ------ ------------------ ------------- ------------ ----------- --------------- Kenneth W. Freeman 1996 12/95 14,500 1996 2/99 1995 12/94 10,000 1995 10,740 2/98 1994 12/93 10,000 1994 14,690 2/97 Robert A. Carothers 1996 12/95 2,500 1996 2/99 1995 0 1994 0 Gregory C. Critchfield 1996 0 1995 0 Don M. Hardison, Jr. 1996 2/96 4,000 1996 2/99 Douglas M. VanOort 1996 12/95 10,000 1996 2/99 1995 12/94 10,000 1995 6,760 3,240 2/98 1994 12/93 4,000 1994 40 3,960 2/97
70 Variable Compensation. Quest Diagnostics has adopted, effective upon the Distributions, a variable compensation plan (the "Plan"), an annual incentive cash compensation plan for approximately 950 supervisory, management and executive employees similar to an annual performance plan currently maintained by Quest Diagnostics. The terms of the Plan are as follows. The performance-based annual cash incentive awards payable under the Plan will be grounded in financial goals such as net income, cash flow, operating margin, return on equity, or earnings per share, or a combination thereof, and quantifiable non-financial goals. Each participant will be assigned a target award, as a percentage of base salary in effect at the end of the performance year for which the target is set, payable if the target is achieved. Actual results will be compared to the scale of targets with each gradation of desired result corresponding to a percentage, which will be multiplied by the employee's assigned target award. If the actual result is below target, awards will be less than target, down to a point below which no awards are earned. If the desired result is above target, awards will be greater than target, up to a stated maximum award. The maximum award assigned to the chief executive officer may not exceed 200% of base salary in effect on the date the Compensation Committee sets the target for the performance year. The Compensation Committee retains the right to reduce any award if it believes individual performance does not warrant the award calculated by reference to the result. Employee Equity Participation Program. Quest Diagnostics has adopted, effective upon the Distributions, the Employee Equity Participation Program (the "Program") consisting of two plans: (a) a stock option plan (the "Quest Diagnostics Stock Option Plan") and (b) an incentive stock plan (the "Quest Diagnostics Incentive Stock Plan"). The Program is designed to provide a flexible mechanism to permit key employees of Quest Diagnostics and of any subsidiary to obtain significant equity ownership in Quest Diagnostics, thereby increasing their proprietary interest in the growth and success of Quest Diagnostics. The Program, which will be administered by the Compensation Committee, provides for the grant to eligible employees of either non-qualified or "incentive stock" options, or both, to purchase shares of Quest Diagnostics Common Stock at no less than fair market value on the date of grant. The Compensation Committee may also provide that options may not be exercised in whole or in part for any period or periods of time; provided, however, that no option will be exercisable until at least twelve months from the date of grant. All options shall expire not more than ten years from the date of grant. Options will not be assignable or transferable except for limited circumstances on death. During the lifetime of the employee an option may be exercised only by him. The option price is payable upon exercise. The optionee may pay the option price in cash or with shares of Quest Diagnostics Common Stock owned by him. The optionee will have no rights as a stockholder with respect to the shares subject to option until shares are issued upon exercise of the option. The Compensation Committee may grant options pursuant to which an optionee who uses shares of Quest Diagnostics Common Stock to pay the purchase price of an option will receive automatically on the date of exercise an additional option to purchase shares of Quest Diagnostics Common Stock. Such additional option will cover the number of shares tendered in payment of the option price, will be exercisable at the then fair market value of Quest Diagnostics Common Stock, will become exercisable only after the lapse of twelve months and will expire no later than the expiration date of the original option. The Program also authorizes the Compensation Committee to award to eligible employees shares, or the right to receive shares, of Quest Diagnostics Common Stock, the equivalent value in cash or a combination thereof (as determined by the Compensation Committee). The Compensation Committee shall determine the number of shares which are to be awarded to individual employees and the number of rights covering shares to be issued upon attainment of predetermined performance objectives for specified periods. The shares awarded directly to individual employees may be made subject to certain restrictions prohibiting sale or other disposition and may be made subject to forfeiture in certain events. Shares may be issued to recognize past performance either generally or upon attainment of specific objectives. Shares issuable for performance (based upon specific predetermined objectives) will be payable only to the extent that the Compensation Committee determines that an eligible employee has met such objectives and will be valued as of the date of such determination. Upon issuance, such shares may (but need not) be made subject to the possibility of forfeiture or certain restrictions on transfer. Key executive, managerial and technical employees (including officers and employees who are directors) of Quest Diagnostics and of any subsidiary will be eligible to participate in the Program and the plans thereunder. The selection of employees eligible to participate in any plan under the Program is within the discretion of the Compensation Committee. Approximately 150 employees would have been eligible to participate in the plans under the Program had the Program been in effect in 1996. Under the Program, the maximum number of shares of Quest Diagnostics Common Stock which may be optioned or granted to eligible employees will be 3,000,000. Shares from expired or terminated options under the Quest Diagnostics Stock Option Plan will be available again for option grant under the Program. Shares which are issued but not earned, or which are forfeited under the Quest Diagnostics Incentive Stock Plan, will be available again for issuance under the Program. The Program provides for appropriate adjustments in the aggregate number of shares subject to the Program and in the number of shares and the price per share, or either, of outstanding options in the case of changes in the capital stock of Quest Diagnostics resulting from any recapitalization, stock or unusual cash dividend, stock distribution, stock split or any other increase or decrease effected without receipt of consideration by Quest Diagnostics, or a merger or consolidation in which Quest Diagnostics is the surviving corporation. 71 The Program has a term of five years and no shares may be optioned or awarded and no rights to receive shares may be granted after the expiration of the Program. The Board is authorized to terminate or amend the Program, except that it may not increase the number of shares available thereunder, decrease the price at which options may be granted, change the class of employees eligible to participate, or extend the term of the Program or options granted thereunder without the approval of the holders of a majority of the outstanding shares of Quest Diagnostics Common Stock. Quest Diagnostics believes that the federal income tax consequences of the Program are as follows. An optionee who exercises a non-qualified option granted under the Quest Diagnostics Stock Option Plan will recognize compensation taxable as ordinary income (subject to withholding) 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 Quest Diagnostics or the subsidiary employing the optionee will be entitled to a deduction from income in the same amount. The optionee's basis in such shares will be increased by the amount taxable as compensation, and his capital gain or loss when he disposes of the shares will be calculated using such increased basis. If all applicable requirements of the Code with respect to incentive stock options are met, no income to the optionee will be recognized and no deduction will be allowable to Quest Diagnostics at the time of the grant or exercise of an incentive stock option. The excess of the fair market value of the shares at the time of exercise of an incentive stock option over the amount paid is an item of tax preference which may be subject to the alternative minimum tax. In general, if an incentive stock option is exercised three months after termination of employment, the optionee will recognize 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 Quest Diagnostics or the subsidiary employing the optionee will be entitled to a deduction in the same amount. If the shares acquired subject to the option are sold within one year of the date of exercise or two years from the date of grant, the optionee will recognize ordinary income in an amount equal to the difference between the option price and the lesser of the fair market value of the shares on the date of exercise or the sale price and Quest Diagnostics or the employing subsidiary will be entitled to a deduction from income in the same amount. Any excess of the sale price over the fair market value on the date of exercise will be taxed as a capital gain. Shares of Quest Diagnostics Common Stock which are not subject to restrictions and possibility of forfeiture and which are awarded to an employee under the Quest Diagnostics Incentive Stock Plan will be treated as ordinary income, subject to withholding, to an employee at the time of the transfer of the shares to him and the value of such awards will be deductible by Quest Diagnostics or by the subsidiary employing the employee at the same time in the same amount. Shares granted subject to restrictions and possibility of forfeiture will not be subject to tax nor will such grant result in a tax deduction for Quest Diagnostics at the time of award. However, when such shares become free of restrictions and possibility of forfeiture, the fair market value of such shares at that time (i) will be treated as ordinary income to the employee and (ii) will be deductible by Quest Diagnostics or by the subsidiary employing the employee. The tax treatment upon disposition of shares acquired under the Program will depend upon how long the shares have been held and on whether or not the shares were acquired by exercising an incentive stock option. There are no tax consequences to Quest Diagnostics upon a participant's disposition of shares acquired under the Program, except that Quest Diagnostics may take a deduction equal to the amount the participant must recognize as ordinary income in the case of the disposition of shares acquired under incentive stock options before the applicable holding period has been satisfied. Pension Plans. None of the executive officers of Quest Diagnostics is currently an active participant in a qualified defined benefit plan of Quest Diagnostics. Prior to June 1, 1995, December 1, 1996 and January 1, 1995, respectively, Messrs. Freeman, Carothers and VanOort were eligible to participate in, and accrue benefits under, Corning's Salaried Pension Plan (the "Corning Salaried Pension Plan"), a defined benefit plan, contributions to which are determined by Corning's actuaries and are not made on an individual basis. Benefits paid under this plan are based upon career earnings (regular salary and cash awards paid under Corning's variable compensation plans) and years of credited service. The Corning Salaried Pension Plan provides that salaried employees of Corning who retire on or after December 31, 1993 will receive pension benefits equal to the greater of (a) benefits provided by a formula pursuant to which they shall receive for each year of credited service an amount equal to 1.5% of annual earnings up to the social security wage base and 2% of annual earnings in excess of such base or (b) benefits calculated pursuant to a formula which provides that retirees will receive for each year of credited service prior to January 1, 1994 an amount equal to 1% of the first $24,000 of average earnings for the highest five consecutive years of annual earnings in the ten years of credited service immediately prior to 1994 and 1.5% of such average earnings in excess of $24,000. Effective upon commencement of employment, salaried employees may contribute to the Corning Salaried Pension Plan 2% of their annual earnings up to the social security wage base. Such employees will receive for each year of credited service after December 31, 1990, in lieu of the amount described in (a) above, an amount equal to 2% of annual earnings. The benefit formula is reviewed and adjusted periodically for inflationary and other factors. 72 Corning maintains a non-qualified Executive Supplemental Pension Plan (the "Executive Supplemental Plan") pursuant to which it will pay to certain executives amounts approximately equal to the difference between the benefits provided for under the Corning Salaried Pension Plan and benefits which would have been payable thereunder but for the provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). It is anticipated that, prior to the Distribution Date, the Compensation Committee of the Corning Board will adopt a transferee supplemental pension plan (the "Transferee Supplemental Plan"), a nonqualified, unfunded defined benefit plan for the benefit of key employees and executive officers of Quest Diagnostics who are former employees of Corning, including Messrs. Freeman and VanOort, effective immediately after the Distribution Date. The Transferee Supplemental Plan will provide benefits approximately equal to the difference between the benefits provided for under the Corning Salaried Pension Plan and the Executive Supplemental Plan and benefits which would have been payable thereunder but for the termination of employment with Corning of such employees. Maximum annual benefits calculated under the straight life annuity option form of pension payable to participants at age 65, the normal retirement age specified in the Corning Salaried Pension Plan, are illustrated in the table set forth below. The table below does not reflect any limitations on benefits imposed by ERISA. It is estimated that Messrs. Freeman and VanOort, who have 25 and 15 years of credited service, respectively, would receive each year if they worked to age 65, the normal retirement age specified in the Corning Salaried Pension Plan, $256,170 and $165,332, respectively, under the Corning Salaried Pension Plan, the Executive Supplemental Plan and the Transferee Supplemental Plan.
Years of Service ---------------------------------------------------------------- Remuneration 15 20 25 30 35 40 - ------------ --------- --------- --------- --------- --------- ---------- $ 100,000 20,500 27,300 34,100 41,000 47,800 55,300 200,000 43,000 57,300 71,600 86,000 100,300 115,300 300,000 65,500 87,300 109,100 131,000 152,800 175,300 400,000 88,000 117,300 146,600 176,000 205,300 235,300 500,000 110,500 147,300 184,100 221,000 257,800 295,300 600,000 133,000 177,300 221,600 266,000 310,300 355,300 700,000 155,500 207,300 259,100 311,000 362,800 415,300 800,000 178,000 237,300 296,600 356,000 415,300 475,300 900,000 200,500 267,300 334,100 401,000 467,800 535,300 1,000,000 223,000 297,300 371,600 446,000 520,300 595,300 1,100,000 245,500 327,300 409,100 491,000 572,800 655,300 1,200,000 268,000 357,300 446,600 536,000 625,300 715,300
Quest Diagnostics Profit Sharing Plan. Most of the employees of Quest Diagnostics and its subsidiaries have been eligible to participate in a tax-qualified, defined contribution plan known as the Quest Diagnostics Profit Sharing Plan (the "Quest Diagnostics Profit Sharing Plan"), which provides for investment of employee contributions, including tax-deferred contributions under Section 401(k) of the Code, and matching contributions made by their employers, in several investment funds, including Corning Common Stock, at the employees' discretion. Effective as of the Distribution Date, Quest Diagnostics Common Stock will be added as an investment fund and a portion of the employer matching contributions will automatically be invested in Quest Diagnostics Common Stock. Corning Common Stock will no longer be available as an investment fund except with respect to amounts already so invested under the Quest Diagnostics Profit Sharing Plan. Effective as of the Distribution Date, the Quest Diagnostics Profit Sharing Plan will be amended to permit participating employees' employers to make discretionary contributions, other than matching contributions, to the Quest Diagnostics Profit Sharing Plan for the benefit of such employees, which contributions may be invested in Quest Diagnostics Common Stock. Quest Diagnostics Employee Stock Ownership Plan. Quest Diagnostics has adopted, effective upon the Distributions, an employee stock ownership plan, as defined in Section 4975(e)(7) of the Code and related regulations and intended to qualify as a retirement plan under Section 401(a) of the Code, to be known as the Quest Diagnostics Employee Stock Ownership Plan (the "Quest Diagnostics ESOP"). Most employees of Quest Diagnostics and its subsidiaries will become participants in the Quest Diagnostics ESOP after accruing six months of service. To the extent permitted under the Quest Diagnostics ESOP, Quest Diagnostics will contribute as of the Distribution Date an amount equal to a portion of each participating employee's annual compensation. Quest Diagnostics may in its discretion from time to time make additional contributions to the Quest Diagnostics ESOP for the benefit of participating employees. The assets of the Quest Diagnostics ESOP will be invested primarily in shares of Quest Diagnostics Common Stock. 73 Amounts contributed to the Quest Diagnostics ESOP for the benefit of participating employees will be 100% vested at age 65, the normal retirement age specified in the Quest Diagnostics ESOP, or at death, disability or termination of employment following completion of two years of credited service. Contributions to the Quest Diagnostics ESOP will not currently be taxable income to the participating employees and will not generally be available to them until termination of employment. Employee Stock Purchase Plan. Quest Diagnostics has adopted, as of the Distribution Date, the Employee Stock Purchase Plan (the "Quest Diagnostics Stock Purchase Plan"), pursuant to which Quest Diagnostics may make available for sale to employees shares of its Common Stock at a price equal to 85% of the market value on the first or last day of each calendar quarter, whichever is lower. The Quest Diagnostics Stock Purchase Plan, which will be administered by the Compensation Committee, is designed to give eligible employees (generally, employees of Quest Diagnostics and its subsidiaries) the opportunity to purchase shares of Quest Diagnostics Common Stock through payroll deductions up to 10% of compensation in a series of quarterly offerings commencing January 1, 1997, and ending no later than December 31, 2001. Any eligible employee may elect to participate in the Quest Diagnostics Stock Purchase Plan on a quarterly basis and may terminate his payroll deduction at any time or increase or reduce prospectively the amount of his deduction at the beginning of any calendar quarter. At the end of each calendar quarter, a participating employee will purchase shares of Quest Diagnostics Common Stock with the funds deducted. The number of shares purchased will be a number determined by dividing the amount withheld by the lower of 85% of the closing price of a share of Quest Diagnostics Common Stock as reported in The Wall Street Journal on the first or last business day of the particular calendar quarter. An employee will have no interest in any shares of Quest Diagnostics Common Stock until such shares are actually purchased by him. Under the Quest Diagnostics Stock Purchase Plan, the maximum number of shares of Quest Diagnostics Common Stock which may be purchased by eligible employees will be 2,000,000 shares, subject to adjustment in the case of changes in the capital stock of Quest Diagnostics resulting from any recapitalization, stock dividend, stock split or any other increase or decrease effected without receipt of consideration by Quest Diagnostics. The Quest Diagnostics Stock Purchase Plan has a term of five years and no shares of Quest Diagnostics Common Stock may be offered for sale or sold under the Quest Diagnostics Stock Purchase Plan after the fifth anniversary of the effective date. The Board is authorized to terminate or amend the Quest Diagnostics Stock Purchase Plan, except that it may not increase the number of shares of Quest Diagnostics Common Stock available thereunder, decrease the price at which such shares may be offered for sale or change the designation of subsidiaries eligible to participate in the plan without the approval of the holders of a majority of the shares of the capital stock of Quest Diagnostics cast at a meeting at which such matter is considered. Employment Agreements; Severance Arrangements. It is anticipated that Mr. Freeman will enter into an employment agreement with Quest Diagnostics. The agreement will expire on or before December 31, 1999. The agreement will include provisions for an annual salary of no less than $500,000, with increases subject to the discretion of the Quest Diagnostics Board; annual target participation in the Variable Compensation Plan of Quest Diagnostics in amounts no less than 65% of annual salary in effect at the time performance goals are established; and severance payments following a termination by Mr. Freeman for "Good Reason" or by Quest Diagnostics, without cause in accordance with the severance policy described below, except that Mr. Freeman will receive three times his base annual salary and three times his annual award of variable compensation. "Good Reason" is defined as assignment of Mr. Freeman without his consent to mutually inconsistent duties or responsibilities, a failure to re-elect Mr. Freeman to the position of President and Chief Executive Officer, a greater than 75 mile office relocation without his consent and a Change of Control (as detailed in the next paragraph). The agreement will also include provision for reimbursement of up to $10,000 per month until the earlier of Mr. Freeman's obtaining suitable housing in the New York metropolitan area or June 30, 1998; eligibility for a $400,000 interest-free relocation loan to be forgiven over a five-year period; and, in the event the agreement is not renewed upon its expiration, a payment equal to two times the highest annual cash compensation paid to Mr. Freeman during the term of the agreement and health benefits for eighteen months following expiration of the agreement. Mr. Freeman will also be entitled under the agreement to a retirement pension benefit equivalent to benefits under the Corning Salaried Pension Plan and the Executive Supplemental Plan based on not less than 34 years of credited service in the event of termination for reasons other than cause. Mr. Freeman's pension benefits will be initially secured by a $5.4 million letter of credit (such amount based on initial assumptions for pricing pension benefits) issued under the Credit Facility. 74 On or before the Distribution Date, Quest Diagnostics will adopt a severance policy pursuant to which it will provide to each executive officer other than Mr. Freeman and Drs. Fisher and Gambino upon the termination of employment by Quest Diagnostics, other than for cause upon a determination that the business needs of Quest Diagnostics require the replacement of such executive officer and other than in connection with a change of control, compensation equal to two times the executive officer's base annual salary at the annual rate in effect on the date of termination and two times the annual award of variable compensation at the most recent target level. Such executive officer will also be entitled to participate in Quest Diagnostics' health and benefits plans (to the extent permitted by the administrative provisions of such plans and applicable federal and state law) for a period of up to two years or until such officer is covered by a successor employer's benefit plans, whichever first occurs. Pursuant to such policy, upon a change of control Quest Diagnostics will provide to each such executive officer upon the termination of employment by Quest Diagnostics, other than for cause during the twelve months following a change in control, compensation equal to three times annual base salary and three times the award of annual variable compensation at the most recent target level and such officer will be entitled to participate in Quest Diagnostics' health and benefit plans for a period of up to three years or until such officer is covered by a successor employer's benefits plans, whichever first occurs (to the extent permitted by the administrative provisions of such plans and applicable federal and state law). A "Change in Control" is defined in the policy to include the following: the acquisition by a person of 20% or more of the voting stock of Quest Diagnostics; the membership of the Board changes as a result of a contested election such that a majority of the Board members at any particular time were initially placed on the Board as a result of such contested election; or approval by Quest Diagnostics' stockholders of a merger or consolidation in which Quest Diagnostics is not the survivor thereof, or a sale or disposition of all or substantially all of Quest Diagnostics' assets or a plan of partial or complete liquidation. 75 Security Ownership by Certain Beneficial Owners and Management All of the outstanding shares of Quest Diagnostics Common Stock are currently held by Corning Life Sciences Inc., which is wholly owned by Corning. The following table sets forth the number of shares of Quest Diagnostics Common Stock that are projected to be beneficially owned after the Quest Diagnostics Spin-Off Distribution by the directors, by the named executive officers and by all directors and executive officers of Quest Diagnostics as a group. The projections are based on the number of shares of Corning Common Stock held by such persons and such group as of October 31, 1996 (including certain restricted shares that may be forfeited prior to the Distribution Date but excluding Career Shares that will not receive the Distributions and Corning Common Stock held in the Quest Diagnostics Profit Sharing Plan and the Corning Investment Plans) and on the number of options to acquire Corning Common Stock held as of such date and exercisable within 60 days thereof. With respect to the shares of Quest Diagnostics Common Stock, the number reflects the distribution ratio of one share of Quest Diagnostics Common Stock for every eight shares of Corning Common Stock and with respect to options the number reflects the actual number of shares of Corning Common Stock subject to options. The stock options held by the directors and executive officers of Quest Diagnostics will not affect the security ownership of Quest Diagnostics unless (i) such options are exercised prior to the Record Date and the underlying shares of Corning Common Stock are held on the Record Date or (ii) such options are converted into options to purchase shares of Quest Diagnostics Common Stock.
Number of Shares Beneficially Number of Name Owned(1) Exercisable Options ---------------------------- -------------------- --------------------- Van C. Campbell 17,850 (2) 127,457 Robert A. Carothers 316 12,483 Gregory C. Critchfield 0 1,500 David A. Duke 10,878 (2) 82,000 Kenneth W. Freeman 14,461 103,500 Don M. Hardison, Jr. 500 0 Douglas M. VanOort 5,965 11,500 Gail R. Wilensky 5,000 (2) 0 All Directors and Executive Officers as a Group 66,280 398,562
(1) Does not include 3,954 shares owned by the spouses and minor children of certain executive officers and directors as to which such officers and directors (or trusts of which families of such executive officers are beneficiaries) disclaim beneficial ownership. (2) Includes 5,000 shares of Quest Diagnostics Common Stock which each non-employee director will receive in connection with their election but does not include 750 shares of Quest Diagnostics Common Stock for each year specified in the term of service as a director. See "Management--Management--Directors' Compensation." 76 Description of the Credit Facility In order to pay approximately $350 million of the Intercompany Debt owed by Quest Diagnostics in connection with the Quest Diagnostics Spin-Off Distribution, and to meet its future capital requirements including the funding of operating activities and further acquisitions, Quest Diagnostics is negotiating with several banks for a credit agreement (the "Credit Agreement") providing for a $450 million credit facility (the "Credit Facility"). Morgan Guaranty Trust Company of New York ("Morgan"), NationsBank, N.A. ("NationsBank") and Wachovia Bank of Georgia, N.A. ("Wachovia") are arranging the Credit Facility. A copy of the proposed form of the Credit Agreement has been filed as an exhibit to the Registration Statement of which this Prospectus forms a part. This summary of the material terms and conditions of the Credit Facility and the Credit Agreement does not purport to be complete, and is qualified in its entirety by references to such proposed form, including the definitions therein. The $450 million commitment under the Credit Facility will be comprised of three sub-facilities: (i) a $300 million six-year amortizing term loan (the "Tranche A Loan"), (ii) a seven-year $50 million term loan with minimal amortization until the seventh year (the "Tranche B Loan") and (iii) a $100 million six-year revolving working capital credit facility (the "Working Capital Facility"). Under the Working Capital Facility, up to $20 million may be used for Letters of Credit to be issued by one or more Issuing Banks (initially NationsBank), and up to $10 million may be used to borrow from Wachovia, as the Swingline Bank, under a Swingline Facility. All Working Capital Banks are required to ratably share the exposure of the Issuing Banks under the Letters of Credit and, at the request of the Swingline Bank, must purchase ratable participations in the Swingline Loans. With the exception of Swingline borrowings and Letters of Credit, borrowings under the Working Capital Facility must be at least $10 million for LIBOR based borrowings and $5 million for Base Rate based borrowings. Under the Swingline Facility, borrowings must be at least $1 million. The Credit Facility will be secured by substantially all accounts receivable of Quest Diagnostics and by a guaranty from, and a pledge of all capital stock and accounts receivable (including intercompany loans) of, substantially all of Quest Diagnostics' present and future material U.S. Subsidiaries, excluding certain Joint Ventures, Covance and Covance's Subsidiaries. The borrowings under the Credit Facility will rank senior in priority of repayment to any Permitted Subordinated Debt, including the Senior Subordinated Notes and any of Quest Diagnostics' remaining debt to Corning. At the time of the Distributions, Quest Diagnostics' debt to Corning must be extinguished except to the extent it is included in the $150 million of Permitted Subordinated Debt. Interest Rate Calculations. Interest will be payable on each sub-facility quarterly, or at the end of the relevant interest period, if earlier, at a per annum rate equal to the Base Rate or (except for Swingline Loans) the Eurodollar Rate plus the relevant Applicable Margin. The Base Rate is a fluctuating rate calculated on a daily basis as the higher of (a) the rate of interest publicly announced by Morgan for the day in question and (b) 0.5% over the weighted average of the rates, rounded up to the nearest basis point, on overnight Federal Funds transactions with members of the Federal Reserve System as arranged by Federal Funds brokers on the day in question. The Eurodollar Rate is the average of the annual rate at which deposits in U.S. dollars are offered to each of the Reference Banks in the London interbank market, adjusted for reserve requirements ("Adjusted LIBOR"). The initial Applicable Margin payable for Adjusted LIBOR borrowings will be 1.75% per annum for the Tranche A Loan and the Working Capital Loan and 2.25% per annum for the Tranche B Loan. The initial Applicable Margin payable for Base Rate borrowings will be 0.75% per annum for the Tranche A Loan and the Working Capital Loan and 1.25% per annum for the Tranche B Loan. After December 31, 1996, the Applicable Margin will be determined by a pricing formula based on Quest Diagnostics' Debt Coverage Ratio. The Applicable Margin range for the Tranche A Loan and the Working Capital Loan may vary, depending on the Debt Coverage Ratio, from 0% to 1% for Base Rate Advances, and from 0.5% to 2% per annum for Eurodollar Rate Advances. The Swingline Loans will accrue interest at a rate equal to the Base Rate plus the relevant Applicable Margin for the Tranche A and Working Capital Base Rate Loans. The Applicable Margin for the Tranche B Loan will remain fixed throughout the life of the loan at the initial Applicable Margin levels. Any overdue principal or interest payable on any Eurodollar loan will incur interest at the greater of Adjusted LIBOR or LIBOR plus the Applicable Margin plus 2% per annum. Any overdue principal or interest payable on a Base Rate loan will incur interest at the Base Rate plus the Applicable Margin plus 2% per annum. The Credit Agreement also requires the payment of a quarterly Commitment Fee on the average daily unused portion of the Banks' aggregate commitments under the Working Capital Facility. The initial Commitment Fee Rate will be 0.375% per annum. After December 31, 1996, the Commitment Fee Rate will be determined based on Quest Diagnostics' Debt Coverage Ratio, and will range from 0.175% to 0.5% per annum. Quest Diagnostics shall also pay the Issuing Banks in proportion to their Letter of Credit Exposure a fee of 0.125% per annum on any amounts outstanding on undrawn Letters of Credit. Additionally, Quest Diagnostics shall pay directly to the Issuing Bank all customary fees connected with the issuing of a Letter of Credit. Quest Diagnostics will also pay Morgan a negotiated fee for its services as Administrative Agent under the Credit Facility. Covenants and Conditions. The Credit Agreement includes covenants which, subject to certain specific exceptions and limitations, require Quest Diagnostics and its Subsidiaries to: (i) provide certain financial information to the Banks including, Quest Diagnostics' consolidated audited financial reports, financial ratio data, annual business plans and projections and certification that no defaults have occurred; (ii) pay or discharge all material obligations and liabilities; (iii) keep property in good working order and maintain sufficient insurance coverage on all property; (iv) maintain corporate existence; (v) pursue the same or substantially similar lines of business to the ones in which they 77 are currently engaged; (vi) comply with all laws, including ERISA and environmental regulations; (vii) allow any Bank to inspect accounting records; (viii) not permit modification to or waiver of any Transaction Documents including any documents connected with the Permitted Subordinated Debt or the Permitted Preferred Stock; (ix) not hold or acquire any investments other than those allowed by the Credit Agreement; (x) not create or allow to be created any liens other than those permitted by the Credit Agreement; (xi) refrain from engaging in a consolidation, acquisition, merger or sale of assets except as allowed in the Credit Agreement; (xii) not engage in any transaction with or for the benefit of any Affiliate other than certain arm's-length transactions; (xiii) prevent the existence of any agreement that prevents Quest Diagnostics' Subsidiaries from paying dividends or other distributions on capital stock; (xiv) refrain from making certain Restricted Payments as detailed below; (xv) not incur Debt other than Debt allowed under the Credit Agreement; (xvi) maintain certain financial ratios as detailed below; and (xvii) not make Consolidated Capital Expenditures in excess of $95,000,000 (less the consideration paid for certain acquisitions) in any fiscal year. Quest Diagnostics may, subject to certain limitations and exceptions contained in the Credit Agreement, make certain Restricted Payments so long as there are no current or continuing Defaults, and the otherwise Restricted Payment would not cause a Default. Allowed payments include: (i) the repayment of Permitted Subordinated Debt from the proceeds of any newly issued Senior Subordinated Notes, (ii) interest and fees on the Senior Subordinated Notes and certain other Permitted Subordinated Debt, (iii) dividends paid on any Permitted Preferred Stock, (iv) repurchases of shares pursuant to certain employee benefit and compensation plans and (v) certain payments to Corning required to be made pursuant to the Spin-Off Transactions. Restricted Payments include: (i) and other dividends or distributions on any of the shares of capital stock of Quest Diagnostics except dividends or distributions paid solely in shares of Quest Diagnostics capital stock, (ii) any other payment on Subordinated Debt and (iii) any payment, including those to sinking funds, made to redeem, repurchase, acquire or retire any of the Subordinated Debt or the shares of capital stock, or the rights to acquire shares, of Quest Diagnostics or its Subsidiaries. Quest Diagnostics will be required to maintain: (i) a ratio (the "Leverage Ratio") of (A) Consolidated Total Debt to (B) Consolidated Total Capitalization equal to or below between 0.55 to 1.0 at the outset, decreasing over time to 0.45 to 1.0; (ii) a ratio (the "Debt Coverage Ratio") of (A) Consolidated Total Debt to (B) Consolidated EBITDA equal to or below between 3.8 to 1.0 at the outset, increasing over time to 2.0 to 1.0; and (iii) a ratio (the "Coverage Ratio") of (A) the sum of (1) Consolidated EBITDA and (2) Consolidated Rental Expense to (B) the sum of (1) Consolidated Interest Expense and (2) Consolidated Rental Expense equal to or above 1.8 to 1.0 at the outset, increasing over time to 3.0 to 1.0. Quest Diagnostics is required to have a Leverage Ratio no greater than 0.55 to 1.0 through December 31, 1997, a Debt Coverage Ratio of less than 3.8 to 1.0 through June 30, 1997 and a Coverage Ratio of at least 1.8 to 1.0 from January 1, 1997 through June 30, 1997. After giving pro forma effect to the Distributions, $350 million of borrowings under the Credit Facility and to the Permitted Subordinated Debt, Quest Diagnostics would have had a Leverage Ratio of 0.47 to 1.0 at September 30, 1996, a Debt Coverage Ratio of 3.2 to 1.0 for the quarter ended September 30, 1996 and a Coverage Ratio of 2.2 to 1.0 for the quarter ended September 30, 1996. Events of Default. Events of Default include: (i) the failure to make payment under the Credit Agreement of any principal when due or any interest, fees or other amounts within three business days after becoming due; (ii) any representation, warranty, certification or statement made by Quest Diagnostics proving to have been incorrect in any material respect when made; (iii) the failure by Quest Diagnostics or its Subsidiaries to perform or observe any term, covenant or agreement under the Credit Agreement (subject to certain cure periods); (iv) the failure of Quest Diagnostics to make payment on any Material Financial Obligation (totalling in aggregate more than $10 million) within the applicable grace period; (v) the occurrence of an event that causes the acceleration of, or enables another of Quest Diagnostics' creditors to accelerate, any of Quest Diagnostics' other Material Debt (totalling in aggregate more than $10 million); (vi) the commencement of a voluntary or involuntary bankruptcy proceeding by or against Quest Diagnostics; (vii) the failure to pay when due ERISA obligations in excess of $10 million; (viii) the rendering of a judgment or judgments against Quest Diagnostics the aggregate amounts of which are in excess of $10 million and remain unsatisfied or unstayed for more than 30 days, or the placing by a judgment creditor of a levy on the assets of Quest Diagnostics or its Subsidiaries; (ix) at any time after the Spin-Off, a person or group obtains beneficial ownership of 20% or more of the common stock of Quest Diagnostics, or, during any period of 12 calendar months, the individuals who constituted the members of the board of directors of Quest Diagnostics on the first day of that period no longer constitute a majority of the board; or (x) any security interest that was purported to be created by the related security documents ceases to exist or be valid. If an Event of Default occurs and continues beyond the allowed time period for curing the default in question, the Banks, by a vote of more than 50% of the aggregate Commitments, may terminate their Commitments to lend to Quest Diagnostics. The Banks may further choose, by a separate vote representing more than 50% of the aggregate principal amount of all of the Loans, to accelerate the outstanding principal and interest. Additionally, during an Event of Default the Letter of Credit Participants, by a more than 50% vote of the amount of the total outstanding of the Letter of Credit Exposure, may require that Quest Diagnostics fully cash collateralize the outstanding Letter of Credit Exposure. In the case of a voluntary or involuntary bankruptcy proceeding, all credit facilities shall terminate and all outstanding amounts shall become immediately due and payable without any action by the Banks. 78 Description of the Notes The Notes will be issued by the Company pursuant to an Indenture, to be dated as of the Closing Date, 1996 (the "Indenture"), between the Company and The Bank of New York, as trustee (the "Trustee"). The Indenture is subject to and governed by the Trust Indenture Act of 1939, as amended. The statements under this caption relating to the Notes and the Indenture are summaries and do not purport to be complete, and are subject to, and are qualified in their entirety by reference to, all the provisions of the Indenture, including the definitions therein of certain terms. Wherever defined terms or particular sections of the Indenture are referred to, such defined terms and sections are incorporated herein by reference. A copy of the Indenture has been filed as an exhibit to the Registration Statement of which this Prospectus constitutes a part. All references in this section to the "Company" refer solely to Quest Diagnostics Incorporated, a Delaware corporation, and not to its subsidiaries. General The Notes will to the extent described herein be fully and unconditionally guaranteed by the existing Restricted Subsidiaries of the Company, and the Company will covenant to cause any future Restricted Subsidiaries to fully and unconditionally guarantee the Notes, in each case jointly and severally on a senior subordinated basis (such guarantees, the "Senior Subordinated Guarantees" and such guarantors, the "Guarantors"). The Senior Subordinated Guarantees will be unsecured senior subordinated obligations of the Guarantors, will be subordinate in right of payment to the prior payment in full of all Senior Guarantees (as defined under "Senior Subordinated Guarantees") to substantially the same extent as the Notes are subordinated to Senior Debt and will automatically terminate if and to the extent the related guarantees of the Credit Facility are terminated. The Notes are effectively subordinated to all existing and future indebtedness and other liabilities (including trade payables and capital lease obligations) of the Company's Subsidiaries that are Unrestricted Subsidiaries, and thus not Guarantors, and would be so subordinated to all existing and future indebtedness of the Guarantors if the Senior Subordinated Guarantees were avoided or subordinated in favor of the Guarantors' other creditors. See "Risk Factors--Subordination; Ranking of the Notes as Unsecured Obligations" and "--Fraudulent Conveyance." The Notes will be issued only in fully registered form, without coupons, in denominations of $1,000 and any integral multiple thereof. No service charge will be made for any registration of transfer or exchange of Notes, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. (Sections 203 and 305). Principal, Stated Maturity and Interest The Notes will be unsecured senior subordinated obligations of the Company, will be limited to $150.0 million aggregate principal amount and will mature on December 15, 2006. The Notes will bear interest at the rate per annum shown on the front cover of this Prospectus from the Closing Date or from the most recent Interest Payment Date to which interest has been paid or provided for, payable semi-annually on June 15 and December 15 of each year, commencing June 15, 1997, until the principal thereof is paid or made available for payment, to the Person in whose name the Note (or any Predecessor Note) is registered at the close of business on the preceding June 1 or December 1, as the case may be. Interest on the Notes will be computed on the basis of a 360-day year of twelve 30-day months. The principal of (and premium, if any,) and interest on the Notes will be payable, and the transfer of Notes will be registrable, at the office or agency of the Company in The Borough of Manhattan, The City of New York. In addition, payment of interest may, at the option of the Company, be made by check mailed to the address of the Person entitled thereto as it appears in the Security Register; provided, however, that all payments of the principal (and premium, if any) and interest on Notes the Holders of which have given wire transfer instructions to the Company or its agent at least 10 Business Days prior to the applicable payment date will be required to be made by wire transfer of immediately available funds to the accounts specified by such Holders in such instructions. (Section 301). Optional Redemption Except as set forth below, the Notes are not redeemable at the option of the Company prior to December 15, 2001. On or after such date, the Notes will be subject to redemption, in whole or in part, at the option of the Company at any time prior to maturity, upon not less than 30 nor more than 60 days' notice mailed to each Holder of Notes to be redeemed at his address appearing in the Security Register, in amounts of $1,000 or an integral multiple of $1,000, at the following Redemption Prices (expressed as percentages of principal amount) plus accrued interest to but excluding the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date), if redeemed during the twelve-month period beginning on December 15 of each of the years indicated below: 79 Redemption Year Price - ---- ---------- 2001 % 2002 2003 2004 and thereafter 100.000% If less than all the Notes are to be redeemed, the particular Notes to be redeemed will be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Notes not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to $1,000 or any integral multiple thereof) of the principal amount of Notes of a denomination larger than $1,000. (Sections 1101, 1103, 1104 and 1105). If as a result of an event outside the control of Corning, Quest Diagnostics and Covance, the Distributions do not occur on or prior to March 31, 1997, the Notes will be subject to redemption, as a whole and not in part, at the option of Quest Diagnostics, on or prior to June 30, 1997, at a redemption price equal to 101% of the principal amount of the Notes plus accrued and unpaid interest to but excluding the Redemption Date. Notice of such redemption will be given by notice, mailed and published, not more than 30 and not less than 15 days prior to the Redemption Date. (Section 1101). Mandatory Redemption Except as described below under "Repurchase at the Option of Holders--Asset Dispositions" and "--Change of Control," the Notes will not have the benefit of any mandatory redemption or sinking fund obligations of the Company. Repurchase at the Option of Holders Asset Dispositions The Company may not make, and may not permit any Restricted Subsidiary to make, any Asset Disposition in one or more transactions in any fiscal year unless: (i) the Company (or such Restricted Subsidiary, as the case may be) receives consideration at the time of such disposition at least equal to the fair market value of the shares or the assets disposed of, as determined in good faith by the Board of Directors; and (ii) 100% of the Net Available Proceeds from such disposition (including from the sale of any Cash Equivalents received therein) are applied by the Company (or such Restricted Subsidiary, as the case may be) (A) first, either (I) within 270 days of such disposition, to repayment of Senior Debt then outstanding under any agreements or instruments which would require such application or which would prohibit payments pursuant to Clause (B) following or (II) within 60 days before or 270 days after such disposition, to reinvest in assets that will be used in a Permitted Business (provided, however, that such application will not be required to be made pursuant to this Clause (A) until the cumulative Net Available Proceeds (less any Net Available Proceeds applied pursuant to this covenant) (such difference being the "Excess Proceeds") exceed $5.0 million); (B) second, to the extent the Excess Proceeds exceeds $5.0 million, to purchases of Outstanding Notes pursuant to an Offer to Purchase (to the extent such an offer is not prohibited by the terms of any Senior Debt then outstanding) at a purchase price equal to 100% of their principal amount plus accrued interest to the date of purchase (provided, however, that installments of interest whose Stated Maturity is on or prior to the Purchase Date will be payable to the Holders of such Notes, or one or more Predecessor Notes, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions in the Indenture; (C) third, if and only if an Offer to Purchase has been made as described in Clause (B) above, and to the extent of any remaining Excess Proceeds following completion of such Offer to Purchase and after giving effect to Clauses (A) and (B) above, to general corporate purposes. (Section 1015). Any Offer to Purchase required by the provisions described above will be effected by the sending of the written terms and conditions thereof (the "Offer Document"), by first class mail, to Holders of the Notes within 270 days after the relevant disposition is completed. The contents of the Offer to Purchase and the requirements that a Holder must satisfy to tender any Note pursuant to such Offer to Purchase are substantially the same as those described below under "--Change of Control." Change of Control Within 30 days following the date of the consummation of a transaction that results in a Change of Control (as defined below), the Company will commence an Offer to Purchase all Outstanding Notes, at a purchase price equal to 101% of their aggregate principal amount plus accrued interest to the date of purchase. Such obligation will not continue after a defeasance or covenant defeasance of the Notes as described under "Defeasance." A "Change of Control" means the occurrence of any of the following events after the date of the Indenture: (i) any Person, or any Persons acting together that would constitute a "group" (a "Group" ) for purposes of Section 13(d) of the Securities 80 Exchange Act of 1934, as amended (the "Exchange Act"), beneficially owns 35% or more of the total voting power of all classes of Voting Stock of the Company, (ii) any Person or Group succeeds in having sufficient of its nominees elected to the Board of Directors such that such nominees, when added to any existing director remaining on the Board of Directors after such election who is an Affiliate or Related Person of such Person or Group, will constitute a majority of the Board of Directors or (iii) the occurrence of any transaction or series of related transactions (excluding the Spin-Off Distributions), in which the beneficial owners of the Voting Stock of the Company immediately prior to such transaction (or series) do not, immediately after such transaction (or series), beneficially own Voting Stock representing more than 35% of the voting power of all classes of Voting Stock of the Company (or in the case of a transaction (or series) in which another entity becomes a successor to the Company, of the successor entity). (Section 1016). The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes resulting from a Change of Control. Within 30 days of a Change of Control, an Offer Document will be sent, by first class mail, to Holders of the Notes, accompanied by such information regarding the Company and its Subsidiaries as the Company in good faith believes will enable such Holders to make an informed decision with respect to the Offer to Purchase, which at a minimum will include (a) the most recent annual and quarterly financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the documents required to be filed with the Trustee pursuant to the provisions described under "Certain Covenants--Provision of Financial Information" below (which requirements may be satisfied by delivery of such documents together with the Offer to Purchase), (b) a description of the events requiring the Company to make the Offer to Purchase), (c) if applicable, appropriate pro forma financial information concerning the Offer to Purchase and the events requiring the Company to make the Offer to Purchase and (d) any other information required by applicable law to be included therein. The Offer Document will contain all instructions and materials necessary to enable Holders of the Notes to tender Notes pursuant to the Offer to Purchase. The Offer Document will also state (i) that a Change of Control has occurred (or, if the offer to purchase is delivered in connection with an Asset Disposition, that an Asset Disposition has occurred) and that the Company will Offer to purchase the Holder's Notes, (ii) the Expiration Date of the Offer Document, which will be, subject to any contrary requirements of applicable law, not less than 30 days or more than 60 days after the date of such Offer Document, (iii) the Purchase Date for the purchase of Notes which will be within three Business Days after the Expiration Date, (iv) the aggregate principal amount of Notes to be purchased (including, if less than 100%, the manner by which such purchase has been determined pursuant to the Indenture) and the purchase price, and (v) a description of the procedure which a Holder must follow to tender all or any portion of the Notes. (Sections 101 and 1016). Prior to the mailing of an Offer Document, but in any event within 30 days following any Change of Control, the Company will to the extent required either (i) repay all outstanding Senior Debt or (ii) obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the making of the Offer to Purchase and the purchase of Notes required by this covenant. The failure to repay any such Senior Debt or to obtain any such consents will not relieve the Company of its obligation to make the Offer to Purchase or to purchase Notes pursuant to the Offer to Purchase required by this covenant and the failure of the Company to make an Offer to Purchase, or to purchase the Notes pursuant to an Offer to Purchase, will constitute an Event of Default under the Indenture. See "--Events of Default." The terms of the Credit Facility prohibit any repurchase of Notes by the Company in the event of a Change of Control, unless all indebtedness then outstanding under the Credit Facility is first repaid. In order to repay such indebtedness (and any other outstanding Senior Debt with a similar restriction) and repurchase the Notes, it may be necessary for the Company to recapitalize and/or refinance some or all of its outstanding indebtedness. There can be no assurance that such recapitalization or refinancing, if required, would be accomplished on favorable terms, in a timely manner or at all. Were any obligation of the Company to repurchase Notes upon a Change of Control to result in a default under the Credit Facility or any other Senior Debt, payments owing on the Notes could be blocked pursuant to the subordination provisions of the Notes. See "Subordination." To tender any Note, a Holder must surrender such Note at the place or places specified in the Offer Document prior to the close of business on the Expiration Date (such Note being, if the Company or the Trustee so requires, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing). Holders will be entitled to withdraw all or any portion of Notes tendered if the Company (or its Paying Agent) receives, not later than the close of business on the Expiration Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder tendered, the certificate number of the Note the Holder tendered and a statement that such Holder is withdrawing all or a portion of his tender. Any portion of a Note tendered must be tendered in an integral multiple of $1,000 principal amount. (Section 101). The Indenture does not contain any other change of control provisions. 81 Subordination The payment of the principal of (and premium, if any) and interest on the Notes will, in certain circumstances as set forth in the Indenture, be subordinated in right of payment to the prior payment in full of all Senior Debt. Upon any payment or distribution of assets of the Company to creditors upon any liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors, marshalling of assets and liabilities or any bankruptcy, insolvency or similar proceedings of the Company, the holders of Senior Debt will be entitled to receive payment in full of the principal of (and premium, if any) and interest on such Senior Debt, including all amounts due or to become due on all Senior Debt, or provision will be made for payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of such Senior Debt, before the Holders of Notes are entitled to receive any Securities Payments. "Securities Payment" means any payment or distribution of any kind, whether in cash, property or securities (including any payment or distribution deliverable by reason of the payment of any other Debt subordinated to the Notes but excluding any payment or distribution made with shares of stock or securities of the Company that are subordinate in right of payment to all Senior Debt to substantially the same extent as the Notes are so subordinated) on account of the principal of (and premium, if any) or interest on the Notes or on account of the purchase or redemption or other acquisition of Notes by the Company or any Subsidiary of the Company. In the event that, notwithstanding the foregoing, upon any payment or distribution of assets of the Company to creditors upon any liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors, marshalling of assets and liabilities or any bankruptcy, insolvency or similar proceedings of the Company, the Trustee or the Holder of any Note receives any Securities Payment before all Senior Debt is paid in full or payment thereof is provided for in cash or cash equivalents or otherwise in a manner satisfactory to the holders of such Senior Debt, then and in such event such Securities Payment will be required to be paid over or delivered forthwith for application to the payment of all Senior Debt remaining unpaid, to the extent necessary to pay the Senior Debt in full. (Sections 1201 and 1202). The Company may not make any Securities Payments if there has occurred and is continuing a default in the payment of the principal of (or premium, if any) or interest on Senior Debt (a "Senior Payment Default"). In addition, if any default (other than a Senior Payment Default), with respect to any Senior Debt permitting after notice or lapse of time (or both) the holders thereof (or a trustee on behalf thereof) to accelerate the maturity thereof (a "Senior Nonmonetary Default") has occurred and is continuing and the Company and the Trustee have received written notice thereof from the Administrative Agent under the Credit Facility (or if the Credit Facility has been terminated, from any holder of Senior Debt with a principal amount in excess of $15.0 million), then the Company may not make any Securities Payments for a period (a "blockage period") commencing on the date the Company and the Trustee receive such written notice and ending on the earlier of (x) 179 days after such date and (y) the date, if any, on which the Senior Debt to which such default relates is discharged or such default is waived or otherwise cured. (Section 1203). In any event, not more than one blockage period may be commenced during any period of 360 consecutive days, and there must be a period of at least 181 consecutive days in each period of 360 consecutive days when no blockage period is in effect. No Senior Nonmonetary Default that existed or was continuing on the date of commencement of any blockage period with respect to the Senior Debt will be, or can be, made the basis for the commencement of a subsequent blockage period, unless such default has been cured or waived for a period of not less than 90 consecutive days. In the event that, notwithstanding the foregoing, the Company makes any Securities Payment to the Trustee or any Holder of a Note prohibited by the subordination provisions, then and in such event such Securities Payment will be required to be paid over and delivered forthwith. (Section 1203). By reason of such subordination, in the event of insolvency, creditors of the Company who are not holders of Senior Debt or of the Notes may recover less, ratably, than holders of Senior Debt and may recover more, ratably, than the Holders of the Notes. The subordination provisions described above will cease to be applicable to the Notes upon any defeasance or covenant defeasance of the Notes as described under "Defeasance." On a pro forma basis, as of September 30, 1996, after giving effect to the Spin-Off Distributions, the sale of the Notes and the application of the proceeds thereof and $350.0 million of borrowings under the Term Loans, there was $367 million of Senior Debt of the Company outstanding, of which $350 million would have been guaranteed by the Guarantors on a senior basis. While the Indenture will limit, subject to certain financial tests, the amount of additional Debt that the Company and its Restricted Subsidiaries can Incur, the Company may from time to time hereafter Incur additional Debt constituting Senior Debt, including up to $100.0 million under the Working Capital Facility, substantially all of which is anticipated to be available at the Closing Date. See "--Certain Covenants--Limitation on Incurrence of Debt." Senior Subordinated Guarantees The Guarantors will, jointly and severally, on a senior subordinated basis, fully and unconditionally guarantee the due and punctual payment of principal of (and premium, if any) and interest on the Notes, when and as the same shall become due and 82 payable, whether at the maturity date, by declaration of acceleration, call for redemption or otherwise. As described below, the Senior Subordinated Guarantees will automatically terminate if the related guarantees of the Credit Facility are terminated. The Senior Subordinated Guarantees will be subordinate in right of payment to the prior payment in full of all Senior Guarantees to substantially the same extent as the Notes are subordinated to Senior Debt. The term "Senior Guarantees" means all obligations of the Guarantors under guarantees of Senior Debt of the Company. No payment will be made by the Guarantors under the Senior Subordinated Guarantees in respect of the Notes during any period that payments by the Company on the Notes are suspended by the subordination provisions of the Indenture as described above under "Subordination." By reason of these provisions, in the event of insolvency, Holders of the Notes and the related Senior Subordinated Guarantees may recover less, ratably, than other creditors of the Company, including holders of Senior Guarantees. (Section ). The Senior Subordinated Guarantees will remain in effect with respect to each Guarantor until the entire principal of, premium, if any, and interest on the Notes shall have been paid in full or otherwise discharged in accordance with the provisions of the Indenture; provided, however, that if (i) such Guarantor ceases to be a Restricted Subsidiary, (ii) such Guarantor ceases to guarantee the Credit Facility, (iii) the Notes are defeased and discharged as described under Clause (A) under "Defeasance" or (iv) all or substantially all of the assets of such Guarantor or all of the Capital Stock of such Guarantor is sold (including by issuance, merger, consolidation or otherwise) by the Company or any of its Subsidiaries in a transaction constituting an Asset Disposition and the Net Available Proceeds from such Asset Disposition are used in accordance with the provisions described under "Repurchase at the Option of Holders--Asset Dispositions," then in each case of (i), (ii), (iii) and (iv) above, such Guarantor or the corporation acquiring such assets (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) shall be released and discharged of its Senior Subordinated Guarantee obligations. Subject to payment in full of all Senior Guarantees, the rights of the Holders of the Notes under the related Senior Subordinated Guarantees will be subrogated to the rights of the holders of Senior Guarantees to receive payments or distributions of cash, property or securities of the Guarantors applicable to Senior Guarantees. Certain Covenants The Indenture contains, among others, the following covenants: Limitation on Incurrence of Debt The Company may not, and may not permit any Restricted Subsidiary to, Incur any Debt unless, immediately after giving effect to the Incurrence of such Debt and the receipt and application of the proceeds thereof, the Consolidated EBITDA Coverage Ratio of the Company for the four full fiscal quarters for which internal financial statements are available immediately preceding the Incurrence of such Debt, calculated on a pro forma basis as if such Debt had been Incurred and the proceeds thereof had been received and so applied at the beginning of the four full fiscal quarters, would be greater than 2.50 to 1.0 if such date is on or prior to December 31, 1998, 2.75 to 1.0 if such date is on or prior to December 31, 1999 and 3.0 to 1.0 if thereafter. (Section 1008). Without regard to the foregoing limitations, the Company or any Restricted Subsidiary of the Company may Incur the following Debt: (i) Debt under the Credit Facility in an aggregate principal amount at any one time outstanding not to exceed $450.0 million less (A) principal payments on any term loan facility under such Credit Facility required to be made by the terms of the Credit Facility as in effect on the date of the Indenture and actually made and (B) any amounts by which the Working Capital Facility commitments are permanently reduced by the terms of the Credit Facility as in effect on the date of the Indenture; provided, that Clause (B) shall not apply to a refinancing or refunding of the Working Capital Facility so long as such refinancing or refunding complies with Clause (vii) below (ii) Debt evidenced by the Notes; (iii) Debt of the Company or any Restricted Subsidiary (other than Debt referred to in Clauses (i) and (ii) above) outstanding on the date of the Indenture; (iv) Debt owed by the Company to any Wholly Owned Restricted Subsidiary or Debt owed by a Wholly Owned Restricted Subsidiary to the Company; provided, however, that (a) any such Debt owing by the Company to a Wholly Owned Restricted Subsidiary shall be Subordinated Debt and (b) upon either (1) the transfer or other disposition by such Wholly Owned Restricted Subsidiary or the Company of any Debt so permitted to a Person other than the Company or another Wholly Owned Restricted Subsidiary or (2) the issuance (other than directors' qualifying shares), sale, lease, transfer or other disposition of shares of Capital Stock (including by consolidation or merger) of such Wholly Owned Restricted Subsidiary to a Person other than the Company or another such Wholly Owned Restricted Subsidiary, the provisions of this Clause (iv) shall no longer be applicable to such Debt and such Debt shall be deemed to have been Incurred at the time of such transfer or other disposition; 83 (v) Obligations under Interest Rate Agreements in respect of Debt permitted to be incurred by the Company pursuant to the Indenture to the extent the notional principal amount of such Interest Rate Agreements does not exceed the aggregate principal amount of the Debt to which such Interest Rate Agreements relate; provided, however, that (A) such Interest Rate Agreements are used solely to hedge the related Debt and (B) the profits and losses with respect to the Interest Rate Agreements are included as interest expense under generally accepted accounting principles; (vi) Debt Incurred by the Company or any Restricted Subsidiary in respect of (x) bid or performance bonds entered into in favor of governmental entities or (y) surety or appeal bonds, which, in each case are entered into in the ordinary course of business; (vii) Debt Incurred to renew, extend, refinance or refund any outstanding Debt permitted by Clauses (i), (ii) and (iii) above or this Clause (vii); provided, however, that such Debt does not exceed the principal amount of Debt (or, in the case of Debt issued at a discount from its principal amount, the amount then payable upon an acceleration thereof) so renewed, extended, refinanced or refunded (plus accrued interest, fees, expenses, premiums and other amounts payable in connection therewith in an amount not in excess of 1% of the principal amount (or, in the case of Debt issued at a discount, the amount payable upon acceleration) of the Debt being renewed, extended, refinanced or refunded); and provided further, that (A) Debt the proceeds of which are used to refinance or refund Debt which is Pari Passu to the Notes or Debt which is subordinate in right of payment to the Notes shall only be permitted if in the case of any refinancing or refunding of Debt which is Pari Passu to the Notes, the refinancing or refunding Debt is made Pari Passu to the Notes or subordinated to the Notes, and, in the case of any refinancing or refunding of Debt which is subordinated to the Notes, the refinancing or refunding Debt is made subordinate to the Notes on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Debt being refinanced or refunded and (B) such refinancing or refunding Debt (x) does not have a final scheduled maturity earlier than the final scheduled maturity of the refinanced or refunded Debt or permit redemption or other retirement of such Debt (including pursuant to an offer to purchase by the Company) at the option of the holder thereof prior to the final stated maturity of the Debt being refinanced or refunded, other than a redemption or other retirement at the option of the holder of such Debt on terms at least as favorable to the Holders of the Notes as those contained in the Debt being refinanced or refunded and (y) does not have a Weighted Average Life less than the Weighted Average Life of the Debt being refinanced or refunded; and (viii) Debt in addition to that otherwise permitted to be Incurred pursuant to Clauses (i) through (vii) above, which, together with any other outstanding Debt Incurred pursuant to this Clause (viii), has an aggregate principal amount not in excess of $20.0 million at any one time outstanding. (Section 1008). Limitation on Layered and Junior Debt The Company may not (i) Incur or suffer to exist any Debt that is by its terms subordinate in right of payment to any other Debt of the Company unless such Debt is also Pari Passu with or subordinate by its terms in right of payment to the Notes or (ii) permit any Guarantor to Incur or suffer to exist any Debt that is by its terms subordinate in right of payment to any other Debt of the Guarantor unless such Debt is also Pari Passu with or subordinate by its terms in right of payment to the Senior Subordinated Guarantees. (Section 1009). Limitation on Restricted Payments The Company may not directly or indirectly, (i) declare or pay any dividend, or make any distribution, of any kind or character (whether in cash, property or securities) in respect of its Capital Stock or to the holders thereof in their capacity as such (excluding the Spin-Off Payments and any dividends or distributions payable solely in shares of its Capital Stock (other than Redeemable Interests) or in options, warrants or other rights to acquire its Capital Stock (other than Redeemable Interests)), (ii) purchase, redeem or otherwise acquire or retire for value, or permit any Restricted Subsidiary to purchase, redeem or otherwise acquire or retire for value (a) any Capital Stock of the Company or any Capital Stock of or other ownership interests in any Subsidiary or any Affiliate or Related Person of the Company (other than any such acquisition which results in such Subsidiary, Affiliate or Related Person becoming a Restricted Subsidiary) or (b) any options, warrants or rights to purchase or acquire shares of Capital Stock of the Company or any Capital Stock of or other ownership interests in any Subsidiary or any Affiliate or Related Person of the Company (excluding the redemption or repurchase by any Restricted Subsidiary of any of its Capital Stock, other ownership interests or options, warrants or rights to purchase such Capital Stock or other ownership interests, in each case, owned by the Company or a Wholly Owned Restricted Subsidiary and any such acquisition that results in such Subsidiary, Affiliate or Related Person becoming a Restricted Subsidiary), (iii) permit any Restricted Subsidiary to declare or pay any dividend, or make any distribution, of any kind or character (whether in cash, property or securities) in respect of the Capital Stock of or other ownership interests in such Restricted Subsidiary or to the holders of such Restricted Subsidiary's Capital 84 Stock or other ownership interests (excluding any dividends or distributions payable solely in shares of Capital Stock of or other ownership interests in such Restricted Subsidiary (other than Redeemable Interests) or in options, warrants or other rights to acquire Capital Stock of or other ownership interests in such Restricted Subsidiary (other than Redeemable Interests)) other than (A) the payment by any Restricted Subsidiary of dividends or other distributions to the Company or a Wholly Owned Restricted Subsidiary, or (B) the payment of pro rata dividends to holders of both minority and majority interests in the Capital Stock or other ownership interests of any such Restricted Subsidiary, (iv) make, or permit any Restricted Subsidiary to make, any Investment in any Person that is not a Permitted Investment or (v) redeem, defease, repurchase, retire or otherwise acquire or retire for value prior to any scheduled maturity, repayment or sinking fund payment, Debt of the Company (other than the Notes) that is Pari Passu with or subordinate in right of payment to the Notes (each of the transactions described in Clauses (i) through (v) being a "Restricted Payment"), if: (1) an Event of Default, or an event that with the lapse of time or the giving of notice, or both, would constitute an Event of Default, shall have occurred and be continuing; (2) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the most recently ended four full fiscal quarter period for which internal financial statements are available immediately preceding the date of such Restricted Payment, not have been permitted to Incur at least $1.00 of additional Debt pursuant to the Consolidated EBITDA Coverage Ratio test set forth in the first paragraph under "Limitation on Incurrence of Debt" above; or (3) upon giving effect to such Restricted Payment, the aggregate of all Restricted Payments (excluding Restricted Payments permitted by Clauses (i) through (vii) of the next succeeding paragraph) from the date of the Indenture (the amount so expended, if other than in cash, determined in good faith by the Board of Directors) exceeds the sum, without duplication, of: (a) 50% of the cumulative Consolidated Net Income of the Company (or, in the case such Consolidated Net Income shall be negative, less 100% of such deficit) for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the date of the Indenture to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment; provided that for purposes of this clause (a), Consolidated Net Income of the Company will be calculated excluding extraordinary losses resulting from the Spin-Off Distributions; plus (b) 100% of the aggregate net cash proceeds from the issuance and sale (other than to a Restricted Subsidiary of the Company) of Capital Stock (other than Redeemable Interests) of the Company and options, warrants or other rights on Capital Stock (other than Redeemable Interests and Debt convertible into Capital Stock) of the Company and the principal amount of Debt and Redeemable Interests of the Company that has been converted into Capital Stock (other than Redeemable Interests) of the Company after the date of the Indenture, provided that any such net proceeds received by the Company from an employee stock ownership plan financed by loans from the Company or a Subsidiary of the Company shall be included only to the extent such loans have been repaid with cash on or prior to the date of determination; plus (c) 50% of any dividends received by the Company or a Wholly Owned Restricted Subsidiary after the date of the Indenture from an Unrestricted Subsidiary of the Company; plus (d) to the extent not otherwise taken into account in this subsection (3), any return of a capital investment made by the Company in another Person and treated as a Restricted Payment under Clause (ii) or (iv) to the extent received in cash or Cash Equivalents and in an amount not in excess of such Restricted Payment plus (e) $10.0 million. (Section 1010). The foregoing covenant will not be violated by reason of: (i) the payment of any dividend within 60 days after declaration thereof if at the declaration date such payment would have complied with the foregoing covenant and the amount of such dividend was included in the aggregate amount of Restricted Payments pursuant to Clause (3) above; (ii) any renewal, extension, refinancing or refunding of Debt permitted pursuant to Clause (vii) in the second paragraph under "Limitation on Incurrence of Debt" above; (iii) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Company or any options, warrants or rights to purchase or acquire shares of Capital Stock of the Company in exchange for, or out of the net cash proceeds of, the substantially concurrent issuance or sale (other than to a Restricted Subsidiary of the Company) of Capital Stock (other than Redeemable Interests) of the Company; provided that the amount of any such net cash proceeds that are utilized for any such purchase, redemption or other acquisition or retirement for value shall be excluded from Clause (3)(b) in the foregoing paragraph; (iv) any purchase or other acquisition of Common Stock of the Company that is contributed to any employee plan qualified under Section 401(a) of the Internal Revenue Code or an employee stock purchase plan, in either case that was either funded by employee contributions or deducted as an expense in determining Consolidated Net Income of the Company; 85 (v) the sale, lease or other disposition of any Non-Core Asset; provided that the Board of Directors determines that such sale, lease or other disposition is in the best interests of the Company; (vi) any Permitted Joint Venture Investment made after the date of the Indenture; provided that the Consolidated EBITDA of the Company attributable to such Investment for the four full fiscal quarters for which internal financial statements are available immediately preceding the date of such Investment, together with the Consolidated EBITDA of the Company attributable to any other Permitted Joint Venture Investment made pursuant to this Clause (vi), shall not exceed 10% of the Consolidated EBITDA of the Company for the four full fiscal quarters for which internal financial statements are available immediately preceding the making of such Permitted Joint Venture Investment; provided, further, that the Company would, at the time the Company makes a Permitted Joint Venture Investment pursuant to this Clause (vi) and after giving pro forma effect thereto as it such Permitted Joint Venture Investment had occurred at the beginning of the most recently ended four full fiscal quarter period for which internal financial statements are available immediately preceding the date of such Permitted Joint Venture Investment, have been permitted to Incur at least $1.00 of additional Debt pursuant to the Consolidated EBITDA Coverage Ratio test set forth in the first paragraph under "--Limitation on Incurrence of Debt;" or (vii) the redemption of Quest Diagnostics Rights pursuant to the Quest Diagnostics Rights Agreement (or any successor agreement) in an amount not to exceed $.01 per Quest Diagnostics Right. Upon the designation of any Restricted Subsidiary as an Unrestricted Subsidiary (other than pursuant to Clauses (v) and (vi) above), an amount equal to the fair market value of all of the assets of such Restricted Subsidiary prior to such change will be deemed to be a Restricted Payment for purposes of calculating the aggregate amount of Restricted Payments pursuant to Clause (3) above. (Section 1010) Limitation on Leases The Company may not, and may not permit any Restricted Subsidiary to, Incur any Operating Lease except: (i) any Operating Lease in effect on the date of the Indenture; (ii) any Operating Lease relating to personal property used in the Company's or a Restricted Subsidiary's ordinary course of business; (iii) any Operating Lease of real property having an annualized Rental Expense of less than $0.625 million; (iv) any Operating Lease (A) Incurred by a Person prior to the time such Person became a Restricted Subsidiary, (B) acquired by the Company or any Restricted Subsidiary through a purchase or other acquisition of assets or (C) Incurred by a Restricted Subsidiary in connection with a merger or consolidation with or into another Person (other than a Restricted Subsidiary) in a transaction in which such Person becomes a Restricted Subsidiary of the Company; provided, that, in the case of any Operating Lease Incurred pursuant to Clause (A) or (C) of this Clause (iv), such Operating Lease was not Incurred in anticipation of such transaction and was outstanding prior to such transaction; and provided further, that the difference, if any, (but not less than zero) of (A) the annualized Rental Expense of such Operating Lease and (B) the annualized Rental Expense of any equivalent or similar Operating Lease relating to assets or properties disposed of in connection with such transaction and as to which the Company or such Restricted Subsidiary is no longer, directly or indirectly, liable or obligated under or as to which another Person with a Credit Rating equal to or greater than the Company shall have agreed to indemnify and hold harmless the Company or such Restricted Subsidiary with respect to all of its liabilities and obligations under such Operating Lease, together with the annualized Rental Expense of any other Operating Lease Incurred pursuant to this Clause (iv), shall not exceed $3.0 million in any fiscal year; (v) any Operating Lease in addition to those described in Clauses (i) through (iv) above and Clauses (vi) through (viii) below Incurred after the date of the Indenture the annualized Rental Expense of which, together with the annualized Rental Expense of any other Operating Lease Incurred pursuant to this internal Clause (v), shall not exceed the 3% of the Consolidated EBITDA of the Company for the four full fiscal quarters for which internal financial statements are available immediately preceding the Incurrence of such Operating Lease; (vi) any Operating Lease between the Company and a Wholly Owned Restricted Subsidiary or between a Wholly Owned Restricted Subsidiary and the Company or another Wholly Owned Restricted Subsidiary; provided, however, that in the case of the issuance (other than directors' qualifying shares), sale, lease, transfer or other disposition of shares of Capital Stock (including by a consolidation or merger) of such Wholly Owned Restricted Subsidiary to a Person other than the Company or another Wholly Owned Restricted Subsidiary, the provisions of this Clause (vi) shall no longer be applicable to such Operating Lease and such Operating Lease shall be deemed to have been Incurred at that time; 86 (vii) at the election of the Company, any Operating Lease in addition to that permitted to be Incurred pursuant to Clauses (i) through (vi) above and Clause (viii) below if (a) the Company treats the Attributable Value of such Operating Lease as Debt for all purposes under the Indenture, including for purposes of the pro forma calculation required by this Clause (vii), (b) the portion of Rental Expense in respect of such Operating Lease that would have been allocable to interest expense in accordance with generally accepted accounting principles if such Operating Lease was treated as a Capitalized Lease Obligation is treated as Consolidated Interest Expense of the Company for all purposes of the Indenture, including for purposes of the pro forma calculation required by this Clause (vii), and (c) the Company would, at the time of such Incurrence and after giving pro forma effect thereto as if such Incurrence had occurred at the beginning of the most recently ended four full fiscal quarter period for which internal financial statements are available immediately preceding the date of such Incurrence, have been permitted to Incur at least $1.00 of additional Debt pursuant to the Consolidated EBITDA Coverage Ratio test set forth in the first paragraph under "--Limitation on Incurrence of Debt"; and (viii) any renewal, extension or replacement (each a "replacement") of any Operating Lease permitted by Clause (i), (iv), (v), (vi) or (vii) or this Clause (viii); provided, that the Incurrence of an Operating Lease shall be deemed to be the replacement of another Operating Lease so long as the obligation to pay rent or other amounts does not begin earlier than one year prior to the end of the term of the Operating Lease being replaced; Limitations Concerning Distributions by Subsidiaries, Etc. The Company may not, and may not permit any Restricted Subsidiary to, suffer to exist any consensual encumbrance or restriction on the ability of any Restricted Subsidiary (i) to pay, directly or indirectly, dividends or make any other distributions in respect of its Capital Stock or other ownership interests or pay any Debt or other obligation owed to the Company or any other Restricted Subsidiary; (ii) to make loans or advances to the Company or any Restricted Subsidiary; or (iii) to sell, lease or transfer any of its property or assets to the Company or any Wholly Owned Restricted Subsidiary, except, in any such case, any encumbrance or restriction: (a) pursuant to the Notes, the Indenture, the Credit Facility and any other agreement in effect on the date of the Indenture, (b) pursuant to an agreement relating to any Debt Incurred by a Restricted Subsidiary prior to the date on which such Restricted Subsidiary was acquired by the Company and outstanding on such date and not Incurred in anticipation of becoming a Restricted Subsidiary, (c) pursuant to an agreement which has been entered into for the pending sale or disposition of all or substantially all of the assets of such Restricted Subsidiary or all or substantially all of the Capital Stock of such Restricted Subsidiary owned by the Company or any other Restricted Subsidiary, provided that such restriction terminates upon consummation of such disposition, (d) pursuant to customary provisions restricting assignments of contracts or subleases of leases, in each case, entered into in the ordinary course of business, (e) pursuant to purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in Clause (iii) above on the property so acquired, (f) pursuant to an agreement effecting a renewal, extension, refinancing or refunding of Debt Incurred pursuant to an agreement referred to in Clause (a) or (b) above (provided that the provisions relating to such encumbrance or restriction contained in such renewal, extension, refinancing or refunding are no more restrictive in any material respect than the provisions contained in the agreement it replaces) or (g) pursuant to or by reason of applicable law. (Section 1012). Limitation on Liens The Company may not, and may not permit any Restricted Subsidiary to, Incur any Lien on property or assets of the Company or such Restricted Subsidiary to secure Debt that is Pari Passu or subordinate in right of payment to the Notes without making, or causing such Restricted Subsidiary to make, effective provision for securing the Notes (and, if the Company may so determine, any other Debt of the Company or of such Restricted Subsidiary that is not Pari Passu or subordinate to the Notes) (i) in the case of Debt that is Pari Passu with the Notes, Pari Passu with such Debt and (ii) in the case of Debt that is subordinated in right of payment to the Notes prior to such Debt, in each case, as to such property for so long as such Debt will be so secured. (Section 1013). The Company may not, and may not permit any Restricted Subsidiary to, Incur any Lien (other than Permitted Liens) on property or assets of the Company or such Restricted Subsidiary to secure Debt that is not Pari Passu or subordinate in right of payment to the Notes without making, or causing such Restricted Subsidiary to make, effective provision for securing the Notes (and, if the Company may so determine, any other Debt of the Company or of such Restricted Subsidiary that is not subordinate to the Notes) equally and ratably with (or prior to) such Debt as to such property for so long as such Debt will be so secured. (Section 1013). Limitation on Transactions with Affiliates and Related Persons The Company may not, and may not permit any Restricted Subsidiary of the Company to, directly or indirectly, enter into any transaction after the date of the Indenture with any Affiliate or Related Person of the Company unless (i) such Affiliate or Related Person is (both before and after such transaction) (a) a Wholly Owned Subsidiary of the Company or (b) another Sub- 87 sidiary of the Company the minority interests in which are not held by any Affiliate or Related Person of the Company; (ii) such transaction is the payment of directors' fees; (iii) such transaction is the entering into of a laboratory services agreement in the ordinary course of the Company's or a Restricted Subsidiary's business on terms that are no less favorable to the Company or such Restricted Subsidiary as those that could be obtained in a comparable arm's length transaction; (iv) such transaction is the entering into a compensation arrangement between the Company or a Restricted Subsidiary and one of its employees, which transaction is approved by the compensation committee of the Board of Directors; (v) the transaction contemplated by Clause (ix) of the definition of Permitted Investments; or (vi) the following action is taken: (a) if the total consideration paid by the Company or such Restricted Subsidiary in such transaction (or series of transactions) of which it is a part (including cash, the fair value of non-cash property and the principal amount of any Debt assumed) (the "Consideration") is less than $5 million, then a duly authorized executive officer of the Company will deliver an officer's certificate to the Trustee within 10 days of such transaction (or series of transactions) wherein such officer certifies on behalf of the Company that in his or her good faith judgment the terms of the transaction (or series of transactions) are in the best interests of the Company and are no less favorable to the Company than those that could be obtained in a comparable arm's length transaction (or series of transactions) with an entity that is not a Affiliate or a Related Person; (b) if the Consideration is between $5 million and $15 million, then the determinations referred to in Clause (a) above must be made by a majority of the disinterested members of the Board of Directors; and (c) if the Consideration is greater than $15 million, then the determinations referred to in Clause (a) above, in addition to the action required by Clause (b) above, must also be confirmed by a nationally recognized investment banking firm (which may not be an Affiliate or Related Person of the Company), in a written opinion delivered to the Board of Directors prior to consummation of such transaction (or series of transactions); provided, however, that the foregoing restriction will not apply to the Intercompany Agreements as in effect on the date of the Indenture or the transactions contemplated thereby. (Section 1014). Limitation on Sale of Capital Stock of Restricted Subsidiaries The Company may not, and may not permit any Restricted Subsidiary to, issue, transfer, convey or otherwise dispose of any shares of Capital Stock (other than Preferred Stock that is not required or permitted to be redeemed or otherwise repaid, at the option of such Restricted Subsidiary or the holders thereof, prior to the final Stated Maturity of the Notes) of a Restricted Subsidiary or securities convertible or exchangeable into, or options, warrants, rights or any other interest with respect to, Capital Stock of a Restricted Subsidiary to any Person other than the Company or a Wholly Owned Restricted Subsidiary except in a transaction consisting of a sale of all of the Capital Stock of such Restricted Subsidiary owned by the Company and any Subsidiary of the Company and that complies with the provisions described under "Repurchase at the Option of Holders--Asset Dispositions" above to the extent such provisions apply. (Section 1015). Provision of Financial Information Whether or not the Company is subject to the reporting requirements of Section 13(a) or 15(d) of the Exchange Act, the Company will file with the Commission the annual reports, quarterly reports and other documents that the Company would have been required to file with the Commission pursuant to Section 13(a) or 15(d) if the Company were subject to such Section and will also provide to all Holders and file with the Trustee copies of such reports. (Section 1017). Unrestricted Subsidiaries The Company may at any time designate any Person that after the date of the Indenture becomes a Subsidiary of the Company as an "Unrestricted Subsidiary," whereupon (and until such Person ceases to be an Unrestricted Subsidiary) such Person and each other Person that is then or thereafter becomes a Subsidiary of such Person will be deemed to be an Unrestricted Subsidiary. In addition, the Company may at any time terminate the status of any Subsidiary of the Company as an Unrestricted Subsidiary, whereupon such Subsidiary and each other Subsidiary of the Company (if any) of which such Subsidiary is a Subsidiary will cease to be an Unrestricted Subsidiary. (Section 1018). Notwithstanding the foregoing, no change in the status of a Subsidiary of the Company from a Restricted Subsidiary to an Unrestricted Subsidiary or an Unrestricted Subsidiary to a Restricted Subsidiary (other than the change in status of a Non-Core Asset from a Restricted Subsidiary holding only Non-Core Assets to an Unrestricted Subsidiary) will be effective, unless (i) the Company would, at the time of such designation and after giving pro forma effect thereto as if such designation had occurred at the beginning of the most recently ended four full fiscal quarter period for which internal financial statements are available immediately preceding the date of such designation, have been permitted to Incur at least $1.00 of additional Debt pursuant to the Consolidated EBITDA Coverage Ratio test set forth in the first paragraph under "--Limitation on Incurrence of Debt"; (ii) in the case of any change in status of such a Subsidiary from a Restricted Subsidiary to an Unrestricted Subsidiary (other than pursuant to Clause (vi) of "Limitation on Restricted Payments" covenant), the fair market value of all assets of such Restricted Subsidiary prior to such change will be deemed a Restricted Payment for purposes of calculating the aggregate amount of 88 Restricted Payments pursuant to the provisions described in the first paragraph under "Limitation on Restricted Payments" above, and the incurrence of such Restricted Payment would be permitted by such covenant and (iii) such change would not otherwise result (after the giving of notice or the lapse of time, or both) in an Event of Default. In addition and notwithstanding the foregoing, no change in the status of a Subsidiary of the Company from a Restricted Subsidiary to an Unrestricted Subsidiary, and the status of any Subsidiary of the Company as an Unrestricted Subsidiary will be deemed to have been immediately terminated (with the effect described in the preceding paragraph) at any time when, (i) such Subsidiary (A) has outstanding Debt that is Unpermitted Debt or (B) owns or holds any Capital Stock of or other ownership interests in, or a Lien on any property or other assets of, the Company or any of its Restricted Subsidiaries, (ii) the Company or any Restricted Subsidiary (A) provides credit support for, or a Guaranty of, any Debt of such Subsidiary (including any undertaking, agreement or instrument evidencing such Debt) or (B) is directly or indirectly liable for any Debt of such Subsidiary or (iii) if and only if such Subsidiary does business under the name "Quest" or "Quest Diagnostics", such Subsidiary fails to notify in writing the holders of its Debt that such Debt is without recourse to the property and assets of the Company and its Restricted Subsidiaries. Any such termination otherwise prohibited by the restrictions described in the first sentence of this paragraph will be deemed to result in a default under the Indenture. "Unpermitted Debt" means any Debt of a Subsidiary of the Company if (x) a default thereunder (or under any instrument or agreement pursuant to or by which such Debt is issued, secured or evidenced), or any right that the holders thereof may have to take enforcement action against such Subsidiary or its property or other assets, would permit (whether or not after the giving of notice or the lapse of time or both) the holders of any Debt of the Company or any Restricted Subsidiary to declare the same due and payable prior to the date on which it otherwise would have become due and payable or otherwise to take any enforcement action against the Company or any such Restricted Subsidiary or (y) such Debt is secured by a Lien on any property or other assets of the Company and any of its Restricted Subsidiaries. (Section 1018). Mergers, Consolidations and Certain Sales of Assets The Company (i) may not consolidate with or merge into any Person (other than a Wholly Owned Restricted Subsidiary) or permit any Person (other than a Wholly Owned Restricted Subsidiary) to consolidate with or merge into the Company; and (ii) may not, directly or indirectly, in one or a series of transactions, transfer, convey, sell, lease or otherwise dispose of all or substantially all of its properties and assets; unless, in each case: (1) immediately before and after giving effect to such transaction (or series) and treating any Debt Incurred by the Company or a Restricted Subsidiary as a result of such transaction (or series) as having been Incurred by the Company or such Restricted Subsidiary at the time of the transaction (or series), no Event of Default or event that with the passing of time or the giving of notice, or both, will constitute an Event of Default shall have occurred and be continuing; (2) in a transaction (or series) in which the Company does not survive or in which the Company transfers, conveys, sells, leases or otherwise disposes of all or substantially all of its properties and assets, the successor entity is a corporation, partnership, limited liability company or trust and is organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and expressly assumes, by a supplemental indenture executed and delivered to the Trustee in form satisfactory to the Trustee, all the Company's obligations under the Indenture; (3) immediately after giving effect to such transaction (or series), the Company or the successor entity would have a Consolidated Net Worth not less than 95% of the Consolidated Net Worth of the Company immediately prior to such transaction (or series); (4) the Company would, at the time of such transaction (or series) and after giving pro forma effect thereto as if such transaction (or series) had occurred at the beginning of the most recently ended four full fiscal quarter period for which internal financial statements are available immediately preceding the date of such transaction (or series), have been permitted to Incur at least $1.00 of additional Debt pursuant to the Consolidated EBITDA Coverage Ratio test set forth in the first paragraph under "Certain Covenants--Limitation on Incurrence of Debt" above; (5) if, as a result of any such transaction, property or assets of the Company or any Restricted Subsidiary would become subject to a Lien prohibited by the "Certain Covenants--Limitation on Liens" covenant, the Company or the successor entity will have secured the Notes as required by such covenant; and (6) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel as specified in the Indenture. (Section 801). Certain Definitions Set forth below is a summary of certain of the defined terms used in the Indenture. Reference is made to the Indenture for the full definition of all such terms, as well as any other terms used herein for which no definition is provided. (Section 101). "Affiliate" of any Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Asset Disposition" by any Person means any transfer, conveyance, sale, lease or other disposition by such Person (including a consolidation or merger or other sale of any Restricted Subsidiary with, into or to another Person in a transaction in which such 89 Restricted Subsidiary ceases to be a Subsidiary of such Person) of (i) shares of Capital Stock (other than directors' qualifying shares) or other ownership interests of a Restricted Subsidiary or (ii) the property or assets of such Person or any Restricted Subsidiary representing a division or line of business or (iii) other assets or rights of such Person or any Restricted Subsidiary outside of the ordinary course of business: but excluding (i) one or more Asset Dispositions that in any fiscal year result in aggregate net proceeds of less than $1.0 million, (ii) the disposition of all or substantially all of the assets of the Company in a manner permitted pursuant to the provisions described above under "Mergers, Consolidations and Certain Sales of Assets," (iii) any disposition that constitutes a Restricted Payment or Permitted Investment that is permitted pursuant to the provisions described under "Certain Covenants--Limitation on Restricted Payments" and (iv) any transfer, conveyance, lease, sale or other disposition of the Company's laboratory facility in Boston, Massachusetts. "Attributable Value" means, as to any Operating Lease of any Person, and at any date as of which the amount thereof is to be determined, the total net amount of rent required to be paid by such Person under such lease during the initial term thereof as determined in accordance with generally accepted accounting principles, discounted from the last date of such initial term to the date of determination at a rate per annum equal to the discount rate which would be applicable to a Capital Lease Obligation with like term in accordance with generally accepted accounting principles. The net amount of rent required to be paid under any such lease for any such period shall be the aggregate amount of rent payable by the lessee with respect to such period excluding amounts required to be paid on account of insurance, taxes, assessments, utility, operating and labor costs and similar charges. In the case of any lease which is terminable by the lessee upon the payment of penalty, such net amount shall also include the lesser of the amount of such penalty (in which case no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated) or the rent which would otherwise be required to be paid if such lease is not so terminated. "Board of Directors" means the Board of Directors of the Company or a duly authorized committee thereof. "Capital Lease Obligation" of any Person means the obligation to pay rent or other payment amounts under a lease of (or other arrangements conveying the right to use) real or personal property of such Person which is required to be classified and accounted for as a capital lease or a liability on the face of a balance sheet of such Person in accordance with generally accepted accounting principles. The stated maturity of such obligation shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Capital Stock" of any Person means any and all shares, interests, participations or other equivalents (however designated) of equity interests of such Person. "Cash Equivalents" means, at any time, (i) any Debt (other than any Debt issued at a discount) fully guaranteed as to principal and interest by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof); (ii) certificates of deposit of any financial institution that has combined capital and surplus and undivided profits of not less than $50,000,000 (or the equivalent thereof in another currency) and has a long-term debt rating of at least "AA" by Standard & Poor's Ratings Group ("S&P") or at least "Aa3" by Moody's Investors Service, Inc. ("Moody's"), (iii) repurchase obligations for underlying securities of the type described in Clause (i) above entered into with any financial institution meeting the qualifications specified in Clause (ii) above or (iv) commercial paper issued by a corporation (other than Corning) organized under the laws of any State of the United States and rated at least A-1 by S&P or at least P-1 by Moody's or (v) readily marketable securities (other than securities issued at a discount) issued or fully and unconditionally guaranteed by any state of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least A-1 by S&P or at least P-1 by Moody's. "Common Stock" of any Person means Capital Stock of such Person that does not rank prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of Capital Stock of any other class of such Person. "Consolidated EBITDA" of any Person means for any period the Consolidated Net Income of such Person for such period increased by the sum of (i) Consolidated Interest Expense of such Person for such period, plus (ii) Consolidated Income Tax Expense of such Person for such period, plus (iii) the consolidated depreciation and amortization expense deducted in determining the Consolidated Net Income of such Person for such period; provided, however, that the Consolidated Interest Expense, Consolidated Income Tax Expense and consolidated depreciation and amortization expense of a Consolidated Subsidiary of such Person shall be added to the Consolidated Net Income pursuant to the foregoing only (x) to the extent and, in the case of a Restricted Subsidiary that is not a Wholly Owned Restricted Subsidiary, in the same proportion that the Consolidated Net Income of such Consolidated Subsidiary was included in calculating the Consolidated Net Income of such Person and (y) only to the extent that the amount specified in Clause (x) is not subject to restrictions that prevent the payment of dividends or the making of distributions to such Person. 90 "Consolidated EBITDA Coverage Ratio" of any Person means for any period (the "Reference Perod") with respect to any date of computation (the "Transaction Date") the ratio of (i) Consolidated EBITDA of such Person for such period to (ii) Consolidated Interest Expense of such Person for such period. In making the foregoing calculation, (A) pro forma effect shall be given to any Debt Incurred during such Reference Period or subsequent to the end of such Reference Period and on or prior to the Transaction Date to the extent such Debt is outstanding at the Transaction Date, in each case as if such Debt had been Incurred on the first day of such Reference Period and after giving pro forma effect to the application of the proceeds thereof as if such application had occurred on such first day; (B) Consolidated Interest Expense attributable to interest on any Debt (whether existing or being Incurred) computed on a pro forma basis and bearing a floating interest rate shall be computed as if the rate in effect on the Transaction Date (taking into account any Interest Rate Agreement applicable to such Debt if such Interest Rate Agreement has a remaining term in excess of 12 months or at least equal to the remaining term of such Debt) had been the applicable rate for the entire period; (C) there shall be excluded from Consolidated Interest Expense any Consolidated Interest Expense related to any amount of Debt that was outstanding during such Reference Period or thereafter but that is not outstanding or is to be repaid on the Transaction Date; and (D) pro forma effect shall be given to asset dispositions and asset acquisitions by such Person (including giving pro forma effect to the application of proceeds of any asset disposition) that occur during such Reference Period or thereafter and prior to the Transaction Date as if they had occurred and such proceeds had been applied on the first day of such Reference Period. "Consolidated Income Tax Expense" of any Person means for any period the consolidated provision for income taxes of such Person and its Consolidated Subsidiaries for such period determined in accordance with generally accepted accounting principles. "Consolidated Interest Expense" of any Person means for any period the consolidated interest expense included in a consolidated income statement (without deduction of interest income) of such Person and its Consolidated Subsidiaries for such period determined in accordance with generally accepted accounting principles, including without limitation or duplication (or, to the extent not so included, with the addition of), (i) the portion of any rental obligation in respect of any Capital Lease Obligation allocable to interest expense in accordance with generally accepted accounting principles; (ii) the amortization of Debt discounts; (iii) any payments or fees with respect to letters of credit, bankers' acceptances or similar facilities; (iv) fees with respect to Interest Rate Agreements or foreign currency hedge, exchange or similar agreements; (v) an amount calculated by dividing the Preferred Stock dividends declared and paid or payable in cash by a number equal to (a) one minus (b) the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal; (vi) the portion of the rental obligation in respect of any Sale and Leaseback Transaction allocable to interest expense (determined as if such obligation were a Capital Lease Obligation); (vii) any interest capitalized in accordance with generally accepted accounting principles and (viii) the portion of any Rental Expense in respect of any Specified Operating Lease which would have been allocable to interest expense in accordance with generally accepted accounting principles if such Specified Operating Lease were treated as a Capitalized Lease Obligation. "Consolidated Net Income" of any Person means for any period the consolidated net income (or loss) of such Person and its Consolidated Subsidiaries for such period determined in accordance with generally accepted accounting principles; provided that there shall be excluded therefrom to the extent included therein, without duplication, (a) the net income (or loss) of any Person acquired by such Person or a Restricted Subsidiary of such Person in a pooling-of-interests transaction for any period prior to the date of such transaction, (b) the net income (but not net loss) of any Consolidated Subsidiary of such Person that is subject to restrictions that prevent the payment of dividends or the making of distributions to such Person to the extent of such restrictions, (c) the net income (or loss) of any Person that is not a Consolidated Subsidiary of such Person except to the extent of the amount of dividends or other distributions actually paid to such Person by such other Person during such period, (d) net gains or losses on asset dispositions by such Person or its Consolidated Subsidiaries, (e) any net income (loss) of a Consolidated Subsidiary that is attributable to a minority interest in such Consolidated Subsidiary, (f) all extraordinary gains and extraordinary losses except to the extent such gain or loss involves a present or future cash payment, (g) all write-offs of goodwill and other items and non-cash adjustments, including charges associated with grants or awards of restricted stock, (h) $46.0 million and $155.7 million of charges taken in the second and third quarters, respectively, of fiscal 1996 and up to a $25.0 million charge to be taken in the fourth fiscal quarter of 1996 in connection with the Spin-Off Distributions (provided that, except to the extent provided by Clause (i) below, any cash payments made with respect to such charges on or after January 1, 1997, shall be subtracted from Consolidated Net Income in the period actually paid) and (i) any charge taken by the Company after the date of the Indenture to the extent the Company is reimbursed in cash for such charge pursuant to, and in accordance with, the Transaction Agreement. "Consolidated Net Worth" of any Person means the consolidated stockholders' equity of such Person and its Consolidated Subsidiaries, as determined on a consolidated basis in accordance with generally accepted accounting principles, less amounts attributable to Redeemable Interests of such Person; provided, however, that, with respect to the Company and its Consolidated Subsidiaries, adjustments following the date of the Indenture to the accounting books and records of the Company and its Consolidated Subsidiaries (other than the change in accounting policy for intangible assets as described in the first paragraph under "Management's Discussion and Analysis of Financial Condition and Results of Operations--Changes in Accounting Policies") 91 in accordance with Accounting Principles Board Opinions Nos. 16 and 17 (or successor opinions thereto) or otherwise resulting from the acquisition of control of the Company by another Person shall not be given effect to. "Consolidated Subsidiaries" of any Person means all other Persons that would be accounted for as consolidated Persons in such Person's financial statements in accordance with generally accepted accounting principles; provided, however, that, for any particular period during which any Subsidiary was an Unrestricted Subsidiary, "Consolidated Subsidiaries" will exclude such Subsidiary for such period (or portion thereof) during which it was an Unrestricted Subsidiary. "Credit Facility" means the Credit Agreement, dated as of December ___, 1996, among the Company, the banks named therein, NationsBank, N.A., as Issuing Bank, Wachovia Bank of Georgia, N.A., as Swingline Bank, and Morgan Guaranty Trust Company of New York, as Administrative Agent (and any related guarantee agreements), as amended from time to time, and including any and all renewals, refinancings, refundings or replacements thereof and successive renewals, refinancings, refundings and replacement thereof. "Credit Rating" means the long-term unsecured debt rating provided by either S&P or Moody's, or any successor to either thereof; provided, however, that if there is a difference in such ratings the lower rating shall be used. "Debt" means (without duplication), with respect to any Person, whether recourse is to all or a portion of the assets of such Person, (i) every obligation of such Person for money borrowed, (ii) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses, (iii) every reimbursement obligation of such Person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of such Person, with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of such Person, (iv) every obligation of such Person issued or assumed as the deferred purchase price of property or services (but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business), (v) every Capital Lease Obligation of such Person, (vi) the Attributable Value in respect of any Specified Operating Lease, (vii) the maximum fixed redemption or repurchase price of Redeemable Interests of such Person at the time of determination, (viii) every payment obligation of such Person under Interest Rate Agreements or foreign currency hedge, exchange or similar agreements at the time of determination and (ix) every obligation of the type referred to in Clauses (i) through (viii) of another Person and all dividends of another Person the payment of which, in either case, such Person has Guaranteed or for which such Person is responsible or liable, directly or indirectly, jointly or severally, as obligor, Guarantor or otherwise. "Guaranty" by any Person means any obligation, contingent or otherwise, of such Person guaranteeing any Debt, or dividends or distributions on any equity security, of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including, without limitation, any obligation of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Debt, (ii) to purchase property, securities or services for the purpose of assuring the holder of such Debt of the payment of such Debt, or (iii) to maintain working capital, equity capital or other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Debt (and "Guaranteed," "Guaranteeing" and "Guarantor" shall have meanings correlative to the foregoing); provided, however, that the Guaranty by any Person shall not include endorsements by such Person for collection or deposit, in either case, in the ordinary course of business. "Incur" means, with respect to any Debt, Operating Lease, or other obligation of any Person, to create, issue, incur (by conversion, exchange or otherwise), assume, Guarantee or otherwise become liable in respect of such Debt or other obligation or the recording, as required pursuant to generally accepted accounting principles or otherwise, of any such Debt or other obligation on the balance sheet of such Person (and "Incurrence," "Incurred," "Incurrable" and "Incurring" shall have meanings correlative to the foregoing); provided, however, that a change in generally accepted accounting principles that results in an obligation of such Person that exists at such time becoming Debt shall not be deemed an incurrence of such Debt. "Intercompany Agreement" means the Transaction Agreement, the Corning/Quest Diagnostics Spin-Off Tax Indemnification Agreement, the Quest Diagnostics/Covance Spin-Off Tax Indemnification Agreement, the Tax Sharing Agreement and any other agreements contemplated by the foregoing. "Interest Rate Agreement" means, with respect to any Person, any interest rate swap agreement, interest rate cap agreement or other similar agreement designed to protect such Person or its Subsidiaries (or in the case of the Company, the Company and its Restricted Subsidiaries) against fluctuations in interest rates. "Investment" by any Person in any other Person means (i) any direct or indirect loan, advance or other extension of credit or capital contribution to or for the account of such other Person (by means of any transfer of cash or other property to any Person or any payment for property or services for the account or use of any Person, or otherwise), (ii) any direct or indirect purchase 92 or other acquisition, including by way of merger or consolidation, of any Capital Stock, bond, note, debenture or other debt or equity security or evidence of Debt, or any other ownership interest, issued by such other Person, whether or not such acquisition is from such or any other Person, (iii) any direct or indirect payment by such Person on a Guaranty of any obligation of or for the account of such other Person or any direct or indirect issuance by such Person of such a Guaranty or (iv) any other investment of cash or other property by such Person in or for the account of such other Person. "Lien" means, with respect to any property or assets, any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, security interest, lien, charge, easement or title exception, encumbrance, preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever on or with respect to such property or assets (including any conditional sale or other title retention agreement having substantially the same economic effect as any of the foregoing). "Net Available Proceeds" from any Asset Disposition by any Person means cash or Cash Equivalents received (including by way of sale or discounting of a note, installment receivable or other receivable, but excluding any other consideration received in the form of assumption by the acquiree of Debt or other obligations relating to such properties or assets or received in any other noncash form) therefrom by such Person, net of (i) all legal, title and recording tax expenses, commissions and other fees and expenses Incurred and all federal, state, provincial, foreign and local taxes required to be accrued as a liability as a consequence of such Asset Disposition, (ii) all payments made by such Person or its Restricted Subsidiaries on any Debt that is secured by such assets in accordance with the terms of any Lien upon or with respect to such assets or that must, by the terms of such Lien, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law, be repaid out of the proceeds from such Asset Disposition, (iii) all distributions and other payments made to minority interest holders in Restricted Subsidiaries of such Person or joint ventures as a result of such Asset Disposition and (iv) any amounts required to be escrowed or reserved by such Person or its Restricted Subsidiaries with respect to liabilities retained by such Person or its Restricted Subsidiaries, including any indemnification or purchase price adjustments (provided that when such amounts are released from escrow or such reserve, such amounts will be treated as Net Available Proceeds and applied as required by the Indenture). "Non-Core Assets" means (i) the Company's domestic diagnostic kits business and (ii) those of the Company's domestic regional laboratories (and the assets and liabilities related thereto, including branch laboratories and patient service centers) (each hereinafter, a "Specified Laboratory") which had Operating Margin (as defined below) less than 3% for the nine month period ended September 30, 1996 as reflected in the internal financial statements of the Company for such period; provided, however, that, in the case of Clause (ii), a Specified Laboratory shall cease to be a Non-Core Asset if the Operating Margin of such Specified Laboratory for any four full fiscal quarters commencing with the four fiscal quarters ended December 31, 1996 exceeds 5% as reflected in the internal financial statements of the Company for such period. "Operating Margin" means with respect to a Specified Laboratory, the quotient of (x) the Consolidated EBITDA of the Company attributable to such Specified Laboratory (assuming for this purpose that corporate ovehead is allocated to the Specified Laboratory in an amount equal to 5% of the revenues of such Specified Laboratory) and (y) the Company's net revenues attributable to such Specified Laboratory, in each case, as reflected in the internal financial statements of the Company. Five of the Company's regional laboratories are Specified laboratories. The aggregate net revenues and EBITDA of the Company related to the Non-Core Assets for the year ended December 31, 1995 were $312.8 million and $18.6 million, respectively, and for the nine months ended September 30, 1996 were $233.6 million and $5.2 million, respectively. The Non-Core Assets had a tangible asset value of $116.7 million at September 30, 1996. "Operating Lease" of any Person means the obligation of such Person to pay rent or other payment amounts under a lease of (or other Debt arrangements conveying the right to use) real or personal property, other than a Capital Lease Obligation or a Sale and Leaseback Transaction; but excluding the Company's laboratory facility in Cambridge, Massachusetts.. "Pari Passu", when used with respect to the ranking of any Debt of any Person in relation to other Debt of such Person, means that each such Debt (a) either (i) is not subordinated in right of payment to any other Debt of such Person or (ii) is subordinate in right of payment to the same Debt of such Person as is the other and is so subordinate to the same extent and (b) is not subordinate in right of payment to the other or to any Debt of such Person as to which the other is not so subordinate. "Permitted Business" of the Company or any Restricted Subsidiary means a business carried on by the Company or any Restricted Subsidiary at the date of the Indenture and any business related, ancillary or complementary to any such business. "Permitted Investment" means (i) any Investment in a Wholly Owned Subsidiary of such Person, (ii) securities either issued directly or fully guaranteed or insured by the government of the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than one year, (iii) time deposits and certificates of deposit, having maturities of not more than one year from the date of deposit, of any domestic commercial bank having capital and surplus in excess of $500.0 million and having peer group rating of B or better (or the equivalent thereof) by Thompson BankWatch, Inc. or outstanding long-term debt rated BBB or better (or 93 the equivalent thereof) by S&P or Baa or better (or the equivalent thereof) by Moody's, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in Clauses (ii) and (iii) above entered into with any bank meeting the qualifications specified in Clause (iii) above, (v) commercial paper (other than commercial paper issued by an Affiliate or Related Person) rated A-1 or the equivalent thereof by S&P or P-1 or the equivalent thereof by Moody's, and in each case maturing within 90 days, (vi) any Investment in a Person that, as a consequence of such Investment, becomes a Restricted Subsidiary and that is engaged in a Permitted Business if (A) the Company would, at the time of such Investment and after giving pro forma effect thereto as if such Investment had been made at the beginning of the most recently ended four full fiscal quarter period for which internal financial statements are available immediately preceding the date of such Investment, have been permitted to Incur at least $1.00 of additional Debt pursuant to the Consolidated EBITDA Coverage Ratio test set forth in the first paragraph under "Certain Covenants--Limitation on Incurrence of Debt" above and (B) immediately after giving effect to such Investment, the Company would have a Consolidated Net Worth not less than 95% of the Consolidated Net Worth of the Company immediately prior to such Investment, (vii) receivables owing to the Company or a Subsidiary of the Company if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms, (viii) extensions of trade credit made in the ordinary course of business and on customary terms, (ix) the letter of credit issued pursuant to the Credit Facility in favor of Kenneth W. Freeman to secure his pension benefits in an amount not to exceed $10.0 million and (x) any Investment in addition to Investments permitted to be made by Clauses (i) through (ix) above if the aggregate amount (including cash and the fair value of property other than cash, as determined by the Board of Directors) of such Investment, together with all other investments made pursuant to this Clause (x) and then held by the Company and its Restricted Subsidiaries (determined as of the time made), does not exceed $5.0 million. "Permitted Joint Venture" means any Person which is engaged in the acquisition, ownership, operation or management of assets in a Permitted Business. "Permitted Joint Venture Investment" means an Investment in a Permitted Joint Venture. "Permitted Liens" means (i) Liens existing at the date of the Indenture; (ii) Liens securing only Senior Debt; (iii) Liens securing only the Notes; (iv) Liens in favor of only the Company; (v) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company (provided that such Lein was not Incurred in anticipation of such transaction and was in existence prior to such transaction); (vi) Liens on property existing immediately prior to the acquisition thereof (provided that such Lien was not Incurred in anticipation of such transaction and was in existence prior to such transaction); (vii) Liens to secure Debt Incurred for the purpose of financing all or any part of the purchase price or the cost of construction or improvement of the property subject to such Liens; provided that (a) the principal amount of any Debt secured by such Lien does not exceed 100% of such purchase price or cost, (b) such Lien does not extend to or cover any other property other than such item of property and any improvements on such item, (c) such Lien is incurred prior to or within 270 days after the acquisition of such property or the completion of the relevant improvements and (d) the Incurrence of such Debt is permitted pursuant to the covenants described under "Certain Covenants--Limitation on Incurrence of Debt" and "--Limitation on Layered and Junior Debt"; (viii) Liens on property of the Company or any of its Subsidiaries in favor of the United States of America or any state thereof, or any instrumentality of either, to secure certain payments pursuant to any contract or statute; (ix) Liens for taxes or assessments or other governmental charges or levies which are being contested in good faith and for which adequate reserves are being maintained, to the extent required by generally accepted accounting principles; (x) title exceptions, easements and other similar Liens that are not consensual and that do not materially impair the use of the property subject thereto; (xi) Liens to secure obligations under workmen's compensation laws, unemployment compensation, old-age pensions and other social security benefits or similar legislation, including Liens with respect to judgments which are not currently dischargeable; (xii) warehousemen's, materialmen's and other similar Liens for sums being contested in good faith and with respect to which adequate reserves are being maintained, to the extent required by generally accepted accounting principles; (xiii) Liens Incurred to secure the performance of statutory obligations, surety or appeal bonds, performance or return-of-money bonds or other obligations of a like nature incurred in the ordinary course of business; (xiv) Liens to secure payment of the Company's sinking fund obligations in respect of certain Debt of the Company outstanding at the date of the Indenture in the amount of (pound)5 million in connection with the Company's acquisition of J.S. Pathology PLC in 1993; and (xv) Liens to secure any extension, renewal, refinancing or refunding (or successive extensions, renewals, refinancings or refundings), in whole or in part, of any Debt secured by Liens referred to in the foregoing Clauses (i) to (xiv) so long as such Lien does not extend to any other property and the Debt so secured is not increased. "Preferred Stock", as applied to the Capital Stock of any Person, means Capital Stock of such Person of any class or classes (however designated) that ranks prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of Capital Stock of any other class of such Person. "Redeemable Interest" of any Person means any equity security of or other ownership interest in such Person that by its terms or otherwise is required to be redeemed or repaid prior to the Stated Maturity of the Notes or is redeemable or repayable at the option of the holder thereof at any time prior to the Stated Maturity of the Notes. 94 "Related Person" of any Person means any other Person owning (a) 5% or more of the outstanding Common Stock of such Person or (b) 5% or more of the Voting Stock of such Person. "Rental Expense" in respect of an Operating Lease means the total rental expense under such Operating Lease determined in accordance with generally accepted accounting principles. "Restricted Subsidiary" means any Subsidiary of the Company other than an Unrestricted Subsidiary. "Sale and Leaseback Transaction" means an arrangement with any lender or investor or to which such lender or investor is a party (excluding the Company's laboratory facility in Cambridge, Massachusetts and the real property leased by the Company in Des Plaines, Illinois) providing for the leasing by a Person of any property or asset of such Person which has been or is being sold or transferred by such Person more than 270 days after the acquisition thereof or the completion of construction or commencement of operation thereof to such lender or investor or to any person to whom funds have been or are to be advanced by such lender or investor on the security of such property or asset. The stated maturity of such arrangement shall be the date of the last payment of rent or any other amount due under such arrangement prior to the first date on which such arrangement may be terminated by the lessee without payment of a penalty. "Senior Debt" means (i) Debt of the Company created pursuant to the Credit Facility including all reborrowings by the Company, (ii) all other Debt of the Company referred to in clauses (i), (ii), (iii) or (vii) of the definition of Debt, whether Incurred on or prior to the date of the Indenture or thereafter Incurred and (iii) amendments, modifications, renewals, extensions, refinancings and refundings by the Company of any such Debt; provided, however, the following shall not constitute Senior Debt: (A) any Debt owed to a Person when such Person is a Subsidiary of the Company, (B) any Debt which by the terms of the instrument creating or evidencing the same is not superior in right of payment to the Notes, (C) any Debt Incurred in violation of the Indenture or (D) any Debt which is subordinated in right of payment in any respect to any other Debt of the Company. For purposes of this definition, "Debt" includes any obligation to pay principal, premium (if any), interest, penalties, reimbursement or indemnity amounts, fees and expenses (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company whether or not a claim for post-petition interest is allowed in such proceeding). "Specified Operating Lease" means any Operating Lease that the Company elects to Incur pursuant to Clause (vii) of the provisions of the Indenture described under "Certain Covenants--Limitation on Leases." "Spin-Off Distributions" means, collectively, (i) the distribution to holders of common stock of Corning of all of the outstanding shares of common stock of the Company and (ii) the distribution to holders of common stock of the Company of all of the outstanding shares of common stock of Covance. "Spin-Off Payments" means: (i) the distribution to holders of Company Common Stock of all of the outstanding shares of Covance Common Stock, (ii) the repayment of $500 million (A) intercompany obligations owed to Corning by the Company and (B) payments under the Tax Sharing Agreement; (iii) the issuance by the Company of up to $1.0 million liquidation preference preferred stock to Corning and the payment of cash dividends thereon; provided, however, that the aggregate amount of all such dividends following the date of the Indenture shall not exceed $150,000 per year; (iv) the transfer of $140 million from Covance to the Company and subsequent transfer from the Company to Corning of such $140 million in repayment of intercompany debt owed by Covance to Corning and the Company and in repayment of certain tax liabilities of Covance and in satisfaction of a dividend from Covance to the Company and (v) the payment of any amount of cash by the Company to Corning that may be necessary so that the Company will not have more than $40 million of cash at the time of the Distribution Date plus the Net Available Proceeds from any asset dispositions made prior to the Distribution Date. "Subordinated Debt" means Debt of the Company as to which the payment of principal of (and premium, if any) and interest and other payment obligations in respect of such Debt shall be subordinate to the prior payment in full of the Notes to at least the following extent: (i) no payments of principal of (or premium, if any) or interest on or otherwise due in respect of such Debt may be permitted for so long as any default in the payment of principal (or premium, if any) or interest on the Notes exists; (ii) in the event that any other default that with the passing of time or the giving of notice, or both, would constitute an event of default exists with respect to the Notes, upon notice by 25% or more in principal amount of the Notes to the Trustee, the Trustee shall have the right to give notice to the Company and the holders of such Debt (or trustees or agents therefor) of a payment blockage, and thereafter no payments of principal of (or premium, if any) or interest on or otherwise due in respect of such Debt may be made for a period of 179 days from the date of such notice; and (iii) such Debt may not (x) provide for payments of principal of such Debt at the stated maturity thereof or by way of a sinking fund applicable thereto or by way of any mandatory redemption, defeasance, retirement or repurchase thereof by the Company (including any redemption, retirement or repurchase which is contingent upon events or circumstances, but excluding any retirement required by virtue of acceleration of such Debt upon an event of default thereunder), in each case prior to the final Stated Maturity of the Notes or (y) permit redemption or other retirement (including pursuant to an offer to purchase made by the Company) of such other Debt at the 95 option of the holder thereof prior to the final Stated Maturity of the Notes, other than a redemption or other retirement at the option of the holder of such Debt (including pursuant to an offer to purchase made by the Company) which is conditioned upon a change of control of the Company pursuant to provisions substantially similar to those described under "Repurchase at the Option of Holders--Change of Control" (and which shall provide that such Debt will not be repurchased pursuant to such provisions prior to the Company's repurchase of the Notes required to be repurchased by the Company pursuant to the provisions described under "Repurchase at the Option of Holders--Change of Control"). "Subsidiary" of any Person means (i) a corporation more than 50% of the outstanding Voting Stock of which is owned, directly or indirectly, by such Person or by one or more other Subsidiaries of such Person or by such Person and one or more Subsidiaries thereof, (ii) a partnership of which such Person, or one or more other Subsidiaries of such Person or such Person and one or more other Subsidiaries thereof, directly or indirectly, is the general partner and has the power to direct the policies, management and affairs or (iii) any other Person (other than a corporation or partnership) in which such Person, or one or more other Subsidiaries of such Person or such Person and one or more other Subsidiaries thereof, directly or indirectly, has at least a majority ownership interest and power to direct the policies, management and affairs thereof. "Transaction Agreement" means the Transaction Agreement among Corning, the Company and Covance dated December __, 1996. "Unrestricted Subsidiary" means Associated Clinical Laboratories L.P., Damon Investment Holdings, Inc., Corning Laboratorios Clinicos, S.A. de C.V., Laboratorios Clinicos de Mexico, S.A. de C.V., Servicios de Laboratorio, S.A. de C.V., Laboratorios de Frontera Polanco, S.A. de C.V., Laboratorios de Analisis Biomedicus, S.A., Metpath Europe Limited, National Imaging Associates Inc., Nichols Institute International Holding B.V., Nichols Institute Sales Corporation, Nichols Institute Diagnostics Limited, Nichols Institute Diagnostics Trading S.A.; Nichols Institute Diagnostics GMBH, Nichols Institute Diagnostics B.V. Analisis, D.A., Trans United Casualty and Indemnity Insurance Company, and each other Subsidiary of the Company that is deemed to be an Unrestricted Subsidiary in accordance with the provisions in the Indenture described under the caption "Certain Covenants--Unrestricted Subsidiaries." The aggregate net revenues, and net loss from the Unrestricted Subsidiaries for the year ended December 31, 1995 were $21.7 million, and $0.5 million, respectively. The Unrestricted Subsidiaries had an aggregate book value of $0.1 million, at December 31, 1995. The aggregate net revenues and net income for the Unrestricted Subsidiaries was less than 3% of the Company's net revenues and net income for the nine months ended September 30, 1996. The Unrestricted Subsidiaries had an aggregate net book value of less than 3% of the Company's net book value at September 30, 1996. "U.S. Government Obligations" means securities that are (x) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (y) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3 (a) (2) of the Securities Act of 1933, as amended) as custodian with respect to any such U.S. Government Obligation or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal of or interest on the U.S. Government Obligation evidenced by such depository receipt. "Voting Stock" of any Person means Capital Stock of such Person that ordinarily has voting power for the election of directors (or persons performing similar functions) of such Person, whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency. "Weighted Average Life" means, as of the date of determination, with respect to any Debt, the quotient obtained by dividing (i) the sum of the products of the number of years from the date of determination to the dates of each successive scheduled principal payment of such Debt and the amount of such principal by (ii) the sum of all such principal payments. "Wholly Owned" means, with respect to any Subsidiary of any Person, the ownership of all of the outstanding Capital Stock or other ownership interests of such Subsidiary (other than directors' qualifying shares or Investments by foreign nationals mandated by applicable law) by such Person or one or more Wholly Owned Subsidiaries of such Person or any combination of the foregoing. Events of Default The following will be Events of Default under the Indenture: (a) failure to pay any interest on any Note when due (whether or not prohibited by the subordination provisions described under "Subordination" above), continued for 30 days; (b) failure to pay principal of (or premium, if any, on) any Note when due (whether or not prohibited by the subordination provisions described 96 under "Subordination" above); (c) failure to perform or comply with the provisions described under "Mergers, Consolidations and Certain Sales of Assets" or the provisions described under "Repurchase at the Option of Holders--Asset Dispositions" and "--Change of Control"; (d) failure to perform any other covenant or warranty of the Company in the Indenture, continued for 60 days after written notice to the Company as provided in the Indenture; (e) a default or defaults under any bonds, debentures, notes or other evidences of, or obligations constituting, Debt by the Company or any Restricted Subsidiary or under any mortgages, indentures, instruments or agreements under which there may be issued or existing or by which there may be secured or evidenced any Debt of the Company or any such Restricted Subsidiary with a principal or similar amount then outstanding, individually or in the aggregate, in excess of $15.0 million, whether such Debt now exists or is hereafter created, which default or defaults constitute a failure to pay any portion of the principal of such Debt at final stated maturity when due and payable after the expiration of any applicable grace period with respect thereto or will have resulted in such Debt becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable; (f) the rendering of a final judgment or judgments (not subject to appeal) against the Company or any of its Restricted Subsidiaries in an aggregate amount in excess of $15.0 million which remains unstayed, undischarged or unbonded for a period of 60 days thereafter; and (g) certain events of bankruptcy, insolvency or reorganization affecting the Company or any Restricted Subsidiary of the Company. (Section 501). Subject to the provisions of the Indenture relating to the duties of the Trustee in case an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the Holders, unless such Holders have offered to the Trustee reasonable indemnity. (Section 603). Subject to such provisions for the indemnification of the Trustee, the Holders of a majority in aggregate principal amount of the Outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. (Section 512). If an Event of Default (other than an Event of Default of the type described in Clause (g) above insofar as the Company is concerned) occurs and is continuing, either the Trustee or the Holders of at least 25% in aggregate principal amount of the Outstanding Notes may accelerate the maturity of all Notes, and if an Event of Default of the type described in Clause (g) above occurs insofar as the Company is concerned, the principal of and any accrued interest on the Notes then outstanding will become immediately due and payable; provided, however, that after such acceleration, but before a judgment or decree based on acceleration, the Holders of a majority in aggregate principal amount of Outstanding Notes may, under certain circumstances, rescind and annul such acceleration if all Events of Default, other than the non-payment of accelerated principal, have been cured or waived as provided in the Indenture. (Section 502). For information as to waiver of defaults, see "Modification and Waiver." No Holder of any Note will have any right to institute any proceeding with respect to the Indenture or for any remedy thereunder, unless such Holder has previously given to the Trustee written notice of a continuing Event of Default and unless also the Holders of at least 25% in aggregate principal amount of the Outstanding Notes have made written request, and offered reasonable indemnity, to the Trustee to institute such proceeding as trustee, and the Trustee has not received from the Holders of a majority in aggregate principal amount of the Outstanding Notes a direction inconsistent with such request and has failed to institute such proceeding within 60 days. However, such limitations do not apply to a suit instituted by a Holder of a Note for enforcement of payment of the principal of (and premium, if any) or interest on such Note on or after the respective due dates expressed in such Note. (Section 507). In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to the provisions described in the first paragraph above under "Optional Redemption," an equivalent premium will also become and be immediately due and payable upon the acceleration of the Notes. The Company will be required to furnish to the Trustee annually a statement as to the performance by the Company of certain of its obligations under the Indenture and as to any default in such performance. The Company will be required to deliver to the Trustee, as soon as possible and in any event within 10 days after the Company becomes aware of the occurrence of an Event of Default or an event which, with notice or the lapse of time or both, would constitute an Event of Default, an Officers' Certificate setting forth the details of such Event of Default or default, and the action which the Company proposes to take with respect thereto. (Section 1019). Defeasance The Indenture will provide that (A) if applicable, the Company will be discharged from any and all obligations in respect of the Outstanding Notes (including the provisions described under "Subordination") or (B) if applicable, the Company may omit to comply with certain restrictive covenants, and that such omission will not be deemed to be an Event of Default under the 97 Indenture and the Notes and the provisions described under "Subordination" shall cease to apply, in either case (A) or (B) upon irrevocable deposit with the Trustee, in trust, of money and/or U.S. Government Obligations that will provide money in an amount sufficient in the opinion of a nationally recognized firm of independent certified public accountants to pay the principal of, and premium, if any, and each installment of interest, if any, on the Outstanding Notes. With respect to clause (B), the obligations under the Indenture other than with respect to such covenants and the Events of Default other than the Event of Default relating to such covenants above will remain in full force and effect. Such trust may only be established if, among other things (i) with respect to clause (A), the Company has received from, or there has been published by, the Internal Revenue Service a ruling or there has been a change in law, which in the Opinion of Counsel provides that Holders of the Notes will not recognize gain or loss for Federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to Federal income tax on the same amount, in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred; or, with respect to clause (B), the Company has delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the Notes will not recognize gain or loss for Federal income tax purposes as a result of such deposit and defeasance and will be subject to Federal income tax on the same amount, in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred; (ii) no Event of Default (or event that with the passing of time or the giving of notice, or both, will constitute an Event of Default) shall have occurred or be continuing; (iii) the Company has delivered to the Trustee an Opinion of Counsel to the effect that such deposit shall not cause the Trustee or the trust so created to be subject to the Investment Company Act of 1940; (iv) no default on any Senior Debt shall have occurred and be continuing; and (v) certain other customary conditions precedent are satisfied. (Sections 1301, 1302, 1303 and 1304). In the event the Company omits to comply with its remaining obligations under the Indenture and the Notes after a defeasance of the Indenture with respect to the Notes as described under Clause (B) above and the Notes are declared due and payable because of the occurrence of any Event of Default, the amount of money and U.S. Government Obligations on deposit with the Trustee may be insufficient to pay amounts due on the Notes at the time of the acceleration resulting from such Event of Default. However, the Company will remain liable in respect of such payments. Modification and Waiver Modifications and amendments of the Indenture may be made by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Outstanding Notes; provided, however, that no such modification or amendment may, without the consent of the Holder of each Outstanding Note affected thereby, (a) change the Stated Maturity of the principal of, or any installment of interest on, any Note, (b) reduce the principal amount of, (or the premium, if any) or interest on, any Note, (c) change the place or currency of payment of principal of, (or premium, if any) or interest on, any Note, (d) impair the right to institute suit for the enforcement of any payment on or with respect to any Note, (e) reduce the above-stated percentage of Outstanding Notes necessary to modify or amend the Indenture, (f) reduce the percentage of aggregate principal amount of Outstanding Notes necessary for waiver of compliance with certain provisions of the Indenture or for waiver of certain defaults, (g) modify any provisions of the Indenture relating to the modification and amendment of the Indenture or the waiver of past defaults or covenants, except as otherwise specified, (h) modify any of the provisions of the Indenture relating to the subordination of the Notes in a manner adverse to the Holders or (i) modify the provisions described under "Repurchase at the Option of Holders--Asset Dispositions" and under "--Change of Control" in a manner adverse to the Holders thereof. (Section 902). The Holders of a majority in aggregate principal amount of the Outstanding Notes may waive compliance by the Company with certain restrictive provisions of the Indenture. (Section 1020). The Holders of a majority in aggregate principal amount of the Outstanding Notes may waive any past default under the Indenture, except a default in the payment of principal (or premium, if any) or interest. (Section 513). Notices Notices to Holders of Notes will be given by mail to the addresses of such Holders as they may appear in the Security Register. (Sections 101 and 106). Title The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name a Note is registered as the absolute owner thereof (whether or not such Note may be overdue) for the purpose of making payment and for all other purposes. (Section 308). Governing Law The Indenture and the Notes will be governed by, and construed in accordance with, the law of the State of New York. (Section 112). 98 Underwriting Under the terms and subject to the conditions in an Underwriting Agreement, dated December , 1996 (the "Underwriting Agreement"), each of the Underwriters named below (the "Underwriters") has severally agreed to purchase, and Quest Diagnostics has agreed to sell to it, the principal amount of the Notes set forth opposite its name below:
Principal Amount Underwriter of Notes - ----------- --------- J.P. Morgan Securities Inc. $ Goldman, Sachs & Co. Lazard Freres & Co. LLC TOTAL $150,000,000 ==============
Under the terms and conditions of the Underwriting Agreement, the Underwriters are committed to take and pay for all of the Notes, if any are taken. Under certain circumstances, the commitments of non-defaulting Underwriters may be increased as provided in the Underwriting Agreement. The Underwriters propose to offer the Notes in part directly to the public at the initial public offering price set forth on the cover page of this Prospectus and in part to certain securities dealers at such price less a concession of % of the principal amount of the Notes. The Underwriters may allow, and such dealers may reallow, a concession not to exceed % of the principal amount of the Notes to certain brokers and dealers. After the Notes are released for sale to the public, the offering price and other selling terms may from time to time be varied by the Underwriters. The Notes will be issued prior to the consummation of the Distributions. See "The Distributions." The Notes are a new issue of securities with no established trading market. Quest Diagnostics has been advised by the Underwriters that the Underwriters intend to make a market in the Notes but they are not obligated to do so and may discontinue any such market making at any time without notice. No assurance can be given as to the liquidity of the trading market for the Notes. See "Risk Factors--Absence of a Prior Public Market." Corning has engaged Goldman, Sachs & Co., Lazard Freres & Co. LLC and J.P. Morgan Securities Inc. as its financial advisors in connection with the Distributions and has agreed to pay Goldman, Sachs & Co., Lazard Freres & Co. LLC and J.P. Morgan Securities Inc. a customary fee for their services and to indemnify Goldman, Sachs & Co., Lazard Freres & Co. LLC and J.P. Morgan Securities Inc. against certain liabilities. J.P. Morgan Securities Inc. is the Administration Agent under the Credit Facility and is entitled to certain fees and indemnification in that capacity. See "Description of the Credit Facility." The Underwriters also perform other investment banking and financial advisory services for Corning from time to time. Quest Diagnostics and Corning have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. 99 Validity of the Notes and Guarantees The validity of the Notes and Guarantees offered hereby will be passed upon for Quest Diagnostics by Shearman & Sterling, New York, New York and for the Underwriters by Sullivan & Cromwell, New York, New York. In rendering their opinions on the validity of the Guarantees, Shearman & Sterling and Sullivan & Cromwell will express no opinion as to Federal or state laws relating to fraudulent transfers. See "Risk Factors--Fraudulent Conveyance." Experts The combined financial statements of Corning Clinical Laboratories Inc. at December 31, 1995 and 1994 and for the years then ended, included in this Prospectus have been so included in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. The combined financial statements of Corning Clinical Laboratories Inc. for the year ended December 31, 1993 included in this Prospectus have been so included in reliance on the report of Price Waterhouse LLP, independent accountants, which is based in part on (i) the report of Deloitte & Touche LLP, independent auditors, in respect of the consolidated financial statements of Nichols Institute for the year ended December 31, 1993 (not presented separately in this Prospectus) which report includes explanatory paragraphs related to uncertainties as to an investigation by the Office of the Inspector General of the Department of Health and Human Services and substantial doubt as to the Company's ability to continue as a going concern, (ii) the report of Ernst and Young LLP, independent auditors, in respect of the combined financial statements of Maryland Medical Laboratory, Inc. and affiliates as of and for the year ended March 31, 1994 (not presented separately in this Prospectus), and (iii) the report of Leverone & Company, independent accountants, in respect of the financial statements of Moran Research Labs (d/b/a Bioran Medical Laboratory, a Massachusetts Business Trust) as of and for the year ended December 31, 1993 (not presented separately in this Prospectus). The combined financial statements of Corning Clinical Laboratories Inc. for the year ended December 31, 1993, included in this Prospectus have been so included in reliance on the reports of said firms, given on the authority of such firms as experts in accounting and auditing. 100 Index to Financial Statements
Page ---- FINANCIAL STATEMENTS OF Corning Clinical Laboratories Inc. (to be renamed Quest Diagnostics Incorporated) Report of Price Waterhouse LLP--Independent Accountants F-2 Report of Deloitte and Touch LLP--Independent Auditors F-3 Report of Ernst & Young LLP--Independent Auditors F-4 Report of Leverone and Company--Independent Accountants F-5 Combined Financial Statements: Combined Balance Sheets--December 31, 1995 and 1994 F-6 Combined Statements of Operations--Years ended December 31, 1995, 1994 and 1993 F-7 Combined Statements of Cash Flows--Years ended December 31, 1995, 1994 and 1993 F-8 Combined Statements of Stockholder's Equity--Years ended December 31, 1995, 1994 and 1993 F-9 Notes to Combined Financial Statements F-10 Quarterly Operating Results (unaudited) F-22 Interim Combined Financial Statements (unaudited): Combined Balance Sheets--September 30, 1996 and December 31, 1995 F-23 Combined Statements of Operations--Three and Nine Months ended September 30, 1996 and 1995 F-24 Combined Statements of Cash Flows--Nine Months ended September 30, 1996 and 1995 F-25 Notes to Interim Combined Financial Statements F-26
F-1 Report of Independent Accountants To the Boards of Directors and Stockholders of Corning Incorporated and Corning Clinical Laboratories Inc. In our opinion, based upon our audits and the reports of other auditors, the accompanying combined balance sheets and the related combined statements of operations and of cash flows and of stockholder's equity appearing on pages F-6 through F-21 present fairly, in all material respects, the financial position of Corning Clinical Laboratories Inc. (to be renamed Quest Diagnostics Incorporated) and the combined companies as discussed in Note 1 (collectively, the "Company"), a wholly-owned business of Corning Incorporated, at December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the 1993 financial statements of Maryland Medical Laboratory, Inc., Nichols Institute and Bioran Medical Laboratory, which were acquired by the Company in 1994 in separate transactions accounted for as poolings of interests and which collectively reflect total revenues of $438 million for the year ended December 31, 1993. Those statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for Maryland Medical Laboratory, Inc., Nichols Institute and Bioran Medical Laboratory, is based solely on the reports of the other auditors. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for the opinion expressed above. As discussed in Note 2 to the combined financial statements, in 1993 the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." /s/ Price Waterhouse LLP Price Waterhouse LLP New York, New York September 20, 1996, except for Note 13 as to which the date is November 4, 1996 F-2 Report of Independent Auditors To the Board of Directors and Stockholders of Nichols Institute: We have audited the consolidated statements of operations, stockholders' equity and cash flows for the year ended December 31, 1993 of Nichols Institute and its subsidiaries (the Company) (not presented separately herein). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of Nichols Institute and its subsidiaries for the year ended December 31, 1993, in conformity with generally accepted accounting principles. As discussed in Note 11 to the consolidated financial statements, the Company has received a subpoena from the Office of the Inspector General of the Department of Health and Human Services (OIG) requesting documents in connection with an investigation and internal review concerning the possible submission of false or improper claims to the Medicare and Medicaid programs. No claim or charges have been made against the Company relating to this investigation. The ultimate outcome of this investigation cannot presently be determined. Accordingly, no provision for any loss that may result from this investigation has been made in the accompanying consolidated financial statements. As discussed in Notes 1 and 3 to the consolidated financial statements, at December 31, 1993, the Company was not in compliance with certain covenants of its senior note agreements and the senior lenders have not waived those covenants. The senior note agreements provide that, as a result of failure to comply with the covenants, the note holders have the right to declare the entire unpaid balance immediately due and payable, and if that were to occur, the Company would not have the funds required to retire the debt unless alternative financing is obtained. Management's plans in regard to these matters are described in Notes 1 and 3. The note holders' right to declare the entire unpaid balance under the note agreements immediately due and payable raises substantial doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty, except for the classification of amounts due under the senior note agreements as current. /s/ Deloitte & Touche LLP Deloitte & Touche LLP Costa Mesa, California February 28, 1994 F-3 Report of Independent Auditors Board of Directors Maryland Medical Laboratory, Inc. We have audited the combined balance sheet of Maryland Medical Laboratory, Inc. and affiliates as of March 31, 1994, and the related combined statements of income, changes in equity and cash flows for the year then ended (not presented separately herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of Maryland Medical Laboratory, Inc. and affiliates at March 31, 1994, and the combined results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Ernst & Young LLP Baltimore, Maryland May 19, 1994 F-4 Report of Independent Accountants To the Board of Directors Moran Research Labs 415 Massachusetts Avenue Cambridge, MA 02139 We have audited the accompanying balance sheet of Moran Research Labs (d/b/a Bioran Medical Laboratory, a Massachusetts Business Trust) as of December 31, 1993, and the related statements of income, retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Moran Research Labs (d/b/a Bioran Medical Laboratory, a Massachusetts Business Trust) at December 31, 1993 and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ Leverone & Company Leverone & Company Billerica, Massachusetts November 10, 1994 F-5 CORNING CLINICAL LABORATORIES INC. (to be renamed Quest Diagnostics Incorporated) (a wholly-owned business of Corning Incorporated) Combined Balance Sheets December 31, 1995 and 1994 (in thousands)
1995 1994 ------------- ------------- ASSETS Current Assets: Cash and cash equivalents $ 36,446 $ 38,719 Accounts receivable, net of allowance of $147,947 and $74,829 for 1995 and 1994, respectively 318,252 360,410 Inventories 26,601 28,248 Deferred taxes on income 98,845 53,696 Prepaid expenses and other assets 22,014 19,241 ------------- ------------- Total current assets 502,158 500,314 Property, plant and equipment, net 296,116 287,562 Intangible assets, net 1,030,633 1,053,194 Deferred taxes on income 6,062 19,593 Other assets 18,416 22,000 ------------- ------------- TOTAL ASSETS $1,853,385 $1,882,663 ============= ============= LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilities: Accounts payable and accrued expenses $ 240,525 $ 236,887 Current portion of long-term debt 12,148 12,572 Income taxes payable 39,766 30,454 Due to Corning Incorporated and affiliates 8,979 6,043 ------------- ------------- Total current liabilities 301,418 285,956 Long-term debt (principally due to Corning Incorporated) 1,195,566 1,153,054 Other liabilities 60,600 56,841 ------------- ------------- Total liabilities 1,557,584 1,495,851 ------------- ------------- Commitments and Contingencies Stockholder's Equity: Contributed capital 297,823 297,823 Retained earnings (accumulated deficit) (3,118) 85,893 Cumulative translation adjustment 2,325 3,096 Market valuation adjustment (1,229) -- ------------- ------------- Total stockholder's equity 295,801 386,812 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $1,853,385 $1,882,663 ============= =============
The accompanying notes are an integral part of these statements. F-6 CORNING CLINICAL LABORATORIES INC. (to be renamed Quest Diagnostics Incorporated) (a wholly-owned business of Corning Incorporated) Combined Statements of Operations For the Years Ended December 31, 1995, 1994 and 1993 (in thousands)
1995 1994 1993 ------------- ------------- ------------- Net revenues $1,629,388 $1,633,699 $1,416,338 Costs and expenses: Cost of services 980,232 969,844 805,729 Selling, general and administrative 523,271 411,939 363,579 Provision for restructuring and other special charges 50,560 79,814 99,600 Interest expense, net 82,016 63,295 41,898 Amortization of intangible assets 44,656 42,588 28,421 Other, net 6,221 3,464 6,423 ------------- ------------- ------------- Total 1,686,956 1,570,944 1,345,650 ------------- ------------- ------------- Income (loss) before taxes (57,568) 62,755 70,688 Income tax expense (benefit) (5,516) 34,410 25,929 ------------- ------------- ------------- Income (loss) before cumulative effect of change in accounting principle (52,052) 28,345 44,759 Cumulative effect of change in accounting principle -- -- (10,562) ------------- ------------- ------------- Net income (loss) $ (52,052) $ 28,345 $ 34,197 ============= ============= =============
The accompanying notes are an integral part of these statements. F-7 CORNING CLINICAL LABORATORIES INC. (to be renamed Quest Diagnostics Incorporated) (a wholly-owned business of Corning Incorporated) Combined Statements of Cash Flows For the Years Ended December 31, 1995, 1994 and 1993 (in thousands)
1995 1994 1993 ------------- ------------ ------------ Cash flows from operating activities: Net income (loss) $ (52,052) $ 28,345 $ 34,197 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 101,513 89,517 66,479 Provision for doubtful accounts 152,590 59,480 47,240 Provision for restructuring and other special charges 50,560 79,814 99,600 Deferred income tax provision (32,384) (4,742) (23,841) Cumulative effect of change in accounting principle -- -- 10,562 Other, net 8,303 14,600 1,765 Changes in operating assets and liabilities: Accounts receivable (109,500) (103,402) (61,828) Accounts payable and accrued expenses 14,604 (32,756) (33,903) Restructuring, integration and other special charges (57,768) (88,093) (46,917) Due from/to Corning Incorporated and affiliates 2,934 14,783 (2,581) Other assets and liabilities, net 7,028 (19,583) 8,841 ------------- ------------ ------------ Net cash provided by operating activities 85,828 37,963 99,614 ------------- ------------ ------------ Cash flows from investing activities: Capital expenditures (74,045) (93,354) (65,317) Proceeds from disposition of assets 2,880 55,762 -- Acquisition of businesses, net of cash acquired (22,907) (12,154) (401,428) Decrease (increase) in investments 985 3,560 (6,942) ------------- ------------ ------------ Net cash used in investing activities (93,087) (46,186) (473,687) ------------- ------------ ------------ Cash flows from financing activities: Proceeds from borrowings, primarily with Corning Incorporated 55,729 186,046 709,630 Repayment of long-term debt (13,784) (118,046) (265,196) Dividends paid (36,959) (60,468) (51,478) ------------- ------------ ------------ Net cash provided by financing activities 4,986 7,532 392,956 ------------- ------------ ------------ Net change in cash and cash equivalents (2,273) (691) 18,883 Cash and cash equivalents, beginning of year 38,719 39,410 20,527 ------------- ------------ ------------ Cash and cash equivalents, end of year $ 36,446 $ 38,719 $ 39,410 ============= ============ ============
The accompanying notes are an integral part of these statements. F-8 CORNING CLINICAL LABORATORIES INC. (to be renamed Quest Diagnostics Incorporated) (a wholly-owned business of Corning Incorporated) Combined Statements of Stockholder's Equity For the Years Ended December 31, 1995, 1994 and 1993 (in thousands)
Cumulative Market Total Retained Translation Valuation Stockholder's Contributed Capital Earnings Adjustment Adjustment Equity ------------------- -------- ----------- ---------- ------------- Balance, December 31, 1992 $261,499 $146,938 $ (288) $ $ 408,149 Net income 34,197 34,197 Dividends to CLSI (28,088) (28,088) Dividends to S-Corporation shareholders (23,390) (23,390) Equity of pooled entity 4,150 (4,096) 54 Translation adjustment 4,587 4,587 -------------------------------- ------------- ------------- --------------- Balance, December 31, 1993 265,649 125,561 4,299 395,509 Net income 28,345 28,345 Dividends to CLSI (33,275) (33,275) Dividends to S-Corporation shareholders (27,193) (27,193) Dividends in-kind to S-Corporation shareholders (7,545) (7,545) Capital contribution 32,174 32,174 Translation adjustment (1,203) (1,203) -------------------------------- ------------- ------------- --------------- Balance, December 31, 1994 297,823 85,893 3,096 386,812 Net loss (52,052) (52,052) Dividends to CLSI (36,959) (36,959) Translation adjustment (771) (771) Market valuation adjustment (1,229) (1,229) -------------------------------- ------------- ------------- --------------- Balance, December 31, 1995 $297,823 $ (3,118) $2,325 $(1,229) $ 295,801 ================================ ============= ============= ===============
The accompanying notes are an integral part of these statements. F-9 CORNING CLINICAL LABORATORIES INC. (to be renamed Quest Diagnostics Incorporated) (a wholly-owned business of Corning Incorporated) NOTES TO COMBINED FINANCIAL STATEMENTS (dollars in thousands, unless otherwise indicated) 1. BASIS OF PRESENTATION Corning Clinical Laboratories Inc. and Corning Nichols Institute Inc. (collectively referred to as "CCL" or the "Company") are wholly-owned subsidiaries of Corning Life Sciences Inc. ("CLSI") which in turn is a wholly-owned subsidiary of Corning Incorporated ("Corning"). The Company is one of the largest clinical laboratory testing businesses in the United States. The accompanying financial statements present the carved-out results of operations, cash flows and financial position of Corning's clinical laboratory testing business. Covance Inc. (formerly Corning Pharmaceutical Services Inc.), a subsidiary of CCL, and its related entities ("Covance") as well as environmental testing services formerly provided by CCL are excluded. In 1994, Corning acquired three clinical laboratory testing businesses on the behalf of CCL in separate transactions accounted for as poolings of interests (see Note 3). Results presented for 1994 and 1993 include the results of CCL and the pooled entities on a combined basis.Corning Clinical Laboratories Inc. In May 1996, Corning's Board of Directors approved a plan to distribute to its shareholders on a pro rata basis all of the shares of CCL and Covance (the "CCL and Covance Spin-Off Distributions"). The result of the plan will be the creation of two independent, publicly-owned companies. As a result of the Spin-Off Distributions, CCL will operate Corning's clinical laboratory testing business as an independent public company and Covance will own and operate Corning's contract research business as an independent public company. The Spin-Off Distributions will be effected by the distribution of a dividend to holders of Corning Common Stock of all of the outstanding CCL Common Stock, followed immediately by the distribution of a dividend to the holders of CCL Common Stock of all of the Covance Common Stock. Corning has submitted to the Internal Revenue Service a request for a ruling that the Spin-Off Distributions qualify as tax-free distributions under the Internal Revenue Code of 1986. Coincident with the Spin-Off Distributions, the Company will be renamed Quest Diagnostics Incorporated. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The combined financial statements include the accounts of all laboratory entities controlled by the Company. The equity method of accounting is used for investments in affiliates which are not Company controlled and in which the Company's interest is generally between 20 and 50 percent. All significant intercompany accounts and transactions are eliminated. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition The Company generally recognizes revenue as services are rendered upon completion of the testing process. Billings for services under third-party payor programs, including Medicare and Medicaid, are recorded as revenues net of allowances for differences between amounts billed and the estimated receipts under such programs. Adjustments to the estimated receipts, based on final settlement with the third-party payors, are recorded upon settlement. In 1995, 1994 and 1993, approximately 23%, 28% and 25%, respectively, of net revenues were generated by Medicare and Medicaid programs. Concentrations of Credit Risk Concentrations of credit risk with respect to accounts receivable are limited due to the diversity of the Company's clients as well as their dispersion across many different geographic regions. Taxes on Income The Company uses the asset and liability approach to account for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. In 1993 the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). The adoption of SFAS 109 resulted in a charge to net income of $10.6 million, principally representing a reduction in the Company's deferred tax assets to reflect the then enacted statutory tax rate. F-10 CORNING CLINICAL LABORATORIES INC. (to be renamed Quest Diagnostics Incorporated) (a wholly-owned business of Corning Incorporated) NOTES TO COMBINED FINANCIAL STATEMENTS (Continued) (dollars in thousands, unless otherwise indicated) Cash and Cash Equivalents Cash and cash equivalents include all highly-liquid investments with original maturities at the time acquired by the Company of three months or less, and consist principally of amounts temporarily invested in a U.S. government money market fund. Inventories Inventories, which consist principally of supplies, are valued at the lower of cost (first in, first out method) or market. Property, Plant and Equipment Property, plant and equipment are recorded at cost. Depreciation and amortization are provided on the straight-line method at rates adequate to allocate the cost of the applicable assets over their expected useful lives, which range from three to forty years. Intangible Assets Acquisition costs in excess of the fair value of net tangible assets acquired are capitalized and amortized over appropriate periods not exceeding forty years. Other intangible assets are recorded at cost and amortized over periods not exceeding fifteen years. Investments The Company accounts for investments in equity securities, which are included in other assets, in conformity with Statement of Financial Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and Equity Securities." SFAS 115 requires the use of fair value accounting for trading or available-for-sale securities. Unrealized losses for available-for-sale securities are recorded as a separate component within stockholder's equity. Investments in equity securities are not material to the Company. Impairment Accounting The Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121) in 1995. The Company reviews the recoverability of its long-lived assets, including related goodwill and intangible assets, when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. Evaluation of possible impairment is based on the Company's ability to recover the asset from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations. If the expected undiscounted pre-tax cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. This assessment of impairment requires management to make estimates of expected future cash flows. It is at least reasonably possible that future events or circumstances could cause these estimates to change. In addition, the carrying value of intangible assets has historically been subject to a separate evaluation based on estimating expected future undiscounted cash flows from operating activities. If these estimated cash flows are less than the carrying amount of the intangible assets, the Company would recognize an impairment loss in an amount necessary to write down the intangible assets to fair value. Earnings Per Share Earnings per share are computed by dividing net income by the weighted average number of common shares outstanding. Historical earnings per share data is not meaningful as the Company's historical capital structure is not comparable to periods subsequent to the CCL Spin-Off Distribution. F-11 CORNING CLINICAL LABORATORIES INC. (to be renamed Quest Diagnostics Incorporated) (a wholly-owned business of Corning Incorporated) NOTES TO COMBINED FINANCIAL STATEMENTS (Continued) (dollars in thousands, unless otherwise indicated) 3. BUSINESS COMBINATIONS AND DIVESTITURES Acquisitions During 1995, the Company acquired several laboratories in separate transactions accounted for under the purchase method. The total cost of the acquired businesses aggregated approximately $23 million and was financed through borrowings from Corning. Intangible assets of approximately $21.6 million resulted from the transactions and are being amortized over periods not to exceed forty years. During 1994, Corning acquired three clinical laboratory testing companies on behalf of the Company in separate transactions accounted for as poolings of interests. In June 1994, Corning acquired the stock of Maryland Medical Laboratory, Inc. ("MML") in exchange for approximately 4.5 million shares of Corning common stock; in August 1994, Corning acquired the stock of Nichols Institute ("Nichols") in exchange for approximately 7.5 million shares of Corning common stock and reserved an additional 1.1 million shares for future issuance upon the exercise of stock options; and, in October 1994, Corning acquired the stock of Bioran Medical Laboratory ("Bioran") in exchange for approximately 6.0 million shares of Corning common stock. Results presented for 1994 and 1993 include the results of the Company, MML, Nichols and Bioran on a combined basis. In 1994, the Company also acquired several other laboratories in separate transactions accounted for under the purchase method. The total cost of the acquired businesses aggregated approximately $26 million and was financed through the issuance of Corning stock and borrowings from Corning. Intangible assets of approximately $24 million resulted from these transactions and are being amortized over periods not to exceed forty years. In the third quarter of 1993, Corning acquired on behalf of the Company the outstanding shares of common stock of Damon Corporation ("Damon"), a clinical-testing business, for $405 million, including acquisition costs, financed through borrowings from Corning. In addition, approximately $167 million of Damon's indebtedness was refinanced. Goodwill of approximately $600 million resulted from the transaction and is being amortized over forty years. Reserves aggregating $79 million were established for the costs of closing Damon facilities as a result of the integration of Damon operations. In the fourth quarter of 1993, the Company acquired the clinical-testing laboratories of Unilab Corporation ("Unilab") in Denver, Dallas and Phoenix in exchange for its ownership interest in Unilab operations, the assumption of approximately $70 million of Unilab debt, and the Company's investment in J.S. Pathology PLC. Goodwill of approximately $200 million resulted from this transaction and is being amortized over forty years. As a result of this transaction, the Company received a small equity investment in Unilab. The Company previously owned 43% of Unilab. The operations of the businesses, subsequent to the dates they were acquired, are included in the combined financial statements. The pro forma effect of the 1995 acquisitions on periods prior to the acquisitions is not material. In 1993, Corning also acquired and contributed to the Company DeYor Laboratory, Inc., in a transaction accounted for as a pooling of interests, by issuing 840,000 shares of Corning common stock. The Company's combined financial statements for periods prior to this acquisition have not been restated, since this acquisition was not material to the Company's financial position or the results of its operations for such periods. Divestitures In the second quarter of 1994, the Company sold the California clinical laboratory testing operations acquired in the Damon transaction to Physicians Clinical Laboratory, Inc. for cash proceeds of $51 million. 4. TAXES ON INCOME The Company is included in the consolidated Federal income tax return filed by Corning. CLSI and its subsidiaries, including the Company, have a tax sharing agreement with Corning, pursuant to which they are required to compute their provision for income taxes on a separate return basis and pay to Corning the separate Federal income tax return liability so computed. F-12 CORNING CLINICAL LABORATORIES INC. (to be renamed Quest Diagnostics Incorporated) (a wholly-owned business of Corning Incorporated) NOTES TO COMBINED FINANCIAL STATEMENTS (Continued) (dollars in thousands, unless otherwise indicated) The components of the provision (benefit) for income taxes for 1995, 1994 and 1993 are as follows:
1995 1994 1993 --------- -------- --------- Current: Federal $ 22,786 $31,598 $ 46,215 State and local 3,556 7,019 2,815 Foreign 526 535 740 Deferred (benefit): Federal (28,109) (1,339) (23,818) State and local (4,275) (3,403) (23) ----------- -------- ------- Income tax expense (benefit) $ (5,516) $34,410 $ 25,929 =========== ======== =======
Prior to acquisition by Corning, Bioran and certain MML operations were S-Corporations; accordingly, no federal provision for income taxes has been reflected relative to these operations. A reconciliation of the Federal statutory rate to the Company's effective tax rate for 1995, 1994 and 1993 is as follows:
1995 1994 1993 --------- --------- ---------- Taxes at statutory rate (35.0%) 35.0% 35.0% State and local income taxes, net of federal tax benefit (0.8%) 3.8% 2.6% Income from partnership and S-Corporations not subject to federal and state income tax 1.7% (10.3%) (11.1%) Goodwill 17.6% 14.3% 4.8% Non-deductible items 6.0% 8.6% 3.4% Other, net 0.9% 3.4% 2.0% --------- --------- ---------- Effective tax rate (9.6%) 54.8% 36.7% ========= ========= ==========
The tax effects of temporary differences that give rise to significant portions of the net deferred tax assets at December 31, 1995 and 1994 are as follows:
1995 1994 ---------------------- Current deferred tax asset: Accounts receivable reserve $ 48,584 $ 16,692 Liabilities not currently deductible 49,222 34,422 Other 1,039 2,582 ---------------------- Current deferred tax asset $ 98,845 $ 53,696 ====================== Non-current deferred tax asset (liability): Liabilities not currently deductible $ 21,152 $ 33,572 Depreciation and amortization (15,090) (13,979) ---------------------- Non-current deferred tax asset $ 6,062 $ 19,593 ======================
F-13 CORNING CLINICAL LABORATORIES INC. (to be renamed Quest Diagnostics Incorporated) (a wholly-owned business of Corning Incorporated) NOTES TO COMBINED FINANCIAL STATEMENTS (Continued) (dollars in thousands, unless otherwise indicated) Income taxes payable at December 31, 1995 and 1994 consist of Federal income taxes payable of $34.2 million and $28.7 million, respectively, state income taxes payable of $5.0 million and $1.5 million, respectively, and foreign income taxes payable of $0.6 million and $0.3 million, respectively. The Company paid income taxes of $21.7 million, $58.5 million and $52.0 million during 1995, 1994 and 1993, respectively. 5. PROVISION FOR RESTRUCTURING AND OTHER SPECIAL CHARGES In the second quarter of 1995, the Company recorded a provision for restructuring totaling $33.0 million primarily for workforce reduction programs and the costs of exiting a number of leased facilities. Additionally, in the first quarter of 1995, the Company recorded a special charge of $12.8 million for the settlement of claims related to inadvertent billing errors of certain laboratory tests that were not completely and/or successfully performed or reported due to insufficient samples and/or invalid results. Additionally, in the fourth quarter of 1995, the Company recorded a charge of $4.8 million related to claims by the Civil Division of the U.S. Department of Justice ("DOJ") of alleged billing errors related to a laboratory test performed by Bioran prior to its acquisition by the Company. In the third quarter of 1994, the Company recorded a provision for restructuring and other special charges totaling $79.8 million which included $48.2 million of integration costs, $21.6 million of transaction expenses related to the Nichols, MML and Bioran acquisitions, and $10 million of settlement reserves primarily related to government investigations of billing practices by Nichols prior to its acquisition by the Company. The integration costs represent the expected costs for closing clinical laboratories in certain markets where duplicate Company, Nichols, MML or Bioran facilities existed at the time of the acquisitions. In the third quarter of 1993, the Company recorded a provision for restructuring costs and other special charges totaling $99.6 million. The restructuring component of this special charge aggregated $56.6 million and consisted primarily of asset write-offs, facility related costs and costs for workforce reduction programs related principally to the integration of the Company's operations with those acquired in the Damon acquisition. The special charge of $43 million consists of a $36.5 million charge to reflect the settlement and related legal expenses associated with a compromise agreement with the DOJ to settle claims brought on behalf of the Inspector General, U.S. Department of Health and Human Services and a $6.5 million charge for related asserted and unasserted claims. The DOJ claims related to the marketing, sale, pricing and billing of certain blood-test series provided to Medicare patients. The DOJ settlement does not constitute an admission with respect to any issue arising from subsequent civil actions. The following summarizes the Company's restructuring activity (in millions):
1993 and 1994 Amounts Balance at 1995 Amounts Balance at Restructuring Utilized December 31, Restructuring Utilized December 31, Provisions Through 1994 1994 Provision in 1995 1995 --------------- --------------- -------------- --------------- --------- -------------- Employee termination costs $ 32.5 $14.8 $17.7 $23.4 $27.0 $14.1 Write-off of fixed assets 35.6 19.1 16.5 3.7 9.2 11.0 Costs of exiting leased facilities 21.7 9.3 12.4 3.1 6.8 8.7 Other 15.0 13.4 1.6 2.8 .5 3.9 --------------- --------------- -------------- --------------- --------- -------------- Total $104.8 $56.6 $48.2 $33.0 $43.5 $37.7 =============== =============== ============== =============== ========= ==============
F-14 CORNING CLINICAL LABORATORIES INC. (to be renamed Quest Diagnostics Incorporated) (a wholly-owned business of Corning Incorporated) NOTES TO COMBINED FINANCIAL STATEMENTS (Continued) (dollars in thousands, unless otherwise indicated) The substantial portion of the balance at December 31, 1995 is expected to be expended in 1996. Employee termination costs included severance benefits related to approximately 3,300 employees (700, 2,000 and 600 in 1995, 1994 and 1993, respectively). The estimated number of employees to be terminated has been reduced to 2,355, all of which have been terminated or notified of their termination at December 31, 1995. Management expects that approximately 300 terminations and the remaining business or facility exits will occur by the end of 1996. The decrease in the number of actual versus anticipated employee terminations is primarily attributable to higher than expected attrition. As a result of higher than expected average termination costs, management's estimate of total employee termination costs is unchanged. Certain severance and facility exit costs have payment terms extending beyond 1997. 6. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at December 31, 1995 and 1994 consist of the following:
1995 1994 ------------ ------------ Land $ 18,568 $ 18,969 Buildings and improvements 186,192 173,546 Laboratory equipment, furniture and fixtures 286,326 247,200 Leasehold improvements 39,078 30,050 Construction-in-progress 19,490 33,508 ------------ ------------ Property and equipment, at cost 549,654 503,273 Less: accumulated depreciation and amortization (253,538) (215,711) ------------ ------------ Property and equipment, net $ 296,116 $ 287,562 ============ ============
Depreciation and amortization expense aggregated $56.8 million, $46.9 million and $38.1 million for 1995, 1994 and 1993, respectively. 7. INTANGIBLE ASSETS Intangible assets at December 31, 1995 and 1994 consist of the following:
1995 1994 ------------- ------------- Goodwill $1,056,073 $1,043,089 Customer lists 84,558 100,428 Other (principally non-compete covenants) 50,626 61,401 ------------- ------------- Intangible assets, at cost 1,191,257 1,204,918 Less: accumulated amortization (160,624) (151,724) ------------- ------------- Intangible assets, net $1,030,633 $1,053,194 ============= =============
Amortization expense aggregated $44.7 million, $42.6 million and $28.4 million for 1995, 1994 and 1993, respectively. 8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses at December 31, 1995 and 1994 consist of the following:
1995 1994 ----------- ----------- Accrued wages and benefits $ 81,985 $ 74,519 Restructuring, integration and other special charges 61,878 69,812 Accrued expenses 57,338 34,851 Trade accounts payable 31,129 36,169 Accrued acquisition commitments 8,195 21,536 ----------- ----------- Accounts payable and accrued expenses $240,525 $236,887 =========== ===========
F-15 CORNING CLINICAL LABORATORIES INC. (to be renamed Quest Diagnostics Incorporated) (a wholly-owned business of Corning Incorporated) NOTES TO COMBINED FINANCIAL STATEMENTS (Continued) (dollars in thousands, unless otherwise indicated) 9. LONG-TERM DEBT Long-term debt, exclusive of current maturities, at December 31, 1995 and 1994, respectively, consists of the following:
1995 1994 ------------- ------------ Notes payable to Corning: Revolving credit notes--interest at the London Interbank offered rate ("LIBOR") plus 1/8% to 1/4%, maturing 1997 $ 605,636 $ 551,982 Installment note with interest at 9%, maturing 2001 90,000 100,000 Term note with interest at 6.24%, maturing 2003 100,000 100,000 Term note with interest at 6.93%, maturing 2013 100,000 100,000 Term note with interest at 7.17%, maturing 2004 150,000 150,000 Term note with interest at 7.77%, maturing 2024 100,000 100,000 Note payable denominated in pounds Sterling, interest at the London Interbank Sterling Rate minus 1%, due 2002 8,049 8,516 Mortgage note payable through 2011, interest at 9.25% 6,138 6,355 Capital lease obligations expiring through 2031 32,518 32,538 Other 3,225 3,663 ------------- ------------ Total $1,195,566 $1,153,054 ============= ============
Current maturities on long-term debt totaled $12.1 million and $12.6 million at December 31, 1995 and 1994, respectively. Long-term debt, including capital leases, maturing in each of the years subsequent to December 31, 1996 is as follows:
Fiscal year ending December 31, 1997 $ 261,131 1998 10,493 1999 10,530 2000 10,576 2001 and thereafter 902,836 ------------ Total long-term debt $1,195,566 ============
Future minimum payments under capital leases and the present value thereof are as follows:
Fiscal year ending December 31, 1997 $ 4,061 1998 3,846 1999 3,840 2000 3,948 2001 and thereafter 116,102 ----------- Total future minimum payments under capital leases 131,797 Less amount representing interest (99,279) ----------- Present value of minimum payments under capital leases $ 32,518 ===========
F-16 CORNING CLINICAL LABORATORIES INC. (to be renamed Quest Diagnostics Incorporated) (a wholly-owned business of Corning Incorporated) NOTES TO COMBINED FINANCIAL STATEMENTS (Continued) (dollars in thousands, unless otherwise indicated) The Company paid interest of $74.2 million, $60.2 million and $41.2 million during 1995, 1994 and 1993, respectively. Based on borrowing rates currently available to the Company for loans with similar terms and maturities, the fair value of loans payable to third parties (carrying amount of approximately $50.0 million) was approximately $62.0 million at December 31, 1995. As discussed in Note 14, the Company is currently pursuing the issuance of $150 million of Senior Subordinated Notes due in 2006 which will be used to repay certain intercompany indebtedness owed to Corning. The Senior Subordinated Notes will be guaranteed, fully, jointly and severally, and unconditionally, on a senior subordinated basis by the Company and each of the Company's wholly-owned, domestic subsidiaries (Subsidiary Guarantors). Non-guarantor subsidiaries are immaterial to the Company. Full financial statements of the Subsidiary Guarantors are not presented because they are not deemed material to investors. The following is summarized financial information of the Subsidiary Guarantors as of December 31, 1995 and 1994 and for each of the three years in the period ended December 31, 1995.
December 31, ----------------------- 1995 1994 ----------- ----------- Current assets $244,547 $248,793 Noncurrent assets 864,351 916,499 Current liabilities 71,828 84,223 Noncurrent liabilities 682,805 692,742 Stockholder's equity 354,265 388,227
For the Year Ended December 31, ----------------------------------- 1995 1994 1993 ----------- ---------- ----------- Net revenues $930,472 $923,205 $749,090 Cost of services 587,100 581,397 447,246 Net income (loss) (33,961) (44,056) 258
10. EMPLOYEE RETIREMENT PLANS Defined Benefit Plans An acquired entity had a defined benefit pension plan which in 1990 was frozen as to the further accrual of benefits. At December 31, 1995 the present value of the projected benefit obligation using a discount rate of 7.5% was $22.6 million and the fair value of the plan assets (publicly traded corporate debt and equity securities, government obligations and money market funds) was $17.4 million. The difference between the projected benefit obligation and the fair value of plan assets is included in other long-term liabilities in the accompanying combined balance sheet. Defined Contribution Plans The Company has several defined contribution plans covering substantially all of its full-time employees. Company contributions to these plans aggregated $18.5 million, $15.9 million and $7.3 million for 1995, 1994 and 1993, respectively. 11. RELATED PARTY TRANSACTIONS The Company, in the ordinary course of business, conducts a number of transactions with Corning and its affiliates. The significant transactions occurring during the years ended December 31, 1995, 1994 and 1993 are as follows:
1995 1994 1993 --------- -------- ---------- Interest expense on borrowings $78,930 $55,835 $28,400 Purchase of laboratory supplies 11,261 11,607 7,338 Corporate fees 2,800 2,800 2,450
F-17 CORNING CLINICAL LABORATORIES INC. (to be renamed Quest Diagnostics Incorporated) (a wholly-owned business of Corning Incorporated) NOTES TO COMBINED FINANCIAL STATEMENTS (Continued) (dollars in thousands, unless otherwise indicated) Certain executives of the Company are included in various stock compensation programs of Corning. Expenses related to these programs have been included in the Company's combined financial statements. In 1994, Corning contributed capital of $25.2 million through the reduction of revolving credit notes and former S-Corporation shareholders contributed capital of a building approximating $4.4 million. 12. COMMITMENTS AND CONTINGENCIES Minimum rental commitments under noncancellable operating leases, primarily real estate, in effect at December 31, 1995 are as follows:
Year ending December 31, 1996 $ 40,459 1997 30,481 1998 20,527 1999 14,877 2000 12,532 2001 and thereafter 65,920 ---------- Net minimum lease payments $184,796 ==========
Operating lease rental expense for 1995, 1994 and 1993 aggregated $46.9 million, $49.4 million and $46.9 million, respectively. The Company is self-insured for substantially all casualty losses and maintains supplemental coverage on a claims made basis. The basis for the insurance reserve at December 31, 1995 and 1994 is the actuarially determined projected losses for each program (within the self-insured retention) based upon the Company's loss experience. The Company has entered into several settlement agreements with various governmental and private payors during recent years. At present, government investigations of certain practices by clinical laboratories acquired in recent years are ongoing. In addition, certain payors are reviewing their reimbursement practices for laboratory tests. The results of these investigations and reviews may result in additional settlement payments or reductions in reimbursements for certain tests. The recorded reserves of approximately $37.0 million are included in accrued liabilities and represent management's best estimate at December 31, 1995. Based on information then available to CCL, management did not believe that the exposure to claims in excess of recorded reserves would be material (see Note 13). 13. SUBSEQUENT EVENTS As disclosed in Note 12, federal government investigations of certain practices by clinical laboratories acquired in recent years are ongoing. In the second quarter of 1996, the DOJ notified the Company that it has taken issue with certain payments received by Damon from federally funded healthcare programs prior to its acquisition by the Company. Specifically, in late April 1996, the DOJ for the first time disclosed to CCL the total amount of the claims that it proposed to assert against Damon. The government presented its claim for the base recoupment (by lab, by test, by year) and discussed various theories on which criminal and civil payments of up to three times the various base recoupment amounts could be assessed. During May and June, CCL management analyzed the government's claim in detail. CCL management and outside counsel then believed that there were meritorious defenses to a number of the claims for recoupments and potential payments in excess of the base recoupment and these were presented to the government in early July 1996. At the end of the second quarter, CCL recorded a $46 million charge to increase its reserves to equal management's estimate of the low end of the range of amounts necessary to satisfy claims related to Damon and other related and similar investigations. With respect to the Damon investigation, the low end of the range was estimated to be equal to the base recoupment sought by the government reflecting the basis on which CCL had settled an earlier claim with the government in 1993. The low end of the range for the Nichols and other government investigations was based on the base recoupment estimated by management from internal investigations. Reserves for pending private claims were estimated based on CCL's experience in settling private claims following its 1993 government settlement. CCL management considered the potential for some payments to be assessed in excess of the base recoupment in estimating its liability at June 30, 1996. However, management believed that, although it was reasonably possible that some level of F-18 CORNING CLINICAL LABORATORIES INC. (to be renamed Quest Diagnostics Incorporated) (a wholly-owned business of Corning Incorporated) NOTES TO COMBINED FINANCIAL STATEMENTS (Continued) (dollars in thousands, unless otherwise indicated) payment in excess of the base recoupment could ultimately be assessed, the government had not provided sufficient information to reasonably estimate the amount of any such payments. In addition, management and counsel believed that it was unlikely that treble payments would be assessed. This position was based on CCL's experience with the government in 1993, in which the recovery in excess of base recoupments was not significant, the government's representatives' invitation to present information and arguments to them and their stated intention not to consider the issue of payment multiples until the base recoupment amount had been established, and management's and counsel's belief that it had meritorious factual, legal and equitable defenses and mitigations of the government claims. CCL management was aware that similar investigations of other clinical laboratories in the industry were ongoing. Other than CCL's 1993 settlement, the only other similar settlement known to management was the 1992 civil Medicare settlement by a major competitor for $100 million. CCL had reviewed the publicly-available information about that settlement, including press releases and the settlement agreement. The competitor's settlement agreement did not specify whether the civil settlement included substantial payments to be assessed in excess of the base recoupment. It was believed by CCL that it did not. Although the competitor and its chief executive officer each pleaded guilty to criminal charges, the fine was only $1 million for conduct that was contemporaneous with, and considered by CCL management and its counsel to be more egregious than, that of Damon. During the third quarter 1996, CCL management met with the government several times to evaluate the substance of the government's allegations. During a meeting with the government in mid-August, further information and legal arguments were exchanged. Importantly, at this time, the government for the first time began to disclose to CCL and its outside counsel grand jury testimony and other evidence that was inconsistent with certain of CCL's defenses. The final settlement discussions began in late September. The government responded to and rejected many of CCL's defenses and made its tentative final settlement offer, which included significant payments in excess of base recoupments, to CCL. Negotiations on the final settlement amount and terms (including releases from various federal and state payors, compliance program requirements, etc.) continued into early October and ended with the settlement agreement dated October 9, 1996. The settlement included base recoupments of approximately $40 million (which did not differ materially from management's estimate at June 30, 1996) and total criminal and civil payments in excess of base recoupments of approximately $80 million. This settlement concludes all federal and Medicaid claims relating to the billing by Damon of certain blood tests to Medicare and Medicaid patients and other matters relating to Damon being investigated by the DOJ. Additionally, the Company entered into a separate settlement agreement with the DOJ totaling $6.9 million related to billings of hematology indices provided with hematology test results. This claim will be paid during the fourth quarter of 1996. As a result of these settlement agreements, CCL management has reassessed the level of reserves recorded for other asserted and unasserted claims related to the Damon and other similar government investigations, including the investigation of billing practices by Nichols prior to its acquisition by the Company in 1994. The Company recorded a charge totaling $142 million in the third quarter 1996 to establish additional reserves to provide for the above settlement agreements and management's best estimate of potential amounts which could be required to satisfy the remaining claims. At September 30, 1996, recorded reserves approximated $215 million (including the $119 million Damon settlement paid in October 1996). Based on information currently available to CCL, management does not believe that the exposure to claims in excess of recorded claims is material. Although the Damon settlement was substantially in excess of amounts anticipated by management, it was primarily due to the civil and criminal payments in excess of the base recoupment assessed by the government and CCL has now increased its reserves for asserted and unasserted claims to approximate the amount that may be required to settle the Nichols and other government civil claims taking into account the basis for the Damon civil settlement. In addition, although there is the possibility that CCL could be excluded from participation in Medicare and Medicaid programs, management believes that the possibility is remote as a result of the Damon settlement, which included CCL's signing a Corporate Integrity Agreement, and due to the fact that the government has publicly commended CCL for its cooperation in the investigation and cited CCL as having one of the "model" compliance programs in the industry. In October 1996, Corning contributed $119 million to CCL's capital to fund the Damon settlement. Additionally, Corning has agreed to fund any additional settlements prior to the CCL Spin-Off Distribution and to indemnify CCL against all settlements for any governmental claims relating to billing practices of CCL and its predecessors that have been settled or are pending on the Distribution Date. Corning will also agree to indemnify CCL for 50% of the aggregate of all settlement payments made by CCL that are in excess of $42 million to private parties that relate to indemnified or previously settled governmental claims (such as the Damon settlement) for services provided prior to the Distribution Date; however, the indemnification of F-19 CORNING CLINICAL LABORATORIES INC. (to be renamed Quest Diagnostics Incorporated) (a wholly-owned business of Corning Incorporated) NOTES TO COMBINED FINANCIAL STATEMENTS (Continued) (dollars in thousands, unless otherwise indicated) private party claims will not exceed $25 million and will be paid on an after-tax basis. Such indemnification will not cover any nongovernmental claims not settled prior to five years after the Distribution Date. Coincident with the CCL Spin-Off Distribution, the Company will record a receivable and a contribution of capital from Corning currently estimated at $25 million which is equal to management's best estimate of amounts which are probable of being received from Corning to satisfy the remaining indemnified governmental claims on an after-tax basis. Although management believes that established reserves for both indemnified and non-indemnified claims are sufficient, it is possible that additional information (such as the indication by the government of criminal activity, additional tests being questioned or other changes in the government's theories of wrongdoing) may become available which may cause the final resolution of these matters to exceed established reserves by an amount which could be material to the Company's results of operations and, for non-indemnified claims, the Company's cash flows in the period in which such claims are settled. The Company does not believe that these issues will have a material adverse effect on the Company's overall financial condition. In addition to the $142 million special charge discussed above, in the third quarter of 1996, the Company recorded a special charge of $13.7 million to write off capitalized software as a result of its decision to abandon the billing system which had been intended as its standard company-wide billing system. Management now plans to standardize billing systems using a system already implemented in seven of its sites. 14. SPIN-OFF DISTRIBUTION (unaudited) Coincident with the CCL Spin-Off Distribution, the Company plans to record a non-recurring charge of approximately $20 million ($13 million after tax) associated with the CCL Spin-Off Distribution. The largest component of the charge will be the cost of establishing an employee stock ownership plan ($11 million). The remainder of the charge will consist principally of the costs for advisors and other fees associated with establishing the Company as a separate publicly-traded entity. The amount of the charge is subject to change based on the price of the CCL stock on the Distribution Date. Prior to the CCL Spin-Off Distribution, the Company will borrow approximately $500 million in long-term debt to repay Corning for certain intercompany borrowings. The debt is assumed to consist of $350 million of bank borrowings and $150 million of publicly-registered high-yield notes. Corning will contribute the remaining debt to the Company's equity prior to the CCL Spin-Off Distribution. The credit facility governing the bank borrowings and the indenture governing the notes will contain various customary affirmative and negative covenants, including the maintenance of certain financial ratios and tests. The credit facility prohibits the Company from paying cash dividends on the CCL common stock. Further, the indenture will restrict the Company's ability to pay cash dividends based on a percentage of the Company's cash flow. In conjunction with the CCL Spin-Off Distribution, Corning and the Company will enter into an indemnification agreement whereby Corning agrees to indemnify CCL, on an after-tax basis, for any losses arising out of any federal, criminal, civil or administrative investigations or claims that are pending as of the Distribution Date to the extent that such investigations or claims arise out of or are related to alleged violations of federal laws by reason of CCL, its affiliates, officers or directors billing any federal program or agency for services rendered to beneficiaries of such program or agency. Corning, CCL and Covance will enter into tax indemnification agreements that will prohibit CCL and Covance for a period of two years after the Spin-Off Distributions from taking certain actions that might jeopardize the favorable tax treatment of the Distributions under section 355 of the Internal Revenue Code of 1986, as amended and will provide Corning and CCL with certain rights of indemnification against CCL and Covance. The tax indemnification agreements will also require CCL and Covance to take such actions as Corning may request to preserve the favorable tax treatment provided for in any rulings obtained from the Internal Revenue Service in respect of the Distributions. Corning, CCL and Covance will also enter into a tax sharing agreement which will allocate among Corning, CCL and Covance responsibility for federal, state and local taxes relating to taxable periods before and after the Spin-Off Distributions and provide for computing and apportioning tax liabilities and tax benefits for such periods among the parties. 15. PLANNED CHANGE IN ACCOUNTING POLICY (unaudited) Coincident with the CCL Spin-Off Distribution, CCL management will adopt a new accounting policy for evaluating the recoverability of intangible assets and measuring possible impairment under Statement of the Accounting Principles Board No. 17. Most of CCL's intangible assets resulted from purchase business combinations in 1993. Significant changes in the clinical F-20 CORNING CLINICAL LABORATORIES INC. (to be renamed Quest Diagnostics Incorporated) (a wholly-owned business of Corning Incorporated) NOTES TO COMBINED FINANCIAL STATEMENTS (Continued) (dollars in thousands, unless otherwise indicated) laboratory and health care industries subsequent to 1993, including increased government regulation and movement from traditional fee-for-service care to managed cost health care, have caused the fair value of CCL's intangible assets to be significantly less than carrying value. CCL management believes that a valuation of intangible assets based on the amount for which each regional laboratory could be sold in an arms-length transaction is preferable to using projected undiscounted pre-tax cash flows. CCL believes fair value is a better indicator of the extent to which the intangible assets may be recoverable and therefore, may be impaired. This change in method of evaluating the recoverability of intangible assets will result in CCL recording a charge of between $400 million and $450 million to operations coincident with the CCL Spin-Off Distribution to reflect the other than temporary impairment of intangible assets. This will result in a reduction of amortization expense of approximately $10 million to $11.3 million annually and $2.5 million to $2.8 million quarterly. The fair value method will be applied to each of CCL's regional laboratories. Management's estimate of fair value will primarily be based on multiples of forecasted revenue or multiples of forecasted EBITDA. The multiples will primarily be determined based upon publicly available information regarding comparable publicly-traded companies in the industry, but will also consider (i) the financial projections of each regional laboratory, (ii) the future prospects of each regional laboratory, including its growth opportunities, managed care concentration and likely operational improvements, and (iii) comparable sales prices, if available. Multiples of revenues will be used to estimate fair value in cases where the Company believes that the likely acquirer of a regional laboratory would be a strategic buyer within the industry which would realize synergies from such an acquisition. In regions where management does not believe there is a potential strategic buyer within the industry, and, accordingly, believes the likely buyer would not have synergy opportunities, multiples of EBITDA will be used for estimating fair value. Regional laboratories with lower levels of profitability valued using revenue multiples would generally be ascribed a higher value than if multiples of EBITDA were used, due to assumed synergy opportunities. While management believes the estimation methods are reasonable and reflective of common valuation practices, there can be no assurance that a sale to a buyer for the estimated value ascribed to a regional laboratory could be completed. For purposes of estimating the fair value of each of the regional laboratories, management assumed that a potential buyer would seek to be indemnified for litigation or other contingencies resulting from preacquisition activities. Therefore, the reserves recorded for potential, and settled, billing and marketing claims were not allocated to the regional laboratories for purposes of estimating their fair value. On a quarterly basis, CCL management will perform a review of each regional laboratory to determine if events or changes in circumstances have occurred which could have an other than temporary material adverse effect on the fair value of the business and its intangible assets. If such events or changes in circumstances were deemed to have occurred, management would consult with one or more of its investment bankers in estimating the impact on fair value of the regional laboratory. F-21 Quarterly Operating Results (unaudited)
First Second Third Fourth Total Quarter Quarter Quarter Quarter Year ------------- --------------- --------------- --------------- ------------- 1996 Net revenues $401,395 $ 424,543 $ 405,352 Gross profit 154,277 158,242 149,962 Loss before taxes (1,642) (37,518) (1) (162,989)(1) Net loss (1,511) (37,922) (119,436) 1995 Net revenues $417,662 $ 421,853 $ 399,959 $ 389,914 $1,629,388 Gross profit 168,606 175,793 159,091 145,666 649,156 Income (loss) before taxes 19,827 (1) (5,088) (1) (56,405) (2) (15,902) (1) (57,568) Net income (loss) 4,423 (3,852) (38,595) (14,028) (52,052) 1994 Net revenues $399,063 $ 422,942 $ 408,478 $ 403,216 $1,633,699 Gross profit 159,050 182,050 163,391 159,364 663,855 Income (loss) before taxes 40,624 45,109 (51,250) (1) 28,272 62,755 Net income (loss) 24,152 24,148 (36,535) 16,580 28,345
(1) Includes impact of restructuring and other special charges of $46.0 million, $155.7 million, $12.8 million, $33.0 million, $4.8 million and $79.8 million in second quarter 1996, third quarter 1996, first quarter 1995, second quarter 1995, fourth quarter 1995 and third quarter 1994, respectively, which are discussed in Notes 5 and 13 to the CCL Combined Financial Statements. (2) Includes a $62.0 million charge to increase the reserve for doubtful accounts and allowances resulting from billing systems implementation and integration problems at certain laboratories and increased regulatory requirements. F-22 CORNING CLINICAL LABORATORIES INC. (to be renamed Quest Diagnostics Incorporated) (a wholly-owned business of Corning Incorporated) Combined Balance Sheets September 30, 1996 and December 31, 1995 (in thousands)
September 30, December 31, 1996 1995 --------------- -------------- (unaudited) ASSETS Current Assets: Cash and cash equivalents $ 48,319 $ 36,446 Accounts receivable, net of allowance of $116,996 and $147,947 for September 30, 1996 and December 31, 1995, respectively 323,171 318,252 Inventories 25,559 26,601 Deferred taxes on income 126,906 98,845 Prepaid expenses and other assets 25,217 22,014 --------------- -------------- Total current assets 549,172 502,158 Property and equipment, net 293,490 296,116 Intangible assets, net 1,001,500 1,030,633 Other assets 42,216 24,478 --------------- -------------- TOTAL ASSETS $1,886,378 $1,853,385 =============== ============== LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilities: Accounts payable and accrued expenses $ 374,058 $ 240,525 Current portion of long-term debt 11,885 12,148 Income taxes payable 34,212 39,766 Due to Corning Incorporated and affiliates 14,299 8,979 --------------- -------------- Total current liabilities 434,454 301,418 Long-term debt (principally due to Corning Incorporated) 1,219,900 1,195,566 Other liabilities 99,354 60,600 --------------- -------------- Total liabilities 1,753,708 1,557,584 =============== ============== Stockholder's Equity: Contributed capital 297,823 297,823 Accumulated deficit (163,158) (3,118) Cumulative translation adjustment 1,801 2,325 Market valuation adjustment (3,796) (1,229) --------------- -------------- Total stockholder's equity 132,670 295,801 --------------- -------------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $1,886,378 $1,853,385 =============== ==============
The accompanying notes are an integral part of these statements. F-23 CORNING CLINICAL LABORATORIES INC. (to be renamed Quest Diagnostics Incorporated) (a wholly-owned business of Corning Incorporated) Combined Statements of Operations For the Three and Nine Months Ended September 30, 1996 and 1995 (in thousands) (unaudited)
Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, 1996 1995 1996 1995 --------------- --------------- --------------- --------------- Net revenues $ 405,352 $399,959 $1,231,290 $1,239,474 Costs and expenses: Cost of services 255,390 240,868 768,809 735,984 Selling, general and administrative 125,190 181,346 371,439 399,635 Provision for restructuring and other special charges 155,730 -- 201,730 45,885 Interest expense, net 19,866 20,927 59,887 61,529 Amortization of intangible assets 10,328 11,293 31,772 33,678 Other, net 1,837 1,930 (198) 4,429 --------------- --------------- --------------- --------------- Total 568,341 456,364 1,433,439 1,281,140 --------------- --------------- --------------- --------------- Loss before taxes (162,989) (56,405) (202,149) (41,666) Income tax benefit (43,553) (17,810) (43,280) (3,642) --------------- --------------- --------------- --------------- Net loss $(119,436) $(38,595) $ (158,869) $ (38,024) =============== =============== =============== ===============
The accompanying notes are an integral part of these statements. F-24 CORNING CLINICAL LABORATORIES INC. (to be renamed Quest Diagnostics Incorporated) (a wholly-owned business of Corning Incorporated) Combined Statements of Cash Flows For the Nine Months Ended September 30, 1996 and 1995 (in thousands) (unaudited)
1996 1995 ------------- ------------ Cash flows from operating activities: Net loss $(158,869) $ (38,024) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 75,232 76,036 Provision for doubtful accounts 81,891 127,297 Provision for restructuring and other special charges 201,730 45,885 Deferred income tax provision (31,612) (39,403) Other, net (753) 4,984 Changes in operating assets and liabilities: Accounts receivable (87,339) (112,110) Accounts payable and accrued expenses 3,355 18,732 Restructuring, integration and other special charges (19,863) (49,836) Due from/to Corning Incorporated and affiliates 5,320 4,572 Changes in other assets and liabilities (27,155) 15,656 ------------- ------------ Net cash provided by operating activities 41,937 53,789 ------------- ------------ Cash flows from investing activities: Capital expenditures (58,802) (56,062) Acquisition of businesses, net of cash acquired -- (22,907) (Increase) decrease in investments (7,580) 1,058 Proceeds from sale of assets 13,285 -- ------------- ------------ Net cash used in investing activities (53,097) (77,911) ------------- ------------ Cash flows from financing activities: Proceeds from borrowings, primarily with Corning Incorporated 59,090 63,795 Repayment of long-term debt (34,885) (3,766) Dividends paid (1,172) (27,718) ------------- ------------ Net cash provided by financing activities 23,033 32,311 ------------- ------------ Net change in cash and cash equivalents 11,873 8,189 Cash and cash equivalents, beginning of year 36,446 38,719 ------------- ------------ Cash and cash equivalents, end of period $ 48,319 $ 46,908 ============= ============
The accompanying notes are an integral part of these statements. F-25 CORNING CLINICAL LABORATORIES INC. (to be renamed Quest Diagnostics Incorporated (a wholly-owned business of Corning Incorporated) NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (unaudited) 1. BASIS OF PRESENTATION Corning Clinical Laboratories Inc. and Corning Nichols Institute Inc. (collectively referred to as "CCL" or the "Company") are wholly-owned subsidiaries of Corning Life Sciences Inc. ("CLSI") which in turn is a wholly-owned subsidiary of Corning Incorporated ("Corning"). The Company is one of the largest clinical laboratory testing businesses in the United States. These financial statements present the carved-out results of operations, cash flows and financial position of Corning's clinical laboratory testing business. Covance Inc. (formerly Corning Pharmaceutical Services Inc.), a subsidiary of CCL, and its related entities ("Covance") as well as environmental testing services formerly provided by CCL are excluded. In May 1996, Corning's Board of Directors approved a plan to distribute to its shareholders on a pro rata basis all of the shares of CCL and Covance (the "CCL and Covance Spin-Off Distributions"). The result of the plan will be the creation of two independent, publicly-owned companies. As a result of the Spin-Off Distributions, CCL will operate Corning's clinical laboratory testing business as an independent public company and Covance will own and operate Corning's contract research business as an independent public company. The Spin-Off Distributions will be effected by the distribution of a dividend to holders of Corning Common Stock of all of the outstanding CCL Common Stock, followed immediately by the distribution of a dividend to the holders of CCL Common Stock of all of the Covance Common Stock. Corning has submitted to the Internal Revenue Service a request for a ruling that the Spin-Off Distributions qualify as tax-free distributions under the Internal Revenue Code of 1986. Coincident with the Spin-Off Distributions, the Company will be renamed Quest Diagnostics Incorporated. The interim combined financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results of operations for the periods presented. All such adjustments are of a normal recurring nature. The interim combined financial statements have been compiled without audit and are subject to year-end adjustments. These interim combined financial statements should be read in conjunction with the historical combined financial statements of CCL for the years ended December 31, 1995, 1994 and 1993 included elsewhere herein. 2. COMMITMENTS AND CONTINGENCIES As disclosed in the Company's 1995 combined financial statements, federal government investigations of certain practices by clinical laboratories acquired in recent years are ongoing. In the second quarter of 1996, the U.S. Department of Justice ("DOJ") notified the Company that it has taken issue with certain payments received by Damon Corporation ("Damon") from federally funded healthcare programs prior to its acquisition by the Company. Specifically, in late April 1996, the DOJ for the first time disclosed to CCL the total amount of the claims that it proposed to assert against Damon. The government presented its claim for the base recoupment (by lab, by test, by year) and discussed various theories on which criminal and civil payments of up to three times the various base recoupment amounts could be assessed. During May and June, CCL management analyzed the government's claim in detail. CCL management and outside counsel then believed that there were meritorious defenses to a number of the claims for recoupments and potential payments in excess of the base recoupment and these were presented to the government in early July 1996. At the end of the second quarter, CCL recorded a $46 million charge to increase its reserves to equal management's estimate of the low end of the range of amounts necessary to satisfy claims related to Damon and other related and similar investigations. With respect to the Damon investigation, the low end of the range was estimated to be equal to the base recoupment sought by the government reflecting the basis on which CCL had settled an earlier claim with the government in 1993. The low end of the range for the Nichols and other government investigations was based on the base recoupment estimated by management from internal investigations. Reserves for pending private claims were estimated based on CCL's experience in settling private claims following its 1993 government settlement. CCL management considered the potential for some payments to be assessed in excess of the base recoupment in estimating its liability at June 30, 1996. However, management believed that, although it was reasonably possible that some level of payment in excess of the base recoupment could ultimately be assessed, the government had not provided sufficient information to reasonably estimate the amount of any such payments. In addition, management and counsel believed that it was unlikely that treble payments would be assessed. This position was based on CCL's experience with the government in 1993, in which the recovery in excess of base recoupments was not significant, the government's representatives' invitation to present information and arguments to them and their stated intention not to consider the issue of payment multiples until the base recoupment amount had been established, and management's and counsel's belief that it had meritorious factual, legal and equitable defenses and mitigations of the government claims. F-26 CORNING CLINICAL LABORATORIES INC. (to be renamed Quest Diagnostics Incorporated (a wholly-owned business of Corning Incorporated) NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (Continued) (unaudited) CCL management was aware that similar investigations of other clinical laboratories in the industry were ongoing. Other than CCL's 1993 settlement, the only other similar settlement known to management was the 1992 civil Medicare settlement by a major competitor for $100 million. CCL had reviewed the publicly-available information about that settlement, including press releases and the settlement agreement. The competitor's settlement agreement did not specify whether the civil settlement included substantial payments to be assessed in excess of the base recoupment. It was believed by CCL that it did not. Although the competitor and its chief executive officer each pleaded guilty to criminal charges, the fine was only $1 million for conduct that was contemporaneous with, and considered by CCL management and its counsel to be more egregious than, that of Damon. During the third quarter 1996, CCL management met with the government several times to evaluate the substance of the government's allegations. During a meeting with the government in mid-August, further information and legal arguments were exchanged. Importantly, at this time, the government for the first time began to disclose to CCL and its outside counsel grand jury testimony and other evidence that was inconsistent with certain of CCL's defenses. The final settlement discussions began in late September. The government responded to and rejected many of CCL's defenses and made its tentative final settlement offer, which included significant payments in excess of base recoupments, to CCL. Negotiations on the final settlement amount and terms (including releases from various federal and state payors, compliance program requirements, etc.) continued into early October and ended with the settlement agreement dated October 9, 1996. The settlement included base recoupments of approximately $40 million (which did not differ materially from management's estimate at June 30, 1996) and total criminal and civil payments in excess of base recoupments of approximately $80 million. This settlement concludes all federal and Medicaid claims relating to the billing by Damon of certain blood tests to Medicare and Medicaid patients and other matters relating to Damon being investigated by the DOJ. Additionally, the Company entered into a separate settlement agreement with the DOJ totaling $6.9 million related to billings of hematology indices provided with hematology test results. This claim will be paid during the fourth quarter of 1996. As a result of these settlement agreements, CCL management has reassessed the level of reserves recorded for other asserted and unasserted claims related to the Damon and other similar government investigations, including the investigation of billing practices by Nichols Institute ("Nichols") prior to its acquisition by the Company in 1994. The Company recorded a charge totaling $142 million in the third quarter 1996 to establish additional reserves to provide for the above settlement agreements and management's best estimate of potential amounts which could be required to satisfy the remaining claims. At September 30, 1996, recorded reserves approximated $215 million (including the $119 million Damon settlement paid in October 1996). Based on information currently available to CCL, management does not believe that the exposure to claims in excess of recorded claims is material. Although the Damon settlement was substantially in excess of amounts anticipated by management, it was primarily due to the civil and criminal payments in excess of the base recoupment assessed by the government and CCL has now increased its reserves for asserted and unasserted claims to approximate the amount that may be required to settle the Nichols and other government civil claims taking into account the basis for the Damon civil settlement. In addition, although there is the possibility that CCL could be excluded from participation in Medicare and Medicaid programs, management believes that the possibility is remote as a result of the Damon settlement, which included CCL's signing a Corporate Integrity Agreement, and due to the fact that the government has publicly commended CCL for its cooperation in the investigation and cited CCL as having one of the "model" compliance programs in the industry. In October 1996, Corning contributed $119 million to CCL's capital to fund the Damon settlement. Additionally, Corning has agreed to fund any additional settlements prior to the CCL Spin-Off Distribution and to indemnify CCL against all settlements for any governmental claims relating to billing practices of CCL and its predecessors that have been settled or are pending on the Distribution Date. Corning will also agree to indemnify CCL for 50% of the aggregate of all settlement payments made by CCL that are in excess of $42 million to private parties that relate to indemnified or previously settled governmental claims (such as the Damon settlement) for services provided prior to the Distribution Date; however, the indemnification of private party claims will not exceed $25 million and will be paid on an after-tax basis. Such indemnification will not cover any nongovernmental claims not settled prior to five years after the Distribution Date. Coincident with the CCL Spin-Off Distribution, the Company will record a receivable and a contribution of capital from Corning currently estimated at $25 million which is equal to management's best estimate of amounts which are probable of being received from Corning to satisfy the remaining indemnified governmental claims on an after-tax basis. F-27 CORNING CLINICAL LABORATORIES INC. (to be renamed Quest Diagnostics Incorporated (a wholly-owned business of Corning Incorporated) NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (Continued) (unaudited) Although management believes that established reserves for both indemnified and non-indemnified claims are sufficient, it is possible that additional information (such as the indication by the government of criminal activity, additional tests being questioned or other changes in the government's theories of wrongdoing) may become available which may cause the final resolution of these matters to exceed established reserves by an amount which could be material to the Company's results of operations and, for non-indemnified claims, the Company's cash flow in the period in which such claims are settled. The Company does not believe that these issues will have a material adverse impact on the Company's overall financial condition. 3. PROVISION FOR RESTRUCTURING AND OTHER SPECIAL CHARGES In addition to the $142 million special charge discussed in Note 2, in the third quarter of 1996, the Company recorded a special charge of $13.7 million to write off capitalized software as a result of its decision to abandon the development of a billing system which had been intended as its standard company-wide billing system. Management now plans to standardize billing systems using a system already implemented in seven of its sites. 4. RESTRUCTURING RESERVES As described in Note 5 to the CCL Combined Financial statements, CCL has recorded charges for restructuring plans in previous years. Reserves relating to these programs totaled approximately $37.7 million and $23.5 million at December 31, 1995 and September 30, 1996, respectively. Management believes that the costs of the restructuring plans will be financed through cash from operations and does not anticipate any significant impact on its liquidity as a result of the restructuring plans. 5. SPIN-OFF DISTRIBUTION Coincident with the CCL Spin-Off Distribution, the Company plans to record a non-recurring charge of approximately $20 million ($13 million after tax) associated with the CCL Spin-Off Distribution. The largest component of the charge will be the cost of establishing an employee stock ownership plan ($11 million). The remainder of the charge will consist principally of the costs for advisors and other fees associated with establishing the Company as a separate publicly-traded entity. The amount of the charge is subject to change based on the price of the CCL stock on the Distribution Date. Prior to the CCL Spin-Off Distribution, the Company will borrow approximately $500 million in long-term debt to repay Corning for certain intercompany borrowings. The debt is assumed to consist of $350 million of bank borrowings and $150 million of publicly-registered high-yield notes. Corning will contribute the remaining debt to the Company's equity prior to the CCL Spin-Off Distribution. The credit facility governing the bank borrowings and the indenture governing the notes will contain various customary affirmative and negative covenants , including the maintenance of certain financial ratios and tests. The credit facility prohibits the Company from paying cash dividends on the CCL common stock. Further, the indenture will restrict the Company's ability to pay cash dividends based on a percentage of the Company's cash flow. In conjunction with the CCL Spin-Off Distribution, Corning and the Company will enter into an indemnification agreement whereby Corning agrees to indemnify CCL, on an after-tax basis, for any losses arising out of any federal, criminal, civil or administrative investigations or claims that are pending as of the Distribution Date to the extent that such investigations or claims arise out of or are related to alleged violations of federal laws by reason of CCL, its affiliates, officers or directors billing any federal program or agency for services rendered to beneficiaries of such program or agency. Corning, CCL and Covance will enter into tax indemnification agreements that will prohibit CCL and Covance for a period of two years after the Spin-Off Distributions from taking certain actions that might jeopardize the favorable tax treatment of the Distributions under section 355 of the Internal Revenue Code of 1986, as amended and will provide Corning and CCL with certain rights of indemnification against CCL and Covance. The tax indemnification agreements will also require CCL and Covance to take such actions as Corning may request to preserve the favorable tax treatment provided for in any rulings obtained from the Internal Revenue Service in respect of the Distributions. Corning, CCL and Covance will also enter into a tax sharing agreement which will allocate among Corning, CCL and Covance responsibility for federal, state and local taxes relating to taxable periods before and after the Spin-Off Distributions and provide for computing and apportioning tax liabilities and tax benefits for such periods among the parties. F-28 CORNING CLINICAL LABORATORIES INC. (to be renamed Quest Diagnostics Incorporated (a wholly-owned business of Corning Incorporated) NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (Continued) (unaudited) 6. PLANNED CHANGE IN ACCOUNTING POLICY Coincident with the CCL Spin-Off Distribution, CCL management will adopt a new accounting policy for evaluating the recoverability of intangible assets and measuring possible impairment under Statement of the Accounting Principles Board No. 17. Most of CCL's intangible assets resulted from purchase business combinations in 1993. Significant changes in the clinical laboratory and health care industries subsequent to 1993, including increased government regulation and movement from traditional fee-for-service care to managed cost health care, have caused the fair value of CCL's intangible assets to be significantly less than carrying value. CCL management believes that a valuation of intangible assets based on the amount for which each regional laboratory could be sold in an arms-length transaction is preferable to using projected undiscounted pre-tax cash flows. CCL believes fair value is a better indicator of the extent to which the intangible assets may be recoverable and therefore, may be impaired. This change in method of evaluating the recoverability of intangible assets will result in CCL recording a charge of between $400 million and $450 million to operations coincident with the CCL Spin-Off Distribution to reflect the other than temporary impairment of intangible assets. This will result in a reduction of amortization expense of approximately $10 million to $11.3 million annually and $2.5 million to $2.8 million quarterly. The fair value method will be applied to each of CCL's regional laboratories. Management's estimate of fair value will primarily be based on multiples of forecasted revenue or multiples of forecasted EBITDA. The multiples will primarily be determined based upon publicly available information regarding comparable publicly-traded companies in the industry, but will also consider (i) the financial projections of each regional laboratory, (ii) the future prospects of each regional laboratory, including its growth opportunities, managed care concentration and likely operational improvements, and (iii) comparable sales prices, if available. Multiples of revenues will be used to estimate fair value in cases where the Company believes that the likely acquirer of a regional laboratory would be a strategic buyer within the industry which would realize synergies from such an acquisition. In regions where management does not believe there is a potential strategic buyer within the industry, and, accordingly, believes the likely buyer would not have synergy opportunities, multiples of EBITDA will be used for estimating fair value. Regional laboratories with lower levels of profitability valued using revenue multiples would generally be ascribed a higher value than if multiples of EBITDA were used, due to assumed synergy opportunities. While management believes the estimation methods are reasonable and reflective of common valuation practices, there can be no assurance that a sale to a buyer for the estimated value ascribed to a regional laboratory could be completed. For purposes of estimating the fair value of each of the regional laboratories, management assumed that a potential buyer would seek to be indemnified for litigation or other contingencies resulting from preacquisition activities. Therefore, the reserves recorded for potential, and settled, billing and marketing claims were not allocated to the regional laboratories for purposes of estimating their fair value. On a quarterly basis, CCL management will perform a review of each regional laboratory to determine if events or changes in circumstances have occurred which could have an other than temporary material adverse effect on the fair value of the business and its intangible assets. If such events or changes in circumstances were deemed to have occurred, management would consult with one or more of its investment bankers in estimating the impact on fair value of the regional laboratory. F-29 CORNING CLINICAL LABORATORIES INC. (to be renamed Quest Diagnostics Incorporated (a wholly-owned business of Corning Incorporated) NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (Continued) (unaudited) 7. SUMMARIZED FINANCIAL INFORMATION As discussed in Note 5, the Company is currently pursuing the issuance of $150 million of Senior Subordinated Notes due in 2006 which will be used to repay certain intercompany indebtedness owed to Corning. The Senior Subordinated Notes will be guaranteed, fully, jointly and severally, and unconditionally, on a senior subordinated basis by the Company and each of the Company's wholly-owned, domestic subsidiaries (Subsidiary Guarantors). Non-guarantor subsidiaries are immaterial to the Company. Full financial statements of the Subsidiary Guarantors are not presented because they are not deemed material to investors. The following is summarized financial information of the Subsidiary Guarantors as of September 30, 1996 and December 31, 1995 and for the nine months ended September 30, 1996 and September 30, 1995.
September 30, December 31, 1996 1995 --------------- --------------- Current assets $234,183 $244,547 Noncurrent assets 865,265 864,351 Current liabilities 71,416 71,828 Noncurrent liabilities 694,331 682,805 Stockholder's equity 333,701 354,265 For the nine months ended September 30, ------------------------------- 1996 1995 --------------- --------------- Net revenues $677,489 $709,317 Cost of services 427,583 444,705 Net loss (20,564) (26,435)
F-30 Inside Back Cover Photo Descriptions - ------------------ Photo of Corning Clinical Lab testing machinery: Caption: As one of the nation's leading providers of clinical laboratory testing services, Quest Diagnostics processes approximately 60 million requisitions for diagnostic tests a year. Photo of robot. Caption: A test for lead poisoning once required several manual steps. Now, with robots, the test is fully automated from specimen preparation to reporting results. Photo of meeting. Caption: With this unusual microscope, more than a dozen Quest Diagnostics doctors or technicians can simultaneously view the same slide and discuss results. Photo molecular biologist. Caption: A Quest Diagnostics molecular biologist studies an autoradiogram, looking for mutated genes as part of a molecular genetics test. OUTSIDE BACK COVER [LOGO] QUEST DIAGNOSTICS PART II Information Not Required in Prospectus Item 13. Other Expenses of Issuance and Distribution The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by the Registrants in connection with the sale of the securities being registered. All amounts are estimates except for the fees payable to the Commission and to the NASD.
--------------- Amount to be paid --------------- SEC registration fee $45,455 Printing and engraving expenses * Legal fees and expenses of CCL * Accounting fees and expenses * Blue Sky and NASD filing fees * Rating Agency fees and expenses * Trustee fees and expenses * Escrow agent fees and expenses * Miscellaneous * --------------- TOTAL * ===============
*To be filed by amendment. Item 14. Indemnification of Directors and Officers Limitation on Liability of Directors Pursuant to authority conferred by Section 102 of the Delaware General Corporation Law (the "DGCL"), Paragraph 11 of CCL's certificate of incorporation (the "Certificate") ("Paragraph 11") eliminates the personal liability of CCL's directors to CCL or its stockholders for monetary damages for breach of fiduciary duty, including without limitation, directors serving on committees of CCL's board of directors (the "Board"). Directors remain liable for (1) any breach of the duty of loyalty to CCL or its stockholders, (2) any act or omission not in good faith or which involves intentional misconduct or a knowing violation of law, (3) any violation of Section 174 of the DGCL, which proscribes the payment of dividends and stock purchases or redemptions under certain circumstances, and (4) any transaction from which directors derive an improper personal benefit. Indemnification and Insurance In accordance with Section 145 of the DGCL, which provides for the indemnification of directors, officers and employees under certain circumstances, Paragraph 11 grants CCL's directors and officers a right to indemnification for all expenses, liabilities and losses relating to civil, criminal, administrative or investigative proceedings to which they are a party (1) by reason of the fact that they are or were directors or officers of CCL or (2) by reason of the fact that, while they are or were directors or officers of CCL, they are or were serving at the request of CCL as directors or officers of another corporation, partnership, joint venture, trust or enterprise. Paragraph 11 further provides for the mandatory advancement of expenses incurred by officers and directors in defending such proceedings in advance of their final disposition upon delivery to CCL by the indemnitee of an undertaking to repay all amounts so advanced if it is ultimately determined that such indemnitee is not entitled to be indemnified under Paragraph 11. CCL may not indemnify or make advance payments to any person in connection with proceedings initiated against CCL by such person without the authorization of the Board. In addition, Paragraph 11 provides that directors and officers therein described shall be indemnified to the fullest extent permitted by Section 145 of the DGCL, or any successor provisions or amendments thereunder. In the event that any such successor provisions or amendments provide indemnification rights broader than permitted prior thereto, Paragraph 11 allows such broader indemnification rights to apply retroactively with respect to any predating alleged action or inaction and also allows the indemnification to continue after an indemnitee has ceased to be a director or officer of CCL and to inure to the benefit of the indemnitee's heirs, executors and administrators. Paragraph 11 further provides that the right to indemnification is not exclusive of any other right which any indemnitee may have or thereafter acquire under any statute, the Certificate, any agreement or vote of stockholders or disinterested directors or otherwise, II-1 and allows CCL to indemnify and advance expenses to any person whom the corporation has the power to indemnify under the DGCL or otherwise. Insofar as indemnification for liabilities arising under the Securities Act may be permitted for directors and officers and controlling persons pursuant to the foregoing provisions, CCL has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. The Certificate authorizes CCL to purchase insurance for directors and officers of CCL and persons who serve at the request of CCL as directors, officers, employees or agents of another corporation, partnership, joint venture, trust or enterprise, against any expense, liability or loss incurred in such capacity, whether or not CCL would have the power to indemnify such persons against such expense or liability under the DGCL. CCL intends to maintain insurance coverage of its officers and directors as well as insurance coverage to reimburse CCL for potential costs of its corporate indemnification of directors and officers. Item 15. Recent Sale of Unregistered Securities None. Item 16. Exhibits and Financial Statement Schedules (a) A list of the exhibits included as part of this Registration Statement is set forth in the Exhibit Index that immediately precedes such exhibits and such list is incorporated herein by this reference. (b) Schedule II: Valuation Accounts and Reserves (previously filed). Item 17. Undertakings Each of the undersigned Registrants hereby undertakes: 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 Securities Act of 1933 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 any 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 of whether or not such indemnification is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. Each of the undersigned Registrants hereby undertakes: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For purposes of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall 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. II-2 Signatures Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on November 25, 1996. CORNING CLINICAL LABORATORIES INC. By: /s/ Kenneth W. Freeman ------------------------------------------- Kenneth W. Freeman President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment to the Registration Statement has been signed by the following persons in the capacities indicated on November 25, 1996.
Signature Title --------- ----- /s/ Kenneth W. Freeman President and Chief Executive Officer and Director - ---------------------------- (principal executive officer) Kenneth W. Freeman /s/ Douglas M. VanOort Senior Vice President and Chief Financial Officer - ---------------------------- (principal financial officer) Douglas M. VanOort /s/ Robert A. Hagemann Vice President and Controller - ---------------------------- (principal accounting officer) Robert A. Hagemann /s/ Van C. Campbell - ---------------------------- Director Van C. Campbell /s/ David A. Duke - ---------------------------- Director David A. Duke /s/ Roger G. Ackerman - ---------------------------- Director Roger G. Ackerman
II-3 Signatures Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on November 25, 1996. CORNING CLINICAL LABORATORIES INC. (MI) By: /s/ Leo C. Farrenkopf, Jr. --------------------------------------- Leo C. Farrenkopf, Jr., Secretary Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment to the Registration Statement has been signed by the following persons in the capacities indicated on November 25, 1996.
Signature Title --------- ----- * - ---------------------------------- Vice President and Director Douglas M. VanOort * - ---------------------------------- Director Alister W. Reynolds *By: /s/ Leo C. Farrenkopf, Jr. Leo C. Farrenkopf, Jr. Attorney-in-fact
II-4 Signatures Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on November 25, 1996. CORNING NICHOLS INSTITUTE INC. By: /s/ Leo C. Farrenkopf, Jr. -------------------------------------- Leo C. Farrenkopf, Jr., Secretary Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment to the Registration Statement has been signed by the following persons in the capacities indicated on November 25, 1996.
Signature Title --------- ----- * - --------------------------------- Chairman and Director Kenneth W. Freeman * - --------------------------------- Director Roger G. Ackerman * - --------------------------------- Director Van C. Campbell * - --------------------------------- Director David A. Duke *By: /s/ Leo C. Farrenkopf, Jr. ---------------------------- Leo C. Farrenkopf, Jr. Attorney-in-fact
II-5 Signatures Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on November 25, 1996. DAMON CLINICAL LABORATORIES INC. By: /s/ Leo C. Farrenkopf, Jr. ------------------------------------- Leo C. Farrenkopf, Jr., Secretary Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment to the Registration Statement has been signed by the following persons in the capacities indicated on November 25, 1996.
Signature Title --------- ----- * - ------------------------------------ Vice President and Director Douglas M. VanOort * - ------------------------------------- Director Alister W. Reynolds *By: /s/ Leo C. Farrenkopf, Jr. -------------------------------- Leo C. Farrenkopf, Jr. Attorney-in-fact
II-6 Signatures Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on November 25, 1996. CORNING CLINICAL LABORATORIES INC. (CT) By: /s/ Leo C. Farrenkopf, Jr. -------------------------------------- Leo C. Farrenkopf, Jr., Secretary Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment to the Registration Statement has been signed by the following persons in the capacities indicated on November 25, 1996.
Signature Title --------- ----- * - ------------------------------------- Vice President and Director Douglas M. VanOort * - ------------------------------------- Director Alister W. Reynolds *By: /s/ Leo C. Farrenkopf, Jr. ----------------------------- Leo C. Farrenkopf, Jr. Attorney-in-fact
II-7 Signatures Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on November 25, 1996. CORNING CLINICAL LABORATORIES INC. (MA) By: /s/ Leo C. Farrenkopf, Jr. ----------------------------------------- Leo C. Farrenkopf, Secretary Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment to the Registration Statement has been signed by the following persons in the capacities indicated on November 25, 1996.
Signature Title --------- ----- * - ----------------------------------- Vice President and Director Douglas M. VanOort * - ----------------------------------- Director Alister W. Reynolds *By: /s/ Leo C. Farrenkopf, Jr. -------------------------- Leo C. Farrenkopf, Jr. Attorney-in-fact
II-8 Signatures Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on November 25, 1996. CORNING CLINICAL LABORATORIES OF PENNSYLVANIA INC. By: /s/ Leo C. Farrenkopf, Jr. ---------------------------------------- Leo C. Farrenkopf, Jr., Secretary Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment to the Registration Statement has been signed by the following persons in the capacities indicated on November 25, 1996.
Signature Title --------- ----- * - ------------------------------------ Vice President and Director Douglas M. VanOort * - ------------------------------------ Director Alister W. Reynolds *By: /s/ Leo C. Farrenkopf, Jr. -------------------------------- Leo C. Farrenkopf, Jr. Attorney-in-fact
II-9 Signatures Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on November 25, 1996. DEYOR CPF/METPATH, INC. By: /s/ Leo C. Farrenkopf, Jr. -------------------------------------- Leo C. Farrenkopf, Jr., Secretary Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment to the Registration Statement has been signed by the following persons in the capacities indicated on November 25, 1996.
Signature Title --------- ----- * - ----------------------------------- Vice President and Director Douglas M. VanOort * - ----------------------------------- Director Alister W. Reynolds *By: /s/ Leo C. Farrenkopf, Jr. -------------------------- Leo C. Farrenkopf, Jr. Attorney-in-fact
II-10 Signatures Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on November 25, 1996. SOUTHGATE MEDICAL SERVICES, INC. By: /s/ Leo C. Farrenkopf, Jr. ----------------------------------- Leo C. Farrenkopf, Jr., Secretary Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment to the Registration Statement has been signed by the following persons in the capacities indicated on November 25, 1996.
Signature Title --------- ----- * ---------------------------------- Vice President and Director Douglas M. VanOort * ---------------------------------- Director Alister W. Reynolds *By: /s/ Leo C. Farrenkopf, Jr. ------------------------- Leo C. Farrenkopf, Jr. Attorney-in-fact
II-11 Signatures Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on November 25, 1996. CORNING MRL INC. By: /s/ Leo C. Farrenkopf, Jr. Leo C. Farrenkopf, Jr., Secretary Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment to the Registration Statement has been signed by the following persons in the capacities indicated on November 25, 1996.
Signature Title --------- ----- * ---------------------------------- Vice President and Director Douglas M. VanOort * ----------------------------------- Director Alister W. Reynolds *By: /s/ Leo C. Farrenkopf, Jr. --------------------------- Leo C. Farrenkopf, Jr. Attorney-in-fact
II-12 Signatures Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on November 25, 1996. DPD HOLDINGS, INC. By: /s/ Leo C. Farrenkopf, Jr. -------------------------------------- Leo C. Farrenkopf, Jr., Secretary Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment to the Registration Statement has been signed by the following persons in the capacities indicated on November 25, 1996.
Signature Title --------- ----- * - ------------------------------------ Vice President and Director Douglas M. VanOort * - ------------------------------------- Director Alister W. Reynolds *By: /s/ Leo C. Farrenkopf, Jr. -------------------------- Leo C. Farrenkopf, Jr. Attorney-in-fact
II-13 Signatures Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on November 25, 1996. METWEST INC. By: /s/ Leo C. Farrenkopf, Jr. ----------------------------------- Leo C. Farrenkopf, Jr., Secretary Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment to the Registration Statement has been signed by the following persons in the capacities indicated on November 25, 1996.
Signature Title --------- ----- * - ------------------------------------ Vice President and Director Douglas M. VanOort * - ------------------------------------ Director Alister W. Reynolds *By: /s/ Leo C. Farrenkopf, Jr. --------------------------- Leo C. Farrenkopf, Jr. Attorney-in-fact
II-14 Signatures Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on November 25, 1996. CORNING CLINICAL LABORATORIES INC. (MD) By: /s/ Leo C. Farrenkopf, Jr. --------------------------------- Leo C. Farrenkopf, Jr., Secretary Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment to the Registration Statement has been signed by the following persons in the capacities indicated on November 25, 1996.
Signature Title --------- ----- * - ---------------------------------- Vice President and Director Douglas M. VanOort * - ---------------------------------- Director Alister W. Reynolds *By:/s/ Leo C. Farrenkopf, Jr. -------------------------- Leo C. Farrenkopf, Jr. Attorney-in-fact
II-15 Signatures Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on November 25, 1996. NICHOLS INSTITUTE DIAGNOSTICS By: /s/ Leo C. Farrenkopf, Jr. -------------------------------------- Leo C. Farrenkopf, Jr., Secretary Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment to the Registration Statement has been signed by the following persons in the capacities indicated on November 25, 1996.
Signature Title --------- ----- * - ---------------------------------- Vice President and Director Douglas M. VanOort * - ---------------------------------- Director Alister W. Reynolds *By:/s/ Leo C. Farrenkopf, Jr. ------------------------- Leo C. Farrenkopf, Jr. Attorney-in-fact
II-16 Signatures Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on November 25, 1996. NOMAD-MASSACHUSETTS, INC. By: /s/ Leo C. Farrenkopf, Jr. ---------------------------------- Leo C. Farrenkopf, Jr., Secretary Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment to the Registration Statement has been signed by the following persons in the capacities indicated on November 25, 1996.
Signature Title --------- ----- * - ----------------------------------- Vice President and Director Douglas M. VanOort * - ------------------------------------ Director Alister W. Reynolds *By:/s/ Leo C. Farrenkopf, Jr. ------------------------ Leo C. Farrenkopf, Jr. Attorney-in-fact
II-17 Signatures Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on November 25, 1996. QUEST DIAGNOSTICS INCORPORATED (MI) By: /s/ Douglas M. VanOort ----------------------------------- Douglas M. VanOort, Vice President Power of Attorney KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints Robert A. Carothers, Raymond C. Marier, Leo C. Farrenkopf, Jr. and each of them singly, his or her true and lawful attorneys-in-fact and agents with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign this Registration Statement and any and all amendments thereto, including post-effective amendments, and to file the same, with all exhibits thereto, any related registration filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all the said attorneys-in-fact and agents or any of them or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment to the Registration Statement has been signed by the following persons in the capacities indicated on November 25, 1996.
Signature Title --------- ----- /s/ Douglas M. VanOort - ---------------------------- Vice President and Director Douglas M. VanOort /s/ Alister W. Reynolds - ---------------------------- Director Alister W. Reynolds
II-18 Signatures Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on November 25, 1996. QUEST DIAGNOSTICS INCORPORATED (MD) By: /s/ Douglas M. VanOort -------------------------------------- Douglas M. VanOort, Vice President Power of Attorney KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints Robert A. Carothers, Raymond C. Marier, Leo C. Farrenkopf, Jr. and each of them singly, his or her true and lawful attorneys-in-fact and agents with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign this Registration Statement and any and all amendments thereto, including post-effective amendments, and to file the same, with all exhibits thereto, any related registration filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all the said attorneys-in-fact and agents or any of them or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment to the Registration Statement has been signed by the following persons in the capacities indicated on November 25, 1996.
Signature Title --------- ----- /s/ Douglas M. VanOort - ---------------------------- Vice President and Director Douglas M. VanOort /s/ Alister W. Reynolds - ---------------------------- Director Alister W. Reynolds
II-19 Signatures Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on November 25, 1996. CLMP INC. By: /s/ Peter C. Fulweiler ---------------------------------- Peter C. Fulweiler, President Power of Attorney KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints Robert A. Carothers, Raymond C. Marier, Leo C. Farrenkopf, Jr. and each of them singly, his or her true and lawful attorneys-in-fact and agents with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign this Registration Statement and any and all amendments thereto, including post-effective amendments, and to file the same, with all exhibits thereto, any related registration filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all the said attorneys-in-fact and agents or any of them or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment to the Registration Statement has been signed by the following persons in the capacities indicated on November 25, 1996.
Signature Title --------- ----- /s/ Peter C. Fulweiler - ------------------------------ President and Director Peter C. Fulweiler /s/ Robert S. Galen - ------------------------------ Vice President and Director Robert S. Galen /s/ Stephen A. Calamari - ------------------------------ Treasurer Stephen A. Calamari /s/ Louis M. Heidelberger - ------------------------------ Director Louis M. Heidelberger
II-20 Signatures Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on November 25, 1996. DIAGNOSTIC REFERENCE SERVICES, INC. By: /s/ Douglas M. VanOort ----------------------------------- Douglas M. VanOort, Vice President Power of Attorney KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints Robert A. Carothers, Raymond C. Marier, Leo C. Farrenkopf, Jr. and each of them singly, his or her true and lawful attorneys-in-fact and agents with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign this Registration Statement and any and all amendments thereto, including post-effective amendments, and to file the same, with all exhibits thereto, any related registration filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all the said attorneys-in-fact and agents or any of them or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment to the Registration Statement has been signed by the following persons in the capacities indicated on November 25, 1996.
Signature Title --------- ----- * - ---------------------------------- Douglas M. VanOort Vice President and Director * - ---------------------------------- Alister W. Reynolds Director *By: /s/ Leo C. Farrenkopf, Jr. - ----------------------------------- Leo C. Farrenkopf, Jr. Attorney-in-fact
II-21 Signatures Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on November 25, 1996. PATHOLOGY BUILDING PARTNERSHIP By: CORNING CLINICAL LABORATORIES INC. (MD) As General Partner By: /s/ Raymond C. Marier Raymond C. Marier, Vice President By: DIAGNOSTIC REFERENCE SERVICES, INC. As General Partner By: /s/ Raymond C. Marier Raymond C. Marier, Vice President Power of Attorney KNOWN ALL MEN BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints Robert A. Carothers, Raymond C. Marier, Leo C. Farrenkopf, Jr. and each of them singly, his or her true and lawful attorneys-in-fact and agents with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign this Registration Statement and any and all amendments thereto, including post-effective amendments, and to file the same, with all exhibits thereto, any related registration filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purpose as he or she might or could do in person, hereby ratifying and confirming all the said attorneys-in-fact and agents or any of them or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registrant Statement has been signed below by the following persons in the capacities indicated on November , 1996. PATHOLOGY BUILDING PARTNERSHIP By: CORNING CLINICAL LABORATORIES INC. (MD) As General Partner By: /s/ Raymond C. Marier Raymond C. Marier, Vice President By: DIAGNOSTIC REFERENCE SERVICES, INC. As General Partner By: /s/ Raymond C. Marier Raymond C. Marier, Vice President II-22 Exhibit Index
Exhibit Number Description Page - ----------- ----------------------------------------------------------------------------------------------------------------- 1.1* Form of Underwriting Agreement 2.1 Form of Transaction Agreement among Corning Incorporated, Corning Life Sciences Inc., Corning Clinical Laboratories Inc. (Delaware), Covance Inc. and Corning Clinical Laboratories Inc. (Michigan), dated November 22, 1996 (filed as an exhibit to Corning Clinical Laboratories Inc.'s ("CCL") Registration Statement on Form 10 (File No. 1-12215) and incorporated herein by this reference) 3.1 Certificate of Incorporation of the Registrant (filed as an exhibit to CCL's Registration Statement on Form 10 (File No. 1-12215) and incorporated herein by this reference) 3.2 By-Laws of the Registrant (filed as an exhibit to CCL's Registration Statement on Form 10 (File No. 1-12215) and incorporated herein by this reference) 3.3 Certificate of Incorporation of Corning Clinical Laboratories Inc. (MI) 3.4 Certificate of Incorporation of Corning Nichols Institute Inc. 3.5 Certificate of Incorporation of Damon Clinical Laboratories Inc. 3.6 Certificate of Incorporation of Corning Clinical Laboratories Inc. (CT) 3.7 Certificate of Incorporation of Corning Clinical Laboratories Inc. (MA) 3.8 Certificate of Incorporation of Corning Clinical Laboratories of Pennsylvania Inc. 3.9 Certificate of Incorporation of Deyor CPF/Metpath, Inc. 3.10 Certificate of Incorporation of Southgate Medical Services, Inc. 3.11 Certificate of Incorporation of Corning MRL Inc. 3.12 Certificate of Incorporation of DPD Holdings, Inc. 3.13 Certificate of Incorporation of Metwest Inc. 3.14 Certificate of Incorporation of Corning Clinical Laboratories Inc. (MD) 3.15 Certificate of Incorporation of Nichols Institute Diagnostics 3.16 Certificate of Incorporation of Nomad-Massachusetts, Inc. 3.17 Certificate of Incorporation of Quest Diagnostics Incorporated (MI) 3.18 Certificate of Incorporation of Quest Diagnostics Incorporated (MD) 3.19 Certificate of Incorporation of CLMP Inc. 3.20 Certificate of Incorporation of Diagnostic Reference Services, Inc. 3.21 By-Laws of Corning Nichols Institute Inc. 3.22 By-Laws of CLMP Inc. 3.23 By-Laws of Corning Clinical Laboratories Inc. (MI); Damon Clinical Laboratories Inc.; Corning Clinical Laboratories Inc. (CT); Corning Clinical Laboratories Inc. (MA); Corning Clinical Laboratories of Pennsylvania Inc.; Deyor CPF/Metpath, Inc.; Southgate Medical Services, Inc.; Corning MRL Inc.; DPD Holdings, Inc.; Metwest Inc.; Corning Clinical Laboratories Inc. (MD); Nichols Institute Diagnostics; Nomad-Massachusetts, Inc.; Quest Diagnostics Incorporated (MI); Quest Diagnostics Incorporated (MD); Diagnostic Reference Services, Inc. 3.24* Partnership Agreement of Pathology Building Partnership 4.1* Form of [ ]% Senior Subordinated Notes due 2006 (included in Exhibit 4.2) 4.2* Form of Indenture between Corning Clinical Laboratories Inc. and [ ], as Trustee, dated [ ], 1996 5.1* Opinion of Shearman & Sterling II-23 10.1 Form of Tax Sharing Agreement among Corning Incorporated, Corning Clinical Laboratories Inc. and Covance Inc., dated [ ], 1996 (filed as an exhibit to CCL's Registration Statement on Form 10 (File No. 1-12215) and incorporated herein by this reference) 10.2 Form of Spin-Off Tax Indemnification Agreement between Corning Incorporated and Corning Clinical Laboratories Inc., dated [ ], 1996 (filed as an exhibit to CCL's Registration Statement on Form 10 (File No. 1-12215) and incorporated herein by this reference) 10.3 Form of Spin-Off Tax Indemnification Agreement between Corning Clinical Laboratories Inc. and Covance Inc., dated [ ], 1996 (filed as an exhibit to CCL's Registration Statement on Form 10 (File No. 1-12215) and incorporated herein by this reference) 10.4 Form of Spin-Off Tax Indemnification Agreement between Covance Inc. and Corning Clinical Laboratories Inc., dated [ ], 1996 (filed as an exhibit to CCL's Registration Statement on Form 10 (File No. 1-12215) and incorporated herein by this reference) 10.5 Form of Corning Clinical Laboratories Inc. Executive Retirement Supplemental Plan, dated [ ], 1996 (filed as an exhibit to CCL's Registration Statement on Form 10 (File No. 1-12215) and incorporated herein by this reference) 10.6 Form of Corning Clinical Laboratories Inc. Variable Compensation Plan, dated [ ], 1996 (filed as an exhibit to CCL's Registration Statement on Form 10 (File No. 1-12215) and incorporated herein by this reference) 10.7 Form of Corning Clinical Laboratories Inc. Employees Stock Purchase Program, dated [ ], 1996 (filed as an exhibit to CCL's Registration Statement on Form 10 (File No. 1-12215) and incorporated herein by this reference) 10.8 Form of Corning Clinical Laboratories Inc. Employee Equity Participation Program, dated [ ], 1996 (filed as an exhibit to CCL's Registration Statement on Form 10 (File No. 1-12215) and incorporated herein by this reference) 10.9 Corning Clinical Laboratories Inc. Profit Sharing Plan, dated [ ], 1996 (filed as an exhibit to CCL's Registration Statement on Form 10 (File No. 1-12215) and incorporated herein by this reference) 10.10 Form of Corning Clinical Laboratories Inc. Director's Restricted Stock Plan, dated [ ], 1996 (filed as an exhibit to CCL's Registration Statement on Form 10 (File No. 1-12215) and incorporated herein by this reference) 10.11 Form of Credit Agreement among Corning Clinical Laboratories Inc., J.P. Morgan Securities Inc., NationsBanc Capital Markets Inc. and Wachovia Bank of Georgia, N.A., as CoArrangers, dated [ ], 1996 (filed as an exhibit to CCL's Registration Statement on Form 10 (File No. 1-12215) and incorporated herein by this reference) 12.1** Computation of Consolidated Ratio of Earnings to Fixed Charges 21.1 Subsidiaries of Corning Clinical Laboratories Inc. (filed as an exhibit to CCL's Registration Statement on Form 10 (File No. 1-12215) and incorporated herein by this reference) 23.1* Consent of Shearman & Sterling (included in Exhibit 5.1) 23.2 Consent of Price Waterhouse LLP 23.3 Consent of Leverone & Company 23.4 Consent of Deloitte & Touche LLP 23.5 Consent of Ernst & Young LLP 23.6 Consent of Gail R. Wilensky, Ph.D. 24.1** Powers of Attorney 25.1* Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of The Bank of New York 27.1** Financial Data Schedules
*To be filed by amendment. **Previously filed. II-24 EX-3.3 2 CORNING CLINICAL LABORATORIES INC. (MI) STATE OF MICHIGAN MICHIGAN DEPARTMENT OF TREASURY CORPORATION DIVISION LANSING, MICHIGAN DO NOT WRITE IN SPACE BELOW -- FOR DEPARTMENT USE Date Received: Compared by: JAN 27 1969 This is to certify this Date: document to be a true copy of the original on file in this office. FILED JAN 29 1969 Examiner: /s/ Allison Grun STATE TREASURER Michigan Department of Treasury ARTICLES OF INCORPORATION These Articles of Incorporation are signed and acknowledged by the incorporators for the purpose of forming a corporation for profit under the provisions of Act No. 327 of the Public Acts of 1931, as amended, as follows: ARTICLE I. The name of the corporation is ADVANCE MEDICAL & RESEARCH CENTER, INC. ARTICLE II. The purpose or purposes for which the corporation is formed are as follows: To conduct, operate, own, manage and generally carry on the business of medical, clinical and research laboratories within the State of Michigan, and to acquire, lease, own and convey and dispose of real or personal property used in the operation of said business. In general to carry on any business in connection therewith and incident thereto not forbidden by the laws of the State of Michigan and with all the powers conferred upon corporations by the laws of the State of Michigan. ARTICLE III. Location of the first registered office is: 1509 S. Telegraph Pontiac Oakland Michigan 48053 Post office address of the first registered office is: 1509 S. Telegraph Pontiac Michigan 48053 ARTICLE IV. The name of the first resident agent is Robert L. Moloney 1 ARTICLE V. The total authorized capital stock is Preferred shs. NONE Par Value $ NONE (1) per share Common shs. 50,000 Par Value $ 1.00 Book Value $ per share Preferred none Price fixed for sale and/or shs. of (2) no par value Common Book Value $ per share Price fixed for sale $ (3) A statement of all or any of the designations and the powers, preferences and rights, and the qualifications, limitations or restrictions thereof is as follows: All shares of stock shall have the same powers, preferences and rights. ARTICLE VI. The names and places of residence or business of each of the incorporators and the number and class of shares subscribed for by each are as follows: (Statute requires one or more incorporators) Name Residence or Business Address Number of Shares Par Stock Non-Par Stock Common Preferred Common Preferred Robert L. Moloney 1509 S. Telegraph Pontiac, Mich. 18,000 ARTICLE VII. The names and addresses of the first board of directors are as follows: (Statute requires at least three directors) Name Residence or Business Address Robert L. Moloney 1509 S. Telegraph, Pontiac, Michigan Richard E. Arnold 1940 Welbeck, Union Lake, Michigan Aldoph H. Magnus, Jr. 879 Foxhall Rd. Bloomfield Hills, Michigan ARTICLE VIII. The term of the corporate existence is perpetual. (If term is for a limited number of years, then state the number of years instead of perpetual) 2 ARTICLE IX. OPTIONAL (Please delete Article IX if not applicable) Whenever a compromise or arrangement or any plan of reorganization of this corporation is proposed between this corporation and its creditors or any class of them or between this corporation and its shareholders or any class of them, any court of equity jurisdiction within the state may on the application of this corporation or of any creditor or any shareholder thereof, or on the application of any receiver or receivers appointed for this corporation, order a meeting of the creditors or class of creditors, or of the shareholders or class of shareholders, to be affected by the proposed compromise or arrangement or reorganization, to be summoned in such manner as said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, or of the shareholders or class of shareholders, to be affected by the proposed compromise or arrangement or reorganization, agree to any compromise or arrangement or to any reorganization of this corporation as a consequence of such compromise or arrangement, said compromise or arrangement and said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, or on all the shareholders or class of shareholders, and also on this corporation. ARTICLE X. (Here insert any desired additional provisions authorized by the Act) This corporation is organized with plan to qualify under Sec. 1244, Sub-Chapter P - Capital Gains & Losses, and under Secs. 1372, 1373 and 1374, Sub-Chapter S - Election of Certain Small Business Corporations as to Taxable Status, of amendments to Internal Revenue Code of 1954. We, the incorporators, sign our names this 23rd day of January 19 69. (All parties appearing under Article VI are required to sign in this space) /s/ Robert L. Moloney --------------------- Robert L. Moloney STATE OF MICHIGAN } (One or more of the parties signing must acknowledge } ss. before the Notary) COUNTY OF OAKLAND } On this 23rd day of January 1969, before me personally appeared Robert L. Moloney to me known to be the persons described in and who executed the foregoing instrument, and acknowledged that they executed the same as their free act and deed. (Signature of Notary) /s/ Sheila Steinhoff ---------------------------------------------------------------- (Print or type name of Notary) Notary Public for Oakland County, State of Michigan. My commisison expires 3/8/70 (Notarial seal required if acknowledgment taken out of State) 3 STATE OF MICHIGAN MICHIGAN DEPARTMENT OF TREASURY CORPORATION DIVISION LANSING, MICHIGAN NOTE DO NOT WRITE IN SPACE BELOW -- FOR DEPARTMENT USE Mail ONE signed and acknowledged copy to Date Received: Michigan Department of Treasury DEC-9 1969 Corporation Division P.O. Drawer C Lansing, Michigan 48904 Filing Fee $5.00 (Make fee payable to State of Michigan) This is to certify this document to be a true copy of the original on file in this office. FILED DEC 11 1969 /s/ Allison Grun STATE TREASURER MICHIGAN DEPARTMENT OF TREASURY CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION Advance Medical & Research Center, Inc. a Michigan corporation, whose registered office is located at 1509 South Telegraph Pontiac Oakland Michigan 48053 certifies pursuant to the provisions of Section 43 of Act No. 327 of the Public Acts of 1931, as amended, that at a meeting of the Shareholders of said corporation called for the purpose of amending the articles of incorporation, and held on the 7th day of November 1969 it was resolved by the unanimous vote of each class entitled to vote and of each class whose rights, privileges or preferences are changed, that Article No. V of the Articles of Incorporation is amended to read as follows, viz.: ARTICLE V. (Any article being amended is required to be set forth in its entirety.) The total authorized capital stock is: (1) 50,000 Shares of $1.00 par value common stock (2) 500 Shares of $100.00 par value Class A 7% Cumulative Preferred Shares (3) A statement of all or any of the designations and the powers, preferences and rights, and the qualifications, limitations or restrictions thereof is as follows: The Common stock is fully paid, non-assessable, voting stock, without pre-emptive rights. The Class A 7% Cumulative Preferred stock shall be entitled to a cumulative dividend of $7.00 per share accruing as of November 1, of each year as to each share issued and outstanding on that date and subject to payment form the earned surplus of the corporation at such times as declared by the Board of Directors; it shall be entitled and limited to preferential payment on liquidation of an amount equal to its par value prior to any liquidation payments upon the issued and outstanding common stock; it shall be non-voting; it shall be subject to call by the corporation at any time prior to November 1, 1979, and to redemption at the shareholders option 4 on or after November 1, 1979, at a call or redemption price of $110.00 per share plus any accrued and unpaid dividends; it shall be convertible on a dollar for dollar basis into any future common stock issue which may be offered to the public while such preferred stock is outstanding, provided that such conversion rights shall terminate thirty days after written notice to the stockholder of the availability of the public issue for conversion. NOTE: Sec. 43. amended by Act 155, P.A. 1953, provides: ". . . That any amendment which impairs the preemptive right of the holders of shares of any class of capital stock entitled to such right shall be approved by the vote of the holders of 2/3 of the shares of each such class . . . . " Signed on December 6, 1969. Affix Corporate Seal Here ADVANCE MEDICAL & RESEARCH CENTER, INC. (Corporate Name) By /s/ Robert L. Moloney ---------------------------------- (President or Vice-President) Robert L. Moloney /s/ James L. Howlet ---------------------------------- (Secretary or Assistant Secretary) James L. Howlett STATE OF MICHIGAN COUNTY OF OAKLAND } SS On this 6 day of December, 1969, before me appeared Robert L. Moloney to me personally known, who, being by me duly sworn, did say that he is the president or of Advance Medical & Research Center, Inc., which executed the foregoing instrument, and that* [the seal affixed to said instrument is the corporate seal of said corporation, and that] said instrument was signed* [and sealed] in behalf of said corporation by authority of its board of directors, and said officer acknowledged said instrument to be the free act and deed of said corporation. *If corporation has no seal strike out the words in brackets and add at end of acknowledgment the following: "and that said corporation has no corporate seal". /s/ Norma M. Anderson --------------------- Norma M. Anderson Notary Public for Oakland County State of Michigan My Commisison expires May 13, 1972 (Notarial seal required if acknowledgment taken out of State) 5 (For Use By Domestic Corporations) CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORAITON OF ADVANCE MEDICAL & RESEARCH CENTER, INC. (Name of Corporation) The undersigned corporation executes the following Certificate of Amendment to its Articles of Incorporation pursuant to the provisions of Section 631, Act 284, Public Acts of 1972: 1. The name of the corporation is Advance Medical & Research Center, Inc. The location of the registered office is 1270 Doris Road Pontiac, Michigan 48057 2. The following amendment to the Articles of Incorporation was adopted by the shareholders of the corporation in accordance with Subsection (2) of Section 611, Act 284, Public Acts of 1972, on the 19th day of May, 1978: Resolved, that Article V of the Articles of Incorporation be amended to read as follows: (Any article being amended is required to be set forth in its entirety.) The total authorized capital stock is: (1) 50,000 shares of $1.00 par value common stock. 3. The necessary number of shares as required by statute were voted in favor of the amendment. Dated this 31st day of May, 1978. ADVANCE MEDICAL & RESEARCH CENTER, INC. By /s/ Robert L. Moloney, President ------------------------------------ Robert L. Moloney, President 6 - -------------------------------------------------------------------------------- MICHIGAN DEPARTMENT OF COMMERCE - CORPORATION AND SECURITIES BUREAU - -------------------------------------------------------------------------------- Date Received (FOR BUREAU USE ONLY) DEC 15 1995 FILED DEC 15 1995 Administrator MICHIGAN DEPARTMENT OF COMMERCE Corporation & Securities Bureau Name Address City EFFECTIVE DATE: - -------------------------------------------------------------------------------- Document will be returned to the name and address you enter above CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION For use by Domestic Profit Corporations (Please read information and instructions on the last page) Pursuant to the provisions of Act 284, Public Acts of 1972 (profit corporations), or Act 162, Public Acts of 1982 (nonprofit corporations), the undersigned corporation executes the following Certificate: - -------------------------------------------------------------------------------- 1. The present name of the corporation is: ADVANCE MEDICAL & RESEARCH CENTER, INC. 2. The identification number assigned by the Bureau is: 179-214 3. The location of the registered office is: The Corporation Company 30600 Telegraph Road, Bingham Farms, Michigan 48025 - ----------------------------------- ----------------------------------- (Street Address) (City) (Zip Code) 4. Article I of the Articles of Incorporation is hereby amended to read as follows: "The name of the corporation is Corning Clinical Laboratories Inc." - -------------------------------------------------------------------------------- 7 5. COMPLETE SECTION (a) IF THE AMENDMENT WAS ADOPTED BY THE UNANIMOUS CONSENT OF THE INCORPORATOR(S) BEFORE THE FIRST MEETING OF THE BOARD OF DIRECTORS OR TRUSTEES; OTHERWISE, COMPLETE SECTION (b). DO NOT COMPLETE BOTH. a. |_| The foregoing amendment to the Articles of Incorporation was adopted on the day of , 19 , in accordance with the provisions of the Act by the unanimous consent of the incorporator(s) before the first meeting of the Board of Directors of Trustees. Signed this day of , 19 . -------------------- -------------------- (Signature) (Signature) -------------------- -------------------- (Type or Print Name) (Type or Print Name) -------------------- -------------------- (Signature) (Signature) -------------------- -------------------- (Type or Print Name) (Type or Print Name) b. |_| The foregoing amendment to the Articles of Incorporation was duly adopted on the 25th day of November, 1995. The amendment: (check one of the following) |_| was duly adopted in accordance with Section 611(2) of the Act by the vote of the shareholders if a profit corporation, or by the vote of the shareholders or members if a nonprofit corporation, or by the vote of the directors if a nonprofit corporation organized on a nonstock directorship basis. The necessary votes were cast in favor of the amendment. |_| was duly adopted by the written consent of all directors pursuant to Section 525 of the Act and the corporation is a nonprofit corporation organized on a nonstock directorship basis. |_| was duly adopted by the written consent of the shareholders or members having not less than the minimum number of votes required by statute in accordance with Section 407(1) and (2) of the Act if a nonprofit corporation, or Section 407(1) of the Act if a profit corporation. Written notice to shareholders who have not consented in writing has been given. (Note: Written consent by less than all of the shareholders or members is permitted only if such provision appears in the Articles of Incorporation.) |X| was duly adopted by the written consent of all the shareholders or members entitled to vote in accordance with Section 407(3) of the Act if a nonprofit corporation, or Section 407(2) of the Act if a profit corporation. Signed this 28 day of December, 1995 By____________________________________________________ (Only Signature of President Vice-President, Chairperson, or Vice-Chairperson) Raymond C. Marier Vice President ---------------------------------------------------- (Type or Print Name) (Type or Print Name) 8 CERTIFICATE OF MERGER OF METPATH SERVICES CORPORATION AND METPATH TPA, INC. INTO CORNING CLINICAL LABORATORIES INC. (a Michigan corporation) ---------- To the Administrator Michigan Department of Commerce Corporation and Securities Bureau Corporate Division State of Michigan Pursuant to the provisions of the Business Corporation Act of the State of Michigan, Act 284 P. A. 1972, it is hereby certified that: 1. Annexed hereto and made a part hereof is the Plan of Merger for merging MetPath Services Corporation ("MSC") and MetPath TPA, Inc. ("TPA"), each a Michigan business corporation, with and into Corning Clinical Laboratories Inc. ("CCL"), a Michigan business corporation. 2. The Plan of Merger has been adopted by the Board of Directors of MSC and TPA in accordance with Section 701 of the Business Corporation Act and has been approved by the shareholders of MSC and TPA entitled to vote thereon in accordance with Section 703a of the Business Corporation Act, except that all of the shareholders entitled to vote dispensed with the holding of the meeting of shareholders otherwise prescribed by Section 703a of the Business Corporation Act and approved the Plan of Merger by a consent in writing signed by all of them without any such meeting. The Plan of Merger has been adopted by the Board of Directors of CCL in accordance with Section 701 of the Business Corporation Act. No approval by the shareholders of CCL was required under Section 703a of the Business Corporation Act or by the Articles of Incorporation of CCL. 3. The number of outstanding shares of MSC is 1,000, all of which are of one class and are common shares. The number of outstanding shares of TPA is 1,000, all of which are of one class and are common shares. The number of outstanding shares of CCL is 22,000, all of which are of one class and common shares. 4. The Plan of Merger does not amend the Articles of Incorporation of CCL. 5. The Plan of Merger will be furnished by CCL, on request and without cost, to any shareholder of CCL, TPA or MSC. 6. The effective date is: August 31, 1996 at 11:59 p.m. Executed as of June 30, 1996. 9 CORNING CLINICAL LABORATORIES INC. (MI) By: /s/ Kenneth Roe ------------------------------------- Kenneth Roe President METPATH SERVICES CORPORATION By: /s/ Kenneth Roe ------------------------------------- Kenneth Roe President METPATH TPA, INC. By: /s/ Douglas VanOort ------------------------------------- Douglas VanOort Vice President 10 PLAN OF MERGER OF METPATH SERVICES CORPORATION AND METPATH TPA, INC. INTO CORNING CLINICAL LABORATORIES INC. (a Michigan corporation) PLAN OF MERGER adopted as of June 30, 1996 by Corning Clinical Laboratories Inc. ("CCL"), a business corporation of the State of Michigan, and by resolution of its Board of Directors on said date, and adopted on June 30, 1996 by MetPath Services Corporation ("MSC") and MetPath TPA, Inc. ("TPA"), each of which is a business corporation of the State of Michigan, and by resolution of its Board of Directors on said date. 1. The Merger. MSC, TPA and CCL shall, pursuant to the provisions of the Business Corporation Act of the State of Michigan ("BCA"), be merged with and into a single corporation, to wit, CCL, which shall be the surviving corporation upon the effective date of the merger and which is sometimes hereinafter referred to as the "Surviving Corporation," and which shall continue to exist as said Surviving Corporation under the provisions of the BCA. The separate corporate existence of MSC and TPA shall cease upon said effective date of the merger. 2. Effective Time. The Merger shall become effective (the "Effective Time") at 11:59 p.m. on August 31, 1996 or, if later, upon the filing of the Certificate of Merger with the Secretary of State of Michigan in accordance with the BCA. 11 3. Outstanding Shares. The number of outstanding shares of MSC is 1,000, all of which are of one class and are common shares, and all of which are entitled to vote. The number of outstanding shares of TPA is 1,000, all of which are of one class and are common shares, and all of which are entitled to vote. The number of outstanding shares of CCL is 22,000, all of which are of one class and are common shares, and all of which are entitled to vote. 4. Articles of Incorporation of the Surviving Corporation. The Articles of Incorporation of CCL as in effect immediately prior to the Effective Time shall, until thereafter and further amended as provided therein and under the BCA, be the Articles of Incorporation of the surviving corporation. 5. By-Laws of the Surviving Corporation. The By-Laws of CCL as in effect immediately prior to the Effective Time, shall, until thereafter and further amended as provided therein and under the BCA, be the By-Laws of the Surviving Corporation. 6. Directors of the Surviving Corporation. The Directors of the Surviving Corporation shall be the Directors of CCL immediately prior to the Effective Time, until their respective successors are duly elected and qualified. 12 7. Officers of the Surviving Corporation. The Officers of the Surviving Corporation shall be the Officers of CCL immediately prior to the Effective Time, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified. 8. Conversion of Shares. At the Effective Time, by virtue of the Merger and without any action on the part of the holders thereof: (i) Each share of common stock of CCL issued and outstanding immediately prior to the Effective Time shall remain outstanding and shall thereafter evidence one validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation. (ii) Each outstanding share of Common Stock of MSC and TPA issued and outstanding immediately prior to the Effective Time shall be canceled without consideration. 9. Rights and Liabilities of the Surviving Corporation. At and after the Effective Time, the Surviving Corporation shall succeed to and possess, without further act or deed, all of the estate, rights, privileges, powers, and franchise, both public and private, and all of the property, real, personal, and mixed, of each of MSC, TPA and CCL; all debts due to MSC and TPA shall be vested in the Surviving Corporation; all claims, demands, property rights, privileges, powers and franchises and every other interest of MSC and TPA shall be effectively the property of the Surviving Corporation as they were of MSC and TPA; the title 13 to any real estate vested by deed or otherwise in MSC and TPA shall not revert or be in any way impaired by reason of the Merger, but shall be vested in the Surviving Corporation, all rights of creditors and all liens upon any property of MSC and TPA shall be preserved unimpaired, limited to the property affected by such lien at the Effective Time of the Merger; and all debts, liabilities, and duties of MSC and TPA shall thenceforth attach to the Surviving Corporation and may be enforced against it to the same extent as if such debts, liabilities and duties had been incurred or contracted by it. 10. Submission to Shareholders of MSC and TPA. This Plan of Merger shall be submitted to the shareholders of MSC and TPA for their approval or rejection in the manner prescribed by the BCA. This Plan of Merger is not required to be submitted to the shareholders CCL for their approval. 11. Abandonment of Merger. This Plan of Merger may be terminated and abandoned by joint action of the Board of Directors of CCL, MSC and TPA at any time prior to Effective Time. 12. Further Actions. The proper officers of CCL, MSC and TPA are hereby authorized, empowered, and directed to do any and all acts and things, and to make, execute, deliver, file and/or record any and all instruments, papers, and documents which shall be or become necessary, proper, or convenient to carry out or put into effect any of the provisions of this Plan of Merger or of the Merger. 14 EX-3.4 3 CORNING NICHOLS INSTITUTE INC. ARTICLES OF INCORPORATION OF NICHOLS INSTITUTE FOR ENDOCRINOLOGY ONE: The name of this corporation is NICHOLS INSTITUTE FOR ENDOCRINOLOGY. TWO: The purposes for which this corporation is formed are: (a) To engage primarily in the specific business of analyzing, researching, developing, producing, manufacturing and/or distributing biological materials and/or otherwise providing services and materials required in analysis of biological materials. (b) To manufacture, buy, sell, assemble, distribute, and to otherwise acquire, or to own, hold, use, sell, lease, assign, transfer, exchange, license or otherwise dispose of, and to invest, trade, deal in and with goods, wares, merchandise, building materials, supplies and all other property of every class and description. (c) To purchase, acquire, own, hold, use, lease, either as lessor or lessee, rent, sublet, grant, sell, exchange, subdivide, mortgage, deed in trust, manage, improve, cultivate, develop, maintain, construct, operate, and generally deal in, any and all real estate, improved, or unimproved, stores, office buildings, dwelling houses, boarding houses, apartment houses, hotels, business blocks, garages, warehouses, manufacturing plants, and other buildings of any kind or description, real, personal and mixed, and any interest or right therein, including water and water rights, wheresoever situated, in California, other states of the United States, the District of Columbia, territories of the United States and foreign countries. 1 (d) To purchase, acquire, take, hold, own, use and enjoy, and to sell, lease, transfer, pledge, mortgage, convey, grant, assign or otherwise dispose of, and generally to invest, trade deal in and with oil royalties, mineral rights of all kinds, mineral bearing lands and hydro-carbon products of all kinds, oil, gas and mineral leases, and all rights and interests therein, and. in general, products of the earth and deposits, both subsoil and surface, of every nature and description. (e) To enter into, make, perform and carry out contracts of every kind for any lawful purpose without limit as to amount, with any person, firm, association, or corporation, municipality, county, parish, state, territory, government (foreign and domestic) or other municipal or governmental subdivision. (f) To become a partner (either general or limited or both) and to enter into agreements of partnership with one or more other persons or corporations, for the purpose of carrying on any business whatsoever which this corporation may deem proper or convenient in connection with any of the purposes herein set forth or otherwise, or which may be calculated, directly or indirectly, to promote the interest of this corporation or to enhance the value of its property or business. (g) To acquire, by purchase or otherwise, the goodwill, business, property rights, franchises and assets of every kind, with or without undertaking, either wholly or in part, the liabilities of any person, firm, association or corporation; and to acquire any property or business as a going concern or otherwise (a) by purchase of the assets thereof wholly or in part; (b) by acquisition of the shares or any part thereof; or (c) in any manner; and to pay for the same in cash or in the shares or 2 bonds of other evidences of indebtedness of this corporation, or otherwise; to hold, maintain and operate, or in any manner dispose of the whole or any part of the goodwill, business, rights and property so acquired and to conduct, in any lawful manner, the whole or any part of any business so acquired; and to exercise all the powers necessary or convenient in and about the management of such business. (h) To take, purchase, and otherwise acquire, own, hold, use, sell, assign, transfer, exchange, lease, mortgage, convey in trust, pledge, hypothecate, grant licenses in respect of and otherwise dispose of letters patent of the United States or any foreign country, patent rights, licenses and privileges, inventions, improvements, and processes, copyrights, trademarks and trade names, and government, state, territorial, county and municipal grants and concessions of every character which this corporation may deem advantageous in the prosecution of its business or in the maintenance, operation, development or extension of its properties. (i) From time to time to apply for, purchase, acquire by assignment, transfer or otherwise, exercise, carry out, and enjoy any benefit, right, privilege, prerogative or power conferred by, acquired under or granted by any statute, ordinance, order, license, power, authority, franchise, commission, right or privilege which any government or authority or governmental agency or corporation or other public body may be empowered to enact, make or grant; to pay for, aid in, and contribute towards carrying the same into effect; and to appropriate any of this corporation's shares, bonds and/or assets to defray costs, charges and expenses thereof. 3 (j) To subscribe or cause to be subscribed for, and to take, purchase, and otherwise acquire, own, hold, use, sell, assign, transfer, exchange, distribute and otherwise dispose of, the whole or any part of the shares of the capital stock, bonds, coupons, mortgages, deeds of trust, debentures, securities, obligations, evidences of indebtedness, notes, goodwill, rights, assets and property of any and every kind, or any part thereof, of any other corporation or corporations, association or associations, firm or firms, or person or persons, together with the shares, rights, units or interests in or in respect of any trust estate, now or hereafter existing, and whether created by the laws of the State of California or of any other state, territory or country; and to operate, manage and control such properties, or any of them, either in the name of such other corporation or corporations or in the name of this corporation; and (k) To have and to exercise all the powers conferred by the laws of the State of California upon corporations formed under the laws pursuant to and under which this corporation is formed, as such laws are now in effect or may at any time hereafter be amended. The foregoing statement of purposes shall be construed as a statement of both purposes and powers, and the purposes and powers stated in each clause, except where otherwise expressed, be in nowise limited or restricted by any reference to or inference from the terms or provisions of any other clause, but shall be regarded as independent purposes and powers. THREE: The County in the State of California where the principal office for the transaction of the business of this corporation is to be located is Los Angeles. 4 FOUR: This corporation is authorized to issue an aggregate of Five Thousand (5,000) shares of Common Stock, all of one class. The aggregate par value of said shares shall be Fifty Thousand Dollars ($50,000.00) and the par value of each of said shares shall be Ten Dollars ($10.00). FIVE: The number of directors of this corporation shall be Three (3). The names and addresses of the persons who are appointed to act as the first directors of this corporation are: Name Address ---- ------- Albert L. Nichols, M.D. 2422 Colt Road Miraleste, California 90732 Lillian Nichols 2422 Colt Road Miraleste, California 90732 Albert A. Nichols 953 Holly Road Inglewood, California 5 IN WITNESS WHEREOF, for the purpose of forming this corporation under the laws of the State of California, the undersigned, constituting the incorporators of this corporation, including the persons named hereinabove as the first directors of this corporation, have executed these Articles of Incorporation this 9th day of August, 1971. /s/ Albert L. Nichols, M.D. --------------------------- Albert L. Nichols, M.D. /s/ Lillian Nichols --------------------------- Lillian Nichols /s/ Albert A. Nichols --------------------------- Albert A. Nichols 6 STATE OF CALIFORNIA ) ) ss. COUNTY OF LOS ANGELES ) On this 9th day of August, 1971, before me, the undersigned Notary Public in and for said County and State, residing therein, duly commissioned and sworn, personally appeared Albert L. Nichols, M. D., known to me to be the person whose name is subscribed to the foregoing Articles of Incorporation, and acknowledged to me that (s)he executed the same. WITNESS my hand and official seal. /s/ Harriet M. Spann --------------------------- Notary Public Harriet M. Spann 7 STATE OF CALIFORNIA ) ) ss. COUNTY OF LOS ANGELES ) On this 9th day of August, 1971, before me, the undersigned Notary Public in and for said County and State, residing therein, duly commissioned and sworn, personally appeared Lillian Nichols, known to me to be the person whose name is subscribed to the foregoing Articles of Incorporation, and acknowledged to me that (s)he executed the same. WITNESS my hand and official seal. /s/ Harriet M. Spann --------------------------- Notary Public Harriet M. Spann 8 STATE OF CALIFORNIA ) ) ss. COUNTY OF LOS ANGELES ) On this 9th day of August, 1971, before me, the undersigned Notary Public in and for said County and State, residing therein, duly commissioned and sworn, personally appeared Albert A. Nichols, known to me to be the person whose name is subscribed to the foregoing Articles of Incorporation, and acknowledged to me that (s)he executed the same. WITNESS my hand and official seal. /s/ Harriet M. Spann --------------------------- Notary Public Harriet M. Spann 9 CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION OF NICHOLS INSTITUTE FOR ENDOCRINOLOGY A California corporation Albert L. Nichols, M.D. and Albert A. Nichols certify: 1. That they are the President and Secretary, respectively, of Nichols Institute for Endrocrinology, a California corporation (the "Corporation"), 2. That the By-Laws of the Corporation authorize the Directors to adopt, by unanimous written consent without a meeting, resolutions amending the Articles of Incorporation; and, therefore, by unanimous written consent without a meeting, the Directors did adopt the following resolutions amending the Articles of Incorporation: WHEREAS, Article Four of the Articles of Incorporation of this Corporation presently authorizes Five Thousand (5,000) shares of Common Stock, Ten Dollars ($10.00) par value; and WHEREAS, this Corporation has issued only Four Thousand One Hundred (4,100) of said authorized shares; and WHEREAS, it is deemed in the best interests of this Corporation to increase the authorized number of shares of stock from Five Thousand (5,000) to Five Hundred Thousand (500,000) and to change the par value per share from Ten Dollars ($10.00) to Ten Cents ($0.10); and WHEREAS, it is deemed in the best interest of this Corporation to increase the number of outstanding shares by effecting a split of each outstanding share into One Hundred (100) shares; 10 NOW, THEREFORE, BE IT RESOLVED: that Article Four of the Articles of Incorporation is hereby amended to read in full as follows: "This corporation is authorized to issue an aggregate of Five Hundred Thousand (500,000) shares of Common Stock, all of one class. The aggregate par value of said shares shall be Fifty Thousand Dollars ($50,000) and the par value of each of said shares shall be Ten Cents ($0.10). Upon the amendment of this article to read as hereinabove set forth, each outstanding share, Ten Dollars ($10.00) par value is split up and converted into One Hundred (100) shares, Ten Cents ($0.10) par value." 3. That the stockholders of this Corporation have adopted the foregoing resolutions by written consent; that the wording of each of said resolutions is the same as that set forth in Paragraph 2, hereinabove. 4. That the total number of shares represented by said written consent of shareholders is Four Thousand One Hundred (4,100), and that the total number of shares entitled to vote on or consent to the amendment is Four Thousand One Hundred (4,100). /s/ Albert L. Nichols, M.D. ---------------------------------- Albert L. Nichols, M.D., President /s/ Albert A. Nichols ---------------------------------- Albert A. Nichols, Secretary 11 Each of the undersigned declares under penalty of perjury that the matters set forth in the foregoing certificate are true and correct. Executed at San Pedro, California, on this 1st day of October, 1974. /s/ Albert L. Nichols, M.D. ---------------------------- Albert L. Nichols, M.D. /s/ Albert A. Nichols ---------------------------- Albert A. Nichols 12 CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION OF NICHOLS INSTITUTE FOR ENDOCRINOLOGY A California corporation Albert L. Nichols, M.D. and Albert A. Nichols certify: 1. That they are the President and Secretary, respectively, of Nichols Institute for Endocrinology, a California corporation (the "Corporation"), 2. That the By-Laws of the Corporation authorize the Directors to adopt, by unanimous written consent without a meeting, resolutions amending the Articles of Incorporation; and, therefore, by unanimous written consent without a meeting, the Directors did adopt the following resolutions amending the Articles of Incorporation: I "RESOLVED, that Article One of the Articles of Incorporation of this Corporation shall be amended to read in full as follows: 'The name of this Corporation is: NICHOLS INSTITUTE'" II "WHEREAS, Article Four of the Articles of Incorporation of this Corporation presently authorizes Five Hundred Thousand (500,000) shares of common stock, Ten Cent ($.10) par value; and WHEREAS, it is deemed in the best interests of this Corporation to increase the authorized number of shares of stock 13 from Five Hundred Thousand (500,000) shares, Ten Cent ($.10) par value, to Five Million (5,000,000) shares of common stock, Ten Cent ($.10) par value; and WHEREAS, it is deemed in the best interests of this Corporation to leave each of the issued and outstanding shares of the Corporation unaffected by this change in capitalization; NOW, THEREFORE, BE IT RESOLVED, that Article Four of the Articles of Incorporation of this Corporation is hereby amended to read in full as follows: 'This Corporation is authorized to issue an aggregate of Five Million (5,000,000) shares of Common Stock, all of one class. The aggregate par value of said shares shall be Five Hundred Thousand Dollars ($500,000) and the par value of each of said shares shall be Ten Cents ($.10).'" III "RESOLVED, that Article Five of the Articles of Incorporation of this Corporation be amended to read in full as follows: '(a) The number of directors of this Corporation shall be no less than five (5) nor more than eight (8). Within said range, the board of directors shall have the power to fix the exact number of directors; provided, however, that until the board of directors acts to fix such number, the number of directors shall be five (5). (b) The names and addresses of the persons who are appointed to act as the first directors of this corporation are: Name Address ---- ------- Albert L. Nichols, M.D. 2422 Colt Road Miraleste, California 90732 Lillian Nichols 2422 Colt Road Miraleste, California 90732 Albert A. Nichols 953 Holly Road Inglewood, California 90301 14 3. That the stockholders of this Corporation have adopted the foregoing resolutions by written consent; that the wording of each of said resolutions is the same as that set forth in Paragraph 2, hereinabove. 4. That the total number of shares represented by said written consent of shareholders is Four Hundred Forty Five Thousand Two Hundred Sixty (445,260), and that the total number of shares entitled to vote on or consent to the amendment is Four Hundred Forty Five Thousand Two Hundred Sixty (445,260). /s/ Albert L. Nichols, M.D. ---------------------------------- Albert L. Nichols, M.D., President /s/ Albert A. Nichols ---------------------------------- Albert A. Nichols, Secretary Each of the undersigned declares under penalty of perjury that the matters set forth in the foregoing certificate are true and correct. Executed at San Pedro, California, on this 30th day of January, 1976. /s/ Albert L. Nichols, M.D. ---------------------------------- Albert L. Nichols, M.D., /s/ Albert A. Nichols ---------------------------------- Albert A. Nichols, 15 CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF NICHOLS INSTITUTE A California Corporation Albert L. Nichols, M.D. and Victor Rosenblatt certify that: 1. They are the duly elected and acting President and Assistant Secretary respectively, of said corporation. 2. The Articles of Incorporation of said corporation shall be amended to read in full as follows: Four: The total number of shares which this corporation is authorized to issue is ten million (10,000,000) all of the same class designated "Common Stock" ten cent ($.10) par value per share. Upon the amendment of this Article Four as set forth above, each outstanding share of Common Stock is divided into two shares of Common Stock ten cent ($.10) par value per share. 3. The foregoing amendment has been approved by the Board of Directors of said corporation. 4. The foregoing amendment was one which may be adopted with approval by the Board of Directors alone under Corporations Code Section 902(c) because the corporation has no more than one class of shares outstanding and the amendment effects only a stock split and an increase in authorized shares in proportion thereto. IN WITNESS WHEREOF, the undersigned have executed this certificate on July 5, 1978. /s/ Albert L. Nichols, M.D. ---------------------------------- Albert L. Nichols, M.D. President /s/ Victor Rosenblatt ---------------------------------- Victor Rosenblatt Assistant Secretary 16 AGREEMENT OF MERGER BETWEEN NICHOLS INSTITUTE AND NICHOLS INSTITUTE MERGING CORPORATION NO. 1 This Agreement of Merger is entered into between NICHOLS INSTITUTE, a California corporation (herein "Surviving Corporation"), and NICHOLS INSTITUTE MERGING CORPORATION NO. 1, a California corporation (herein "Merging Corporation"). 1. Merging Corporation shall be merged into Surviving Corporation. 2. Each outstanding share of Merging Corporation shall be converted into one share of Surviving Corporation. 3. Each share of Surviving Corporation outstanding immediately prior to the effectiveness of the merger shall be converted into 1 share of the Common Stock, $.10 par value, of Nichols Institute, a Delaware corporation and the parent company of Merging Corporation. 4. Upon the effectiveness of the merger Article One of the Articles of Incorporation of Surviving Corporation will be amended to read as follows: "The name of this corporation is: 'NICHOLS INSTITUTE LABORATORIES.'" 5. Merging Corporation shall from time to time, as and when requested by Surviving Corporation, execute and deliver all such documents and instruments and take all such action necessary or desirable to evidence or carry out this merger. 6. The effect of the merger and the effective date of the merger are as prescribed by law. 17 IN WITNESS WHEREOF, the parties have executed this Agreement. NICHOLS INSTITUTE By /s/ Donald S. Mullins ------------------------- Executive Vice President By /s/ Marilyn Hague ------------------------- Assistant Secretary NICHOLS INSTITUTE MERGING CORPORATION NO. 1 By /s/ Donald S. Mullins ------------------------- Executive Vice President By /s/ Marilyn Hague ------------------------- Assistant Secretary 18 CERTIFICATE OF MERGER OF NICHOLS INSTITUTE, a California Corporation Donald S. Mullins and Marilyn Hague certify that: 1. They are the duly elected and acting Executive Vice-President and Assistant Secretary, respectively, of said corporation (hereinafter called "this corporation"). 2. This certificate is attached to the Agreement of Merger dated as of August 7, 1981, providing for the merger of this corporation with Nichols Institute Merging Corporation No. 1, a California corporation. 3. The Agreement of Merger in the form attached hereto has been approved by the board of directors of this corporation. 4. The principal terms of the Agreement of Merger in the form attached hereto were approved by this corporation by the vote of a number of shares of each class which equaled or exceeded the vote required, such classes, the total number of outstanding shares of each class entitled to vote on the merger and the percentage vote required of each class being as follows: Total Number of Outstanding Shares Entitled Name of Class to Vote Vote Required - ------------- --------------- ------------- Common 1,084,051 majority Dated: August 7, 1981. /s/ Donald S. Mullins --------------------------- Donald S. Mullins Executive Vice-President /s/ Marilyn Hague --------------------------- Marilyn Hague Assistant Secretary 19 The undersigned, Donald S. Mullins and Marilyn Hague, the Executive Vice-President and Assistant Secretary, respectively, of Nichols Institute, each declares under penalty of perjury that the matters set out in the foregoing Certificate are true of his and her own knowledge. Executed at Los Angeles, California on August 7, 1981. /s/ Donald S. Mullins --------------------------- Donald S. Mullins Executive Vice-President /s/ Marilyn Hague --------------------------- Marilyn Hague Assistant Secretary 20 CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION DONALD S. MULLINS AND MARILYN HAGUE certify that: 1. They are the Executive Vice-President and the Assistant Secretary, respectively, of NICHOLS INSTITUTE LABORATORIES, a California corporation. 2. Article ONE of the Articles of Incorporation of this corporation is amended to read as follows: "The name of this corporation is NICHOLS INSTITUTE REFERENCE LABORATORIES." 3. The foregoing Amendment of Articles of Incorporation has been duly approved by the Board of Directors. 4. The foregoing Amendment of Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902 of the Corporations Code. The total number of outstanding shares of the corporation is 1,000. The number of shares voting in favor of the Amendment equaled or exceeded the vote required. The percentage vote required was more than 50%. /s/ Donald S. Mullins --------------------------- Donald S. Mullins Executive Vice-President /s/ Marilyn Hague --------------------------- Marilyn Hague Assistant Secretary 21 The undersigned declare under penalty of perjury that the matters set forth in the foregoing certificate are true of their own knowledge. Executed at San Juan Capistrano, California on June 23, 1982. /s/ Donald S. Mullins --------------------------- Donald S. Mullins /s/ Marilyn Hague --------------------------- Marilyn Hague 22 A 456526 CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF NICHOLS INSTITUTE REFERENCE LABORATORIES ENDORSED FILED in the office of the Secretary of State of the State of California JAN 26 1995 To The Secretary of State State of California BILL JONES SECRETARY OF STATE Pursuant to the General Corporation Law of the State of California, the undersigned officers of the corporation hereinafter named do hereby certify as follows: 1. The name of the corporation is Nichols Institute Reference Laboratories. 2. Article One of the corporation's Articles of Incorporation is hereby amended so as to read as follows: "The name of this corporation is Corning Nichols Institute." 3. The amendment herein provided for has been approved by the corporation's Board of Directors. 4. The amendment herein provided for was approved by the required written consent of the corporation's shareholders in accordance with the provisions of Section 902 of the General Corporation Law. The corporation's total number of shares of which were outstanding and entitled to vote or to furnish written consent with respect to the amendment herein provided for at the time of the approval thereof is 1,000, all of which are of one class. The percentage vote of the number of the aforesaid outstanding shares which is required to vote or furnish written consent in favor of the amendment herein provided for is 50.1%. The number of the aforesaid outstanding shares which voted or furnished a written 23 consent in favor of the amendment herein provided for is 100%, and the said number exceeded the percentage of the vote or written consent required to approve said amendment. Signed on January 3, 1996. /s/ James D. Chambers --------------------------------- James D. Chambers, Vice President /s/ Leo C. Farrenkopf, Jr. --------------------------------- Leo C. Farrenkopf, Jr., Secretary On this 3rd day of January, 1995, in the Town of Teterboro, in the State of New Jersey, each of the undersigned does hereby declare under the penalty of perjury that he signed the foregoing Certificate of Amendment of Articles of Incorporation in the official capacity set forth beneath his signature, and that the statements set forth in said certificate are true of his own knowledge. /s/ James D. Chambers --------------------------------- James D. Chambers, Vice President /s/ Leo C. Farrenkopf, Jr. --------------------------------- Leo C. Farrenkopf, Jr., Secretary 24 CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF CORNING NICHOLS INSTITUTE We, Douglas M. VanOort, the Vice President, and Leo C. Farrenkopf, Jr., the Secretary of Corning Nichols Institute (the "Corporation"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of California, DO HEREBY CERTIFY: 1. That we are the Vice President and Secretary, respectively, of the Corporation. 2. That an amendment to the Articles of Incorporation of the Corporation has been duly approved by the Board of Directors of the Corporation. 3. The amendment so approved by the Board of Directors is as follows: Article ONE of the Articles of Incorporation is hereby deleted in its entirety and the following substituted therefor: "ONE: The name of this Corporation is CORNING NICHOLS INSTITUTE INC." Article SIX of the Articles of Incorporation is hereby deleted in its entirety and the following substituted therefor: "SIX: (a) The liability of the Directors of the Corporation for monetary damages shall be eliminated to the fullest extent permissible under California law; provided, that this provision shall not eliminate or limit the liability of a Director (i) for acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) for acts or omissions that a Director believes to be contrary to the best interests of the Corporation or its shareholders or that involve the absence of good faith on the part of the Director, (iii) for any transaction from which a Director derived an improper personal benefit, (iv) for acts or omissions that show a reckless disregard for the Director's duty to the Corporation or its shareholders in circumstances in which the Director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of serious injury to the Corporation or its shareholders, (v) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the Director's duty to the 25 Corporation or its shareholders, and (vi) under Section 310 or Section 316 of the California General Corporation Law. (b) Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action either in an official capacity as a director or officer or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the General Corporation Law of the State of California, as the same exists or may hereafter be amended, against all expenses, liability and loss (including attorneys' fees, judgments, fines, excise taxes pursuant to the Employee Retirement Income Security Act of 1974, as amended, or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to be indemnified conferred in this Article Six shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that the payment of such expenses incurred by the director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is to be rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan), in advance of the final disposition of proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Article or otherwise. The Corporation may, by action of its Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers. (c) The indemnification provided by this Article Six shall not limit or exclude any rights, indemnities or limitations of liability to which any person may be entitled, whether as a matter of law, under the By-Laws of the Corporation, by agreement, vote of the stockholders or disinterested directors of the Corporation or otherwise. (d) If a claim under paragraph (b) of this Article Six is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the 26 Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the General Corporation Law of the State of California for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law of the State of California, nor an actual determination by the Corporation (including its Board, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall create a presumption that the claimant has not met the applicable standard of conduct. (e) The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of California." 4. The amendment herein provided for was approved by the shareholders at a duly convened meeting. The Corporation's total number of shares which were outstanding and entitled to vote on said amendment is 1,000, all of which are of one class. The percentage vote of the number of the aforesaid outstanding shares which is required to vote in favor of the amendment is 50.1%. The number of the aforesaid outstanding shares which voted in favor of the amendment is 100%, and said number exceeded the percentage of the vote required to approve said amendment. 27 IN WITNESS WHEREOF, each of the undersigned declares under penalty of perjury that the statements contained in the foregoing certificate are true of their own knowledge, on this 18th day of September, 1995 in the Town of Teterboro, State of New Jersey. /s/ Douglas M. VanOort -------------------------- Douglas M. VanOort Vice President /s/ Leo C. Farrenkopf, Jr. -------------------------- Leo C. Farrenkopf, Jr. Secretary 28 EX-3.5 4 DAMON CLINICAL LABORATORIES INC. FEDERAL IDENTIFICATION NO. 04-2449994 The Commonwealth of Massachusetts William Francis Galvin Secretary of the Commonwealth One Ashburton Place, Boston, Massachusetts 02108-1512 ARTICLES OF AMENDMENT (General Laws, Chapter 156B, Section 72) We, Raymond C. Marier, Vice President, and Leo C. Farrenkopf, Jr., Clerk, of MetPath New England Inc., located at 3 Sterling Drive, Wallingford, CT 06492, certify that these Articles of Amendment affecting articles numbered: article 1 of the Articles of Organization were duly adopted by unanimous written consent on __________, 1996, by vote of: 1,001 shares of COMMON of 1,001 shares outstanding, shares of of shares outstanding, shares of of shares outstanding, 1*being at least a majority of each type, class or series outstanding and entitled to vote thereon:/or 2*being at least two-thirds of each type, class or series outstanding and entitled to vote thereon and of each type, class or series of stock whose rights are adversely affected thereby: ___________________ 1 For amendments adopted pursuant to Chapter 156B, Section 70. * Delete the inapplicable clause. 2 For amendments adopted pursuant to Chapter 156B, Section 71. 1 To change the number of shares and the par value (if any) of any type, class or series of stock which the corporation is authorized to issue, fill in the following: The total presently authorized is: WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS NUMBER OF NUMBER OF TYPE SHARES TYPE SHARES PAR VALUE Common: Common: Preferred: Preferred: Change the total authorized to: WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS NUMBER OF NUMBER OF TYPE SHARES TYPE SHARES PAR VALUE Common: Common: Preferred: Preferred: Article 1 of the Articles of Organization is hereby amended to read as follows: "The name of the corporation is Damon Clinical Laboratories, Inc." The foregoing amendment(s) will become effective when these Articles of Amendment are filed in accordance with General Laws, Chapter 156B, Section 6 unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date. Later effective date: September 13, 1996 2 SIGNED UNDER THE PENALTIES OF PERJURY, this 30th day of August, 1996, /s/ Raymond C. Marier, Vice President, - -------------------------- Raymond C. Marier /s/ Leo C. Farrenkopf, Jr., Clerk. - -------------------------- Leo C. Farrenkopf, Jr. 3 FEDERAL IDENTIFICATION NO. 06-0873707 FEDERAL IDENTIFICATION NO. 04-2449994 The Commonwealth of Massachusetts MICHAEL JOSEPH CONNOLLY Secretary of State ONE ASHBURTON PLACE BOSTON, MASS. 02108 ARTICLES OF MERGER Pursuant to General Laws, Chapter 156B, Section 79 The fee for filing this certificate is prescribed by General Laws, Chapter 156B, Section 114. Make checks payable to the Commonwealth of Massachusetts. * * * * MERGER OF MetPath New England Inc., a Delaware corporation and Damon Clinical Laboratories, Inc. a Massachusetts corporation the constituent corporations into Damon Clinical Laboratories, Inc. one of the constituent corporations organized under the laws of Massachusetts as specified in the agreement referred to in Paragraph 1 below. The undersigned officers of each of the constituent corporations certify under the penalties of perjury as follows: 4 1. An agreement of merger has been duly adopted in compliance with the requirements of subsections (b) and (c) of General Laws, Chapter 156B, Section 79, and will be kept as provided by subsection (c) thereof. The surviving corporation will furnish a copy of said agreement to any of its stockholders, or to any person who was a stockholder of any constituent corporation, upon written request and without charge. 2. The effective date of the merger determined pursuant to the agreement referred to in paragraph shall be 11:59 p.m. on December 31, 1993. 3. (For a merger) The following amendments to the articles of organization of the SURVIVING corporation have been affected pursuant to the agreement of merger referred to in paragraph 1: At such time as the merger is effective, Article 1 of the Articles of Organization of the surviving corporation shall be amended to read as follows: "The name of this corporation is MetPath New England Inc." (a) The purposes of the RESULTING corporation are as follows: (b) The total number of shares and the par value, if any, of each class of stock which the resulting corporation authorized is as follows: CLASS OF STOCK WITHOUT PAR VALUE WITH PAR VALUE PAR NUMBER OF SHARES NUMBER OF SHARES VALUE AMOUNT Preferred $ Common (c) If more than one class is authorized, a description of each of the different classes of stock with, if any, the preferences, voting powers, qualifications, special or relative rights or privileges as to each class thereof and any series now established. NONE (d) Other lawful provisions, if any, for the conduct and regulation of the business and affairs of the corporation, for its voluntary dissolution, for restrictions upon the transfer of shares of stock of any class, or for limiting, defining or regulating the powers of the corporation, or of its directors or stockholders, or any class of stockholders: NONE 5 4. The following information shall not for any purpose be treated as a permanent part of the articles of organization of the surviving corporation: (a) The post office address of the initial principal office of the surviving corporation in Massachusetts is: 82 Wilson Way, Westwood, Massachusetts 02070 (b) The name, residence and post office address of each of the initial directors and President, Treasurer and Clerk of the surviving corporation is as follows: Name Residence Post Office Address President Raymond E. Vermette 82 Wilson Way, Westwood, Massachusetts 02070 Treasurer Beno R. Kon 82 Wilson Way, Westwood, Massachusetts 02070 Clerk Bruce G. Goodman 82 Wilson Way, Westwood, Massachusetts 02070 Directors Jeffrey S. Hurwitz One Malcolm Ave., Teterboro NJ 07608 James D. Chambers One Malcolm Ave., Teterboro NJ 07608 Bruce G. Goodman 82 Wilson Way, Westwood, Massachusetts 02070 (c) The date initially adopted on which the fiscal year of the surviving corporation ends is: December 31 (d) The date initially fixed in the by-laws for the Annual Meeting of stockholders of the surviving corporation is: Third Tuesday of Each December 6 THE COMMONWEALTH OF MASSACHUSETTS ARTICLES OF CONSOLIDATION/MERGER (General Laws, Chapter 156B, Section 79) I hereby approve the within articles of consolidation/merger and, the filing fee in the amount of $250.00 having been paid, said articles are deemed to have been filed with me this 28th day of December, 1993. Effective Date: December 31, 1993 /s/ Michael Joseph Connolly --------------------------- MICHAEL JOSEPH CONNOLLY Secretary of State TO BE FILLED IN BY CORPORATION Photo Copy of Articles of Merger to be sent TO: C T Corporation System 2 Oliver Street Boston, Mass. 02109 Telephone 617-482-4420 7 EX-3.6 5 CORNING CLINICAL LABORATORIES INC. (CT) CERTIFICATE OF INCORPORATION STOCK CORPORATION STATE OF CONNECTICUT SECRETARY OF THE STATE 30 Trinity Street, Hartford, CT 06106 The undersigned incorporator(s) hereby form(s) a corporation under the Stock Corporation Act of the State of Connecticut: 1. The name of the corporation is Corning Clinical Laboratories Inc. 2. The nature of the business to be transacted, or the purposes to be promoted or carried out by the corporation, are as follows: Clinical laboratory testing and anatomical pathology services. 3. The designation of each class of shares, the authorized number of shares of each such class (if any) of each share thereof are as follows: one thousand shares of Common stock with no par value 4. The terms, limitations and relative rights and preferences of each class of shares and series thereof (if any), or an express grant of authority to the board of directors pursuant to Section 33-341, as amended, are as follows: n/a 5. The minimum amount of stated capital with which the corporation shall commence business is $1,000 dollars. --------------------------------------- (Not less than one thousand dollars). 6. (7) Other provisions: n/a dated this 29th day of July , 1996 -------------------- --------------- -- I/We hereby declare, under the penalties of false statement, that the statements made in the foregoing certificate are true. This certificate of incorporation must be signed by each incorporator. - ----------------------------------------------------------------------------------------------------------------------------------- NAME OF INCORPORATOR (Print/Type) NAME OF INCORPORATOR (Print/Type) NAME OF INCORPORATOR (Print/Type) 1. Diane Possumato 2. 3. - ----------------------------------------------------------------------------------------------------------------------------------- SIGNED (Incorporator) SIGNED (Incorporator) SIGNED (Incorporator) 1. /s/ Diane Possumato 2. 3. - ----------------------------------------------------------------------------------------------------------------------------------- Rec; CC; G.S.: ----------------------------------------------------------------------------------- ----------------------------------------------------------------------------------- ----------------------------------------------------------------------------------- ----------------------------------------------------------------------------------- (Please provide filer's name and complete address for mailing receipt above.)
APPOINTMENT OF STATUTORY AGENT FOR SERVICE DOMESTIC CORPORATION Secretary of the State 30 Trinity Street Hartford, CT 06106
Name of Corporation: Complete All Blanks Corning Clinical Laboratories Inc. - -------------------------------------------------------------------------------------------------------------------------------- The above corporation appoints as its statutory agent for service, one of the following: - -------------------------------------------------------------------------------------------------------------------------------- Name of Natural Person Who is Resident of Connecticut Business Address Zip Code Resident Address Zip Code - -------------------------------------------------------------------------------------------------------------------------------- Name of Connecticut Corporation Address of Principal Office in Conn. (If none, enter address of appointee's statutory agent for service) - -------------------------------------------------------------------------------------------------------------------------------- Name of Corporation Address of Principal Office in Conn. (Not organized under the Laws of Conn.*) (If none, enter "Secretary of the State of Conn.") One Commercial Plaza C T CORPORATION SYSTEM Hartford, Connecticut 06103 - -------------------------------------------------------------------------------------------------------------------------------- *Which has procured a Certificate of Authority to transact business or conduct affairs in this state. - --------------------------------------------------------------------------------------------------------------------------------
AUTHORIZATION - --------------------------------------------------------------------------------------------------------------------------------- Name of Incorporator (Print or Type) Signed l(Incorporator) Date Original Diane Possumato /s/ Diane Possumato Appointment (Must be Signed by a majority of Incorporators) 7/29/96 -------------------------------------------------------------------------------------------------------- Name of Incorporator (Print or Type) Signed (Incorporator) -------------------------------------------------------------------------------------------------------- Name of Incorporator (Print or Type) Signed (Incorporator) - --------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------- Subsequent Name of President, or Vice President or Secretary Date Appointment -------------------------------------------------------------------------------------------------------- Signed (President, or Vice President or Secretary) --------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------- Acceptance: Name of Statutory Agent for Service (Print or Type) Signed (Statutory Agent for Service) CT Corporation System /s/ Gary Scappini Special Asst. Sec. - -------------------------------------------------------------------------------------------------------------------------------- For Official Use Only Rec; CC: ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- Please provide filer's name and complete address for mailing receipt
FEDERAL IDENTIFICATION No. The Commonwealth of Massachusetts William Francis Galvin Secretary of the Commonwealth One Ashburton Place, Boston, Massachusetts 02108-1512 FOREIGN CORPORATION CERTIFICATE We, Raymond C. Marier, Vice President and Leo C. Farrenkopf, Jr., Secretary of Corning Clinical Laboratories, Inc., in compliance with the provisions of General Laws, Chapter 181, Section 4, certify that: 1. The exact name of the corporation, including any words or abbreviations indicating incorporation or limited liability is: Corning Clinical Laboratories Inc. 2. If the exact name of the corporation is not available for use in the Commonwealth, state the name the corporation will use to transact business in the Commonwealth: 3. The corporation is organized under the laws of: Connecticut 4. The date of its organization is: July 31, 1996 ---------------------------- (Month) (Day) (Year) 5. The location of its principal office is: 3 Sterling Drive, Wallingford, Connecticut 06492 6. A brief description of the activities of the corporation within the Commonwealth of Massachusetts is as follows: Clinical laboratory testing and anatomical pathology services 7. The location of its local office in the Commonwealth of Massachusetts, if any, is: 130 Maple Street, Suite 219, Springfield, MA 01103 8. The name and address of its resident agent in the Commonwealth of Massachusetts is: CT Corporation System, 2 Oliver Street, Boston, Massachusetts 02109 9. The date on which the corporation's fiscal year ends is: December 31, -------------- (Month) (Day) 10. If the corporation's existence is other than perpetual, state the duration of existence: 11. The NAME and BUSINESS ADDRESSES of the following officers and directors are as follows: NAMES BUSINESS ADDRESSES ----- ------------------ President: See attached list of officers * Vice President: Treasurer: Clerk or Secretary: * Assistant Clerk or Assistant Secretary: Board of Directors: See attached list of directors - -------- * Please provide the name and business address of the Vice President and Assistant Clerk/Assistant Secretary if they are executing this certificate. 12. Please indicate the fees a Massachusetts corporation would be required to pay to register to do business in your state of incorporation: Connecticut Qualification Fees: Filing Application for and Issuance of Certificate of Authority ($50.00) Initial License Fee ($225.00) 13. Attached to this certificate shall be a certificate of Legal Existence of such foreign corporation issued by an officer or agency properly authorized in the state or country in which such foreign corporation was organized or other evidence of legal existence acceptable to the Secretary. If such certificate or other evidence of such legal existence is in language other than English, a translation thereof, under oath of the translator, shall also be attached. IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we hereto sign our names this day of , 19 . /s/ Raymond C. Marier /s/ Leo C. Farrenkopf, Jr. Vice President Secretary Raymond C. Marier Leo C. Farrenkopf, Jr. Corning Clinical Laboratories Inc. (CT) DIRECTORS: Alister W. Reynolds Douglas M. VanOort
Office Names Business Address President Paul A. Flood 3 Sterling Drive Wallingford, CT Vice President & Assistant Raymond C. Marier One Malcolm Avenue Secretary Teterboro, NJ Vice President James D. Chambers same NJ address as above Vice President Douglas M. VanOort same NJ address as above Vice President Alister W. Reynolds same NJ address as above Treasurer Stephen A. Calamari same NJ address as above Secretary Leo C. Farrenkopf, Jr. same NJ address as above
EX-3.7 6 CORNING CLINICAL LABORATORIES INC. (MA) The Commonwealth of Massachusetts OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE MICHAEL J. CONNOLLY, Secretary ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108 ARTICLES OF ORGANIZATION (Under G.L. 156B) ARTICLE I The name of the corporation is: CORNING BIORAN INC. ARTICLE II The purpose of the corporation is to engage in the following business activities: To acquire, own, operate, maintain, provide, furnish and generally deal in and with, in any lawful capacity, laboratories, laboratory Massachusetts Business Corporation Law, more specifically, To acquire, own, operate, maintain, provide, furnish and generally deal in and with, in any lawful capacity, laboratories, laboratory facilities, services, techniques, establishments and equipment for the observation, analysis and evaluation of materials, fluids, tissue and organisms of every kind and description; To carry on any other business as may be necessary, convenient, or desirable to accomplish the above purposes; and to engage in any lawful act or activity for which corporations may be organized under the General Laws of the Commonwealth of Massachusetts. 1 ARTICLE III The type and classes of stock and the total number of shares and par value, if any, of each type and class of stock which the corporation is authorized to issue is as follows: WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE COMMON: 3,000 COMMON: PREFERRED: PREFERRED: ARTICLE IV If more than one class of stock is authorized, state a distinguishing designation for each class. Prior to the issuance of any shares of a class, if shares of another class are outstanding, the corporation must provide a description of the preferences, voting powers, qualifications, and special or relative rights or privileges of that class and of each other class of which shares are outstanding and of each series then established with any class. n/a ARTICLE V The restrictions, if any, imposed by the Articles of Organization upon the transfer of shares of stock of any class are as follows: n/a ARTICLE VI ______________________________________ and regulation of business and affairs of the corporation, for its voluntary dissolution, or for limiting, ____________________________ or of its directors or stockholders, or of any class of stockholders: (If there are no provisions ___________ n/a 2 ARTICLE VII The effective date of organization of the corporation shall be the date approved and filed by the Secretary of the Commonwealth. If a later effective date is desired, specify such date which shall not be more than thirty days after the date of filing. The information contained in ARTICLE VIII is NOT a PERMANENT part of the Articles of Organization and may be changed ONLY by filing the appropriate form provided therefor. ARTICLE VIII a. The post office address of the corporation IN MASSACHUSETTS is: 82 Wilson Way, Westwood, Massachusetts 02090 b. The name, residence and post office address (if different) of the directors and officers of the corporation are as follows: NAME RESIDENCE POST OFFICE ADDRESS President: Douglas M. VanOort 350 E. 79th Street, Apt. 3K, One Malcolm Avenue, New York, NY 10021 Teterboro, NJ 07608 Treasurer: James D. Chamber 35 Woodland Avenue, One Malcolm Avenue, Mountain Lakes, NJ 07046 Teterboro, NJ 07608 Clerk: Leo C. Farrenkopf, Jr. 780 Forest Avenue, One Malcolm Avenue, Rye, NY 10580 Teterboro, NJ 07608 Directors: Alister W. Reynolds 3 Harbor Drive One Malcolm Avenue, Rumson, NJ 07760 Teterboro, NJ 07608 Douglas M. VanOort 350 E. 79th Street One Malcolm Avenue, Apt. 3K Teterboro, NJ 07608 New York, NY 10021 c. The fiscal year of the corporation shall end on the last dayy of the month of: December d. The name and BUSINESS address of the RESIDENT AGENT of the corporation, if any, is: CT Corporation System 2 Oliver St., Boston, MA 02109 ARTICLE IX By-laws of the corporation have been duly adopted and the president, treasurer, clerk and directors whose names are set forth above, have been duly elected. 3 IN WITNESS WHEREOF and under the pains and penalties of perjury, I/WE, whose signature(s) appear below as incorporator(s) and whose names and business or residential address(es) ARE CLEARLY TYPED OR PRINTED beneath each signature do hereby associate with the intention of forming this corporation under the provisions of General Laws Chapter 156B and do hereby sign these Articles of Organization as incorporator(s) this 4th day of October 1994. /s/ Siobhan Vincent - -------------------------------------------------------------------------------- Siobhan Vincent 2 Oliver Street, Boston, Massachusetts 02109 /s/ Patricia Canario - -------------------------------------------------------------------------------- Patricia Canario 2 Oliver Street, Boston, Massachusetts 02109 /s/ Kristen Tirrell - -------------------------------------------------------------------------------- Kristen Tirrell 2 Oliver Street, Boston, Massachusetts 02109 NOTE: If an already-existing corporation is acting as incorporator, type in the exact name of the corporation, the state or other jurisdiction where it was incorporated, the name of the person signing on behalf of said corporation and the title he/she holds or other authority by which such action is taken. 4 AGREEMENT OF MERGER OF CORNING BIORAN INC. AND MORAN RESEARCH LABS d/b/a BIORAN MEDICAL LABORATORY AGREEMENT OF MERGER dated as of October 10, 1994 between Corning Bioran Inc. and Moran Research Labs d/b/a Bioran Medical Laboratory as approved by the Board of Directors of Sub: 1. Moran Research Labs, which is a Massachusetts business trust doing business as Bioran Medical Laboratory ("Bioran"), shall be merged with and into Sub, which is a Massachusetts corporation ("Sub" or the "Surviving Corporation"). Bioran owns all of the outstanding shares of Common Stock of Sub. 2. The purpose of Sub is to provide clinical laboratory testing and related services and to engage in any other business as is permitted by applicable law. 3. The separate existence of Bioran shall cease upon the effective date of the merger in accordance with the provisions of the Massachusetts Business Corporation Law and the Declaration of Trust, as amended, of Bioran. 4. Sub shall continue in existence under its present name pursuant to the provisions of the Massachusetts Business Corporation Law. 5. The merger is permitted under the terms of the Declaration of Trust, as amended, of Bioran. 6. The Articles of Incorporation of Sub upon the effective date of the merger shall be the Articles of Incorporation of the Surviving Corporation and shall continue in full force and effect until amended and changed in the manner prescribed by the provisions of the Massachusetts Business Corporation Law. 7. The bylaws of Sub upon the effective date of the merger shall be the bylaws of the Surviving Corporation and shall continue in full force and effect until changed, altered or amended as therein provided and in the manner prescribed by the provisions of the Massachusetts Business Corporation Law. 5 8. The directors and officers in office of Sub upon the effective date of the merger shall continue to be members of the Board of Directors and the officers of the Surviving Corporation, all of whom shall hold their directorships and offices until the election and qualification of their respective successors or until their tenure is otherwise terminated in accordance with the bylaws of the Surviving Corporation. 9. Each issued share of common stock of Sub shall, upon the effective date of the merger, be canceled without consideration. Each issued share of Bioran Trust Stock as of the effective date of merger shall be converted into one issued share of Common Stock of the Surviving Corporation. Sub is authorized to issue 3,000 shares of Common Stock, no par value, all of which are outstanding. 10. The Agreement of Merger herein entered into and approved is not required to be, and shall not be, submitted for approval by the holders of the Bioran Trust Stock or the holders of the Common Stock of Sub. 11. As soon as practical after the execution of this Agreement of Merger, Sub and Bioran will cause to be executed and filed and/or recorded any document or documents prescribed by the Massachusetts Business Corporation Law, and they will cause to be performed all necessary acts therein and elsewhere to effectuate the merger. 12. The Board of Directors of Sub,the Trustee of Bioran and the proper officers of Sub and Bioran, are hereby authorized, empowered and directed to do any and all acts and things, and to make, execute, deliver, file, and/or record any and all instruments, papers and documents which shall be or become necessary, proper or convenient to carry out or put into effect any of the provisions of this Agreement of Merger or of the merger herein provided for. The merger herein provided for shall become effective upon its filing with the Office of the Secretary of State of the Commonwealth of Massachusetts. 13. The merger herein provided for shall become effective upon its filing with the Office of the Secretary of State of the Commonwealth of Massachusetts. 6 14. The merger may be abandoned at any time prior to its effective date by joint action of the Board of Directors of Sub and the Trustee of Bioran. Signed on October 10, 1994 CORNING BIORAN INC. By:/s/ Douglas M. VanOort ---------------------- Douglas M. VanOort President By:/s/ Leo C. Farrenkopf, Jr. -------------------------- Leo C. Farrenkopf, Jr. Secretary Signed on October 10, 1994 MORAN RESEARCH LABS d/b/a BIORAN MEDICAL LABORATORY By:/s/ Douglas M. VanOort ---------------------- Douglas M. VanOort Trustee 7 The Commonwealth of Massachusetts MICHAEL JOSEPH CONNOLLY Secretary of State ONE ASHBURTON PLACE BOSTON, MASS. 02108 FEDERAL IDENTIFICATION No. 04-324-8020 Examiner ARTICLES OF MERGER OF TRUST AND CORPORATION PURSUANT TO GENERAL LAWS, CHAPTER 156B, SECTION 83 The fee for filing this certificate is prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the Commonwealth of Massachusetts. * * * * CORNING BIORAN INC. name of corporation The undersigned officers of said corporation and the trustees or other persons authorized to sign for the trust named below hereby certify as follows: 1. The trust to be merged into the corporation is as follows: Name State of Organization Date of Organization Moran Research Labs Massachusetts 3/2/89 042442964 2. The trust owns at least ninety per cent of the outstanding shares of each class of the corporation. 8 3. In the case of the above-named trust the provisions of the Instrument or Declaration of Trust permit the merger herein described and all action required under the laws of this Commonwealth in connection with the merger have been duly taken. 4. The agreement of merger complies with the requirements of the subsections (b) and (c) of General Laws, Chapter 156B, Section 83, and will be kept as provided by subsection (d) thereof. The corporation will furnish a copy of said agreement to any stockholder of the corporation, or any person who was an owner of a certificate of participation or shares of the association or trust, upon written request and without charge. 5. The effective date of the merger determined pursuant to the agreement referred to in paragraph 4 shall be upon filing. 6. The undersigned officers, with respect to the corporation, and the undersigned trustees or other authorized persons, with respect to the trust, further certify that the agreement of merger which is set forth under paragraph 4 has been duly approved by the corporation and by the trust, respectively, in the manner required by General Laws, Chapter 156B, Section 83 on the following dates: Date of approval by the corporation: October 10, 1994 Date of approval by the trust: October 10, 1994 IN WITNESS WHEREOF and under the penalties of perjury we have hereto signed our names this 10th day of October, 1994. For the Corporation: Douglas M. VanOort ---------------------- President Leo C. Farrenkopf, Jr. ---------------------- Clerk 9 For the Trust: Douglas M. VanOort ---------------------- Trustees 10 The Commonwealth of Massachusetts William Francis Galvin Secretary of the Commonwealth One Ashburton Place, Boston, Massachusetts 02108-1512 ARTICLE OF AMENDMENT (General Laws, Chapter 156B, Section 72) We, Raymond C. Marier, Vice President and Leo C. Farrenkopf, Jr., Clerk of Corning Bioran Inc. located at 415 Massachusetts Ave., Cambridge, MA 02139 certify that these Articles of Amendment affecting articles numbered: Article 1 of the Articles of Organization were duly adopted by unanimous written consent on November 28, 1995, by vote of: 376.55 shares of Common Stock of 376.55 shares outstanding. shares of of shares outstanding. shares of of shares outstanding. 1*being at least a majority of each type, class or series outstanding and entitled to vote thereon:/ or 2* being at least two-thirds of each type, class or series outstanding and entitled to vote thereon and of each type, class or series of stock whose rights are adversely affected thereby: 1 For amendments adopted pursuant to Chapter 156B, Section 70. * Delete the inapplicable clause. 2 For amendments adopted pursuant to Chapter 156B, Section 71. 11 To change the number of shares and the par value (if any) of any type, class or series of stock which the corporation is authorized to issue, fill in the following: The total presently authorized is: WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS Common: Common: Preferred: Preferred: Change the total authorized to: WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS Common: Common: Preferred: Preferred: 12 Article 1 of the Articles of Organization is amended as follows: "The name of the corporation is Corning Clinical Laboratories Inc. The foregoing amendment(s) will become effective when these Articles of Amendment are filed in accordance with General Laws, Chapter 156B, Section 6 unless these articles specify, in accordance with the vote adopting the amendment a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date. Later effective date: December 31, 1995 SIGNED UNDER THE PENALTIES OF PERJURY, this 13th day of December, 1995 /s/ Raymond C. Marier , Vice President. - --------------------------- /s/ Leo C. Farrenkopf, Jr. , Clerk - --------------------------- 13 EX-3.8 7 CORNING CLINICAL LABORATORIES OF PENNSYLVANIA INC. CERTIFICATE OF INCORPORATION of CPF/METPATH INC. FIRST, the name of the Corporation is CPF/MetPath Inc. SECOND, the address of the corporation's registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the Registered Agent at such address is The Corporation Trust Company. THIRD, the purpose of the corporation is (i) to own and operate medical, clinical, industrial and research laboratories, and (ii) to research, manufacture, design, construct, use, buy, sell, lease, hire and deal in and with articles and property of all kinds, to render services of all kinds, and (iii) generally to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH, the total number of shares of all classes of stock which the corporation shall have authority to issue is 1,000 shares which shall be Common Stock, all of which shares shall be without par value, and each with a right to one vote. 1 FIFTH, the name and mailing address of the Incorporator is as follows: Name Mailing Address Raymond C. Marier 2 West Market Street Corning, NY 14830 SIXTH, the names and mailing addresses of the persons who are to serve as directors until the first annual meeting of stockholders of the corporation or until their successors axe elected and qualify, are as follows: Name Mailing Address Raymond C. Marier 2 West Market Street Corning, NY 14830 Richard A. Michaelson One Malcolm Avenue Teterboro, NJ 07608 Douglas M. VanOort 2 West Market Street Corning, NY 14830 SEVENTH, the corporation may indemnify, to the full extent permitted by applicable law, any person who was or is a party, or is threatened to he made a party, to any threatened or pending action, suit or proceeding, whether civil, criminal, administrative, or investigative, by reason of the fact that he or she is or was a director or officer of the corporation, or is or was serving at the request of the corporation, as a director or officer of another corporation, partnership, joint venture, trust or other enterprise. Any indemnification pursuant to the foregoing shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper under the circumstances 2 because he or she has met any legally applicable standard of conduct. Such determination may be made (i) be resolution of the Board of Directors adopted in the manner provided in the By-laws of the corporation, or (ii) if a quorum consisting of directors or are not parties to such action, suit or proceeding, is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. EIGHTH, any action required or permitted to be taken at any annual or special meeting of stockholders of the corporation may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the actions so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon are present and voted. THE UNDERSIGNED, being the sole Incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, does hereby make this Certificate, declaring and certifying that this is his act and 3 deed and the facts herein stated are true, and accordingly has hereunto set his hand this 14th day of October, 1991. /s/ Raymond C. Marier -------------------------------- Raymond C. Marier 2 West Market Street Corning, NY 14830 STATE OF NEW YORK ) ) s.s.: COUNTY OF STEUBEN ) BE IT REMEMBERED, that on this 14th day of October, 1991, personally came before me, a Notary Public in and for the State of New York and the County of Steuben, Raymond C. Marier, the sole Incorporator named in the foregoing Certificate of Incorporation, known to me personally to be such, and he acknowledged the said Certificate to be his act and deed and that the facts stated therein are truly set forth. GIVEN under my hand and seal of office the day and year aforesaid. /s/ Barbara E. Wellington ------------------------------------- Barbara E. Wellington 4 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF CPF/METPATH INC. The undersigned directors of CPF/MetPath Inc., a Delaware Corporation (the "Corporation"), for purposes of amending the Certificate of Incorporation of the Corporation filed October 16, 1991, hereby certify as follows: FIRST, the Certificate of Incorporation is hereby amended such that name of the Corporation is changed to CPF/Corning Inc. SECOND, the Corporation has not received any payment for any of its stock. THIRD, the amendment herein has been duly adopted in accordance with the provisions of Section 241 of the General Corporation Law of the State of Delaware to be effective as 5 provided therein, and this Certificate is duly executed by a majority of the directors of the Corporation in accordance with Section 103(a)(2)(ii) of said General Corporation Law. /s/ Raymond C. Marier ---------------------- Raymond C. Marier 2 West Market Street Corning, NY 14830 [Director] /s/ Douglas M. VanOort ---------------------- Douglas M. VanOort 2 West Market Street Corning, NY 14830 [Director] STATE OF NEW YORK ) ) S.S.: COUNTY OF STEUBEN ) Be it remembered that on this 4th day of November, 1991 personally came before me a Notary Public in and for the State of New York and County of Steuben, Raymond C. Marier and Douglas M. VanOort named in the foregoing Certificate of Amendment, known to me personally to be such, and they each acknowledged the said Certificate to be his act and deed and that the facts stated therein are truly set forth. Given under my hand and seal of office the day and year aforesaid. /s/ Barbara E. Wellington --------------------------------------------- Barbara E. Wellington Notary Public, State of New York Qualified in Steuben County No. 4914239 My Commission Expires December 14, 1991 CPF a:\Amend. 6 STATE OF DELAWARE BK 1221 PG 0535 SECRETARY OF STATE DIVISION OF CORPORTIONS FILED 10:30 AM 11/26/1991 721330013 - 2276289 CERTIFICATE OF MERGER OF CLINICAL PATHOLOGY FACILITY, INC., A PENNSYLVANIA CORPORATION INTO CPF/CORNING INC., A DELAWARE CORPORATION The undersigned corporation DOES HEREBY CERTIFY: FIRST: That the name and state of Incorporation of each of the constituents of the Merger is as follows: NAME STATE OF INCORPORATION Clinical Pathology Facility, Inc. Pennsylvania CPF/Corning Inc. Delaware SECOND: That an Agreement of Merger dated November 11, 1991 between CPF/Corning Inc., a Delaware corporation and Clinical Pathology Facility, Inc., a Pennsylvania corporation ("Clinical"), the constituent corporations of the merger, has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations as follows: In the case of CPF/Corning Inc., in accordance with the requirements of Subsection (c) of Section 252 of the Delaware Corporation Law of the State of Delaware; and in the case of Clinical, in accordance with Section 1924 of the Associations Code of the Commonwealth of Pennsylvania. THIRD: That the name of the surviving corporations of the Merger is hereby changed from CPF/CORNING INC., a Delaware corporation, to CLINICAL PATHOLOGY FACILITY, INC., a Delaware corporation. FOURTH: That the Certificate of Incorporation of CPF/Corning Inc., a Delaware corporation, shall be the Certificate of Incorporation of the surviving corporation except that Article First of the Certificate of Incorporation shall be amended to read in full as follows: "FIRST, the name of the Corporation is Clinical Pathology Facility, Inc." FIFTH: That the executed Agreement and Plan of Merger is on file at the principal place of business of the surviving corporation, the address of which is 711 Bingham Street, Pittsburgh, Pennsylvania 15203. 7 SIXTH: That a copy of the executed Agreement and Plan of Merger will be furnished by the surviving corporation on request and without cost to any stockholder of either constituent corporation. SEVENTH: That the authorized capital stock of each foreign [to Delaware] corporation which is a party to the merger is as follows: Shares Par Corporation Class Authorized Value Clinical Pathology Facility, Inc. Common 600,000 $1 per share a Pennsylvania corporation The undersigned officers of the surviving corporation of the merger do sign this Certificate of Merger pursuant to Section 252(c) of the General Corporation Law of the State of Delaware. November 26, 1991 CPF/CORNING INC. [SEAL] By:/s/ Richard A. Michaelson ---------------------------------- Richard A. Michaelson, President ATTEST: /s/ Raymond C. Marier - ---------------------------- Raymond C. Marier, Secretary 8 CERTIFICATE OF MERGER OF MEDICAL MANAGEMENT SYSTEMS, INC. INTO CLINICAL PATHOLOGY FACILITY, INC. Pursuant to Section 252 of the General Corporation Law of the State of Delaware * * * * The undersigned hereby certifies that: 1. The name of and state of incorporation of each of the constituent corporations are as follows: Name State of Incorporation MEDICAL MANAGEMENT SYSTEMS, INC. Pennsylvania CLINICAL PATHOLOGY FACILITY, INC. Delaware 2. An Agreement and Plan of Merger dated as of December 6, 1994 (the "Merger Agreement") between Medical Management Systems, Inc. and Clinical Pathology Facility, Inc. has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations in accordance with the requirements of Section 252(c) of the General Corporation Law of the State of Delaware. 3. The name of the surviving corporation is Clinical Pathology Facility, Inc. 4. The Certificate of Incorporation of Clinical Pathology Facility, Inc. in effect at the effective time of the merger shall be the Certificate of Incorporation of the surviving corporation except that Article 1 of the Certificate of Incorporation of Clinical Pathology Facility, Inc shall be amended as of the effective time of the Merger to read as follows: "The name of the Corporation is MetPath (PA) Inc." 5. The surviving corporation is a corporation of the State of Delaware. 6. The executed Merger Agreement is on file at the principal place of business of the surviving corporation at 711 Bingham Street, Pittsburgh, Pennsylvania 15213. 7. A copy of the Merger Agreement will be furnished by the surviving corporation, on request and without cost, to any stockholder of any constituent corporation. 9 8. The authorized capital stock of the Medical Management Systems, Inc. is 2,000,000 shares of Common Stock, par value $1.00 per share. 9. That the merger shall become effective at 11:59 P.M. on December 31, 1994. IN WITNESS WHEREOF, this Certificate of Merger has been executed on this 6th day of December, 1994. Attest: CLINICAL PATHOLOGY FACILITY, INC. /s/ Leo C. Farrenkopf, Jr By: /s/ James D. Chambers - ------------------------- ------------------------ Leo C. Farrenkopf, Jr. James D. Chambers Secretary Vice President 10 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION MetPath (PA) Inc. a corporation organized and existing under and by virtue of the General Corporation Law of the state of Delaware, DOES HEREBY CERTIFY: FIRST: By unanimous written consent of the Board of Directors, resolutions were duly adopted setting forth a proposed amendment of Article 1 of the Certificate of Incorporation of said corporation declaring said amendment to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Board of Directors hereby approves the amendment to Article 1 of the Company's Certificate of Incorporation to read as follows: The name of the corporation (which is hereafter referred to as the "Corporation") is Corning Clinical Laboratories of Pennsylvania Inc. SECOND: That said amendment was approved by the unanimous written consent of the sole stockholder of the Corporation in accordance with Section 228 of the General Corporation Law of the state of Delaware. THIRD: That said amendment was duly adopted in accordance with Section 242 (a)(1) of the Business Corporation Act of the state of Delaware IN WITNESS WHEREOF, said corporation has used this certificate to be signed by Raymond C. Marier, its Vice President, and Leo C. Farrenkopf, Jr., its Secretary this 28th day of December, 1995. BY: /s/ Raymond C. Marier --------------------------- Raymond C. Marier Vice President ATTEST: /s/ Leo C. Farrenkopf, Jr. --------------------------- Leo C. Farrenkopf, Jr. Secretary 11 EX-3.9 8 DEYOR CPF/METPATH, INC. ARTICLES OF INCORPORATION OF DEYOR CPF/METPATH, INC. The undersigned, being a natural person and acting as the incorporator, does hereby adopt the following Articles of Incorporation for the purpose of forming a corporation pursuant to the provisions of Chapter 1701 of the Revised Code of Ohio, as amended and implemented, and as hereinafter sometimes referred to as the "General Corporation Law". FIRST: The name of the corporation (hereinafter called the "Corporation") is DeYor CPF/MetPath, Inc. SECOND: The place in the State of Ohio where the principal office of the Corporation is to be located is 7655 Market Street, Youngstown, County of Mahoning 44513. THIRD: The purposes for which the Corporation is formed, which shall be in addition to the authority to engage in any lawful act or activity for which corporations may be formed under Chapter 1701 of the Revised Code of Ohio, are as follows: (i) to own and operate medical, clinical, industrial and research laboratories; (ii) to research, manufacture, design, construct, use, buy, sell, lease, hire and deal in and with articles and property of all kinds; and (iii) to render services of all kinds. FOURTH: The authorized number of shares of the Corporation is 1,000, all of which are without par value and are of the same class and are to be common shares, each with a right to one vote. All or any part of said common shares without par value may be issued by the Corporation from time to time and for such consideration as may be determined upon and fixed by the Board of Directors, as provided by law. Any and all such shares issued, for which the full consideration has been paid and delivered, shall be deemed fully paid shares and the holder of such shares shall not be liable for any further call or assessment or any other payment thereon. FIFTH: The period of existence of the Corporation is perpetual. 2 SIXTH: The Corporation may indemnify, to the full extent permitted by Section 1701.13 of the General Corporation Law, as the same may be amended and supplemented, any person who was or is a party, or is threatened to be made a party, to any threatened or pending action, suit or proceeding, whether civil, criminal, administrative, or investigative, by reason of the fact that he or she is or was a director or officer of the Corporation, or was or is serving at the request of the Corporation, as a director or officer of another corporation, partnership, joint venture, trust or other enterprise. Any indemnification pursuant to the foregoing shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper under the circumstances because he or she has met any legally applicable standard of conduct. Such determination may be made (i) by resolution of the Board of Directors adopted in the manner provided in the Regulations of the Corporation, or (ii) if a quorum consisting of directors who are not parties to such action, suit or proceeding, is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the shareholders. SEVENTH: Notwithstanding any provision of the General Corporation Law now or hereafter in force requiring, for any purpose, the vote, consent, waiver, or release of the holders of a designated proportion (but less than all) of the shares of any particular class or of each class, of the shares are classified, the vote, consent, waiver, or release if the holders of at least a majority of the voting power or of at least a majority of the shares entitled to vote, as the case may be, of such particular class or of each class, if shares are classified, shall be required in lieu of any such designated greater proportion otherwise required by any provision of said General Corporation Law. EIGHTH: From time to time any of the provisions of these Articles of Incorporation may be amended, altered, or repealed, and other provisions authorized by the General Corporation Law and the laws of the State of Ohio at the time in force may be added or inserted in the manner and at the time prescribed by said laws, and all rights at any time conferred upon the shareholders of the corporation by these Articles of Incorporation are granted subject to the provisions of this Article EIGHTH. Signed on May 11, 1993. /s/ Patrick J. Corr ------------------------ Patrick J. Corr Sole Incorporator 3 APPOINTMENT OF STATUTORY AGENT (Pursuant to Sections 1701.04 and 1701.07, Revised Code) KNOW ALL MEN BY THESE PRESENTS, that THE PRENTICE-HALL CORPORATION SYSTEM, INC., a corporation of the State of Delaware, which holds a license from the State of Ohio, which is authorized by its Certificate of Incorporation to act as a statutory agent for other corporations, and which has 380 South 5th Street, Columbus 43215-5436, Franklin County, as a business address in the State of Ohio, is hereby appointed as the statutory agent upon which any process, notice, or demand, as required or permitted by Chapter 1701 of the Revised Code of Ohio, against said corporation may he served. /s/ Patrick J. Orr -------------------------- Patrick J. Orr Sole Incorporator of DeYor CPF/MetPath, Inc. ACCEPTANCE OF APPOINTMENT OF STATUTORY AGENT The statutory agent named in the foregoing Appointment of Statutory Agent hereby acknowledges and accepts the said appointment as such statutory agent. The Prentice-Hall Corporation System, Inc. By ---------------------------- EX-3.10 9 SOUTHGATE MEDICAL SERVICES, INC. ARTICLES OF INCORPORATION OF CLS/SG, INC. ---------------- The undersigned, being a natural person and acting as the incorporator, does hereby adopt the following Articles of Incorporation for the purpose of forming a corporation pursuant to the provisions of Chapter 1701 of the Revised Code of Ohio, as amended and implemented, and as hereinafter sometimes referred to as the "General Corporation Law". FIRST: The name of the corporation (hereinafter called the "Corporation") is CLS/SG, INC. SECOND: The place in the State of Ohio where the principal office of the Corporation is to be located is City of Maple Heights, County of Cuyahoga (44137-3054). THIRD: The purposes for which the Corporation is formed, which shall be in addition to the authority to engage in any lawful act or activity for which corporations may be formed under Chapter 1701 of the Revised Code of Ohio, are as follows: (i) to own and operate medical, clinical, industrial and research laboratories; (ii) to research, manufacture, design, construct, use, buy, sell, lease, hire and deal in and with articles and property of all kinds; and (iii) to render services of all kinds. FOURTH: The authorized number of shares of the Corporation is 1,000, all of which are without par value and are of the same class and are to be common shares, each with a right to one vote. All or any part of said common shares without par value may be issued by the Corporation from time to time and for such consideration as may be determined upon and fixed by the Board of Directors, as provided by law. Any and all such shares issued, for which the full consideration has been paid and delivered, shall be deemed fully paid shares and the holder of such shares shall not be liable for any further call or assessment or any other payment thereon. FIFTH: The period of existence of the Corporation is perpetual. 1 SIXTH: The Corporation may indemnify, to the full extent permitted by Section 1701.13 of the General Corporation Law, as the same may be amended and supplemented, any person who was or is a party, or is threatened to be made a party, to any threatened or pending action, suit or proceeding, whether civil, criminal, administrative, or investigative, by reason of the fact that he or she is or was a director or officer of the Corporation, or was or is serving at the request of the Corporation, as a director or officer of another corporation, partnership, joint venture, trust or other enterprise. Any indemnification pursuant to the foregoing shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper under the circumstances because he or she has met any legally applicable standard of conduct. Such determination may be made (i) by resolution of the Board of Directors adopted in the manner provided in the Regulations of the corporation, or (ii) if a quorum consisting of directors who are not parties to such action, suit or proceeding, is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the shareholders. SEVENTH: Notwithstanding any provision of the General Corporation Law now or hereafter in force requiring, for any purpose, the vote, consent, waiver, or release of the holders of a designated proportion (but less than all) of the shares of any particular class or of each class, of the shares are classified, the vote, consent, waiver, or release if the holders of at least a majority of the voting power or of at least a majority of the shares entitled to vote, as the case may be, of such particular class or of each class, if shares are classified, shall be required in lieu of any such designated greater proportion otherwise required by any provision of said General Corporation Law. EIGHTH: From time to time any of the provisions of these Articles of Incorporation may be amended, altered, or repealed, and other provisions authorized by the General Corporation Law and the laws of the State of Ohio at the time in force may be added or inserted in the manner and at the time prescribed by said laws, and all rights at any time conferred upon the shareholders of the corporation by these Articles of Incorporation are granted subject to the provisions of this Article EIGHTH. Signed on September 4, 1992. /s/ Peter J. Sheptak -------------------- Peter J. Sheptak Sole Incorporator 2 SOUTHGATE MEDICAL SERVICES, INC. CERTIFICATE OF ADOPTION OF AGREEMENT OF MERGER The undersigned, Edward E. Siegler, President, and Charles J. Silverman, Secretary, respectively, of Southgate Medical Services, Inc., an Ohio corporation, do hereby certify that: 1. The Agreement of Merger, dated as of September 14, 1992, between Southgate Medical Services, Inc. ("Southgate") and CLS/SG, Inc., to which this Certificate is attached, was duly approved by the Board of Directors of Southgate in an action without a meeting dated September 14, 1992 and was duly executed by the President and the Secretary of Southgate; and 2. Pursuant to the provisions of Section 1701.78(D) of the Ohio Revised Code, such Agreement of Merger was submitted to and adopted by the shareholders of Southgate in an action without a meeting, dated September 14, 1992, signed by each of the shareholders of Southgate. IN WITNESS WHEREOF, the undersigned have duly executed this Certificate this 14th day of September, 1992. /s/ Edward E. Siegler ------------------------------- Edward E. Siegler, President /s/ Charles J. Silverman ------------------------------- Charles J. Silverman, Secretary 3 CLS/SG, INC. CERTIFICATE OF ADOPTION OF AGREEMENT OF MERGER The undersigned, Thomas D. Moses, President, and Anthony J. Geramita, Assistant Secretary, respectively, of CLS/SG, Inc., an Ohio corporation ("Newco"), do hereby certify that: 1. The Agreement of Merger, dated as of September 14, 1992, between Southgate Medical Services, Inc., an Ohio corporation, and Newco, to which this Certificate is attached, was duly approved by the Board of Directors of Newco in an action without a meeting dated September 11, 1992, and was duly executed by the President and Assistant Secretary of Newco; and 2. Pursuant to the provisions of Section 1701.78(D) of the Ohio Revised Code, such Agreement of Merger was approved by the consent in writing, dated September 11, 1992, signed by the sole shareholder of Newco, the only shareholder entitled to notice of and to vote at a meeting of the shareholders held for the purpose of approving an agreement of merger. IN WITNESS WHEREOF, the undersigned have duly executed this Certificate this 11th day of September, 1992. /s/ Thomas D. Moses ---------------------------------------- Thomas D. Moses, President /s/ Anthony J. Geramita ---------------------------------------- Anthony J. Geramita, Assistant Secretary 4 AGREEMENT OF MERGER THIS AGREEMENT OF MERGER ("Agreement") is made as of this 14th day of September, 1992, by and among Charles J. Silverman, JoAnn Silverman, Frank J. Ilkanich and Edward E. Siegler, M.D., as Trustee (collectively, the "Shareholders" and individually, a "Shareholder"); Southgate Medical Services, Inc., an Ohio corporation ("Southgate"); CLS/SG, Inc., an Ohio corporation ("Newco"), a wholly owned subsidiary of Corning Incorporated, a New York business corporation ("Corning"). RECITALS: WHEREAS, the Shareholders own all of the issued and outstanding shares of the capital stock of Southgate, as well as all outstanding rights to acquire shares of such capital stock (the "Shares"); and WHEREAS, Corning desires to acquire all of the Shares in exchange for shares of common stock of Corning, par value $.50 per share (the "Corning Common Stock"), pursuant to a plan of merger upon the terms and conditions hereinafter set forth; and WHEREAS, Corning has organized Newco in the State of Ohio as its wholly-owned subsidiary corporation for the purpose of merging with Southgate as provided herein. NOW, THEREFORE, in consideration of the foregoing premises and of the mutual and independent promises hereinafter set forth, the parties agree as follows: ARTICLE I. The Merger 5 Pursuant to the merger (the "Merger") to be consummated as provided in this Agreement, Newco shall be merged with and into Southgate on the Closing Date (as defined in Article III hereof), and Newco's separate corporate existence shall thereupon cease. The Articles of Incorporation of Newco shall be amended and restated to reflect the change in corporate name, in the form attached hereto as Exhibit A, which Amended and Restated Articles of Incorporation shall be the Articles of Incorporation of Southgate, as the surviving corporation. The Code of Regulations of Newco shall be the Code of Regulations of Southgate, as the surviving corporation. The directors and officers of Newco at the Closing Date shall be the directors and officers of Southgate, as the surviving corporation, and shall hold office from the Closing Date until their respective successors are duly elected or appointed and qualified in the manner provided in the Code of Regulations of Southgate, as the surviving corporation, or as otherwise provided by law. ARTICLE II. Exchange and Conversion of Shares (a) On the Closing Date, each outstanding share of Southgate common stock shall by virtue of the Merger and without any action on the part of the holder thereof by exchanged for 1,594.5073 shares of Corning Common Stock. No certificates representing fractional shares will be issued by Corning on account of the Merger. The number of shares that each Shareholder is entitled to receive shall be rounded up to the nearest whole share. (b) Each share of common stock, no par value, of Newco issued and outstanding immediately prior to the Closing Date shall, by virtue of the Merger and without any 6 action on the part of the holder thereof, be converted into one share of common stock of Southgate. ARTICLE III. Closing Date The closing of the transactions contemplated by this Agreement will take place on such date and at such time and place as may be mutually agreed upon by the Shareholders and Corning ("Closing Date"). The Merger shall become effective as of the filing of this Agreement in the office of the Secretary of State of the State of Ohio on the Closing Date. ARTICLE IV. 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 hereto and delivered to each of the other parties hereto. IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement to be executed on its behalf by this officers thereunto duly authorized, all as of the day and year first above written. SHAREHOLDERS 7 /s/ Charles J. Silverman ------------------------------- Charles J. Silverman /s/ JoAnn Silverman ------------------------------- JoAnn Silverman /s/ Frank J. Ilkanich ------------------------------- Frank J. Ilkanich SOUTHGATE MEDICAL SERVICES, INC. by: /s/ Edward E. Siegler ------------------------ title: President by: /s/ Charles J. Silverman ------------------------ title: Secretary CLS/SG, INC. by: /s/ Thomas D. Moses ------------------------ title: President by: /s/ Anthony J. Geramita ------------------------ title: Assistant Secretary 8 EXHIBIT A AMENDED AND RESTATED ARTICLES OF INCORPORATION OF SOUTHGATE MEDICAL SERVICES, INC. ----------------------- FIRST: The name of the corporation (hereinafter called the "Corporation") is SOUTHGATE MEDICAL SERVICES, INC. SECOND: The place in the State of Ohio where the principal office of the Corporation is to be located is City of Maple Heights, County of Cuyahoga (44137-3054). THIRD: The purposes for which the Corporation is formed, which shall be in addition to the authority to engage in any lawful act or activity for which corporations may be formed under Chapter 1701 of the Revised Code of Ohio, are as follows: (i) to own and operate medical, clinical, industrial and research laboratories; (ii) to research, manufacture, design, construct, use, buy, sell, lease, hire and deal in and with articles and property of all kinds; and (iii) to render services of all kinds. FOURTH: The authorized number of shares of the Corporation is 1,000, all of which are without par value and are of the same class and are to be common shares, each with a right to one vote. All or any part of said common shares without par value may be issued by the Corporation from time to time and for such consideration as may be determined upon and fixed by the Board of Directors, as provided by law. Any and all such shares issued, for which the full consideration has been paid and delivered, shall be deemed fully paid shares and the holder of such shares shall not be liable for any further call or assessment or any other payment thereon. FIFTH: The period of existence of the Corporation is perpetual. SIXTH: The Corporation shall indemnify, to the full extent permitted by Section 1701.13 of the General Corporation Law, as the same may be amended and supplemented, any person who was or is a party, or is threatened to be made a party, to any 9 threatened or pending action, suit or proceeding, whether civil, criminal, administrative, or investigative, by reason of the fact that he or she is or was a director or officer of the Corporation, or was or is serving at the request of the Corporation, as a director or officer of another corporation, partnership, joint venture, trust or other enterprise. Any indemnification pursuant to the foregoing shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper under the circumstances because he or she has met any legally applicable standard of conduct. Such determination may be made (i) by resolution of the Board of Directors adopted in the manner provided in the Regulations of the corporation, or (ii) if a quorum consisting of directors who are not parties to such action, suit or proceeding, is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the shareholders. SEVENTH: Notwithstanding any provision of the General Corporation Law now or hereafter in force requiring, for any purpose, the vote, consent, waiver, or release of the holders of a designated proportion (but less than all) of the shares of any particular class or of each class, of the shares are classified, the vote, consent, waiver, or release if the holders of at least a majority of the voting power or of at least a majority of the shares entitled to vote, as the case may be, of such particular class or of each class, if shares are classified, shall be required in lieu of any such designated greater proportion otherwise required by any provision of said General Corporation Law. EIGHTH: From time to time any of the provisions of these Articles of Incorporation may be amended, altered, or repealed, and other provisions authorized by the General Corporation Law and the laws of the State of Ohio at the time in force may be added or inserted in the manner and at the time prescribed by said laws, and all rights at any time conferred upon the shareholders of the corporation by these Articles of Incorporation are granted subject to the provisions of this Article EIGHTH. NINTH: These Amended and Restated Articles of Incorporation of the Corporation supersede and replace in their entirety the existing Articles of Incorporation of the Corporation. 10 EX-3.11 10 CORNING MRL INC. CERTIFICATE OF INCORPORATION of MRL NuCor, Inc. --------------------- FIRST, the name of the corporation is MRL NuCor, Inc. SECOND, the address of the corporation's registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the Registered Agent at such address is The Corporation Trust Company. THIRD, the purpose of the corporation is (i) to acquire, own, operate, maintain, provide, furnish and generally deal in and with, in any lawful capacity, pathology and clinical laboratories, pathology and clinical laboratory facilities, services, techniques, establishments and equipment for the observation, analysis and evaluation of materials, fluids, tissue and organisms of every kind and description; (ii) to carry on any other business as may be necessary, convenient, or desirable to accomplish the above purposes; and (iii) generally to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. 1 FOURTH, the total number of shares of all classes of stock which the corporation shall have authority to issue is 3,000 shares which shall be Common Stock, all of which shares shall be without par value, and each with a right to one vote. FIFTH, the name and mailing address of the Incorporator are as follows: Name Mailing Address Bruce G. Goodman 80 Wilson Way Westwood, Massachusetts 02090 SIXTH, (a) No director of the corporation shall have any personal liability to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that this provision shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. (b) Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such 2 proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the corporation to the fullest extent authorized by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said law permitted the corporation to provide prior to such amendment), against all expenses, liability and loss (including attorneys' fees, judgments, fines, excise taxes pursuant to the Employee Retirement Income Security Act of 1974, as amended, or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, the corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the corporation. The right to be indemnified conferred in this Article 6 shall be a contract right and shall include the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the General Corporation Law of the State of Delaware requires, the payment of such expenses incurred by the director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is to be rendered by such person while a director or officer, including, without limitation, service to an employee benefit 3 plan), in advance of the final disposition of a proceeding, shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Article or otherwise. The corporation may, by action of its directors, provide indemnification to employees and agents of the corporation with the same scope and effect as the foregoing indemnification of directors and officers. (c) The indemnification provided by this Article 6 shall not limit or exclude any rights, indemnities or limitations of liability to which any person may be entitled, whether as a matter of law, under the By-Laws of the corporation, by agreement, vote of the stockholders or disinterested directors of the corporation or otherwise. (d) The corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware. SEVENTH, any action required or permitted to be taken at any annual or special meeting of stockholders of the corporation may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the actions so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon are present and voted. 4 THE UNDERSIGNED, being the sole Incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, does hereby make this Certificate, declaring and certifying that this is his act and deed and the facts herein stated are true, and accordingly has hereunto set his hand this 5th day of October, 1994. /s/ Bruce G. Goodman ------------------------ Bruce G. Goodman 80 Wilson Way Westwood, Massachusetts 02090 COMMONWEALTH OF MASSACHUSETTS ) ) ss COUNTY OF NORFOLK ) BE IT REMEMBERED, that on this 5th day of October, 1994, personally came before me, a Notary Public in and for the Commonwealth of Massachusetts and the County of Norfolk, Bruce G. Goodman, the sole Incorporator named in the foregoing Certificate of Incorporation, known to me personally to be such, and he acknowledged the said Certificate to be his act and deed and that the facts stated therein are truly set forth. GIVEN under my hand seal of office the day and year aforesaid. /s/ Bruce G. Goodman ------------------------ 5 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION (Pursuant to Section 242) ***** MRL NuCor, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: that the Board of Directors of said corporation, by the unanimous written consent of its members, filed with the minutes of the Board, adopted a resolution proposing and declaring advisable the following amendment to the Certificate of Incorporation of said corporation: RESOLVED, that the Certificate of Incorporation of MRL NuCor, Inc. be amended by changing the First Article thereof so that, as amended, said Article shall be and read as follows; "FIRST, the name of the corporation is Corning MRL, Inc." IN WITNESS WHEREOF, said corporation has caused this certificate to be signed by Bruce G. Goodman, its Assistant Secretary, this 28th day of December, 1994. MRL NUCOR, INC. By:/s/ Bruce G. Goodman --------------------- Its: Assistant Secretary 6 EX-3.12 11 DPD HOLDINGS, INC. RESTATED CERTIFICATE OF INCORPORATION OF Unilab Corporation UNILAB CORPORATION, a Delaware corporation, hereby certifies as follows: 1. The name of the Corporation is Unilab Corporation. The date of the filing of its original Certificate of Incorporation with the Secretary of State of the State of Delaware was September 24, 1990, and the Corporation filed a Certificate of Amendment to its Certificate of Incorporation with the Secretary of State of the State of Delaware on May 23, 1991. 2. This Restated Certificate of Incorporation amends and restates the provisions of the Certificate of Incorporation of the Corporation and was duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware. 3. The text of the Certificate of Incorporation is hereby amended and restated in its entirety to read as follows: "ARTICLE I Name The name of the corporation is DPD Holdings Inc. (the "Corporation"). ARTICLE II Registered Office and Registered Agent The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the registered agent of the Corporation at such address is The Corporation Trust Company. 1 ARTICLE III Corporate Purpose The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the "General Corporation Law"). ARTICLE IV Capital Stock The total number of shares of all classes of stock that the Corporation shall have authority to issue is 10,000, all of which shall be shares of Common Stock, par value $.01 per share. ARTICLE V Directors SECTION 1. Elections of directors of the Corporation need not be by written ballot, except and to the extent provided in the By-laws of the Corporation. SECTION 2. To the fullest extent permitted by the General Corporation Law as it now exists and as it may hereafter be amended, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. ARTICLE VI Indemnification of Directors, Officers and Others SECTION 1. The Corporation shall to the fullest extent permitted by the provisions of the General Corporation Law of Delaware, as now or hereafter in effect, indemnify all persons whom it may indemnify under such provisions. The indemnification provided by this Section shall not limit or exclude any rights, indemnities or limitations of liability to which any person may be entitled whether as a matter of law, under the By-laws of the Corporation, by agreement, vote of the stockholders or disinterested directors of the Corporation or otherwise. 2 SECTION 2. The personal liability of the directors of the Corporation is hereby eliminated to the fullest extent permitted by paragraph (7) of Subsection (b) of Section 102 of the General Corporation Law of Delaware, as the same may be amended and supplemented. ARTICLE VII By-laws The directors of the Corporation shall have the power to adopt, amend or repeal by-laws. ARTICLE VIII Reorganization Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. 3 ARTICLE IX Amendment The Corporation reserves the right to amend, alter, change or repeal any provision of this Certificate of Incorporation, in the manner now or hereafter prescribed by law, and all rights conferred on stockholders in this Certificate of Incorporation are subject to this reservation." IN WITNESS WHEREOF, DPD HOLDINGS INC. has caused this certificate to be signed by Andrew H. Baker, its Chairman of the Board, President and Chief Executive Officer, and attested by Mark L. Bibi, its Secretary, as of this 10th day of November, 1993. UNILAB CORPORATION By /s/ Andrew H. Baker ---------------------------- Andrew H. Baker Chairman of the Board, President and Chief Executive Officer ATTEST: /s/ Mark L. Bibi - --------------------------- Mark L. Bibi Secretary 4 CERTIFICATE OF MERGER OF AMERICAN CLINICAL LABORATORIES, INC. DAMON CLINICAL LABORATORIES, INC. DAMON CLINICAL LABORATORIES-HOUSTON, INC. MEDLAB INC. MPC LABORATORY, INC. NICHOLS INSTITUTE PROFESSIONAL SERVICES ORGANIZATION, INC. NICHOLS GP CORPORATION NICHOLS LP CORPORATION NICHOLS INSTITUTE SUBSTANCE ABUSE TESTING LABORATORIES, INC. PATHLAB, INC. AND REDWOOD MEDICAL LABORATORY INTO DPD HOLDINGS INC. Pursuant to Section 252 of the General Corporation Law of the State of Delaware * * * * The undersigned hereby certifies that: 1. The name of and state of incorporation of each of the constituent corporations are as follows: Name State of Incorporation AMERICAN CLINICAL LABORATORIES, INC. California DAMON CLINICAL LABORATORIES, INC. Texas DAMON CLINICAL LABORATORIES - Texas HOUSTON, INC. MEDLAB INC. Oregon MPC LABORATORY, INC. Texas NICHOLS INSTITUTE PROFESSIONAL California SERVICES ORGANIZATION, INC. NICHOLS GP CORPORATION California NICHOLS LP CORPORATION California NICHOLS INSTITUTE SUBSTANCE ABUSE Delaware 5 TESTING LABORATORIES, INC. PATHLAB, INC. Texas REDWOOD MEDICAL LABORATORY California DPD HOLDINGS INC. Delaware 2. An Agreement and Plan of Merger dated as of December 6, 1994 (the "Merger Agreement") among each of the constituent corporations has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations in accordance with the requirements of Section 252(c) of the General Corporation Law of the State of Delaware. 3. The name of the surviving corporation is DPD Holdings Inc. 4. The Certificate of Incorporation of DPD Holdings Inc. in effect at the effective time of the merger shall be the Certificate of Incorporation of the surviving corporation. 5. The surviving corporation is a corporation of the State of Delaware. 6. The executed Merger Agreement is on file at the principal place of business of the surviving corporation at One Malcolm Avenue, Teterboro, New Jersey 07608. 7. A copy of the Merger Agreement will be furnished by the surviving corporation, on request and without cost, to any stockholder of any constituent corporation. 8. The authorized capital stock of each constituent corporation which is not a Delaware corporation is as follows: Name Authorized Capital Stock AMERICAN CLINICAL LABORATORIES, INC. 50,000 shares, no par value DAMON CLINICAL LABORATORIES, INC. 1,000 shares, no par value DAMON CLINICAL LABORATORIES - 1,000 shares, no par value HOUSTON, INC MEDLAB, INC. 375,000 shares, no par value MPC LABORATORY, INC 1,000 shares, $.01 par value NICHOLS INSTITUTE PROFESSIONAL 10,000 shares, no par value SERVICES ORGANIZATION, INC. NICHOLS GP CORPORATION 1,000 shares, $.01 par value NICHOLS LP CORPORATION 1,000 shares, $.01 par value PATHLAB, INC. 1,000 shares, $.01 par value REDWOOD MEDICAL LABORATORY 75,000 shares, $1.00 par value 9. That the merger shall become effective at 9:00 P.M. on December 30, 1994. 6 IN WITNESS WHEREOF, this Certificate of Merger has been executed on this 6th day of December, 1994. Attest: DPD HOLDINGS INC. /s/ Leo C. Farrenkopf, Jr. By: /s/ James D. Chambers - -------------------------- ------------------------- Leo C. Farrenkopf, Jr. James D. Chambers Secretary Vice President 7 EX-3.13 12 METWEST INC. CERTIFICATE OF INCORPORATION OF METWEST INC. The undersigned, being of legal age, in order to form a corporation under and pursuant to the laws of the State of Delaware, does hereby set forth as follows: FIRST: The name of the corporation is MetWest Inc. SECOND: The address of the initial registered office and registered agent in this state is c/o United Corporate Services, Inc., 410 South State Street, in the City of Dover, County of Kent, State of Delaware 19901 and the name of the registered agent at said address is United Corporate Services, Inc. THIRD: The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the corporation laws of the State of Delaware. FOURTH: The corporation shall be authorized to issue the following shares: NAME NUMBER OF SHARES PAR VALUE Common 1,000 $0.01 FIFTH: The name and address of the incorporator are as follows: NAME ADDRESS Metpath Inc. One Malcolm Avenue Teterboro, New Jersey 07608 1 SIXTH: The following provisions are inserted for the management of the business and for the conduct of the affairs of the corporation, and for no further definition, limitation and regulation of the powers of the corporation and of its directors and stockholders: (1) The number of directors of the corporation shall be such as from time to time shall be fixed by, or in the manner provided in the by-laws. Election of directors need not be by ballot unless the by-laws so provide. (2) The Board of Directors shall have power without the asset or vote of the shareholders: (a) To make, alter, amend, change, add to or repeal the By-laws of the corporation; to fix and vary the amount to be reserved for any proper purpose; to authorize and cause to be executed mortgages and liens upon all or any part of the property of the corporation; to determine the use and disposition of any surplus or net profits; and to fix the times for the declaration and payment of dividends. (b) To determine from time to time whether, and to what times and places, and under what conditions the accounts and books of the corporation (other than the stockledger) or any of them, shall be open to the inspection of the stockholders. (3) The directors in their discretion may submit any contract or act for approval or ratification at any annual meeting of the stockholders or at any meeting of the stockholders called for the purpose of considering any such act or contract, and any contract or act that shall be approved or be ratified by the vote of the holders of a majority of the stock of the corporation which is represented in person or by proxy at such meeting and entitled to vote thereat (provided that a lawful quorum of stockholders be there represented in person or by proxy) shall be as valid and as binding upon the corporation and upon all the stockholders as though it had been approved or ratified by every stockholder of the corporation, whether or not the contract or act would otherwise be open to legal attack because of director's interest, or for any other reason. (4) In addition to the powers and authorities hereinbefore or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the corporation; subject, nevertheless, to the provisions of the statutes of Delaware, of this certificate, and to any by-laws from time to time made by the stockholders; provided, however, that no by-laws so made shall invalidate any prior act of the directors which would have been valid if such by-laws had not been made. 2 SEVENTH: No director shall be liable to the corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director, except with respect to (1) a breach of the director's duty of loyalty to the corporation or its stockholders, (2) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) liability under Section 174 of the Delaware General Corporation Law or (4) a transaction from which the director derived an improper personal benefit, it being the intention of the foregoing provision to eliminate the liability of the corporation's directors to the corporation or its stockholders to the fullest extent permitted by Section 102(b)(7) of the Delaware General Corporation Law, as amended from time to time. The corporation shall indemnify to the fullest extent permitted by Sections 102(b)(7) and 145 of the Delaware General Corporation Law, as amended from time to time, each person that such Sections grant the corporation the power to indemnify. EIGHTH: Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class or them, any court of equitable jurisdiction within the State of Delaware, may, on the application in a summary way of this corporation or any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under the provisions of Section 279 Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders of this corporation, 3 as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths (3/4) in value of the creditors, and/or the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all creditors or class or creditors, and/or on all the stockholders or class or stockholders, of this corporation, as the case may be, and also on this corporation. NINTH: The corporation reserves the right to amend, alter, change or repeal any provision contained in this certificate of incorporation in the manner now or hereafter prescribed by law, and all rights and powers conferred herein on stockholders, directors and officers are subject to this reserved power. IN WITNESS WHEREOF, the undersigned hereby executes this document and affirms that the facts set forth herein are true under the penalties of perjury this 15th day of August, 1988. METPATH INC. BY:/s/ Thomas Kossl ------------------------------- Thomas Kossl, Vice President & Assistant Secretary 4 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF METWEST INC. The undersigned corporation, in order to amend its Certificate of Incorporation, hereby certifies as follows: FIRST: The name of the corporation is: MetWest Inc. SECOND: The corporation hereby amends the Certificate of Incorporation as follows: Paragraph FOURTH of the Certificate of Incorporation, related to the number of shares the Corporation shall have authority to issue, is hereby amended to read as follows: FOURTH: The aggregate number of shares which this corporation shall have the authority to issue is Name Number of Shares Par Value Common 1,250,000 $0.01 THIRD: The amendment effected herein was authorized by the unanimous written consent of the shareholders pursuant to sections 228 and 242 of the Delaware General Corporation Law. 5 IN WITNESS WHEREOF, we hereunto sign our names this 30th day of September, 1988. /s/ David J. Bush ------------------------ David J. Bush, President ATTEST: /s/ Thomas Kossl - ----------------------- Thomas Kossl, Secretary 6 METWEST INC. Written Consent of Stockholder in Lieu of a Meeting MetPath Inc., being the sole stockholder of MetWest Inc., a Delaware corporation (the "Corporation"), hereby authorizes and approves the following corporate action: WHEREAS, Section 228 of the Delaware General Corporation Law provides that any action permitted to be taken by vote at a meeting of the stockholders may be taken without a meeting, without prior notice and without a vote upon written consent signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all such stockholders entitled to vote thereon were present and voted; and WHEREAS, MetPath Inc. is the sole stockholder of the Corporation; and WHEREAS, Section 242 of the Delaware General Corporation Law provides that a corporation may amend its Certificate of Incorporation to increase its authorized capital stock at a meeting of the stockholders by majority vote of the stockholders entitled to vote thereon pursuant to a resolution of the Board of Directors proposing such an amendment and declaring the advisability of the same; and WHEREAS, the Board of Directors of the Corporation, at a meeting held on September 30, 1988, adopted a resolution recommending and declaring the advisability of an amendment to the Certificate of Incorporation of the Corporation, increasing the capital stock of the Corporation from one thousand (1,000) shares of Common stock to one million two hundred and fifty thousand (1,250,000) shares of Common stock and MetPath desires to so amend the Certificate of Incorporation. NOW, THEREFORE, IT IS RESOLVED, that paragraph FOURTH of the Certificate of Incorporation of the Corporation be amended to read in its entirety as follows: FOURTH: The aggregate number of shares which this corporation shall have authority to issue is: Name Number of Shares Par Value Common 1,250,000 $0.01 7 METPATH INC. October 1, 1988 By:/s/ Thomas Kossl ----------------------------- Thomas Kossl, Assistant Secretary Common Stock: 100 shares 8 CERTIFICATE OF MERGER OF METWEST INC. INTO UNILAB ACQUISITION CORPORATION The undersigned corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That the name and state of incorporation of each of the constituen corporations of the merger is as follows: Name State of Incorporation Unilab Acquisition Corporation Delaware MetWest Inc. Delaware SECOND: That an Agreement and Plan of Merger between the parties to the merger has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations in accordance with the requirements of subsection (c) of Section 251 of the General Corporation Law of the State of Delaware. THIRD: That the name of the surviving corporation of the merger is Unilab Acquisition Corporation, which shall be changed herewith to MetWest Inc. FOURTH: That the certificate of incorporation of Unilab Acquisition Corporation, a Delaware corporation, the surviving corporation, shall be the certificate of incorporation of the surviving corporation. FIFTH: That the executed Agreement and Plan of Merger is on file at the principal place of business of the surviving corporation. The address of the principal place of business of the surviving corporation is 4675 MacArthur Court, Suite 1030, Newport Beach, California 92660. SIXTH: That a copy of the Agreement and Plan of Merger will be furnished by the surviving corporation, on request and without cost to any stockholder of any constituent corporation. UNILAB ACQUISITION CORPORATION Dated: June 22, 1989 By: -------------------- President ATTEST: By: -------------------- Secretary 9 CERTIFICATE OF INCORPORATION OF UNILAB ACQUISITION CORPORATION FIRST: The name of this corporation is Unilab Acquisition Corporation. SECOND: The address of the registered office of the corporation in the State of Delaware is 15 East North Street, P.O. Box 899, the City of Dover, County of Kent, Delaware 19903, and the name of its registered agent at that address is Incorporating Services, Ltd. THIRD: The name and mailing address of the incorporator of the corporation is: Brendan R. McDonnell 4675 MacArthur Court Suite 1000 Newport Beach, CA 92660-1836 FOURTH: The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FIFTH: This corporation is authorized to issue 1,250,000 shares of Common Stock with a par value of $0.01 per share. SIXTH: A director of this corporation shall not be personally liable to this corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, except for liability (i) for any breach of the Director's duty of loyalty to this corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the Director derived any improper personal benefit. The foregoing sentence notwithstanding, if the Delaware General Corporation Law hereafter is amended to authorize further limitations of the liability of a director of a corporation, then a Director of this corporation, in addition to the circumstances in which a Director is not personally liable as set forth in the preceding sentence, shall not be liable to the fullest extent permitted by the Delaware General Corporation Law as so amended. Any repeal or modification of the foregoing provisions of this Article Sixth by the stockholders of this corporation shall not adversely affect any right or protection of a Director of this corporation existing at the time of such repeal or modification. 10 SEVENTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind from time to time any or all of the bylaws of the Corporation. EIGHTH: This corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred on stockholders herein are granted subject to this reservation. /s/ Brendan R. McDonnell -------------------- Brendan R. McDonnell Sole Incorporator 11 CERTIFICATE OF CHANGE OF REGISTERED AGENT AND REGISTERED OFFICE * * * * * MetWest Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: The present registered agent of the corporation is INCORPORATING SERVICES, Ltd. (Resigned) and the present registered office of the corporation is in the county of Kent (No registered Office at present). The Board of Directors of MetWest Inc. adopted the following resolution on the 5th day of October, 1992. RESOLVED, that the registered office of Incorporating Services, Ltd. in the state of Delaware be and it hereby is changed to Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, and the authorization of the present registered agent of this corporation be and the same is hereby withdrawn, and THE CORPORATION TRUST COMPANY, shall be and is hereby constituted and appointed the registered agent of this corporation at the address of its registered office. IN WITNESS WHEREOF, MetWest Inc. has caused this statement to be signed by James Lawrence, its Group President and attested by Paul J. Traina, Jr., its Secretary this 8th day of October, 1992. By /s/ James Lawrence -------------------- James Lawrence President ATTEST: By /s/ Paul J. Traina -------------------- Paul J. Traina, Jr. Secretary 12 CERTIFICATE OF MERGER OF DAMON CLINICAL LABORATORIES, INC. (AZ) INTO METWEST INC. Pursuant to Section 252 of the General Corporation Law of the State of Delaware * * * * The undersigned hereby certifies that: 1. The name and state of incorporation of each of the constituent corporations are as follows: Name State of Incorporation DAMON CLINICAL LABORATORIES, INC. ARIZONA METWEST INC. DELAWARE 2. An Agreement and Plan of Merger dated as of December 31, 1993 (the "Merger Agreement") has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations in accordance with the requirements of Section 252(c) of the General Corporation Law of the State of Delaware. 3. The name of the surviving corporation is MetWest Inc. 4. The Certificate of Incorporation of MetWest Inc. in effect at the effective time of the merger shall be the Certificate of Incorporation of the surviving corporation. 5. The surviving corporation is a corporation of the State of Delaware. 6. The executed Merger Agreement is on file at the principal place of business of the surviving corporation at 2510 O'Conner Ridge Boulevard, Irving, TX 75038. 7. A copy of the Merger Agreement will be furnished by the surviving corporation, on request and without cost, to any stockholder of any constituent corporation. 13 8. The authorized capital stock of each constituent corporation which is not a corporation of the State of Delaware is as follows: Authorized Number of Par Name Shares of Common Stock Value DAMON CLINICAL LABORATORIES. (AZ) 100,000 $10.00 IN WITNESS WHEREOF, this Certificate of Merger has been executed on this 10th day of December, 1993. METWEST INC. By:/s/ Michael J. Bachich ------------------------- Michael J. Bachich Vice President [SEAL] ATTEST: /s/ Leo C. Farrenkopf, Jr. - --------------------------------------- Leo C. Farrenkopf, Jr. Assistant Secretary 14 ARTICLES OF MERGER OF DAMON CLINICAL LABORATORIES, INC. INTO METWEST INC. To the Arizona Corporation Commission Pursuant to the provisions of the General Corporation Law of the State of Arizona governing the merger of one or more domestic business corporations with and into a foreign business corporation, the corporations hereinafter named do hereby adopt the following articles of merger: 1. The names of the merging corporations are Damon Clinical Laboratories, Inc., which is a business corporation organized under the laws of the State of Arizona, and MetWest Inc., which is a business corporation organization under the laws of the State of Delaware. 2. Annexed hereto and made a part hereof is the Plan of Merger for merging Damon Clinical Laboratories, Inc. with and into MetWest Inc. as approved by resolution of the Board of Directors of each of said corporations. 3. The number of shares of Damon Clinical Laboratories, Inc. which were outstanding at the time of the approval of the Plan of Merger by its shareholders is 900, all of which are of one class and entitled to vote. The number of the aforesaid shares which were voted for the Plan of Merger is 900, and the number of said shares which were voted against the same is 0. The number of shares of MetWest Inc. which were outstanding at the time of the approval of the Plan of Merger by its shareholders is 100, all of which are of one class and entitled to vote. The number of aforesaid shares which were voted for the Plan of Merger is 100, and the number of said shares which were voted against the same is 0. 4. The laws of the jurisdiction of organization of MetWest Inc. permit the merger of a business corporation of another jurisdiction with and into a business corporation of the jurisdiction of incorporation of MetWest Inc.; and the merger of Damon Clinical Laboratories, Inc. with and into MetWest Inc. is in compliance with the laws of the jurisdiction of organization of MetWest Inc. 15 5. MetWest Inc. will continue its existence as the surviving corporation under its present name pursuant to the provisions of the General Corporation Law of the State of Delaware. 6. MetWest Inc. does hereby agree that it may be served with process in the State of Arizona in any proceeding for the enforcement of any obligation of Damon Clinical Laboratories, Inc. and in any proceeding for the enforcement of the rights of a dissenting shareholder of Damon Clinical Laboratories, Inc. against MetWest Inc.; does hereby irrevocably appoint the Arizona Corporation Commission as its agent to accept service of process in any such proceeding; and does hereby agree that it will promptly pay to the dissenting shareholders of Damon Clinical Laboratories, Inc. the amount, if any, to which they shall be entitled under the provisions of the General Corporation Law of the State of Arizona with respect to the rights of dissenting shareholders. 7. The address within or without the State of Arizona to which the Arizona Corporation Commission may forward a copy of such process is: CT Corporation System, 3225 North Central Avenue, Phoenix, AZ 85012. Executed on December 10, 1993 DAMON CLINICAL LABORATORIES, INC. By: /s/ James D. Chambers --------------------------------- James D. Chambers Vice President /s/ Leo C. Farrenkopf, Jr. --------------------------------- Leo C. Farrenkopf, Jr. Assistant Secretary 16 Executed on December 10, 1993 METWEST INC. By: /s/ Michael J. Bachich --------------------------------- Michael J. Bachich Vice President /s/ Leo C. Farrenkopf, Jr. --------------------------------- Leo C. Farrenkopf, Jr. Assistant Secretary 17 PLAN OF MERGER OF DAMON CLINICAL LABORATORIES, INC. (AZ) INTO METWEST INC. PLAN OF MERGER adopted on December 15, 1993 by Damon Clinical Laboratories, Inc. ("DCL-AZ"), a business corporation of the State of Arizona, by resolution of its Board of Directors on said date, and adopted on December 15, 1993 by MetWest Inc. ("MetWest"), a business corporation of the State of Delaware, by resolution of its Board of Directors on said date. 1. The Merger. Pursuant to the provisions of the General Corporation Law of the State of Arizona ("AGCL") and the provisions of the General Corporation Law of the State of Delaware ("DGCL"), DCL-AZ and MetWest shall be merged at the Effective Time (as hereinafter defined) with and into a single corporation, to wit, MetWest, which shall be the surviving corporation and which shall continue to exist under the provisions of the DGCL. MetWest is sometimes hereinafter referred to as the "Surviving Corporation." The separate corporate existence of DCL-AZ shall cease at the Effective Time. 2. Effective Time. The Merger shall become effective (the "Effective Time") at 11:59 PM (Eastern Standard Time) on December 31, 1993 or, if later, upon the filing of the Certificate Merger with the Secretary of State of Delaware in accordance with the DGCL and the Articles of Merger with the Secretary of the State of Arizona in accordance with the AGCL. 3. Outstanding Shares. The number of outstanding shares of DCL-AZ is 900, all of which are of one class and are common shares, and all of which are entitled to vote on this Plan of Merger. 18 The number of outstanding shares of MetWest is 100, all of which are of one class and are common shares, and all of which are entitled to vote on this Plan of Merger. 4. Certificate of Incorporation of the Surviving Corporation. The Certificate of Incorporation of MetWest as in effect immediately prior to the Effective Time shall, until thereafter and further amended as provided therein and under the DGCL, be the Certificate of Incorporation of the Surviving Corporation. 5. By-Laws of the Surviving Corporation. The By-Laws of MetWest as in effect immediately prior to the Effective Time shall, until thereafter and further amended as provided therein and under the DGCL, be the By-Laws of the Surviving Corporation. 6. Directors of the Surviving Corporation. The Directors of the Surviving Corporation shall be the Directors of MetWest immediately prior to the Effective Time, until their respective successors are duly elected and qualified. 7. Officers of the Surviving Corporation. The Officers of the Surviving Corporation shall be the Officers of MetWest immediately prior to the Effective Time, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified. 8. Conversion of Shares. At the Effective Time, by virtue of the Merger and without any action on the part of the holders thereof: (i) Each share of common stock of MetWest issued and outstanding immediately prior to the Effective Time shall remain outstanding and shall thereafter evidence one validly issued, fully paid and nonassessable share of Common Stock of the Surviving Corporation. 19 (ii) Each outstanding share of common stock of DCL-AZ issued and outstanding immediately prior to the Effective Time shall be canceled without consideration. 9. Rights and Liabilities of the Surviving Corporation. At and after the Effective Time, the Surviving Corporation shall succeed to and possess, without further act or deed, all of the estate, rights, privileges, powers, and franchises, both public and private, and all of the property, real, personal, and mixed, of each of DCL-AZ and MetWest; all debts due to DCL-AZ shall be vested in the Surviving Corporation; all claims, demands, property, rights, privileges, powers and franchises and every other interest of DCL-AZ shall be effectively the property of the Surviving Corporation as they were of DCL-AZ; the title to any real estate vested by deed or otherwise in DCL-AZ shall not revert or be in any way impaired by reason of the Merger, but shall be vested in the Surviving Corporation; all rights of creditors and all liens upon any property of DCL-AZ shall be preserved unimpaired, limited to the property affected by such lien at the Effective Time of the Merger; and all debts, liabilities, and duties of DCL-AZ shall thenceforth attach to the Surviving Corporation and may be enforced against it to the same extent as if such debts, liabilities and duties had been incurred or contracted by it. 10. Submission to Shareholders. This Plan of Merger herein made and adopted shall be submitted to the shareholders of DCL-AZ and MetWest for their approval or rejection in the manner prescribed by the AGCL and DGCL. 11. Abandonment of Merger. This Plan of Merger may be terminated and abandoned by joint action of the Board of Directors of MetWest and DCL-AZ at any time prior to the Effective Time. 12. Further Actions. The proper officers of MetWest and DCL-AZ are hereby authorized, empowered, and directed to do any and all acts and things, and to make, execute, deliver, file and/or record any and all instruments, papers, and documents which shall be or 20 become necessary, proper, or convenient to carry out or put into effect any of the provisions of this Plan of Merger. 21 METWEST INC. ARTICLES OF AMENDMENT METWEST INC., a Delaware corporation having its principal office in Dallas, Texas (hereinafter called the "Corporation"), hereby certifies that: FIRST: The Certificate of Incorporation of the Corporation is hereby amended by striking out ARTICLE FIFTH of the Articles of Incorporation and inserting in lieu thereof the following: "FIFTH: The total number of shares of stock which the Corporation has authority to issue is three thousand (3,000) shares of common stock with no par value." SECOND: The Board of Directors of the Corporation, by written consent to such action, adopted a resolution in which was set forth the foregoing amendment to the Certificate of Incorporation declaring that said Amendment to the Certificate of Incorporation was advisable and directing that it be submitted for consideration thereon to the sole stockholder. THIRD: A written consent setting forth approval of the amendment to the Certificate of Incorporation of the Corporation hereinabove set forth, was signed by the sole stockholder of the Corporation and such consent is filed with the records of the Corporation. FOURTH: The Articles of Amendment to the Certificate of Incorporation of the Corporation is hereinabove set forth were duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. 22 IN WITNESS WHEREOF, said corporation has caused this certificate to be signed in its name and on its behalf by its Vice President, and its corporate seal to be hereunto affixed and attest by its Secretary on this 30th day of April, 1996. METWEST INC. BY:/s/ Douglas M. Van Oort (SEAL) --------------------------------- Douglas M. Van Oort, Vice President ATTEST:/s/ Leo C. Farrenkopf, Jr., Secretary --------------------------------------- Leo C. Farrenkopf, Jr., Secretary 23 EX-3.14 13 CORNING CLINICAL LABORATORIES INC. (MD) ARTICLES OF INCORPORATION OF LAUREL MEDICAL LABORATORY, INC. THIS IS TO CERTIFY: FIRST: That we, the subscribers, DAVID B. RUDOW, 2424 Diana Road, Baltimore, Maryland, 21209, R. DAVID ADELBERG, 3217 Timberfield Road, Baltimore, Maryland 21208, and MICHAEL G. HENDLER, 8343 Church Lane, Baltimore, Maryland, 21207, each being of full age, do under and by virtue of the laws of the State of Maryland authorizing the formation of corporations, associate ourselves with the intention of forming a corporation. SECOND: That the name of the Corporation (which is hereinafter called the "Corporation"), is LAUREL MEDICAL LABORATORY, INC. THIRD: The purposes for which, and for any one or more of which the Corporation is formed, and the business and objects to be carried on and promoted, are as follows: (a) To carry on the business of operating a medical laboratory or laboratories and to engage generally in the business of the operation of medical laboratories. (b) To acquire all necessary franchises, licenses and permits or any other evidences of authority to carry on the business of the operation of a medical laboratory or laboratories. (c) To acquire, by purchase or otherwise, own, hold, buy, sell, convey, lease, mortgage or encumber real estate or other property, personal or mixed. (d) To take, own, hold, yield, income, mortgage or otherwise give liens against, and to sell, lease, exchange, transfer or in any manner whatever to dispose of real property within or without the State of Maryland, wherever situated. 1 (e) To acquire, by purchase, lease or otherwise, the property rights, business, good will, franchises and assets of every kind of any corporation, association, firm or individual, carrying on in whole or in part the aforesaid businesses, or any of them, or any other business in whole or in part that the Corporation may be authorized to carry on, and to undertake, guarantee, assume and pay the indebtedness and liabilities thereof and to pay for any property, rights, business, good will, franchises and assets so acquired in the stock, bonds or other securities of the Corporation or otherwise. (f) To carry on any other business in connection with the foregoing whether directly or indirectly related thereto. (g) To carry on any other business which may seem to the Corporation to be calculated directly or indirectly to effectuate the aforesaid objects, or any of them, to facilitate it in the transaction of the aforesaid businesses, or any part thereof, or in the transaction of any other business that may be calculated directly or indirectly to enhance the value of its property and rights; and to have and exercise all powers conferred by the General Laws of the State of Maryland upon corpora- tions formed thereunder, and to exercise and enjoy all powers, rights and privileges granted to or conferred upon corporations of this character by said General Laws now or hereafter in force; the enumeration of certain powers, as herein specified, not being intended to exclude any such other powers, rights and privileges. (h) To have one or more offices and places of business, and to carry on all or any of its operations and business, without restrictions or limit as to amount or place, in any of the States, Districts, Territories or Colonies of the United States, and in any and all foreign countries, subject to the laws of such States, Districts, Territories, Colonies or Countries. The foregoing enumeration of the purposes, objects and business of the Corporation is made in furtherance and not in limitation of the powers conferred upon the Corporation by law, and it is not intended by the mention of any particular purpose, object or business in any manner to limit or to restrict the generality of any other purpose, object or business mentioned or to limit or to restrict any of the powers of the Corporation, and the said Corporation shall have, enjoy and exercise all of the powers and rights now or hereafter conferred by statute upon corporations. 2 The Corporation is formed upon the articles, conditions and provisions herein expressed, and subject in all particulars to the limitations relating to corporations which are contained in the General Laws of this State. FOURTH: The place in which the principal office of the Corporation will be located is 608 Washington Boulevard, Laurel, Maryland 20810. The name and post office address of the Resident Agent is DAVID B. RUDOW, 10 Light Street, Baltimore, Maryland 21202. Said Resident agent is a citizen of Maryland and actually resides therein. FIFTH: The corporation shall have no less than three (3) directors and DAVID B. RUDOW, R. DAVID ADELBERG and MICHAEL G. HENDLER shall act as such until the first annual meeting, or until their successors are duly chosen and qualify. SIXTH: The total amount of authorized capital stock shall be five thousand (5,000) shares of common stock, which shall have no nominal or par value, all of one class. SEVENTH: That the Board of Directors of the Corporation is hereby empowered to authorize from time to time the issuance of shares of its common stock of no par value for such consideration as the Board of Directors may deem advisable, provided that when the consideration is other than money, the Board of Directors shall state by resolution its opinion of the actual value thereof. The Board of Directors shall have full power and authority to determine, from time to time, what part of the consideration received upon the issue of common stock, without par value, shall constitute capital and what part surplus. EIGHTH: That no contract or other transaction between this Corporation and any other corporation, whether or not a majority of the capital stock of either corporation shall be owned by the other, shall be affected or invalidated by reason of the fact that any one or more of the Board of Directors of this Corporation is or are interested in or is a director or officer or are directors or officers of such other corporation and any director or directors, individually or jointly, may be a party or parties to or may be interested in any contract or transaction of this Corporation, or in which this Corporation is interested, and no contract, act or transaction of the Corporation with any person or persons, firm or corporation, shall be affected or invalidated by the fact that any director or directors of this Corporation is or are parties to, or are interested in such contract, act or transaction, or in any way connected with such person or persons, firm or corporation, and each and every 3 person who may become a director of this Corporation is hereby relieved from any liability that might otherwise exist from thus contracting with any other corporation in which he may be in anywise interested, and any director of the Corporation who is also a director or officer of such other corporation, or who is so interested, may be counted in determining the existence of a quorum at any meeting of the Board of Directors of this Corporation, which shall authorize any such contract, act or transaction, with like force and effect as if he were not a director or officer of such other corporation, or not so interested. NINTH: The duration of the Corporation shall be perpetual. IN WITNESS WHEREOF, we have signed these Articles of Incorporation, on this 1st day of April, 1969. /s/ David B. Rudow (SEAL) ----------------------------- David B. Rudow /s/ R. David Adelberg (SEAL) ----------------------------- R. David Adelberg /s/ Michael G. Hendler (SEAL) ----------------------------- Michael G. Hendler STATE OF MARYLAND, CITY OF BALTIMORE, TO WIT: I HEREBY CERTIFY, that on this 1st day of April, 1969, before me, the subscriber, a Notary Public of the State of Maryland, in and for the City of Baltimore, personally appeared DAVID B. RUDOW, R. DAVID ADELBERG and MICHAEL G. HENDLER, the three (3) persons who signed the foregoing Articles of Incorporation, and they acknowledged the same to be their act and deed. AS WITNESS my hand and notarial seal. /s/ Katherine L. Sinnett ----------------------------- Katherine L. Sinnett - Notary Public 4 LAUREL MEDICAL LABORATORY, INC. ARTICLES OF AMENDMENT THIS IS TO CERTIFY: FIRST: That the Articles of Incorporation of Laurel Medical Laboratory, Inc., a Maryland corporation, having its principal office in Laurel, Maryland (hereinafter called the "Corporation"), are hereby amended by striking out Article SECOND of the Articles of Incorporation and inserting in lieu thereof the following: "SECOND: That the name of the Corporation (which is hereinafter called the "Corporation"), is MARYLAND MEDICAL LABORATORY, INC." SECOND: That the Board of Directors of the Corporation at a meeting duly convened and held on June 15, 1970, duly advised the Amendment of the Articles of Incorporation hereinabove set forth by passing a resolution declaring that said Amendment is advisable and calling a meeting of the Stockholders to take action thereon. THIRD: That a meeting of the Stockholders of the Corporation, called by the Board of Directors of the Corporation as aforesaid with due notice in the manner provided by law, was held on June 15, 1970, and at said meeting the Stockholders, by affirmative vote of all the holders of each share of class outstanding and entitled to vote, duly adopted the Amendment of the Articles of Incorporation of the Corporation hereinabove set forth. FOURTH: The Amendment of the Charter of the Corporation as hereinabove set forth has been duly advised by the Board of Directors and approved by the Stockholders of the Corporation. IN WITNESS WHEREOF, LAUREL MEDICAL LABORATORY, INC. has caused these presents to be signed in its name and on its behalf by its President and its corporate seal hereto attached, and attested by its Assistant Secretary, on the 16th day of June, 1970. ATTEST: LAUREL LABORATORY, INC. /s/ M. Wilson Toll By: /s/ W. Bradley King - ------------------------------------ ----------------------- M. Wilson Toll, Assistant Secretary W. Bradley King, President 5 STATE OF MARYLAND, CITY OF BALTIMORE: to wit I HEREBY CERTIFY, that on this 16th day of June, 1970, before me, the subscriber, a Notary Public of the State of Maryland, in and for the City of Baltimore, personally appeared W. BRADLEY KING, President of LAUREL MEDICAL LABORATORY, INC., in the name of said Corporation and on behalf of said Corporation acknowledged the foregoing Articles of Amendment to be the corporate act and deed; and at the same time personally appeared M. WILSON TOLL, Assistant Secretary of LAUREL MEDICAL LABORATORY, INC., and he made oath in due form of law that he was the Secretary of the meeting of the Stockholders of the Corporation at which the Amendment of the Articles of Incorporation of the Corporation set forth in said Articles of Amendment were adopted, and that the matters and facts set forth in said Articles of Amendment were true and correct to the best of his personal knowledge, information and belief. AS WITNESS, my hand and Notarial Seal. ------------------------- NOTARY PUBLIC 6 MARYLAND MEDICAL LABORATORY, INC. ARTICLES OF AMENDMENT MARYLAND MEDICAL LABORATORY, INC., a Maryland corporation having its principal office in Baltimore, Maryland (hereinafter called, the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that FIRST: The Charter of the Corporation is hereby amended by striking out ARTICLE NINTH and inserting in lieu thereof the following: "NINTH: No Directors or Officers of the Corporation shall be liable to the Corporation or its Stockholders for money damages arising from any act or omission of such Director or Officer in his or her capacity as Officer or Director, except to the extent that (i) it is proved that the Director or Officer actually received an improper benefit or profit in money, property, or services actually received, or (2) a judgment or other final adjudication adverse to the Director or Officer is entered in a proceeding based on a finding in the proceeding that the Director's or Officer's action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding." SECOND: The Charter of the Corporation is hereby amended by adding ARTICLE TENTH as follows: "TENTH: The duration of the Corporation shall be perpetual." THIRD: The Board of Directors of the Corporation, by written consent to such action, adopted a resolution in which was set forth the foregoing amendment to the Charter declaring that said Amendment to the Charter was advisable and directing that it be submitted for consideration thereon to the Stockholders. FOURTH: A written consent setting forth approval of the amendment to the Charter of the Corporation hereinabove set forth, was signed by the Stockholders of the Corporation and such consent is filed with the records of the Corporation. FIFTH: The Articles of Amendment to the Charter of the Corporation as hereinabove set forth was advised by the Directors and approved by the Stockholders of the Corporation. 7 IN WITNESS WHEREOF, MARYLAND MEDICAL LABORATORY, INC., has caused these presents to be signed in its name and on its behalf by its President, and its corporate seal to be hereunto affixed and attested by its Secretary on this 1st day of May, 1988. ATTEST: MARYLAND MEDICAL LABORATORY, INC. /s/ Jacob M. Schorr, Ph.D. By: /s/ Selvin Passen, M.D.(SEAL) - --------------------------------- ----------------------------------- JACOB M. SCHORR, Ph.D., Secretary SELVIN PASSEN, M.D., President VERIFICATION I DO SOLEMNLY DECLARE AND AFFIRM, under the penalties of perjury, that the contents of the a foregoing document are true and correct to the best of my knowledge, information and belief. ------------------------------ SELVIN PASSEN, M.D., President 8 ARTICLES OF MERGER BETWEEN Maryland Medical Laboratory, Inc. (a Maryland Corporation) AND MML/MetPath Inc. (a Maryland Corporation) Maryland Medical Laboratory, Inc., a corporation duty organized and existing under the laws of the State of Maryland (the "Surviving Corporation") and MML/MetPath Inc., a corporation duly organized and existing under the laws of the State of Maryland ("CMS"), do hereby certify that: FIRST: The Surviving Corporation and CMS agree to merge. SECOND: The name and place of incorporation of each party to these Articles are Maryland Medical Laboratory, Inc., a Maryland corporation, and MML/MetPath Inc., a Maryland corporation. The Surviving Corporation shall survive the merger and shall continue under the name Maryland Medical Laboratory, Inc. as a corporation of the State of Maryland. THIRD: The Surviving Corporation has its principal office in Baltimore County. CMS has its principal office in Baltimore County. FOURTH: The terms and conditions of the transaction set forth in these Articles were advised, authorized, and approved by each corporation party to the Articles in the manner and by the vote required by its Charter and the laws of Maryland, the state of its incorporation. The manner of approval was as follows: (a) The Board of Directors of The Surviving Corporation by written consent dated June 6, 1994, signed by all the Directors and filed with the minutes of proceedings of the Board of Directors of the Surviving Corporation, and the Board of Directors of CMS by written consent dated June 6, 1994, signed by all the Directors and filed with the minutes of proceedings of the Board of Directors of CMS, each adopted a resolution which declared that the proposed merger was advisable on substantially the terms and conditions set forth or referred to in the resolution and directed that the proposed merger be submitted for consideration by unanimous written consent of the stockholders of respective parties. 9 (b) By written consent dated June 6, 1994, signed by all of the stockholders of the Surviving Corporation and by written consent dated June 6, 1994, signed by all of the stockholders of CMS and filed with the minutes of proceedings of stockholders of each of them, the proposed merger was approved by all the stockholders of each corporation. FIFTH: (a) The Charter of the Surviving Corporation be and hereby is amended by striking out ARTICLE THIRD through ARTICLE TENTH in their entirety and inserting in lieu thereof the following: THIRD: The purpose or purposes of the corporation shall be to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Maryland. FOURTH: The address of the principal office of the Corporation in Maryland is 1901 Sulphur Spring Road, Baltimore, Maryland 21227. The name and address of the resident agent is The Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202. Said resident agent is a Maryland corporation. FIFTH: The total number of shares of stock which the Corporation has authority to issue is one thousand (1,000) shares of common stock with no par value. SIXTH: The initial number of directors of the Corporation shall be two, which number may be increased or decreased pursuant to the by-laws of the Corporation, and so long as there are fewer than three (3) stockholders, the number of directors may be fewer than three (3) but not fewer than the number of stockholders, and the names of the initial directors who shall act until their successors are duly chosen and qualified are: Raymond Marier Douglas M. VanOort SEVENTH: The duration of the Corporation shall be perpetual. (b) The By-Laws of CMS, as in effect immediately prior to the Effective Date, shall, until further amended, be and constitute the By-Laws of the Surviving Corporation. (c) The Directors of CMS on the Effective Date shall be and constitute the Directors of the Surviving Corporation, and shall hold office until the next meeting of the stockholders of the Surviving Corporation called for the election of Directors and until the election and qualification of their respective successors or until their resignation or removal. 10 (d) The Officers of CMS on the Effective date shall be and constitute the officers of the Surviving Corporation, and shall hold office until their successors shall have been elected and qualified or until their resignation or removal. SIXTH: The total number of shares of stock of all classes which the Surviving Corporation has authority to issue is 5,000 shares, all of which are Common Stock with no par value. All of the shares of stock of all classes of the Surviving Corporation have no par value. The total number of shares of stock of all classes which CMS has authority to issue is 1,000 shares, all of which are Common Stock with no par value. SEVENTH: The merger does not increase the authorized stock of the Surviving Corporation. EIGHTH: The manner and basis of converting or exchanging issued stock of the merging corporations into different stock of a corporation, for other consideration and the treatment of any issued stock of the merging corporations not to be converted or exchanged are as follows: (a) Each issued and outstanding share of the Common Stock of the Surviving Corporation on the effective date shall be converted into 1,679.99452 shares of the Common Stock of Corning Incorporated of which CMS is a wholly owned subsidiary and which CMS shall cause to be delivered in the merger. (b) Each issued and outstanding share of Common Stock of CMS on the effective date of the merger, shall upon effectiveness and without further act, be converted into, and become one share of Common Stock of the Surviving Corporation. (c) As soon as practicable following the effective date of the merger, each holder of issued and outstanding shares of Common Stock of the Surviving Corporation and CMS shall be entitled to surrender to the Surviving Corporation the certificates representing the shares of Common Stock of the Surviving Corporation and CMS, respectively, held by such holder immediately prior to effectiveness of the merger, and, upon such surrender, shall be entitled to receive in exchange therefor a certificate or certificates representing the number of shares of Common Stock of Corning, Incorporated and the Surviving Corporation, respectively deliverable in respect thereof. NINTH: The merger shall become effective upon acceptance for record by the State Department of Assessments and Taxation of Maryland. 11 IN WITNESS WHEREOF, Maryland Medical Laboratory, Inc. and MML/MetPath Inc. have caused these presents to be signed in their respective names and on their respective behalves by their respective president and vice president and witnessed on June 7, 1994. WITNESS: Maryland Medical Laboratory, Inc. (a Maryland corporation) /s/ John K. Smith /s/ Selvin Passen - ------------------------------ ------------------------------ President WITNESS: MML/MetPath Inc. (a Maryland corporation) /s/ Margaret M. Dall /s/ Raymond C. Marier - ------------------------------ ------------------------------ Asst. Secretary Vice President 12 THE UNDERSIGNED, President of Maryland Medical Laboratory, Inc, who executed on behalf of the Corporation the foregoing Articles of Merger of which this certificate is made a part, hereby acknowledges in the name and on behalf of said Corporation the foregoing Articles of Merger to be the corporate act of said Corporation and hereby certifies that to the best of his knowledge, information and belief the matters and facts set forth therein with respect to the authorization and approval thereof are true in all material respects under the penalties of perjury. /s/ Selvin Passen, MD ------------------------------ President THE UNDERSIGNED, Vice President of MML/MetPath Inc., who executed on behalf of the Corporation the foregoing Articles of Merger of which this certificate is made a part, hereby acknowledges in the name and on behalf of said Corporation the foregoing Articles of Merger to be the corporate act of said Corporation and hereby certifies that to the best of his knowledge, information and belief the matters and facts set forth therein with respect to the authorization and approval thereof are true in all material respects under the penalties of perjury. /s/ Raymond C. Marier ------------------------------ Vice President 13 ARTICLES OF MERGER of MARYLAND MEDICAL DATA, INC. METPATH SERVICES CORPORATION PODIATRIC PATHOLOGY LABORATORIES, INC. and MARYLAND MEDICAL LABORATORY, INC. FIRST: Maryland Medical Data, Inc., MetPath Services Corporation, Podiatric Pathology Laboratories, Inc., and Maryland Medical Laboratory, Inc., being the corporations which are the parties to these Articles of Merger, do hereby agree to effect a merger of said corporations upon the terms and conditions herein set forth. SECOND: The name of the successor corporation is Maryland Medical Laboratory, Inc. which is a corporation incorporated in the State of Maryland under the provisions of the Maryland General Corporation Law with its principal office in the State of Maryland located in Baltimore City, and which will continue its corporate existence under the name Corning Clinical Laboratories Inc., pursuant to the provisions of the Maryland General Corporation Law. THIRD: The names of the corporations to be merged into the successor corporation are Maryland Medical Data, Inc. ("MMD"), MetPath Services Corporation ("MSC") and Podiatric Pathology Laboratories, Inc. ("PPL"), each of which is a corporation incorporated in the State of Maryland under the provisions of the Maryland General Corporation Law with its principal office in the State of Maryland located in Baltimore City, and the corporate existence of which will cease upon the effective date of the merger pursuant to the provisions of the Maryland General Corporation Law. MML owns an interest in land in Baltimore County. MSC, MMD and PPL do not own any interest in land in the State of Maryland. FOURTH: The amendments to the charter of Maryland Medical Laboratories, Inc., which are to be effected as part of the merger are to strike out Article Second of said charter and to substitute the following new Article Second. "Second: The name of the Corporation (which is hereinafter called the "Corporation") is CORNING CLINICAL LABORATORIES INC." FIFTH: The authorized share structure of each of the corporations which is a party to these Articles of Merger at the time of execution thereof is as follows: 14 Company Authorized Shares Per Share Par Value Maryland Medical Laboratory, Inc. 1,000 $0.00 Maryland Medical Data, Inc. 1,000 $0.00 MetPath Services Corporation 1,000 $0.00 Podiatric Pathology Laboratories, Inc. 1,000 $0.00 SIXTH: Each issued share of stock of MNO, MSC and PPL shall, upon the effective date of the merger, be cancelled without consideration. The issued shares of stock of MML shall not be converted or exchanged in any manner, but each said share which is issued as of the effective date of the merger shall continue to represent one issued share of stock of MML. SEVENTH: The terms and conditions of the merger herein set forth were advised, authorized, and approved by each of MMD, MSC, PPL, and MML in the manner and by the vote required by its charter and the provisions of the Maryland General Corporation Law, and the said merger was approved in the manner hereinafter set forth. EIGHTH: The merger was duly advised by the Board of Directors of each of MSC, PPL and in the following manner. The Board of Directors of each of MMD, MSC, PPL and adopted a resolution declaring that the merger of MMD, MSC and PPL into is advisable on substantially the terms and conditions set forth or referred to in said resolution. Said resolution of the Board of Directors was adopted without a meeting by a written consent dated as of December 6, 1994 and signed by all of the members of the Board of Directors. NINTH: The Board of Directors of each of MNM, MSC, PPL and directed the Secretary of the corporation to prepare a written notice of the time, place, and purpose of a meeting of stockholders to take action upon the proposed merger and the aforesaid terms and conditions and to furnish a copy of said notice to all of the stockholders of the corporation entitled to vote upon the proposed merger and the aforesaid terms and conditions unless said stockholders shall duly waive notice of the meeting. TENTH: The merger and the aforesaid terms and conditions were duly approved by the stockholders of each of MMD, MSC, PPL and MML in the following manner. All of the stockholders entitled to vote thereon approved the same without a meeting by a written consent signed by them. ELEVENTH: The effective date of the merger herein provided for shall be 11:59 PM on December 30, 1994. IN WITNESS WHEREOF, these Articles of Merger are hereby signed for and on behalf of each of Maryland Medical Data, Inc., MetPath Services Corporation, Podiatric 15 Pathology Laboratories, Inc. and Maryland Medical Laboratory, Inc. by its Vice President, who does hereby acknowledge that said Articles of Merger are the act of said corporation, and who does hereby state under the penalties for perjury that the matters and facts set forth therein with respect to authorization and approval of said merger are true in all material respects to the best of his knowledge, information, and belief. 16 Executed on December 6, 1994 Attest: MARYLAND MEDICAL LABORATORY, INC. /s/ Leo C. Farrenkopf By: /s/ James D. Chambers - --------------------- ------------------------- Leo C. Farrenkopf James D. Chambers Vice-President Attest: METPATH SERVICES CORPORATION /s/ Leo C. Farrenkopf By: /s/ James D. Chambers - --------------------- ------------------------- Leo C. Farrenkopf James D. Chambers Vice-President Attest: PODIATRIC PATHOLOGY LABORATORIES, INC. /s/ Leo C. Farrenkopf By: /s/ James D. Chambers - --------------------- ------------------------- Leo C. Farrenkopf James D. Chambers Vice-President Attest: MARYLAND MEDICAL DATA, INC. /s/ Leo C. Farrenkopf By: /s/ James D. Chambers - --------------------- ------------------------- Leo C. Farrenkopf James D. Chambers Vice-President 17 CORNING CLINICAL LABORATORIES INC. ARTICLES OF AMENDMENT CORNING CLINICAL LABORATORIES INC., a Maryland corporation having its principal office in Baltimore, Maryland (hereinafter called, the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: The Charter of the Corporation is hereby amended by striking out ARTICLE FIFTH and inserting in lieu thereof the following: "FIFTH: The total number of shares of stock which the Corporation has authority to issue is two thousand (2,000) shares of common stock with no par value." SECOND: The Board of Directors of the Corporation, by written consent to such action, adopted a resolution in which was set forth the foregoing amendment to the Charter declaring that said Amendment to the Charter was advisable and directing that it be submitted for consideration thereon to the Stockholders. THIRD: A written consent setting forth approval of the Amendment to the Charter of the Corporation hereinabove set forth, was signed by the Stockholders of the Corporation and such consent is filed with the records of the Corporation. FOURTH: The Articles of Amendment to the Charter of the Corporation as hereinabove set forth were advised by the Directors and approved by the Stockholders of the Corporation. IN WITNESS WHEREOF, CORNING CLINICAL LABORATORIES INC., has caused these presents to be signed in its name and on its behalf by its Vice President, and its 18 corporate seal to be hereunto affixed and attested by its Secretary as of this 1st day of January 1995. ATTEST: CORNING CLINICAL LABORATORIES, INC. /s/ Leo C. Farrenkopf By: /s/ Douglas M. VanOort - --------------------- ---------------------------------- Leo C. Farrenkopf Douglas M. VanOort Vice-President VERIFICATION I DO SOLEMNLY DECLARE AND AFFIRM, under the penalties of perjury, that the contents of the foregoing document are true and correct to the best of my knowledge, information and belief. /s/ Douglas M. VanOort ---------------------------------- Douglas M. VanOort, Vice President 19 EX-3.15 14 NICHOLS INSTITUTE DIAGNOSTICS ARTICLES OF INCORPORATION OF NICHOLS INSTITUTE PRODUCTS I The name of this corporation is NICHOLS INSTITUTE PRODUCTS. II The purposes for which this corporation is formed are: (a) To engage primarily in the business of development, manufacture and distribution of reagents and materials used in medical diagnostic laboratories. (b) To manufacture, buy, sell, assemble, distribute, and to otherwise acquire, or to own, hold, use, sell, assign, transfer, exchange, lease, license or otherwise dispose of, and to invest, trade, deal in and with goods, wares, merchandise, building materials, supplies and all other property of every class and description. (c) To purchase, acquire, own, hold, use, lease, either as lessor or lessee, rent, sublet, grant, sell, exchange, subdivide, mortgage, deed in trust, manage, improve, cultivate, develop, maintain, construct, operate, and generally deal 2 in, any and all real estate, improved or unimproved, stores, office buildings, dwelling houses, boarding houses, apartment houses, hotels, business blocks, garages, warehouses, manufacturing plants, and other buildings of any kind or description, and any and all other property of every kind or description, real, personal and mixed, and any interest or right therein, including water and water rights, wheresoever situated, either in California, other states of the United States, the District of Columbia, territories and possessions of the United States and foreign countries. (d) To purchase, acquire, take, hold, own, use and enjoy, and to sell, lease, transfer, pledge, mortgage, convey, grant, assign or otherwise dispose of, and generally to invest, trade, deal in and with oil royalties, mineral rights of all kinds, mineral bearing lands and hydrocarbon products of all kinds, oil, gas and mineral leases, and all rights and interests therein, and in general products of the earth and deposits, both subsoil and surface, of every nature and description. (e) To enter into, make, perform and carry out contracts of every kind for any lawful purpose without limit as to amount, with any person, firm, association or corporation, municipality, county, parish, state, territory, government (foreign or domestic) or other municipal or governmental 3 subdivision. (f) To become a partner (either general or limited or both) and to enter into agreements of partnership, with one or more other persons or corporations, for the purpose of carrying on any business whatsoever which this corporation may deem proper or convenient in connection with any of the purposes herein set forth or otherwise, or which may be calculated, directly or indirectly, to promote the interest of this corporation or to enhance the value of its property or business. (g) To acquire, by purchase or otherwise, the goodwill, business, property rights, franchises and assets of every kind, with or without undertaking, either wholly or in part, the liabilities of any person, firm, association or corporation; and to acquire any property or business as a going concern or otherwise, (i) by purchase of the assets thereof wholly or in part, (ii) by acquisition of the shares or any part thereof, or (iii) in any other manner; and to pay for the same in cash or in the shares or bonds or other evidences of indebtedness of this corporation, or otherwise; to hold, maintain and operate, or in any manner dispose of the whole or any part of the goodwill, business, rights and property so acquired, and to conduct, in any lawful manner, the whole or any part of any business so acquired; and to exercise all the powers 4 necessary or convenient in and about the management of such business. (h) To take, purchase and otherwise acquire, own, hold, use, sell, assign, transfer, exchange, lease, mortgage, convey in trust, pledge, hypothecate, grant licenses in respect of and otherwise dispose of letters patent of the United States or any foreign country, patent rights, licenses and privileges, inventions, improvements and processes, copyrights, trademarks and trade names, and government, state, territorial, county and municipal grants and concessions of every character which this corporation may deem advantageous in the prosecution of its business or in the maintenance, operation, development or extension of its properties. (i) From time to time to apply for, purchase, acquire by assignment, transfer or otherwise, exercise, carry out and enjoy any benefit, right, privilege, prerogative or power conferred by, acquired under or granted by any statute, ordinance, order, license, power, authority, franchise, commission, right or privilege which any government or authority or governmental agency or corporation or other public body may be empowered to enact, make or grant; to pay for, aid in, and contribute toward carrying the same into effect; and to appropriate any of this corporation's shares, bonds and/or assets to defray the costs, charges and expenses thereof. 5 (j) To subscribe or cause to be subscribed for, and to take, purchase and otherwise acquire, own, hold, use, sell, assign, transfer, exchange, distribute and otherwise dispose of, the whole or any part of the shares of the capital stock, bonds, coupons, mortgages, deeds of trust, debentures, securities, obligations, evidences of indebtedness, notes, goodwill, rights, assets and property of any and every kind, or any part thereof of any other corporation or corporations, association or associations, firm or firms, or person or persons, together with shares, rights, units or interests in or in respect of any trust estate, now or hereafter existing, and whether created by the laws of the State of California or any other state, territory or country; and to operate, manage and control such properties, or any of them, either in the name of such other corporation or corporations or in the name of this corporation, and, while the owner of any of said shares of capital stock, to exercise all of the rights, powers and privileges of ownership of every kind and description, including the right to vote thereon, with power to designate some person or persons for that purpose from time to time, and to the same extent as natural persons might or could do. (k) To promote or to aid in any manner, financially or otherwise, any person, firm, corporation or association of which any shares of stock, bonds, notes, debentures or other securities or evidences of indebtedness are held 6 directly or indirectly by this corporation; and for this purpose to guarantee the contracts, dividends, shares, bonds, debentures, notes and other obligations of such other persons, firms, corporations or associations; and to do any other acts or things designed to protect, preserve, improve or enhance the value of such shares, bonds, notes, debentures or other securities or evidences of indebtedness. (l) To borrow and lend money, but nothing herein contained shall be construed as authorizing the business of banking, or as including the business purposes of a commercial bank, savings bank or trust company. (m) To issue bonds, notes, debentures or other obligations of this corporation from time to time for any of the objects or purposes of this corporation, and to secure the same by mortgage, deed of trust, pledge or otherwise, or to issue the same unsecured; to purchase or otherwise acquire its own bonds, debentures or other evidences of its indebtedness or obligations; to purchase, hold, sell, and transfer the shares of its own capital stock to the extent and in the manner provided by the laws of the State of California as the same are now in force or may be hereafter amended. (n) To conduct and carry on, directly or indirectly, research, development 7 and promotional or experimental activities, and to promote or aid financially or otherwise, any person, firm or corporation engaged in such activities, or any of them. (o) To carry on any business whatsoever, either as principal, agent or partner, which this corporation may deem proper or convenient in connection with any of the foregoing purposes or otherwise, or which may be calculated directly or indirectly to promote the interests of this corporation or to enhance the value of its property or business; and to conduct its business in this State, in other states, in the District of Columbia, in the territories and possessions of the United States, and in foreign countries. (p) To have and to exercise all the powers conferred by the laws of California upon corporations formed under the laws pursuant to and under which this corporation is formed, as such laws are now in effect or may at any time hereafter be amended. The foregoing statement of purposes shall be construed as a statement of both purposes and powers, and the purposes and powers stated in each clause shall, except where otherwise expressed, be in nowise limited or restricted by any reference to or inference from the terms or provisions of any other clause, but shall be regarded as independent purposes 8 and powers. III The County in the State of California where the principal office for the transaction of the business of this corporation is to be located is Los Angeles County. IV (a) This corporation is authorized to issue an aggregate of Seven Hundred Fifty Thousand (750,000) shares of Common Stock, all of one class. The aggregate par value of said shares shall be Seventy-Five Thousand Dollars ($75,000) and the par value of each of said shares shall be Ten Cents ($0.10). (b) No holder of shares of any class of this corporation shall, as such shareholder, have any right to purchase or subscribe for any shares of this corporation which it may issue or sell, whether out of the number of shares authorized by the articles of incorporation of this corporation as originally filed or by any amendment thereof, or out of shares of this corporation acquired by it after the issue thereof; nor shall any holder of shares of any class, as such shareholder, have any right to purchase or subscribe for any obligation which this corporation may issue or sell that shall be convertible into, or exchangeable for, any shares of this corporation, or to which shall be attached or appertain to any warrant or warrants or other instrument or instruments that shall confer upon the holder or owner of such warrant 9 the right to subscribe for, or purchase from this corporation, any shares of this corporation. V (a) The number of directors of this corporation shall be four (4) until changed by amendment to these Articles or by a by-law adopted by the shareholders. (b) The names and addresses of the persons who are appointed to act as the first directors of this corporation are: Name Address - ---- ------- Albert L. Nichols, M.D. 1300 South Beacon Street, Suite 122 San Pedro, California 90731 Albert A. Nichols 1300 South Beacon Street, Suite 122 San Pedro, California 90731 Richard Horton, M.D. 1300 South Beacon Street, Suite 122 San Pedro, California 90731 Horton S. Mullins 1300 South Beacon Street, Suite 122 San Pedro, California 90731 VI Any action required or permitted to be taken by the board of directors under any provision of the California General Corporation Law may be taken without a meeting, if all members of the board shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the board. 10 IN WITNESS WHEREOF, for the purpose of forming this corporation under the laws of the State of California, the undersigned, constituting the incorporators of this corporation, including the persons named hereinabove as the first directors of this corporation, have executed these Articles of Incorporation this 18 day of September, 1974. /s/ Albert L. Nichols, M.D. -------------------------------------- Albert L. Nichols, M.D. /s/ Albert A. Nichols -------------------------------------- Albert A. Nichols See next page -------------------------------------- Richard Horton, M.D. /s/ Donald S. Mullins -------------------------------------- Donald S. Mullins STATE OF CALIFORNIA ) ) ss. COUNTY OF LOS ANGELES ) On this 18th day of September, 1974, before me, the undersigned Notary Public in and for said County and State, residing therein, duly commissioned and sworn, personally appeared Albert L. Nichols, M.D., Albert A. Nichols, and Donald S. Mullins known to me to be the persons whose names are subscribed to the foregoing Articles of Incorporation, and acknowledged to me that they executed the same. WITNESS my hand and official seal. /s/ Gary G. French -------------------------------------- Notary Public 11 IN WITNESS WHEREOF, for the purpose of forming this corporation under the laws of the State of California, the undersigned, constituting the incorporators of this corporation, including the persons named hereinabove as the first directors of this corporation, have executed these Articles of Incorporation this 19 day of September, 1974. See previous page ------------------------------------ Albert L. Nichols, M.D. See previous page ------------------------------------ Albert A. Nichols /s/ Richard Horton, M.D. ------------------------------------ Richard Horton, M.D. See previous page ------------------------------------ Donald S. Mullins STATE OF CALIFORNIA ) ) ss. COUNTY OF LOS ANGELES ) On this 19th day of September, 1974, before me, the undersigned Notary Public in and for said County and State, residing therein, duly commissioned and sworn, personally appeared Richard Horton, M.D. known to me to be the persons whose names are subscribed to the foregoing Articles of Incorporation, and acknowledged to me that they executed the same. WITNESS my hand and official seal. /s/ Judith M. Swayne ------------------------------------ Notary Public CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION OF NICHOLS INSTITUTE PRODUCTS A California corporation Albert L. Nichols, M.D. and Albert A. Nichols certify: 1. That they are the President and Secretary, respectively, of Nichols Institute Products, a California corporation (the "Corporation"), 2. That the By-Laws of the Corporation authorize the Directors to adopt, by unanimous written consent without a meeting, resolutions amending the Articles of Incorporation; and, therefore, by unanimous written consent without a meeting, the Directors did adopt the following resolutions amending the Articles of Incorporation: WHEREAS, Article IV of the Articles of Incorporation of this Corporation presently authorized seven hundred fifty thousand (750,000) shares of Common Stock, ten cent ($.10) par value; and WHEREAS, it is deemed in the best interests of this Corporation to increase the authorized number of shares of Common Stock from seven hundred fifty thousand (750,000) shares to two million (2,000,000) shares of Common Stock and to change the par value per share from ten cents ($.10) per share to one cent ($.01); and WHEREAS, it is deemed in the best interests of this Corporation to make provision authorizing a class of Preferred Stock consisting of five hundred thousand (500,000) shares with a par value of one dollar ($1.00) per share; and WHEREAS, it is deemed in the best interest of this Corporation to increase the number of outstanding shares by effecting a split of each 2 outstanding share in fifty (50) shares; NOW, THEREFORE, BE IT RESOLVED: that Article IV of the Articles of Incorporation is hereby amended to read in full as follows: "(a) This corporation is authorized to issue two classes of shares to be designated respectively "Preferred" and "Common"; the total number of shares which this Corporation shall have authority to issue is two million five hundred thousand (2,500,000), and the aggregate par value of all shares that are to have par value shall be five hundred twenty thousand dollars ($520,000); the number of Preferred Shares that are to have a par value share be five hundred thousand (500,000) and the par value of each share of such class shall be one dollar ($1.00); and the number of Common Shares that are to have a par value shall be two million (2,000,000) and the par value of each share of such class shall be one cent ($.01). Upon amendment of this article to read as hereinabove set forth, each outstanding share of Common Stock, ten cent ($.10), par value is split up and converted into fifty (50) shares of Common Stock one cent ($.01) par value." "(b) The Preferred shares may be issued from time to time in one or more series. The board of directors is hereby authorized to fix or alter the dividend rights, rights and terms of redemption (including sinking fund provisions), the redemption price or prices, and the liquidation preferences of any wholly unissued series of Preferred shares, and the number of shares constituting any such series and the designation thereof, or any of them; and to increase or decrease the number of shares of any series subsequent to the issue of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the number of shares of such series." 3. That the stockholders of this Corporation have adopted the foregoing resolutions at a meeting held at Rancho Palos Verdes, California on October 12, 1976. That the wording of the amended article, as set forth in the Shareholder's Resolution, is the same as that set forth in the Director's Resolution in Paragraph 2, above. 3 4. That the number of shares which voted affirmatively for the adoption of said resolutions is 8266 ( ) and that the total number of shares entitled to vote on or to consent to said amendment is ten thousand six hundred ninety-three (10,693). /s/ Albert L. Nichols, M.D. ---------------------------------- ALBERT L. NICHOLS, M.D., PRESIDENT /s/ Albert A. Nichols ---------------------------------- ALBERT A. NICHOLS, SECRETARY Each of the undersigned declares under penalty of perjury that the matters set forth in the foregoing certificate are true and correct. Executed at Los Angeles, California on this 13th day of October, 1976. /s/ Albert L. Nichols, M.D. ---------------------------------- ALBERT L. NICHOLS, M.D., PRESIDENT /s/ Albert A. Nichols ---------------------------------- ALBERT A. NICHOLS, SECRETARY CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION ALBERT L. NICHOLS, M.D. and ALBERT A. NICHOLS certify that: 1. They are the President and the Secretary, respectively, of NICHOLS INSTITUTE PRODUCTS, a California Corporation. 2. Article I of the Articles of Incorporation of this Corporation is amended to read as follows: "The name of this corporation is: NICHOLS INSTITUTE DIAGNOSTICS". 3. Paragraph (a) of Article V of the Articles of Incorporation of this corporation is amended to read as follows: "(a) The number of directors of this Corporation shall be no less than five (5) nor more than eight (8). Within said range, the board of directors shall have the power to fix the exact number of directors; provided, however, that until the board of directors acts to fix such number, the number of directors shall be five (5). 4. The foregoing amendments of Articles of Incorporation has been duly approved by the board of directors. 5. The foregoing amendments of Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902 of the 2 Corporations Code. The total number of outstanding shares of the corporation is 582,150. The number of shares voting in favor of the amendments equaled or exceeded the vote required. The percentage vote required was more than 50%. /s/ Albert L. Nichols, M.D. ---------------------------------- ALBERT L. NICHOLS, M.D. /s/ Albert A. Nichols ---------------------------------- ALBERT A. NICHOLS The undersigned declare under penalty of perjury that the matters set forth in the foregoing Certificates are true of their own knowledge. EXECUTED at San Pedro, California on this 9th day of August, 1977. Albert L. Nichols, M.D. ---------------------------------- ALBERT L. NICHOLS, M.D. Albert A. Nichols ---------------------------------- ALBERT A. NICHOLS CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION ALBERT L. NICHOLS and MARILYN I. HAUGE certify that: 1. They are the president and the secretary, respectively, of NICHOLS INSTITUTE DIAGNOSTICS, a California corporation. 2. Article VII is added to the articles of incorporation of this corporation to read as follows: "The liability of the directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law." 3. The foregoing amendment of articles of incorporation has been duly approved by the board of directors. 4. The foregoing amendment of articles of incorporation has been duly approved by the required vote of shareholders in accordance with Section 902 of the Corporations Code. The total number of outstanding shares of the corporation is 1,000. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 50%. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. Date: May 11, 1988 Albert L. Nichols, M.D. ---------------------------------- Albert L. Nichols, M.D., President Albert A. Nichols ---------------------------------- Albert A. Nichols, Secretary EX-3.16 15 NOMAD-MASSACHUSETTS, INC. The Commonwealth of Massachusetts JOHN F. X. DAVOREN Secretary of the Commonwealth STATE HOUSE BOSTON, MASS. ARTICLES OF ORGANIZATION (Under G.L. Ch. 156B) Incorporators NAME POST OFFICE ADDRESS Include given name in full in case of natural persons; in case of a corporation, give state of incorporation. Constantine Alexander 75 Federal Street Boston, MA 02110 The above-named incorporator does hereby act with the intention of forming a corporation under the provisions of General Laws, Chapter 156B and hereby state(s): 1. The name by which the corporation shall be known is: Damon Medical Instruments Corporation 2. The purposes for which the corporation is formed are as follows: To manufacture, buy, trade, sell, deal in all respects with reference to all kinds and varieties of mechanical appliances, instruments, medical laboratory instruments, machines and products, and to carry on any business permitted by the laws of the Commonwealth of Massachusetts to a corporation organized under Chapter 156B. NOTE: If provisions for which the space provided under Articles 2, 4, 5 and 6 is not sufficient additions should be set out on continuation sheets to be numbered 2A, 2B, etc. Indicate under each Article where the provision is set out. Continuation sheets shall be on 8 1/2" x 11" paper and must have a left-hand margin 1 inch wide for binding. Only one side should be used. 1 3. The total number of shares and the par value, if any, of each class of stock which the corporation is authorized is as follows: ================================================================================ WITHOUT PAR VALUE WITH PAR VALUE CLASS OF STOCK ---------------------------------------------------------------- NUMBER OF SHARES NUMBER OF SHARES PAR AMOUNT VALUE - -------------------------------------------------------------------------------- Preferred None None $ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Common 7,500 None ================================================================================ *4. If more than one class is authorized, a description of each of the different classes of stock with, if any, the preferences, voting powers, qualifications, special or relative rights or privileges as to each class thereof and any series now established: None *5. The restrictions, if any, imposed by the Articles of Organization upon the transfer of shares on stock of any class are as follows: None *6. Other lawful provisions, if any, for the conduct and regulation of the business and affairs of the corporation, for its voluntary dissolution, or for limiting, defining, or regulating the powers of the corporation, or of its directors or stockholders, or of any class of stockholders: The directors may make, amend, or repeal the By-laws in whole or in part, except with respect to any provision thereof which by law or the By-laws requires action by the stockholders. Meetings of the stockholders of the corporation may be held anywhere in the United States. 2 7. By-laws of the corporation have been duly adopted and the initial directors, president, treasurer and clerk, whose names are set out below, have been duly elected. 8. The effective date of organization of the corporation shall be the date of filing with the Secretary of the Commonwealth or if later date is desired, specify date (not more than 30 days after date of filing). 9. The following information shall not for any purpose be treated as a permanent part of the Articles of Organization of the corporation. a. The post office address of the initial principal office of the corporation in Massachusetts is: Route One, Industrial Park, Westwood, Massachusetts b. The name, residence, and post office address of each of the initial directors and following officers of the corporation are as follows: NAME RESIDENCE POST OFFICE ADDRESS 44 Littlefield Rd. 44 Littlefield Rd. President: David I. Kosowsky Newton Center, MA Newton Center, MA - -------------------------------------------------------------------------------- 519 Washington St. 519 Washington St. Treasurer: Allan B. Beitchman Brookline, MA Brookline, MA - -------------------------------------------------------------------------------- 115 Shornecliffe Rd. 115 Shornecliffe Rd. Clerk: Samuel Frankenheim Newton, MA Newton, MA - -------------------------------------------------------------------------------- 44 Littlefield Rd. 44 Littlefield Rd. Directors: David I. Kosowsky Newton Center, MA Newton Center, MA - -------------------------------------------------------------------------------- Allan B. Beitchman 519 Washington St. 519 Washington St. Brookline, MA Brookline, MA - -------------------------------------------------------------------------------- Samuel Frankenheim 115 Shornecliffe Rd. 115 Shornecliffe Rd. Newton, MA Newton, MA - -------------------------------------------------------------------------------- Carl R. Hurtig Woodworth Lane Woodworth Lane Greenbush, MA Greenbush, MA - -------------------------------------------------------------------------------- c. The date initially adopted on which the corporation's fiscal year ends is: 3 August 31 d. The date initially fixed in the by-laws for the annual meeting of stockholders of the corporation is: Third Tuesday in December e. The name and business address of the resident agent, if any, of the corporation is: None IN WITNESS WHEREOF and under the penalties of perjury the above-named INCORPORATOR(S) sign(s) these Articles of Organization this 26th day of May 1971. /s/ Constantine Alexander -------------------------- The signature of each incorporator which is not a natural person must be by an individual who shall show the capacity in which he acts and by signing shall represent under the penalties of perjury that he is duly authorized on its behalf to sign these Articles of Organization. 4 The Commonwealth of Massachusetts JOHN F. X. DAVOREN Secretary of the Commonwealth STATE HOUSE BOSTON, MASS. ARTICLES OF AMENDMENT General Laws, Chapter 156B, Section 72 This certificate must be submitted to the Secretary of the Commonwealth within sixty days after the date of the vote of stockholders adopting the amendment. The fee for filing this certificate is prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the Commonwealth of Massachusetts. ------------- We, David I. Kosowsky , President and Samuel Frankenheim , Clerk of Damon Medical Instruments Corporation ------------------------------------- (Name of Corporation) located at Route One Industrial Park, Westwood, Massachusetts --------------------------------------------------- do hereby certify that the following amendment to the articles of organization of the corporation was duly adopted May 27, 1971, by the sole incorporator of the corporation, none of the stock of the corporation having then been issued. "That, effective when proper Articles of Amendment are duly filed with the Secretary of the Commonwealth, the name of the corporation is hereby changed to Damon Medical Instrumentation, Inc." 5 The foregoing amendment will become effective when these articles are filed in accordance with Chapter 156B, Section 6 of the general Laws unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date. IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our names this 22nd day of July, in the year 1971. /s/ David I. Kosowsky , President --------------------------- /s/ Samuel Frankenheim , Clerk --------------------------- 6 The Commonwealth of Massachusetts PAUL GUZZI FEDERAL IDENTIFICATION Secretary of the Commonwealth NO. 042283603 ONE ASHBURTON PLACE, BOSTON, MASS. 02108 ARTICLES OF AMENDMENT General Laws, Chapter 156B, Section 72 This certificate must be submitted to the Secretary of the Commonwealth within sixty days after the date of the vote of stockholders adopting the amendment. The fee for filing this certificate is prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the Commonwealth of Massachusetts. ----------- We, James S. Kennedy, Jr. , President and Sarah M. Gallivan , Clerk of Damon Medical Instrumentation, Inc. ----------------------------------- (Name of Corporation) located at 115 Fourth Avenue, Needham Heights, Massachusetts 02194 -------------------------------------------------------- do hereby certify that the following amendment to the articles of organization of the corporation was duly adopted at a meeting held on May 12, 1978, by vote of 100 shares of Common out of 100 shares outstanding, - ---------- -------------- ------------- (Class of Stock) "That effective when Articles of Amendment are duly filed with the Secretary of the Commonwealth, the name of the corporation is hereby changed to Nomad Massachusetts, Inc." The foregoing amendment will become effective when these articles of amendment are filed in accordance with Chapter 156B, Section 6 of the General Laws unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more 7 than thirty days after such filing, in which event the amendment will become effective on such later date. IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our names this 19th day of May, in the year 1978 /s/ James S. Kennedy, Jr. , President James S. Kennedy, Jr. /s/ Sarah M. Gallivan , Assistant Clerk Sarah M. Gallivan 8 EX-3.17 16 QUEST DIAGNOSTICS INCORPORATION (MI) - -------------------------------------------------------------------------------- MICHIGAN DEPARTMENT OF COMMERCE - CORPORATION AND SECURITIES BUREAU - -------------------------------------------------------------------------------- Date Received (FOR BUREAU USE ONLY) SEP 23 1996 - ---------------------------------------------------- FILED SEP 23 1996 - ---------------------------------------------------- Administrator PH. 517-663-2525 Ref #64806 MI DEPARTMENT OF CONSUMER & Attn: Cheryl J. Bixby ----------- INDUSTRY SERVICES CORPORATION, MICHIGAN RUNNER SERVICE SECURITIES & LAND DEVELOPMENT P.O. Box 266 ----------- BUREAU Eaton Rapids, MI 48827-0266 Zip Code EFFECTIVE DATE: - -------------------------------------------------------------------------------- ^Document will be returned to the name and address you enter above ^ ----------------------------- 4 2 0 - 9 4 0 ----------------------------- ARTICLES OF INCORPORATION For use by Domestic Profit Corporations (Please read information and instructions on the last page) Pursuant to the provisions of Act 284, Public Acts of 1972, the undersigned corporation executes the following Articles: ARTICLE I - -------------------------------------------------------------------------------- The name of the corporation is: Quest Diagnostics Incorporated - -------------------------------------------------------------------------------- ARTICLE II - -------------------------------------------------------------------------------- The purpose or purposes for which the corporation is formed is to engage in any activity within the purposes for which corporations may be formed under the Business Corporation Act of Michigan. The purpose or purposes for which the corporation is formed is to engage in any activity within the purposes for which corporations may be formed under the Business Corporation Act of Michigan. - -------------------------------------------------------------------------------- ARTICLE III - -------------------------------------------------------------------------------- The total authorized shares: 1. Common Shares 1,000 Preferred Shares 2. A statement of all or any of the relative rights, preferences, and limitations of the shares of each class is as follows: - -------------------------------------------------------------------------------- (MICH. - 179 - 12/16/93)CT System ARTICLE IV - -------------------------------------------------------------------------------- 1. The address of the registered office is: 30600 Telegraph Road, Bingham Farms, Michigan 48025 2. The mailing address of the registered office, if different than above: 3. The name of the resident agent at the registered office is: THE CORPORATION COMPANY - -------------------------------------------------------------------------------- ARTICLE V - -------------------------------------------------------------------------------- Name Residence or Business Address Cynthia Montalvo 1633 Broadway, New York, New York 10019 - -------------------------------------------------------------------------------- Kim Wasilewski 1633 Broadway, New York, New York 10019 - -------------------------------------------------------------------------------- Timothy E. Carlson 1633 Broadway, New York, New York 10019 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ARTICLE VI (Optional. Delete if not applicable) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ARTICLE VII (Optional. Delete if not applicable) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (MICH. - 179 - 12/16/93)CT System Use space below for additional Articles or for continuation of previous Articles. Please identify any Article being continued or added. Attach additional pages if needed. I, (We), the incorporator(s) sign my (our) name(s) this 19th day of September, 1996. /s/ Cynthia Montalvo /s/ Kim Wasilewski Cynthia Montalvo Kim Wasilewski /s/ Timothy E. Carlson Timothy E. Carlson (MICH. - 179 - 12/16/93)CT System ------------------------ Prescribed by 05626 - 0733 Approved Bob Taft, Secretary of State 30 East Broad Street, 14th Floor Date Columbus, Ohio 43266-0418 Form FLF (August 1992) Fee ------------------------ 96093004801 FOREIGN CORPORATION APPLICATION FOR LICENSE 1. The name of the corporation is Quest Diagnostics Incorporated 2. The application is made to secure a |X| permanent |_| temporary license. 3. The corporation was incorporated on: September 23, 1996 under the laws of the state of: Michigan. 4. The corporation's principal office is located at: One Malcolm Avenue, Teterboro, New Jersey 07608 5. The corporation's principal office within Ohio is to be located in: Youngstown in Mahoning County, Ohio 44513 6. The corporation hereby appoints the following as its statutory agent upon whom process against the corporation may be served in the state of Ohio. The name and complete address of the statutory agent is: (SEE INSTRUCTION NO. 4 ON SECOND PAGE) CT Corporation System 441 Vine Street Cincinnati, Ohio 45202 7. The corporation irrevocably consents to service of process on the statutory agent listed above as long as the authority of the agent continues, and to service of process upon the SECRETARY OF STATE IF: (a) the agent cannot be found, or (b) the corporation fails to designate another agent when required to do so, or (c) the corporation's license to do business in Ohio expires or is cancelled. 8. The corporation will exercise the following corporate purpose(s) in Ohio: (Please provide a brief but specific description; a general purpose clause is not sufficient.) Clinical and anatomical laboratory testing services 9. Has the corporation obtained a license to transact business in Ohio at any time in the past? |_|yes |X|no. 10. The date on which the corporation began transacting business in Ohio: |_| Date OR |X| will begin business upon approval of application. 11. Is this application being made to enable the corporation to prosecute or defend a legal action? |_|yes |X| no. (SEE INSTRUCTION NO. 5 ON SECOND PAGE) 12. The corporation has currently authorized 1,000 shares of stock and has issued 1 share. (OHIO - 1931 - 10/9/92) STATE OF New Jersey ss: COUNTY OF Bergen I, Leo C. Farrenkopf, Jr., being duly sworn, state that I am the |_| President |_| Vice President |X| Secretary |_| Treasurer of Quest Diagnostics Incorporated and that the foregoing statements are true and correct to the best of my knowledge and belief. /s/ Leo C. Farrenkopf SWORN TO AND SUBSCRIBED IN MY PRESENCE THIS 23rd DAY OF September, 1996. /s/ Elsie M. Barnd Elsie Barnd My commission expires June 1, 1998 NOTARY SEAL ELSIE M. BARND NOTARY PUBLIC OF NEW JERSEY MY COMMISSION EXPIRES JUNE 1, 1998 INSTRUCTIONS 1. This application must be accompanied by an original certificate of good standing from the state in which the applicant is incorporated, dated not more than 60 days prior to the filing of the application. (O.R.C. 1703.04(A)) 2. The filing fee for a permanent license is $75.00 and for a temporary license is $125.00. (O.R.C. 1703.04 (C), 1703.13) 3. The application must be signed by the president, vice-president, secretary or treasurer of the corporation and must be notarized. (O.R.C. 1703.041) 4. In item 6, the agent for service of process may be (a) a natural person who is a resident of Ohio, or (b) an Ohio corporation or a foreign corporation licensed in Ohio which is explicitly authorized by its articles to act as statutory agent and which has a business address in Ohio. (O.R.C. 1703.041) 5. No foreign corporation which previously should have obtained a license to do business in Ohio shall maintain any action in any court until it has obtained such a license. Before the corporation shall maintain such action on any cause of action arising at the time when it was not licensed to transact business in this state, it shall pay to the Secretary of State a forfeiture of two hundred fifty dollars with this license application. (O.R.C. 1703.29) It is only under these circumstances that question no. 11 should be answered "yes". Under all other circumstances the answer to this question should be "no". NOTE: Foreign corporations doing business in Ohio must file each year with the Secretary of State an Annual Statement of Proportion of Capital Stock (Form 7), showing activity in Ohio during the preceding calendar or fiscal year. This report is due March 31st, unless an extension has been requested in writing and has been granted. (O.R.C. 1703.07). The report is separate and distinct from the Ohio Franchise Tax Report. If the corporation has been doing business in Ohio prior to the date of licensing, it must submit a Form 7 for each of the years of unlicensed operation in Ohio, together with a certificate from the Ohio Department of Taxation showing that all applicable Franchise Taxes have been paid. For information on this certificate (D-4), call the Department of Taxation at 614-433-7636. (OHIO - 1931) EX-3.18 17 QUEST DIAGNOSTICS INCORPORATED (MD) ARTICLES OF INCORPORATION OF Quest Diagnostics Incorporated * * * * * WE, THE UNDERSIGNED, Cynthia Montalvo, whose post-office address is 1633 Broadway, New York, New York 10019, Gary Sherman, whose post-office address is 1633 Broadway, New York, New York 10019 and Timothy E. Carlson, whose post-office address is 1633 Broadway, New York, New York 10019 , each being at least eighteen years of age, do, under and by virtue of the General Laws of the State of Maryland authorizing the formation of corporations, associate dourselves as incorporators with the intention of forming a corporation. FIRST: The name of the corporation is Quest Diagnostics Incorporated. SECOND: The purposes for which the corporation is formed are: To engage in any or all lawful business for which corporations may be organized under the Maryland General Corporation Law. THIRD: The post-office address of the principal office of the corporation in this State is c/o The Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202. The name of the resident agent of the corporation in this State is Corporation Trust Incorporated, a corporation of this State, and the post-office address of the resident agent is 32 South Street, Baltimore, Maryland 21202. FOURTH: The total number of shares of stock which the corporation shall have authority to issue is One Thousand (1,000) shares without par value, all of one class. FIFTH: The number of directors of the corporation shall be Two (2), which may be changed in accordance with the by-laws of the corporation. The names of the directors who shall act until the first annual meeting or until their successors are duly chosen Page 1 - -------------------------------------------------------------------------------- STATE OF MARYLAND I hereby certify that this is a true and complete copy of the 3 page document on file in this office. DATED: 9-23-96 . STATE DEPARTMENT OF ASSESSMENTS AND TAXATION BY: , Custodian This stamp replaces our previous certification system. Effective: 6/95 - -------------------------------------------------------------------------------- and qualify are: Alister W. Reynolds and Douglas M. Van Oort. IN WITNESS WHEREOF, the undersigned incorporators of Quest Diagnostics Incorporated who executed the foregoing Articles of Incorporation hereby acknowledge the same to be their act and further acknowledge that, to the best of their knowledge the matters and facts set forth therein are true in all material respects under the penalties of perjury. Dated the 19th day of September, 1996. /s/ Cynthia Montalvo ---------------------------- Cynthia Montalvo /s/ Gary Sherman ---------------------------- Gary Sherman /s/ Timothy E. Carlson ---------------------------- Timothy E. Carlson Page 2 EX-3.19 18 CLMP INC. CERTIFICATION OF INCORPORATION OF INTERNATIONAL LABORATORIES CORP. --------------- FIRST: The name of the Corporation is International Laboratories Corp. SECOND: The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. THIRD: The nature of the business and the purpose of the Corporation is to conduct research, to manufacture, design, construct, use, buy, sell, lease, hire and deal in and with articles and property of all kinds, to render laboratory and other services of all kinds, and generally to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is 10,000 shares which shall be designated Common Stock, of the par value of one dollar ($l) per share, amounting to ten thousand dollars ($10,000) in the aggregate. The designations and the powers, preferences and rights, and the qualifications, limitations or destructions of the shares shall be as follows: 4.1 Dividends. The holders of Common Stock shall be entitled to receive such dividends as may be declared from time to time by the Board of Directors. 4.2 Voting Rights. Each holder of Common Stock shall be entitled to one vote for each share held and, except as otherwise herein or by law provided, voting rights shall be vested exclusively in the holders of Common Stock. FIFTH: The name and mailing address of the incorporator is as follows: Name Mailing Address ---- --------------- Raymond C. Marier Houghton Park HP CB 03 Corning, New York 14831 SIXTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter or repeal the By-Laws of the Corporation. 1 SEVENTH: Elections of directors need not be by written ballot except and to the extent provided in the By-Laws of the Corporation. Meetings of stockholders may be held within or without the State of Delaware, as the By-Laws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the By-Laws of the Corporation. EIGHTH: A. The Corporation may indemnify, to the full extent permitted by applicable law, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation, as a director or officer of another corporation, partnership, joint venture, trust or other enterprise. B. Any indemnification under Section A of this ARTICLE EIGHTH (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because he has met any applicable standard of conduct. Such determination may be made (i) by resolution of the Board of Directors adopted in the manner provided in the By-Laws of the Corporation, or (ii) if a quorum consisting of directors who were not parties to such action, suit or proceeding is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, then by independent legal counsel in a written opinion, or (iii) by the stockholders. C. No director shall have any liability to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such liability may arise from (i) any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law, (iii) under Section 174 of the General Corporation Law of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. NINTH: Any action required or permitted to be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. 2 I, the undersigned, being the incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this Certificate, hereby declaring and certifying that this is my act and deed and the facts herein stated are true, and accordingly have hereunto set my hand this 1st day of March, 1988. /s/ Raymond C. Marier ----------------------------- Raymond C. Marier STATE OF NEW YORK ) : ss: COUNTY OF STEUBEN ) BE IT REMEMBERED that on this 1st day of March, 1988, personally came before me, a Notary Public in and for the State of New York and County of Steuben, Raymond C. Marier, the sole party to the foregoing Certificate of Incorporation, known to me personally to be such, and acknowledged the said Certificate to be the act and deed of the signer and that the facts therein stated are truly set forth. GIVEN under my hand and seal of office the day and year aforesaid. /s/ Barbara E. Wellington ----------------------------- Notary Public 3 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF INTERNATIONAL LABORATORIES CORP. The undersigned incorporator, in order to amend the Certificate of Incorporation, hereby certifies as follows: FIRST: The name of the corporation is: International Laboratories Corp. SECOND: The incorporator hereby amends the Certificate of Incorporation as follows: Paragraph FIRST of the Certificate of Incorporation, relating to the corporate title of the Corporation, is hereby amended to read as follows: "FIRST: The name of the corporation is: MetPath Investment Company, Inc." THIRD: The amendment effected herein was authorized by the consent in writing, setting forth the action so taken, signed by incorporator of the Corporation pursuant to the General Corporation Law of the State of Delaware, ss. 241 where the Corporation has not received any payment for any of the previously authorized stock. IN WITNESS WHEREOF, I hereunto sign my name and affirm that the statements made herein are true under the penalties of perjury, this 9th day of January, 1989. /s/ Raymond C. Marier - ---------------------- Raymond C. Marier 4 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 09:00 AM 08/01/1994 944142028-2153945 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION MetPath Investment Company, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware. DOES HEREBY CERTIFY: FIRST: That the Board of said corporation, at a meeting duly held, adopted a resolution proposing and declaring advisable the following amendment to the Certificate of Incorporation of said corporation: RESOLVED, that the Certificate of Incorporation of MetPath Investment Company, Inc. be amended by changing the First Article thereof so that, as amended, said Article shall be and read as follows: The name of the Corporation is CLMP Inc. SECOND: That the stockholder, at a meeting duly held, adopted a resolution to amend the Certificate of Incorporation accordingly. THIRD: That the aforesaid amendment was duly adopted in accordance with the applicable provisions of Section 242 of the General Corporation Law of the State of Delaware. 5 IN WITNESS WHEREOF, said MetPath Investment Company, Inc. has caused this certificate to be signed by Robert Galen, Vice President and attested by David Meinhard, Secretary, this 18th day of May, 1994. By:/s/ Robert Galen ----------------------------- V.P. ATTEST: By:/s/ David Meinhard ----------------------- Secretary 6 EX-3.20 19 DIAGNOSTIC REFERENCE SERVICES, INC. ARTICLES OF INCORPORATION OF DIAGNOSTIC REFERENCE SERVICES, INC. FIRST: The undersigned, DAVID B. RUDOW, whose post office address is 600 Mercantile Bank & Trust Bldg., 2 Hopkins Plaza, Baltimore, Maryland 21201, a resident of the State of Maryland, over eighteen (18) years of age, does hereby constitute himself an incorporator with the purpose of forming a corporation under and by virtue of the General Laws of the State of Maryland. SECOND: The name of the corporation (which is hereinafter called the "Corporation") is "DIAGNOSTIC REFERENCE SERVICES, INC." THIRD: The purposes for which the Corporation is formed are as follows: (a) To engage in the business of operating a medical laboratory or laboratories and to engage generally in the business of the operation of medical laboratories. (b) To acquire by purchase or otherwise, own, hold, buy, sell, convey, lease, mortgage, or encumber real estate or other property, personal or mixed. (c) To take, own, yield income, mortgage or otherwise give liens against, and to lease, sell, exchange, transfer or in any manner whatsoever to dispose of real property within or without the State of Maryland wherever situate. (d) To purchase, acquire, hold, improve, sell, convey, assign, release, mortgage, encumber, lease, hire and deal in real and personal property of every name and nature, including stocks and securities of other corporations, and to loan money and take securities for the payments of all sums due the 2 Corporation, and to sell, assign and release such securities. (e) To purchase, acquire, apply for, register, secure, hold, own, sell, or otherwise obtain and dispose of any and all copyrights, trade names and distinctive marks. (f) To carry on any other business in connection with the foregoing, whether owning, operating and managing real estate or otherwise. (g) To borrow money, make and issue bonds payable to bearer or otherwise, and to secure the same by mortgage, deed of trust or otherwise, to sell or pledge any and all securities or evidence of debt owned by the Corporation, and to carry on such business and to deal with the property by law as may seem to be calculated, directly or indirectly, to promote the objects or purposes. (h) To acquire by purchase, lease or otherwise, the property, rights, business good will, franchises and assets of every kind of any corporation, association, firm or individual, in whole or in part, and to operate the same, and to undertake, guarantee, assume the indebtedness and liabilities thereof, and to pay for any property, rights, business, good will, franchises and assets so acquired in the stock, bonds or other securities of the Corporation or otherwise. (i) To carry on any other business which may seem to the Corporation to be calculated directly or indirectly to effectuate the aforesaid objects, or any of them, to facilitate it in the transaction of its aforesaid businesses, or any part thereof, or in the transaction of any other business that may be calculated directly or indirectly to so enhance the value of its property and directly or otherwise of its right; and to have and exercise all powers conferred by the General Laws of the State of Maryland and the Corporations and Associations Article of the 3 Annotated Code of Maryland, upon corporations formed thereunder, and to exercise and enjoy all powers, rights and privileges granted to or conferred upon corporations of this character by said General Laws and said Corporations and Associations Article, now or hereafter in force; the enumeration of certain powers, as herein specified, not being intended to exclude any such other powers, rights and privileges. (j) To have one or more offices and places of business and to carry on all or any of its operations and businesses, and without restrictions or limits, as to amount or number, in any of the States, Districts, Territories or Colonies of the United States, and in any and all foreign countries, subject to the laws of such State, District, Territory, Colony or Country. The foregoing clauses shall be construed both as objects and powers and shall be deemed to be cumulative and none of them shall be deemed as restricting or limiting the other, nor shall the foregoing enumeration of specific powers be deemed in any way to limit or restrict in any manner the general powers hereinbefore enumerated or the general powers of the Corporation and the enjoyment thereof as conferred by law. FOURTH: The post office address of the principal office of the Corporation is 1901 Sulphur Spring Road, Baltimore, Maryland 21227. The name and post office address of the Resident Agent of the Corporation in this State is David B. Rudow, 600 Mercantile Bank & Trust Building, 2 Hopkins Plaza, Baltimore, Maryland 21201, an individual actually residing in this State. 4 FIFTH: The total number of shares of stock which the Corporation has authority to issue is one thousand (1,000) shares of common stock, all of one class, with no nominal or par value. SIXTH: The number of Directors of the Corporation shall be two (2), which number may be increased or decreased pursuant to the By-Laws of the Corporation, provided that any such increase or decrease in the number of Directors shall conform with the requirements of the laws of the State of Maryland. The names of the Directors who shall act until the first annual meeting of Stockholders or until their successors are duly chosen and qualify are: Selvin Passen, M.D. and Jacob M. Schorr, Ph.D. SEVENTH: The following provisions are hereby adopted for the purpose of defining, limiting and regulating the powers of the Corporation and of the Directors and Stockholders: (a) The Board of Directors of the Corporation is hereby empowered to authorize, from time to time, the issuance of shares of the Common Stock of the Corporation, of no par value for such consideration as the Board of Directors may deem advisable, provided that when the consideration is other than money, the Board of Directors shall state by resolution its opinion of the actual value thereof. The Board of Directors shall have full power and authority to determine, from time to time, what part of the consideration received upon the issue of Common Stock, without par value, shall constitute capital and what part surplus. (b) Agreements may be entered into by any Stockholder or Stockholders giving to the Corporation or to any other Stockholder or Stockholders an option to purchase the stockholdings of such Stockholder or Stockholders, and binding such Stockholder or Stockholders, his or their heirs, executors, 5 administrators and assigns, and the shares of stock of such person or persons shall, thereupon, be subject to such agreement and transferable only upon proof of compliance therewith; provided, however, such agreement be filed with the Corporation, and reference thereto be placed upon the Certificates of Stock. (c) The Board of Directors shall have the power, from time to time, to fix, determine and vary the amount of working capital of the Corporation and to determine what part of the surplus and retained earnings of the Corporation, if any, or of the net profits of the Corporation, if any, shall be declared as dividends and paid in cash, in kind or in any combination thereof, to the Stockholders. EIGHTH: To the maximum extent that Maryland law in effect from time to time permits limitation of the liability of directors and officers, no director or officer of the Corporation shall be liable to the Corporation or its stockholders for money damages. Neither the amendment nor repeal of this Article, nor the adoption or amendment of any other provision of the Charter or By-Laws inconsistent with this Article, shall apply to or affect in any respect the applicability of the preceding sentence with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption. NINTH: The duration of the Corporation shall be perpetual. IN WITNESS WHEREOF, I have signed these Articles of Incorporation this 16th day of February, 1993, and I acknowledge the same to be my act. WITNESS: /s/ William Galvin /s/ David B. Rudow (SEAL) - ------------------ ------------------------ David B. Rudow EX-3.21 20 CORNING NICHOLS AMENDED AND RESTATED BYLAWS CORNING NICHOLS INSTITUTE A California corporation (formerly known as Nichols Institute Reference Laboratories) AMENDED AND RESTATED BY-LAWS Adopted July 19, 1995 CORNING NICHOLS INSTITUTE A California corporation AMENDED AND RESTATED BY-LAWS TABLE OF CONTENTS Page ARTICLE I STOCKHOLDERS Section 1.01. Annual Meetings............................................... 1 Section 1.02. Special Meetings.............................................. 1 Section 1.03. Notice of Meetings............................................ 1 Section 1.04. Business Transacted at Special Meetings of Stockholders....... 1 Section 1.06. Consent of Stockholders in Lieu of Meeting.................... 2 ARTICLE II BOARD OF DIRECTORS Section 2.01. General Powers................................................ 2 Section 2.02. Number and Term of Office..................................... 2 Section 2.03. Election of Directors......................................... 2 Section 2.04. Annual and Regular Meetings................................... 2 Section 2.05. Special meetings; Notice...................................... 3 Section 2.06. Telephonic Meetings........................................... 3 Section 2.07. Quorum and Vote............................................... 3 Section 2.08. Action Without a Meeting...................................... 3 Section 2.09. Manner of Acting.............................................. 3 Section 2.10. Resignations.................................................. 4 Section 2.11. Removal of Directors.......................................... 4 Section 2.12. Vacancies and Newly Created Directorships..................... 4 Section 2.13. Reliance on Accounts and Reports, etc......................... 4 Section 2.14. Committees.................................................... 4 ARTICLE III OFFICERS Section 3.01. Number and Designation Section 3.02. Additional Officers........................................... 5 Section 3.03. Election...................................................... 5 Section 3.04. Removal and Vacancies......................................... 5 Section 3.05. Duties of the Chairman of the Board of Directors.............. 5 Section 3.06. Duties of the President....................................... 5 Section 3.08 Duties of the Secretary....................................... 6 Section 3.09 Duties of the Treasurer....................................... 6 Section 3.10 Duties of the Controller...................................... 6 Section 3.11 Duties of the Assistant Secretary............................. 6 Section 3.12 Duties of the Assistant Controller............................ 7 Section 3.13 Duties of the Assistant Treasurer............................. 7 ARTICLE IV EXECUTION OF INSTRUMENTS; DEPOSITS; FINANCES Section 4.01 General....................................................... 7 Section 4.02 Corporate Indebtedness........................................ 7 Section 4.03 Checks, Drafts, etc........................................... 7 Section 4.04 Deposits...................................................... 8 Section 4.05 Dividends..................................................... 8 Section 4.06 Fiscal Year................................................... 8 ARTICLE V CAPITAL STOCK Section 5.01 Certificates of Stock..................................... 8 ARTICLE VI SEAL; OFFICES Section 6.01 Seal...................................................... 8 Section 6.02 Offices................................................... 9 ARTICLE VII INDEMNIFICATION Section 7.01 Indemnification........................................... 9 ARTICLE VIII AMENDMENTS Section 8.01 Amendments................................................11 AMENDED AND RESTATED BY-LAWS OF CORNING NICHOLS INSTITUTE ARTICLE I STOCKHOLDERS Section 1.01 Annual Meetings. The annual meeting of the stockholders of the Corporation for the election of directors and for the transaction of such other business as properly may come before such meeting shall be held at such place either within or outside the State of California, at such time and date as shall be fixed from time to time by resolution of the Board of Directors and as set forth in the notice of the meeting. Section 1.02 Special Meetings. Special meetings of the stockholders may be called at any time by the Chairman of the Board of Directors, if any, or by the President (or, in the absence or disability of the Chairman of the Board and the President, by any Vice President), or by the Board of Directors. Such special meetings of the stockholders shall be held at such places, within or outside the State of California, as shall be specified in the respective notices or waivers of notice thereof. Section 1.03 Notice of Meetings. The Secretary or any Assistant Secretary shall cause written notice of the date, time and place of each meeting of the stockholders to be given, at least ten but not more than fifty days prior to the meeting, to each stockholder of record entitled to vote. Such notice shall be given either personally or by mail or other means of written communication, addressed to each stockholder at the address of such stockholder appearing on the books of the Corporation at the time such notice is dispatched. Such further notice shall be given as may be required by law. Notice of any meeting of stockholders need not be given to any stockholder who shall sign a waiver of such notice in writing, whether before or after the time of such meeting. Notice of any adjourned meeting of the stockholders of the Corporation need not be given. Section 1.04 Business Transacted at Special Meetings of Stockholders. Business transacted at any special meeting of stockholders shall not be limited to the purposes stated in the notice thereof. Section 1.05 Quorum. Except as at the time otherwise required by statute or by the Certificate of Incorporation, the presence at any stockholders meeting, in person or by proxy, of the holders of record of shares of stock (of any class) entitled to vote at the meeting, aggregating a majority of the total number of shares of stock of all classes then issued and outstanding and entitled to vote at the meeting, shall be necessary and sufficient to constitute a quorum for the transaction of business. Section 1.06 Consent of Stockholders in Lieu of Meeting. To the extent provided by any statute at the time in force, whenever the vote of stockholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action, by any statute, by the Certificate of Incorporation or by these By-Laws, the meeting and vote of stockholders may be dispensed with if the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted shall consent in writing to such corporate action being taken. ARTICLE II BOARD OF DIRECTORS Section 2.01 General Powers. The property, affairs and business of the Corporation shall be managed by the Board of Directors. The Board of Directors may exercise all the powers of the Corporation, whether derived from law or the Certificate of Incorporation, except such powers as are, by statute, by the Certificate of Incorporation or by these By-Laws, vested solely in the stockholders of the Corporation. No Director need be a stockholder of the Corporation. Section 2.02 Number and Term of Office. The Board of Directors shall consist of such number (but in no event less than three) of Directors as may be determined from time to time by resolution adopted by affirmative vote of a majority of the whole Board of Directors. Each Director (whenever elected) shall hold office until the next annual meeting and his or her successor shall have been elected, or until his or her death, or until he or she shall have resigned in the manner provided in Section 2.10 hereof or shall have been removed in the manner provided in Section 2.11 hereof. Section 2.03 Election of Directors. Except as otherwise provided in Sections 2.11 and 2.12 hereof, the Directors shall be elected annually at the annual meeting of the stockholders. In the event of the failure to elect Directors at an annual meeting of the stockholders, then Directors may be elected at any regular or special meeting of stockholders entitled to vote for election of Directors, provided that notice of such meeting shall contain mention of such purpose. Section 2.04 Annual and Regular Meetings. The annual meeting of the Board of Directors, for the choosing of officers and for the transaction of such other business as may come before the meeting, shall be held in each year as soon as possible after the annual meeting of the stockholders at the place of such annual meeting of the stockholders, and notice of such annual meeting of the Board of Directors shall not be required to be given. The Board of Directors from time to time may provide by resolution for the holding of regular meetings and fix the time and place (which may be within or outside the State of California) thereof. Notice of such regular meetings need not be given; provided, however, that in case the Board of Directors shall fix or change the time or place of regular meetings, notice of such action shall be given personally or by mail, facsimile or similar means of communication promptly to each Director who shall not have been present at the meeting at which such action was taken. Section 2.05 Special Meetings; Notice. Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board, if any, or by the President (or, in the absence or disability of the Chairman of the Board and the President, by any Vice President), or by any two Directors, at such time and place (which may be within or outside of the State of California) as may be specified in the respective notices or waivers of notice thereof. Special meetings of the Board of Directors may be called on two days' notice to each Director, personally or by telephone or facsimile or on four days' notice by mail. Notice of any special meeting need not be given to any Director who shall be present at such meeting, or to any Director who shall waive notice of such meeting in writing, whether before or after the time of such meeting, and any business may be transacted thereat. No notice need be given of any adjourned meeting. Section 2.06 Telephonic Meetings. Directors may participate in a meeting of the Board of Directors, or a meeting of any committee designated by the Board, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in the meeting pursuant to this By-Law shall constitute presence in person at such meeting. Section 2.07 Quorum and Vote. At all meetings of the Board of Directors, the presence of a majority of the total authorized number of Directors under Section 2.02 hereof shall be necessary and sufficient to constitute a quorum for the transaction of business. Except when otherwise required by statute, the vote of a majority of the total number of Directors present and acting at a meeting at which a quorum is present shall be the act of the Board of Directors. In the absence of a quorum, a majority of the Directors present may adjourn the meeting from time to time, until a quorum shall be present. Section 2.08 Action Without a Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors or any meeting of a Committee of the Board of Directors may be taken without a meeting, if written consents thereto are signed by all members of the Board or Committee and such written consents are filed with the minutes of proceedings of the Board. Section 2.09 Manner of Acting. The Directors shall act only as a Board, and the individual Directors shall have no power as such, except as permitted by statute. Section 2.10 Resignations. Any Director may resign at any time by delivering a written resignation to the Chairman of the Board, if any, the President, a Vice President, the Secretary or any Assistant Secretary. Unless otherwise specified therein, such resignation shall take effect upon delivery. Section 2.11 Removal of Directors. Any Director may be removed at any time, either for or without cause, upon the affirmative vote of the holders of a majority of the outstanding shares of stock of the Corporation entitled to vote for the election of such Director, given at a special meeting of such stockholders called for the purpose; provided, however, that if less than the entire Board is to be removed, no Director may be removed without cause if the votes cast against his or her removal would be sufficient to elect him or her if then cumulatively voted at an election of the entire Board of Directors. Any vacancy in the Board of Directors caused by any such removal may be filled at such meeting by a vote of the stockholders entitled to vote for the election of the Directors so removed. If such stockholders do not fill such vacancy at such meeting, such vacancy may be filled in the manner provided in Section 2.12 hereof. Section 2.12 Vacancies and Newly Created Directorships. If any vacancies shall occur in the Board of Directors, by reason of death, resignation, removal or otherwise, or if the authorized number of directors shall be increased, the Directors then in office shall continue to act, and such vacancies may be filled by a majority of the Directors then in office, though less than a quorum, and the Directors so chosen shall hold office until the next annual election and until their successors are duly elected and qualified, unless sooner displaced. Any such vacancies or newly created Directorships may also be filled by a vote of the stockholders entitled to vote for the election of Directors. Section 2.13 Reliance on Accounts and Reports, etc. A Director, or a member of any committee designated by the Board of Directors, in the performance of his or her duties, shall be fully protected in relying in good faith upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees whom the Director believes to be reliable and competent in the matters presented, or by counsel, independent accountants, or other persons as to matters the Director or member reasonably believes are within such other person's professional or expert competence or by a committee of the Board upon which the Director does not serve as to matters within its designated authority, which committee the Director believes to merit confidence, in any such case so long as the Director acts in good faith after reasonable inquiry and when the need therefor is indicated by the circumstances and without knowledge that would cause such reliance to be unwarranted. Section 2.14 Committees. The Board may establish such committees having such responsibilities and composition as it shall from time to time by resolution determine. ARTICLE III OFFICERS Section 3.01 Number and Designation. The officers of the Corporation shall be chosen by the Board of Directors and may include a Chairman of the Board, a President, a Vice President, a Secretary, a Controller and a Treasurer who shall hold office until their successors are chosen and qualify or their earlier resignation or removal. The Board of Directors may also choose additional Vice Presidents, and one or more Assistant Secretaries, Assistant Controllers and Assistant Treasurers. Any one or more of such Vice Presidents may be designated as Executive or Senior Vice President. Any number of offices may be held by the same person, except that no person shall simultaneously hold the offices of Chairman or President and Secretary, Treasurer or Controller. The Chairman shall be a member of the Board of Directors. The Board may also designate any Vice Presidents as Chief Financial Officer and as General Counsel. Section 3.02 Additional Officers. The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. The Board of Directors may also delegate its Chairman or the President to appoint and remove such additional officers as the Chairman or the President, as the case may be, shall designate in writing, with such limited authority as shall be set forth in writing, and such appointments shall be reported to the Board of Directors. Section 3.03 Election. The Board of Directors at its first meeting or such subsequent meetings as shall be held prior to its first annual meeting, and thereafter annually at its annual meeting, shall choose the officers of the Corporation. If any officers are not chosen at an annual meeting, such officers may be chosen at any subsequent regular or special meeting. Section 3.04 Removal and Vacancies. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors, either with or without cause. Any vacancy occurring in any office or the Corporation shall be filled by the Board of Directors. Section 3.05 Duties of the Chairman of the Board of Directors. The Chairman of the Board of Directors, if present, shall preside at all stockholders' meetings and all meetings of the Board at which he is present and shall have such other duties as shall be assigned to him or her by the Board of Directors. The Chairman may be the Chief Executive Officer of the Corporation. Section 3.06 Duties of the President. The President shall have direct charge of the business of the Corporation, subject to the general control of the Board of Directors, and may be the Chief Executive Officer and/or the Chief Operating Officer of the Corporation. In the absence of the Chairman of the Board or if no Chairman of the Board has been chosen, the President shall also have the duties of the Chairman of the Board. Section 3.07 Duties of the Vice President. In the event of the absence or disability of the Chairman of the Board and the President, the Executive or Senior Vice President, if any, or if absent, any Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting, shall have all the powers of, and be subject to all the restrictions upon, the President. Except where by law the signature of the President is required, each of the Vice Presidents shall possess the same power as the President to sign all certificates, contracts, obligations and other instruments of the Corporation. Any Vice President shall perform such other duties and may exercise such other powers as from time to time may be assigned to him or her by these By-Laws or by the Board of Directors or the President. An Executive Vice President may be the Chief Operating Officer of the Corporation. Section 3.08 Duties of the Secretary. The Secretary shall, if present, act as Secretary of, and keep the minutes of, all the proceedings of the meetings of the stockholders and of the Board of Directors and of any committee of the Board of Directors in one or more books to be kept for that purpose; shall perform such other duties as shall be assigned to him or her by the President or the Board of Directors; and, in general, shall perform all duties incident to the office of Secretary. Section 3.09 Duties of the Treasurer. The Treasurer shall keep or cause to be kept full and accurate records of all receipts and disbursements in the books of the Corporation and shall have the care and custody of all funds and securities of the Corporation. He or she shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall render to the President and the Board of Directors, whenever they request it, an account of all of his or her transactions as Treasurer and shall perform such other duties as may be assigned to him or her by the President or the Board of Directors; and, in general, shall perform all duties incident to the office of Treasurer. Section 3.10 Duties of the Controller. The Controller shall be the chief accounting officer of the Corporation. The Controller shall keep or cause to be kept all books of account and accounting records of the Corporation and shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the Corporation. The Controller shall prepare or cause to be prepared appropriate financial statements for the Corporation and shall perform such other duties as may be assigned to him or her by the President or the Board of Directors; and, in general, shall perform all duties incident to the office of Controller. Section 3.11 Duties of the Assistant Secretary. The Assistant Secretary, if any, shall, in the absence or disability of the Secretary, exercise the powers and perform the duties of the Secretary, and shall perform such other duties as shall be assigned to him or her by the President or the Board of Directors. Section 3.12 Duties of the Assistant Controller. The Assistant Controller, if any, shall, in the absence or disability of the Controller, exercise the powers and perform the duties of the Controller, and shall perform such other duties as shall be assigned to him or her by the President or the Board of Directors. Section 3.13 Duties of the Assistant Treasurer. The Assistant Treasurer, if any, shall, in the absence or disability of the Treasurer, exercise the powers and perform the duties of the Treasurer, and shall perform such other duties as shall be assigned to him or her by the President or the Board of Directors. ARTICLE IV EXECUTION OF INSTRUMENTS; DEPOSITS; FINANCES Section 4.01 General. Subject to the provisions of Sections 4.02, 4.03 and 4.04 hereof, all deeds, documents, transfers, contracts, and agreements and other instruments requiring execution by the Corporation shall be signed by the Chairman of the Board, the President, a Vice President or the Treasurer, or as the Board of Directors may otherwise from time to time authorize by resolution. Any such authorization may be general or confined to specific instances. Section 4.02 Corporate Indebtedness. No loan shall be contracted on behalf of the Corporation, and no evidences of indebtedness shall be issued in its name, unless authorized by the Board of Directors. Such authorizations of the Board may be general or confined to specific instances. Loans authorized by the Board of Directors may be effected at any time for the Corporation from any bank, trust company or other institution, or from any firm, corporation or individual. All bonds, debentures, notes and other obligations or evidences of indebtedness of the Corporation issued for such loans as the Board shall authorize shall be made, executed and delivered as the Board of Directors shall authorize. All notes and other obligations or evidences of indebtedness permitted hereunder without authorization of the Board of Directors shall be signed by the President, a Vice President or the Treasurer. When so authorized by the Board of Directors, any part of or all the properties, including contract rights, assets, business or goodwill of the Corporation, whether then owned or thereafter acquired, may be mortgaged, pledged, hypothecated or conveyed or assigned in trust as security for the payment of such bonds, debentures, notes and other obligations or evidences of indebtedness so the Corporation, and of the interest thereon, by instruments executed and delivered in the name of the Corporation. Section 4.03 Checks, Drafts, etc. All checks, drafts, bills of exchange or orders for the payment of money, issued in the name of the Corporation, shall be signed only by the Treasurer or such other person or persons and in such manner as may from time to time be designated by the Board of Directors, which designation may be general or confined to specific instances; and unless so designated, no person shall have any power or authority thereby to bind the Corporation or to pledge its credit or to render it liable. Section 4.04 Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors may select. The Board of Directors may make such special rules and regulations with respect to such bank accounts, not consistent with the provisions of these By-Laws, as it may deem expedient. For the purpose of deposit and for the purpose of collection for the account of the Corporation, checks, drafts and other orders for the payment of money which are payable to the order of the Corporation shall be endorsed, assigned and delivered by the Treasurer or such other person or persons and in such manner as may from time to time be designated by the Board of Directors. Section 4.05 Dividends. Dividends upon the stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Such declaration may be continuing or limited to a specific payment or distribution. Dividends may be paid in cash, in property, or in shares of stock, subject to the provisions of the Certificate of Incorporation. Section 4.06 Fiscal Year. The fiscal year of the Corporation shall be the calendar year, unless otherwise fixed by resolution of the Board of Directors. ARTICLE V CAPITAL STOCK Section 5.01 Certificates of Stock. Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of the Corporation by, the Chairman of the Board of Directors, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or by the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by such holder in the Corporation. ARTICLE VI SEAL; OFFICES Section 6.01 Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its incorporation and the words "Corporate Seal, California." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 6.02 Offices. The Corporation may have offices at such other places both within or outside the State of California as the Board of Directors may from time to time determine or as the business of the Corporation may require. ARTICLE VII INDEMNIFICATION Section 7.01 Indemnification. (a) The liability of Directors of the Corporation for monetary damages shall be eliminated to the fullest extent permissible under California law; provided, that this provision shall not eliminate or limit the liability of a Director (i) for acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) for acts or omissions that a Director believes to be contrary to the best interests of the Corporation or its shareholders or that involve the absence of good faith on the part of the Director, (iii) for any transaction from which a Director derived an improper personal benefit, (iv) for acts or omissions that show a reckless disregard for the Director's duty to the Corporation or its shareholders in circumstances in which the Director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of serious injury to the Corporation or its shareholders, (v) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the Director's duty to the Corporation or its shareholders, and (vi) under Section 310 or Section 316 of the California General Corporation Law. (b) Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action either in an official capacity as a director or officer or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the General Corporation Law of the State of California, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expenses, liability and loss (including attorneys' fees, judgments, fines, excise taxes pursuant to the Employee Retirement Income Security Act of 1974, as amended, or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to be indemnified conferred in this Section 7.01 shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, the payment of such expenses incurred by the director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is to be rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan), in advance of the final disposition of proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Article or otherwise. The Corporation may, by action of its Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers. (c) The indemnification provided by this Section 7.01 shall not limit or exclude any rights, indemnities or limitations of liability to which any person may be entitled, whether as a matter of law, under the Articles of Incorporation of the Corporation, by agreement, vote of the stockholders or disinterested directors of the Corporation or otherwise. (d) If a claim under paragraph (b) of this Section 7.01 is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the General Corporation Law of the State of California for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard or conduct set forth in the General Corporation Law of the State of California, nor an actual determination by the Corporation (including its Board, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall create a presumption that the claimant has not met the applicable standard of conduct. (e) The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of California. ARTICLE VIII AMENDMENTS Section 8.01 Amendments. These By-Laws may only be altered or repealed and new By-Laws adopted by resolution of the Board or Directors or of the Shareholders. EX-3.22 21 BY-LAWS OF METPATH INVESTMENT CO. ================================================================================ METPATH INVESTMENT COMPANY, INC. Incorporated under the laws of the State of Delaware ---------- By-Laws ---------- Approved January 27, 1989 ================================================================================ METPATH INVESTMENT COMPANY, INC. ---------- BY-LAWS ---------- ARTICLE I. Offices of the Corporation Section 1. Principal Office. The principal office of the corporation within the State of Delaware shall be at such address within the State of Delaware as may be fixed by the Board of Directors. Section 2. Other Offices. The Board of Directors may establish and discontinue, from time to time, other offices and places of business as it deems advisable and proper for the conduct of the corporation's busineSection ARTICLE II. Meetings of Stockholders Section 1. Place of Meeting. All meetings of stockholders of the corporation may be held at such place, within or without the State of Delaware, as may be fixed from time to time by the Board of Directors. Section 2. Annual Meeting. The annual meeting of stockholders for the election of directors and consideration of such other business as may come before the meeting shall be held on the fourth Friday in February of each year or at such other date and time as is designated by resolution of the Board of Directors and as set forth in the notice of the meeting. Section 3. Special Meetings. Special meetings of the stockholders shall be called by the Secretary upon order of a majority of the Board of Directors, the Chairman of the Board, the President or at the request in writing of the stockholders who together own of record not less than a majority of the shares of stock of the corporation issued and outstanding and entitled to vote at such meetings. Section 4. Notice of Meetings. Notice of each annual or special meeting of the stockholders shall be served personally by mail, telex, rapifax or cable upon each stockholder of record entitled to vote thereat at such address as appears on the books of the corporation 2 at the time such notice is dispatched or at such other address as is provided by the stockholder or its agent and reasonably relied upon by the Secretary of the corporation. Service of such notice shall be made not less than ten nor more than sixty days before the meeting date. Section 5. Waiver of Notice. A written waiver, signed by a person entitled to notice, whether before or after the time of such required notice, shall be deemed equivalent to notice. The attendance of any stockholder at a meeting, in person or by proxy, without protesting prior to the conclusion of the meeting the lack of notice of such meeting, shall constitute a waiver of notice by such stockholder. Section 6. Chairman and Secretary of Meeting. The Chairman of the Board, or, in his absence, the President or, in the absence of both, by a chairman chosen by a majority of stockholders entitled to vote at the meeting who are present in person or by proxy, shall call to order and preside at meetings of stockholders, and the Secretary of the corporation, or, in his absence, any person appointed by the chairman of the meeting shall act as secretary of the meeting. Section 7. Voting Rights. Unless otherwise provided in the Certificate of Incorporation forming this corporation or other certificate filed pursuant to law, every stockholder of record shall be entitled at every meeting of the stockholders of the corporation to one vote for every share of stock standing in his name on the books of the corporation. Section 8. Record Date. The Board of Directors may prescribe a period, not exceeding fifty days prior to the date of any meeting of the stockholders or prior to the last day on which the consent or dissent of a stockholder effectively may be expressed for any purpose without a meeting, during which no transfer of stock on the books of the corporation may be made; or in lieu of prohibiting the transfer of stock may fix a record date not more than sixty nor less than ten days prior to the date of any meeting of stockholders and prior to the last day on which the consent or dissent of stockholders may be effectively expressed for any purpose without a meeting as the time as of which stockholders entitled to notice of and to vote at such a meeting or whose consent or dissent is required or may be expressed for any purpose, as the case may be, shall be determined, and holders of record of voting stock at such time and no others shall be entitled to notice of and to vote at such meeting or to express consent or dissent, as the case may be. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day of the meeting, except that, if notice is waived or action is to be taken by the stockholders in writing without a meeting and the Board of Directors does not set a record date in accordance with the foregoing, the record date shall be as prescribed by the Delaware General Corporation Law. Section 9. Quorum and Adjournment. Holders of a majority of the issued and outstanding stock entitled to vote at the meeting shall constitute a quorum at all meetings, 3 except as otherwise provided by law, by the Certificate of Incorporation or these By-laws. If, however, such majority, either in person or by proxy, be not present at any meeting, the stockholders entitled to vote thereat, present in person or by proxy, shall have power to adjourn the meeting from time to time, without other notice than announcement at the meeting, until the requisite amount of voting stock shall be present. When the requisite amount of voting stock is present at an adjourned meeting, any business may be transacted which might have been transacted at the meeting as originally called. Section 10. Order of BusineSection The order of business at stockholders' meetings shall be as determined by the chairman of the meeting. Section 11. Vote of Stockholders. At each meeting of stockholders, every stockholder entitled to vote shall have the right to vote in person or by proxy duly appointed by an instrument in writing, executed by such stockholder or its attorney-in-fact and executed not more than eighteen months prior to the meeting, unless the instrument provides for a longer period. Upon the demand of any stockholder, the vote upon any question before the meeting, shall be by ballot. In a vote by ballot each ballot shall state the number of shares voted and the name of the stockholder or proxy voting. Except as otherwise provided by law, the Certificate of Incorporation or these By-laws, if a quorum is present, the affirmative vote of a majority of the shares of stock represented at the meeting shall be the act of the stockholders. Section 12. Consent of Stockholders in Lieu of Meeting. To the extent permitted by statute at the time in force, any action required to be taken or which may be taken at an annual or special meeting of the stockholders of the corporation may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Every written consent shall bear the date of signature of each stockholder who signs the consent and no such consent shall be effective unless signed by a sufficient number of holders within sixty days of the earliest dated consent and delivery to the corporation has been effected within such sixty-day period. ARTICLE III. Directors Section 1. [sic] Election and Term. The directors of the corporation shall be elected at the annual meting of stockholders for a term of one year and until their successors are chosen and qualified. Vacancies occurring in the interim may be filled for the unexpired term by a majority vote of the remaining directors or, in the case of a tie, at a meeting of the stockholders called for the purpose. Newly created directorships resulting from an increase 4 in the authorized number of directors may be filled by a majority of the directors elected by all of the stockholders having the right to vote as a single class for the election of such new directors. Section 2. Qualification. Directors need not be shareholders. Acceptance of the office may be expressed orally or in writing, except as otherwise provided in these By-laws. Section 3. Number. The number of directors constituting the Board of Directors of the corporation shall be not less than one nor more than fifteen, the exact number to be fixed from time to time by resolution adopted by a majority of the whole Board. Section 4. General Powers. The business, properties and affairs of the corporation shall be managed by or under the direction of the Board of Directors which shall have power to elect the officers of the corporation and fix their salaries and other compensation, to appoint and direct agents, to grant general or limited authority to its Chairman, the President and other officers and agents of the corporation to make, execute and deliver contracts and other instruments and documents in the name and on behalf of the corporation and under its seal without specific authority in each case. In addition, the Board may exercise all of the powers of the corporation and do all lawful acts and things which are not reserved to the shareholders by statute, the Certificate of Incorporation or these By-laws. Section 5. Executive Committee. The Board of Directors may, by resolution adopted by vote of a majority of the whole Board, designate an Executive Committee consisting of three or more of the Directors of the corporation, which Committee shall have and may exercise all the authority of the Board of Directors with respect to all matters other than: (a) the submission to stockholders of any action requiring authorization of stockholders pursuant to statute or the Certificate of Incorporation; (b) the filing of vacancies in the Board or in the Executive Committee; (c) the fixing of compensation of the directors for serving on the Board or on any committee of the Board, including the Executive Committee; (d) the amendment or repeal of these By-laws or the adoption of new by-laws; and (e) the amendment or repeal of any resolution of the Board which by its terms may be amended or repealed only by the Board. Section 6. Other Committees. The Board of Directors may by resolution adopted by vote of a majority of the whole Board appoint such other committees, each consisting of one or more Directors and such other persons as the Board may designate, which shall be 5 empowered to perform such functions as may be delegated to such committee or committees by the Board. Section 7. Meetings of the Board; Quorum and Manner of Acting. A newly elected Board may meet and organize immediately after and at the place where the annual meeting of stockholders is held, and no notice of such meeting shall be required, provided a majority of the whole Board shall be present, or it may convene at such place and time or shall be fixed by the consent in writing of the directors. Regular meetings of the Board may be held without notice at such time and place as from time to time may be determined by the Board. Special meetings of the Board or of any committee thereof may be called by the Chairman of the Board or the President and shall be called by the Secretary on the written request of any two directors. Notice of any special meeting of the Board or any committee thereof shall be given to each director, or each committee member, as the case may be, not later than the day before the day on which the meeting is to be held. Such notice may be by prepaid mail addressed to the director at his/her residence or usual place of business or by telex, rapifax or cable or be delivered personally, or by telephone. Notice of any meeting of the Board or of any committee need not be given, however, to any director, if waived by him in writing, either before or after such meeting be held, or if he shall be present at the meeting; and any meeting of the Board of Directors or of any committee shall be a legal meeting without any notice thereof having been given, if all the members shall be present thereat. A majority of the directors in office at the time of any regular or special meeting of the Board or any committee thereof shall be present in person at such meeting in order to constitute a quorum for the transaction of business; provided that there shall be required to constitute a quorum a number of directors present at least equal to the number of directors required for any valid action of the Board. Any one or more directors or committee members may participate in any meeting of the Board or any committee thereof by means of a conference telephone or similar communications equipment permitting all persons participating in such meeting to hear each other at the same time, participation by such means to constitute presence in person at such meeting. Except as otherwise required by statute, by the Certificate of Incorporation or these By-Laws, the act of a majority of the directors or committee members present at any such meeting at which a quorum is present shall be the act of the Board of Directors or any committee thereof. In the absence of a quorum, a majority of the directors or committee members present may adjourn the meeting from time to time until a quorum be had. Notice of any adjourned meeting need not be given. Action by the Board or any committee thereof may be taken without a meeting provided that all members of the Board or committee consent in writing to the adoption of a 6 resolution authorizing such action and such resolution and written consent are filed with the minutes of the proceedings of the Board or committee. Section 8. Resignations and Removal of Directors. Any director of the corporation may resign at any time by giving written notice of his resignation to the Chairman of the Board, the President or the Secretary. Such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Any director may be removed, for or without cause, at any time, by the affirmative vote of the holders of record of a majority of the issued and outstanding stock entitled to vote for the election of directors. Any director may be removed for cause by the Board of Directors at a special meeting thereof. Section 9. Dividends. Subject to the provisions of law and the Certificate of Incorporation, the Board shall have the power to determine whether any, and if so what part, of the funds legally available for the payment of dividends shall be declared in dividends and paid. ARTICLE IV. Officers Section 1. Officers. The elected officers of the corporation may include a Chairman of the Board (who shall be a director), a President, and one or more Vice Presidents, a Treasurer, a Controller and a Secretary. The Board of Directors may elect or appoint, or the Chairman of the Board may appoint such other officers (including one or more Assistant Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, one or more Assistant Controllers and one or more group or division officers) and such other assistant officers and agents as, from time to time, may appear to be necessary or advisable in the conduct of the affairs of the corporation. The same person may be elected or appointed to two or more offices except that no person shall simultaneously hold the offices of President and Secretary. So far as practicable, all elected officers shall be elected at the organization meeting of the Board, in each year, and shall hold office until the organization meeting of the Board in the next subsequent year and until their respective successors are chosen. All officers shall hold office at the pleasure of the Board. If any vacancy occurs in any office, the Board of Directors or the Chairman of the Board or the President, as provided above, may elect or appoint a successor to fill such vacancy for the remainder of the term. Section 2. Resignations and Removal of Officers. Any officer of the corporation may resign at any time by giving written notice of his resignation to the Board, the Chairman of the Board, the President or the Secretary. Any such resignation shall take effect at the time specified therein, or, if the time when it shall become effective shall not be specified therein, 7 immediately upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Any officer may be removed at any time for or without cause by vote of a majority of the directors present and eligible to vote at any meeting of the Board of Directors at which a quorum is present. Section 3. General Powers. In addition to any authority conferred by the Board of Directors or these By-laws and without limitation to any authority inherent in any office to which such person is elected, the Chairman of the Board, the President, and the Vice Presidents of the Corporation, and each of them individually, is, authorized and empowered to enter into contracts and to execute instruments and documents in the name of and on behalf of the corporation, under the seal of the corporation affixed by the Secretary of the corporation or otherwise, provided that the foregoing are performed in the ordinary course of business and in substantial compliance with the applicable procedures adopted by the corporation, including without limitation, those procedures pertinent to capital expenditures and investments and the appropriate request approval procedures pertinent to capital appropriation requests, purchases, leases, investments and acquisitions and provided further that the foregoing activities, contracts, instruments and documents are consistent with the law, the Certificate of Incorporation, these By-laws and any applicable resolutions of the Board of Directors of the corporation. Section 4. Chairman of the Board. The Chairman of the Board shall preside, when present, at all meetings of the Board of Directors and of the stockholders. The Chairman of the Board, under the direction of the Board of Directors, shall have the general power and duty of management over the business of the corporation and such further powers and duties as may be given to him by the Board of Directors, Section 5. President. The President shall be the chief executive and operating officer of the corporation and, under the direction of the Board of Directors, shall have general and active management, superintendence and direction of the business, properties and affairs of the corporation. He shall have such further powers and duties as may be given him by the Board of Directors or the Chairman of the Board. In the absence or incapacity of the Chairman of the Board, he shall perform the duties of the Chairman of the Board. Section 6. Vice Presidents. The Vice Presidents shall perform such duties and shall have such powers as may be given them by these By-laws, the Board of Directors, the Chairman of the Board, or the President. From time to time one of the Vice Presidents may be designated as the Vice President-Finance and, in such event, the Vice President-Finance shall be the chief financial officer and shall have administrative responsibility for the financial and accounting functions of the corporation. Section 7. Treasurer and Assistant Treasurer. The Treasurer shall: (a) have charge and custody of, and be responsible for, all the funds and securities of the corporation; 8 (b) have control of all the books of account of the corporation; (c) keep all accounting records of the corporation; (d) cause all moneys and other valuables to be deposited to the credit of the corporation in such depositories as may be designated by the Board of Directors; (e) receive, and give receipts for, moneys due and payable to the corporation from any sources whatsoever; (f) disburse the funds of the corporation and supervise the investment of its funds as ordered or authorized by the Board of Directors, taking proper vouchers therefor; (g) render to the Board of Directors, whenever the Board may require, an account of the financial condition of the corporation; (h) keep a true and accurate record of all property owned by it, of its debts and of its revenues and expenses; and (i) in general, perform all the duties incident to the office of Treasurer and chief financial officer and such other duties as from time to time may be assigned to him by the Board of Directors, the Chairman of the Board or the President. The Assistant Treasurer shall, in the absence, disability or at the direction of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time confer. Section 8. Controller. The Controller shall be the chief accounting officer of the corporation and shall maintain adequate records of all assets, liabilities and transactions of the corporation; he shall establish and maintain internal accounting control, and in cooperation with the independent public accountants selected by the Board, shall supervise internal auditing. He shall have such further powers and perform all such duties as from time to time may be assigned to him by the President or the Board of Directors. Section 9. Secretary and Assistant Secretary. The Secretary shall: (a) attend in person or by designation of a representative for such purpose, all meetings of the stockholders and Board of Directors and record or cause to be recorded and keep or cause to be kept in one or more 9 books provided for the purpose, the minutes of all meetings of the Board of Directors, the committees of the Board and the shareholders; (b) see that all notices are duly given in accordance with the provisions of these By-laws and as required by law; (c) be custodian of the records and the seal of the corporation and affix and attest the seal to all stock certificates of the corporation (unless the seal of the corporation on such certificates shall be a facsimile, as hereinafter provided) and affix and attest the seal to all other documents to be executed on behalf of the corporation under its seal; (d) see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and (e) in general, perform all the duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board of Directors, the Chairman of the Board or the President. The Assistant Secretary shall, in the absence, disability or at the direction of the Secretary, perform the duties and exercise the powers of the Secretary and perform such other duties and have such other powers as the Board of Directors may from time to time confer. Section 10. Compensation. The compensation of the officers of the corporation for their services as such officers shall be fixed from time to time by the Board of Directors; provided, however, that the Board may delegate to the President the power to fix the compensation of officers and agents appointed by such officer. An officer of the corporation shall not be prevented from receiving compensation by reason of the fact that he is also a director of the corporation, but any such officer who shall also be a director shall not have any vote in the determination of the amount of compensation paid to him. ARTICLE V. Capital Stock Section 1. Payments. All payments for stock of the corporation shall be received by the Treasurer. Failure to pay an installment upon a stock subscription when required to be paid by the Board of Directors shall constitute a forfeiture of the shares of stock in arrears, pursuant to Section 164 of the Delaware General Corporation Law. 10 Section 2. Certificates of Stock. The stock of the corporation shall be evidenced in certificates certifying the number of shares represented thereby and in a form consistent with the Certificate of Incorporation and as provided from time to time by the Board of Directors and such certificate shall be signed by the Chairman of the Board, the President or a Vice President and the Secretary or the Treasurer, and may be sealed with the seal of the corporation or a facsimile thereof. Any or all signatures on such certificate may be a facsimile. In case any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate was issued, it may be issued by the corporation with the same effect as if he were such officer at the date of issue. Section 3. Transfer Agents and Registrars. The Board of Directors may, in its discretion, appoint responsible banks or trust companies to act as transfer agents or registrars of the stock of the corporation; and, upon such appointments being made, no stock certificates shall be valid until countersigned by one of such transfer agents and registered by one of such registrars. Section 4. Transfers. Transfers of stock shall be made on the books of the corporation only by the person named in the certificate or by attorney lawfully constituted in writing upon the surrender of a certificate or certificates for a like number of shares of the same class of stock, with duly executed assignment and power of transfer endorsed thereon or attached thereto, and with such proof of the authenticity of the signatures as the corporation or its agents may reasonably require. A new certificate shall be issued to the person entitled thereto and the old certificate cancelled and the transaction recorded upon the books of the corporation. Any stock transfers or attempted stock transfers shall be subject to the requirements and limitations set forth in any written agreement among the stockholders of the corporation, properly executed and then in effect. Section 5. Determination of Stockholders of Record for Certain Purposes. The Board of Directors may fix a time, not exceeding fifty days preceding the date fixed for the payment of any dividend, or the making of any distribution or for the delivery of evidences of rights or evidences of interest arising out of any change, conversion or exchange of capital stock, as a record time for the determination of the stockholders entitled to receive any such dividend, distribution, rights or interest. The Board of Directors at its option, in lieu of so fixing a record time, may prescribe a period not exceeding fifty days prior to the date for such payment, distribution or delivery during which no transfer of stock on the books of the corporation may be made. Section 6. Stockholders of Record Recognized. The corporation shall be entitled to treat the holder of record of any stock certificate as the holder in fact and owner of the shares represented thereby and shall not be bound to recognize any equitable claim to or interest in such stock on the part of any other person, whether or not it shall have express or other notice thereof save as expressly provided by the laws of Delaware. 11 Section 7. Lost Certificate. In case any certificate of stock alleged to be lost or destroyed, the Board of Directors, in its discretion, may authorize the issuance of a substitute certificate in place of the certificate alleged to be so lost or destroyed, and may cause such substitute certificate to be countersigned by the appropriate transfer agent and registered by the appropriate registrar; provided, that, in each such case, the applicant for a substitute certificate shall furnish to the corporation and to such of its transfer agents and registrars as may require the same, evidence to their satisfaction, in their discretion, of the loss or destruction of such certificate and of the ownership thereof, and also such security and indemnity as may by them be required. ARTICLE VI. Seal Section 1. Seal. The seal of the corporation shall be in such form as shall be approved by the Board of Directors. Section 2. Affixing and Attesting. The seal of the corporation shall be in the custody of the Secretary, who shall have power to affix it to the proper corporate instruments and documents, and who shall attest it. In his absence it may be affixed and attested by the Assistant Secretary or Treasurer. The transfer agent of the stock of the corporation may have a facsimile thereof and affix the same to stock certificates issued by it. ARTICLE VII. Miscellaneous Section 1. Loans. When expressly authorized by the Board of Directors, the Chairman of the Board, President, Vice President-Finance, the Treasurer or other officer designated by the Board may effect loans and advances at any time on behalf of the corporation from any bank, trust company or other institution, or from any firm, corporation or individual, and for such loans and advances may make, execute and deliver promissory notes, bonds, or other certificates or evidences of indebtedness of the corporation, and no officer or officers shall mortgage, pledge, hypothecate or transfer any securities or other property of the corporation, except upon the express authorization of the Board of Directors. The Chairman of the Board, President, Vice President-Finance or Treasurer may, without express authorization of the Board, cause the corporation to borrow money from or lend money to the parent company or ultimate parent company of the [sic] Corporation or any wholly owned, direct or indirect, subsidiary of the corporation, subject to legal restrictions or other requirements as may be established by the Board or stockholders. 12 Section 2. Signatures to Negotiable Paper. All checks, drafts, notes and other negotiable instruments of the corporation shall be signed, countersigned and endorsed by such directors, officers and agents as the Board of Directors may designate from time to time or as are designated in accordance with a resolution of the Board of Directors in effect at the time of such designation. Section 3. Delegation of Duties. The Board of Directors may, in its discretion, delegate the powers or duties of any officer to any other officer or director. Section 4. Dividends. Dividends upon the shares of the capital stock of the corporation may be declared and paid out of the net assets of the corporation in excess of its capital, as often and at such times as the Board of Directors may determine, subject to the limitations set forth in the Certificate of Incorporation and applicable statutes and legal restrictions. Section 5. Indemnification of Officers and Directors. To the full extent permitted by law, each officer, director and member of a committee duly constituted by the Board of Directors and each former officer, director and committee member of this corporation shall be indemnified by the corporation against all costs and expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense of any claim, action, suit or proceeding against him by reason of his being or having been an officer, director or member of a committee of the Board of Directors of this corporation, and which have not been recouped by him in any other manner, whether or not based on matters antedating the adoption of this provision. If any other unexhausted right of recoupment shall exist, payment of this indemnification shall be conditioned upon its release or assignment to this corporation. Section 6. Indemnification of Officers and Directors of Affiliated or Subsidiary Companies. Each officer and director and former officer and director of another corporation in which this corporation shall have a financial interest as an investor or creditor, who serves as such on behalf of this corporation, shall be indemnified to the extent permitted by law against all costs and expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense of any claim, action, suit or proceeding against him by reason of his being or having been an officer or director of such corporation, and which have not been recouped by him in any other manner, whether or not based on matters antedating the adoption of this provision. If any other unexhausted right of recoupment shall exist, payment of this indemnification shall be conditioned upon its release or assignment to this corporation. Section 7. Amendment to Conform to Business Corporation Law. If and to the extent that any provision of Section 5 or Section 6 of this Article VII is inconsistent with the Delaware General Corporation Law, as in effect from time to time, such provision shall be deemed to have been amended, mutatis mutandis, to the extent necessary to make it consistent with such Law. 13 Section 8. Signatures to Contracts. Except as otherwise authorized or required by statute, the Certificate of Incorporation or these By-laws, any contract or other instrument may be executed and delivered in the name and on behalf of the corporation by such officer or officers (including any assistant officer) of the corporation as the Board of Directors or the President of the Corporation may from time to time direct; provided that the President may not authorize the execution or delivery of any contract or other instrument if the same may pose a direct or indirect conflict of interest unless with the prior approval of the Secretary of the Corporation. Such authority may be general or confined to specific instances and need not be in writing. Unless otherwise authorized by the Board or expressly permitted by these by-laws, no officer, agent or employee shall have the power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it pecuniarily liable for any purpose or to any amount. Section 9. Fiscal Year. The fiscal year of the Corporation shall be fixed by the Board of Directors. ARTICLE VIII. Amendments Section 1. Amendments. These By-laws may be altered or repealed, in any particular, and new By-laws, not inconsistent with any provision of the Certificate of Incorporation forming this corporation or any certificate filed pursuant to law or any provision of law, may be adopted, either by the affirmative vote of the holders of record of a majority in number of the outstanding shares of stock entitled to vote, given at an annual meeting, or at any special meeting, or by vote of a majority of the whole Board of Directors, given at any meeting thereof. 14 EX-3.23 22 AMENDED AND RESTATED BY-LAWS AMENDED AND RESTATED BY-LAWS Adopted November ___, 1996 CORNING CLINICAL LABORATORIES INC., A Connecticut corporation CORNING CLINICAL LABORATORIES INC., A Maryland corporation CORNING CLINICAL LABORATORIES INC., A Massachusetts corporation CORNING CLINICAL LABORATORIES INC., A Michigan corporation CORNING CLINICAL LABORATORIES OF PENNSYLVANIA INC., A Delaware corporation CORNING MRL INC., A Delaware corporation DAMON CLINICAL LABORATORIES INC., A Massachusetts corporation DEYOR CPF/METPATH, INC., An Ohio corporation DIAGNOSTIC REFERENCE SERVICES, INC., A Maryland corporation DPD HOLDINGS, INC., A Delaware corporation METWEST INC., A Delaware corporation NICHOLS INSTITUTE DIAGNOSTICS, A California corporation NOMAD - MASSACHUSETTS, INC., A Massachusetts corporation QUEST DIAGNOSTICS INCORPORATED, A Maryland corporation QUEST DIAGNOSTICS INCORPORATED, A Michigan corporation SOUTHGATE MEDICAL SERVICES, INC., An Ohio corporation AMENDED AND RESTATED BY-LAWS TABLE OF CONTENTS ARTICLE I STOCKHOLDERS Page Section 1.01 Annual Meetings....................................1 Section 1.02 Special Meetings...................................1 Section 1.03 Notice of Meetings.................................1 Section 1.04 Business Transacted at Special Meetings of Stockholders...........................1 Section 1.05 Quorum.............................................1 Section 1.06 Consent of Stockholders in Lieu of Meeting.........................................1 ARTICLE II BOARD OF DIRECTORS Section 2.01 General Powers.....................................2 Section 2.02 Number and Term of Office..........................2 Section 2.03 Election of Directors..............................2 Section 2.04 Annual and Regular Meetings........................2 Section 2.05 Special Meetings; Notice...........................3 Section 2.06 Telephonic Meetings................................3 Section 2.07 Quorum and Vote....................................3 Section 2.08 Action Withouta Meeting............................3 Section 2.09 Manner of Acting...................................3 Section 2.10 Resignations.......................................3 Section 2.11 Removal of Directors...............................4 Section 2.12 Vacancies and Newly Created Directorships......................................5 Section 2.13 Reliance on Accounts and Reports, etc.......................................5 Section 2.14 Committees.........................................5 (i) ARTICLE III OFFICERS Page Section 3.01 Number and Designation.............................5 Section 3.02 Additional Officers................................6 Section 3.03 Election...........................................6 Section 3.04 Removal and Vacancies..............................6 Section 3.05 Duties of the Chairman of the Board of Directors.............................6 Section 3.06 Duties of the President............................6 Section 3.07 Duties of the Vice President ......................6 Section 3.08 Duties of the Secretary............................7 Section 3.09 Duties of the Treasurer............................7 Section 3.10 Duties of the Controller...........................7 Section 3.11 Duties of the Assistant Secretary..................7 Section 3.12 Duties of the Assistant Controller.................7 Section 3.13 Duties of the Assistant Treasurer..................7 ARTICLE IV EXECUTION OF INSTRUMENTS; DEPOSITS; FINANCES Section 4.01 General............................................8 Section 4.02 Corporate Indebtedness.............................8 Section 4.03 Checks, Drafts, etc................................8 Section 4.04 Deposits...........................................8 Section 4.05 Dividends..........................................9 Section 4.06 Fiscal Year........................................9 ARTICLE V CAPITAL STOCK Section 5.01 Certificates of Stock..............................9 ARTICLE VI SEAL; OFFICES Section 6.01 Seal...............................................9 Section 6.02 Offices............................................9 (ii) ARTICLE VII INDEMNIFICATION Page Section 7.01 Indemnification...................................9 ARTICLE VIII CONFLICTS Section 8.01 Conflicts.........................................10 ARTICLE IX AMENDMENTS Section 9.01 Amendments........................................11 (iii) AMENDED AND RESTATED BY-LAWS ARTICLE I STOCKHOLDERS Section 1.01. Annual Meetings. The annual meeting of the stockholders of the Corporation for the election of directors and for the transaction of such other business as properly may come before such meeting shall be held at such place either within or outside the State of Delaware, at such time and date as shall be fixed from time to time by resolution of the Board of Directors and as set forth in the notice of the meeting. Section 1.02. Special Meetings. Special meetings of the stockholders may be called at any time by the Chairman of the Board of Directors, if any, or by the President (or, in the absence or disability of the Chairman of the Board and the President, by any Vice President), or by the Board of Directors. Such special meetings of the stockholders shall be held at such places, within or outside the State of Delaware, as shall be specified in the respective notices or waivers of notice thereof. Section 1.03. Notice of Meetings. The Secretary or any Assistant Secretary shall cause written notice of the date, time and place of each meeting of the stockholders to be given, at least ten but not more than fifty days prior to the meeting, to each stockholder of record entitled to vote. Such notice shall be given either personally or by mail or other means of written communication, addressed to each stockholder at the address of such stockholder appearing on the books of the Corporation at the time such notice is dispatched. Such further notice shall be given as may be required by law. Notice of any meeting of stockholders need not be given to any stockholder who shall sign a waiver of such notice in writing, whether before or after the time of such meeting. Notice of any adjourned meeting of the stockholders of the Corporation need not be given. Section 1.04. Business Transacted at Special Meetings of Stockholders. Business transacted at any special meeting of stockholders shall not be limited to the purposes stated in the notice thereof. Section 1.05 Quorum. Except as at the time otherwise required by statute or by the Certificate of Incorporation, the presence at any stockholders meeting, in person or by proxy, of the holders of record of shares of stock (of any class) entitled to vote at the meeting, aggregating a majority of the total number of shares of stock of all classes then issued and outstanding and entitled to vote at the meeting, shall be necessary and sufficient to constitute a quorum for the transaction of business. Section 1.06 Consent of Stockholders in Lieu of Meeting. To the extent provided by any statute at the time in force, whenever the vote of stockholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action, by any statute, by the Certificate of Incorporation or by these By-Laws, the meeting and vote of stockholders may be dispensed with if the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted shall consent in writing to such corporate action being taken. ARTICLE II BOARD OF DIRECTORS Section 2.01 General Powers. The property, affairs and business of the Corporation shall be managed by the Board of Directors. The Board of Directors may exercise all the powers of the Corporation, whether derived from law or the Certificate of Incorporation, except such powers as are, by statute, by the Certificate of Incorporation or by these By-Laws, vested solely in the stockholders of the Corporation. No Director need be a stockholder of the Corporation. Section 2.02 Number and Term of Office. The Board of Directors shall consist of such number (but in no event less than three) of Directors as may be determined from time to time by resolution adopted by affirmative vote of a majority of the whole Board of Directors. Each Director (whenever elected) shall hold office until his or her successor shall have been elected, shall qualify, or until his or her death, or until he or she shall have resigned in the manner provided in Section 2.10 hereof or shall have been removed in the manner provided in Section 2.11 hereof. Section 2.03 Election of Directors. Except as otherwise provided in Sections 2.11 and 2.12 hereof, the Directors shall be elected annually at the annual meeting of the stockholders. In the event of the failure to elect Directors at an annual meeting of the stockholders, then Directors may be elected at any regular or special meeting of stockholders entitled to vote for election of Directors, provided that notice of such meeting shall contain mention of such purpose. Section 2.04 Annual and Regular Meetings. The annual meeting of the Board of Directors, for the choosing of officers and for the transaction of such other business as may come before the meeting, shall be held in each year as soon as possible after the annual meeting of the stockholders at the place of such annual meeting of the stockholders, and notice of such annual meeting of the Board of Directors shall not be required to be given. The Board of Directors from time to time may provide by resolution for the holding of regular meetings and fix the time and place (which may be within or outside the State of Delaware) thereof. Notice of such regular meetings need not be given; provided, however, that in case the Board of Directors shall fix or change the time or place of regular meetings, notice of such action shall be given personally or by mail, facsimile or similar means of communication promptly to each Director who shall not have been present at the meeting at which such action was taken. Section 2.05 Special Meetings; Notice. Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board, if any, or by the President (or, in the absence or disability of the Chairman of the Board and the President, by any Vice President), or by any two Directors, at such time and place (which may be within or outside of the State of Delaware) as may be specified in the respective notices or waivers of notice thereof. Special meetings of the Board of Directors may be called on two days' notice to each Director, personally or by telephone or facsimile or on four days' notice by mail. Notice of any special meeting need not be given to any Director who shall be present at such meeting, or to any Director who shall waive notice of such meeting in writing, whether before or after the time of such meeting, and any business may be transacted thereat. No notice need be given of any adjourned meeting. Section 2.06 Telephonic Meetings. Directors may participate in a meeting of the Board of Directors, or a meeting of any committee designated by the Board, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this By-Law shall constitute presence in person at such meeting. Section 2.07 Quorum and Vote. At all meetings of the Board of Directors, the presence of a majority of the total authorized number of Directors under Section 2.02 hereof shall be necessary and sufficient to constitute a quorum for the transaction of business. Except when otherwise required by statute, the vote of a majority of the total number of Directors present and acting at a meeting at which a quorum is present shall be the act of the Board of Directors. In the absence of a quorum, a majority of the Directors present may adjourn the meeting from time to time, until a quorum shall be present. Section 2.08 Action Without a Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors or any meeting of a Committee of the Board of Directors may be taken without a meeting, if written consents thereto are signed by all members of the Board or Committee and such written consents are filed with the minutes of proceedings of the Board. Section 2.09 Manner of Acting. The Directors shall act only as a Board, and the individual Directors shall have no power as such, except as permitted by statute. Section 2.10 Resignations. Any Director may resign at any time by delivering a written resignation to the Chairman of the Board, if any, the President, a Vice President, the Secretary or any Assistant Secretary. Unless otherwise specified therein, such resignation shall take effect upon delivery. Section 2.11 Removal of Directors. Any Director may be removed at any time, either for or without cause, upon the affirmative vote of the holders of a majority of the outstanding shares of stock of the Corporation entitled to vote for the election of such Director, given at a special meeting of such stockholders called for the purpose; provided, however, that if less than the entire Board is to be removed, no Director may be removed without cause if the votes cast against his or her removal would be sufficient to elect him or her if then cumulatively voted at an election of the entire Board of Directors. Any vacancy in the Board of Directors caused by any such removal may be filled at such meeting by a vote of the stockholders entitled to vote for the election of the Directors so removed. If such stockholders do not fill such vacancy at such meeting, such vacancy may be filled in the manner provided in Section 2.12 hereof. Section 2.12 Vacancies and Newly Created Directorships. If any vacancies shall occur in the Board of Directors, by reason of death, resignation, removal or otherwise, or if the authorized number of Directors shall be increased, the Directors then in office shall continue to act, and such vacancies may be filled by a majority of the Directors then in office, though less than a quorum, and the Directors so chosen shall hold office until the next annual election and until their successors are duly elected and qualified, unless sooner displaced. Any such vacancies or newly created Directorships may also be filled by a vote of the stockholders entitled to vote for the election of Directors. Section 2.13 Reliance on Accounts and Reports, etc. A Director, or a member of any committee designated by the Board of Directors, in the performance of his or her duties, shall be fully protected in relying in good faith on the records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or committees of the Board of Directors or by any other person as to matters the Director or member reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation. Section 2.14 Committees. The Board may establish such committees having such responsibilities and composition as it shall from time to time by resolution determine. ARTICLE III OFFICERS Section 3.01 Number and Designation. The officers of the Corporation shall be chosen by the Board of Directors and may include a Chairman of the Board, a President, a Vice President, a Secretary, a Controller and a Treasurer who shall hold office until their successors are chosen and qualify or their earlier resignation or removal. The Board of Directors may also choose additional Vice Presidents, and one or more Assistant Secretaries, Assistant Controllers and Assistant Treasurers. Any one or more of such Vice Presidents may be designated as Executive or Senior Vice President. Any number of offices may be held by the same person, except that no person shall simultaneously hold the offices of Chairman or President and Secretary, Treasurer or Controller.The Chairman shall be a member of the Board of Directors. The Board may also designate any Vice Presidents as Chief Financial Officer and as General Counsel. Section 3.02 Additional Officers. The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. The Board of Directors may also delegate its Chairman or the President to appoint and remove such additional officers as the Chairman or the President, as the case may be, shall designate in writing, with such limited authority as shall be set forth in writing, and such appointments shall be reported to the Board of Directors. Section 3.03 Election. The Board of Directors at its first meeting or such subsequent meetings as shall be held prior to its first annual meeting, and thereafter annually at its annual meeting, shall choose the officers of the Corporation. If any officers are not chosen at an annual meeting, such officers may be chosen at any subsequent regular or special meeting. Section 3.04 Removal and Vacancies. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors, either with or without cause. Any vacancy occurring in any office or the Corporation shall be filled by the Board of Directors. Section 3.05 Duties of the Chairman of the Board of Directors. The Chairman of the Board of Directors, if present, shall preside at all stockholders' meetings and all meetings of the Board at which he is present and shall have such other duties as shall be assigned to him or her by the Board of Directors. The Chairman may be the Chief Executive Officer of the Corporation. Section 3.06 Duties of the President. The President shall have direct charge of the business of the Corporation, subject to the general control of the Board of Directors, and may be the Chief Executive Officer and/or the Chief Operating Officer of the Corporation. In the absence of the Chairman of the Board or if no Chairman of the Board has been chosen, the President shall also have the duties of the Chairman of the Board. Section 3.07 Duties of the Vice President. In the event of the absence of disability of the Chairman of the Board and the President, the Executive or Senior Vice President, if any, or if absent, any Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting, shall have all the powers of, and be subject to all the restrictions upon, the President. Except where by law the signature of the President is required, each of the Vice Presidents shall possess the same power as the President to sign all certificates, contracts, obligations and other instruments of the Corporation. Any Vice President shall perform such other duties and may exercise such other powers as from time to time may be assigned to him or her by these By-Laws or by the Board of Directors or the President. An Executive Vice President may be the Chief Operating Officer of the Corporation. Section 3.08 Duties of the Secretary. The Secretary shall, if present, act as Secretary of, and keep the minutes of, all the proceedings of the meetings of the stockholders and of the Board of Directors and of any committee of the Board of Directors in one or more books to be kept for that purpose; shall perform such other duties as shall be assigned to him or her by the President or the Board of Directors; and, in general, shall perform all duties incident to the office of Secretary. Section 3.09 Duties of the Treasurer. The Treasurer shall keep or cause to be kept full and accurate records of all receipts and disbursements in the books of the Corporation and shall have the care and custody of all funds and securities of the Corporation. He or she shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall render to the President and the Board of Directors, whenever they request it, an account of all of his or her transactions as Treasurer and shall perform such other duties as may be assigned to him or her by the President or the Board of Directors; and, in general, shall perform all duties incident to the office of Treasurer. Section 3.10 Duties of the Controller. The Controller shall be the chief accounting officer of the Corporation. The Controller shall keep or cause to be kept all books of account and accounting records of the Corporation and shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the Corporation. The Controller shall prepare or cause to be prepared appropriate financial statements for the Corporation and shall perform such other duties as may be assigned to him or her by the President or the Board of Directors; and, in general, shall perform all duties incident to the office of Controller. Section 3.11 Duties of the Assistant Secretary. The Assistant Secretary, if any, shall, in the absence or disability of the Secretary, exercise the powers and perform the duties of the Secretary, and shall perform such other duties as shall be assigned to him or her by the President or the Board of Directors. Section 3.12 Duties of the Assistant Controller. The Assistant Controller, if any, shall, in the absence or disability of the Controller, exercise the powers and perform the duties of the Controller, and shall perform such other duties as shall be assigned to him or her by the President or the Board of Directors. Section 3.13 Duties of the Assistant Treasurer. The Assistant Treasurer, if any, shall, in the absence or disability of the Treasurer, exercise the powers and perform the duties of the Treasurer, and shall perform such other duties as shall be assigned to him or her by the President or the Board of Directors. ARTICLE IV EXECUTION OF INSTRUMENTS; DEPOSITS; FINANCES Section 4.01 General. Subject to the provisions of Sections 4.02, 4.03 and 4.04 hereof, all deeds, documents, transfers, contracts, and agreements and other instruments requiring execution by the Corporation shall be signed by the Chairman of the Board, the President, a Vice President or the Treasurer, or as the Board of Directors may otherwise from time to time authorize by resolution. Any such authorization may be general or confined to specific instances. Section 4.02 Corporate Indebtedness. No loan shall be contracted on behalf of the Corporation, and no evidences of indebtedness shall be issued in its name, unless authorized by the Board of Directors. Such authorizations of the Board may be general or confined to specific instances. Loans authorized by the Board of Directors may be effected at any time for the Corporation from any bank, trust company or other institution, or from any firm, corporation or individual. All bonds, debentures, notes and other obligations or evidences of indebtedness of the Corporation issued for such loans as the Board shall authorize shall be made, executed and delivered as the Board of Directors shall authorize. All notes and other obligations or evidences of indebtedness permitted hereunder without authorization of the Board of Directors shall be signed by the President, a Vice President or the Treasurer. When so authorized by the Board of Directors, any part of or all the properties, including contract rights, assets, business or goodwill of the Corporation, whether then owned or thereafter acquired, may be mortgaged, pledged, hypothecated or conveyed or assigned in trust as security for the payment of such bonds, debentures, notes and other obligations or evidences of indebtedness so the Corporation, and of the interest thereon, by instruments executed and delivered in the name of the Corporation. Section 4.03 Checks, Drafts, etc. All checks, drafts, bills of exchange or orders for the payment of money, issued in the name of the Corporation, shall be signed only by the Treasurer or such other person or persons and in such manner as may from time to time be designated by the Board of Directors, which designation may be general or confined to specific instances; and unless so designated, no person shall have any power or authority thereby to bind the Corporation or to pledge its credit or to render it liable. Section 4.04 Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors may select. The Board of Directors may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these By-Laws, as it may deem expedient. For the purpose of deposit and for the purpose of collection for the account of the Corporation, checks, drafts and other orders for the payment of money which are payable to the order of the Corporation shall be endorsed, assigned and delivered by the Treasurer or such other person or persons and in such manner as may from time to time be designated by the Board of Directors. Section 4.05 Dividends. Dividends upon the stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Such declaration may be continuing or limited to a specific payment or distribution. Dividends may be paid in cash, in property, or in shares of stock, subject to the provisions of the Certificate of Incorporation. Section 4.06 Fiscal Year. The fiscal year of the Corporation shall be the calendar year, unless otherwise fixed by resolution of the Board of Directors. ARTICLE V CAPITAL STOCK Section 5.01 Certificates of Stock. Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of the Corporation by, the Chairman of the Board of Directors, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or by the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by such holder in the Corporation. ARTICLE VI SEAL; OFFICES Section 6.01 Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its incorporation and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 6.02 Offices. The Corporation may have offices at such other places both within or outside the State of Delaware as the Board of Directors may from time to time determine or as the business of the Corporation may require. ARTICLE VII INDEMNIFICATION Section 7.01 Indemnification. (a) No director of the Corporation shall have any personal liability to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that this provision shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. (b) Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action either in an official capacity as a director or officer or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expenses, liability and loss (including attorneys' fees, judgments, fines, excise taxes pursuant to the Employee Retirement Income Security Act of 1974, as amended, or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to be indemnified conferred in this Section 7.01 shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, the payment of such expenses incurred by the director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is to be rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan), in advance of the final disposition of proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Article or otherwise. The Corporation may, by action of its Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers. (c) The indemnification provided by this Section 7.01 shall not limit or exclude any rights, indemnities or limitations of liability to which any person may be entitled, whether as a matter of law, under the Certificate of Incorporation of the Corporation, by agreement, vote of the stockholders or disinterested directors of the Corporation or otherwise. (d) If a claim under paragraph (b) of this Section 7.01 is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the General Corporation Law of the State of Delaware for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard or conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the Corporation (including its Board, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall create a presumption that the claimant has not met the applicable standard of conduct. (e) The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware. ARTICLE VIII CONFLICTS Section 8.01 Conflicts. To the extent any provision of these By-Laws conflicts with the law of the State of incorporation of the Corporation, the laws of such state shall control. ARTICLE IX AMENDMENTS Section 9.01 Amendments. These By-Laws may only be altered or repealed and new ByLaws adopted by resolution of the Board of Directors or of the Shareholders. EX-23.2 23 CONSENTS OF EXPERTS AND COUNSEL Exhibit 23.2 Consent of Price Waterhouse LLP, Independent Accountants We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-1 of our report dated September 20, 1996, except for Note 13 as to which the date is November 4, 1996, relating to the combined financial statements of Corning Clinical Laboratories Inc., which appears in such Prospectus. We also consent to the application of such report to the Financial Statement Schedule for the three years ended December 31, 1995 listed under Item 16b of this Registration Statement when such schedule is read in conjunction with the financial statements referred to in our report. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ Price Waterhouse LLP Price Waterhouse LLP New York, New York November 25, 1996 E-3 EX-23.3 24 CONSENTS OF EXPERTS AND COUNSEL Exhibit 23.3 Consent of Leverone & Company, Independent Accountants We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-1 of Corning Clinical Laboratories Inc. of our report dated November 10, 1994 relating to the financial statements of Moran Research Labs (not presented separately herein) as of and for the year ended December 31, 1993. We also consent to the reference to us under the heading "Experts" in such Registration Statement. /s/ Leverone & Company Leverone & Company Billerica, Massachusetts November 21, 1996 E-4 EX-23.4 25 CONSENTS OF EXPERTS AND COUNSEL Exhibit 23.4 Consent of Deloitte & Touche LLP, Independent Auditors We consent to the use in this Amendment No. 1 to the Registration Statement of Corning Clinical Laboratories Inc. on Form S-1 of our report dated February 28, 1994 relating to the consolidated statements of operations, stockholders' equity and cash flows for the year ended December 31, 1993 of Nichols Institute (not presented separately herein) which report includes explanatory paragraphs related to uncertainties as to an investigation by the Office of the Inspector General of the Department of Health and Human Services and substantial doubt as to the Company's ability to continue as a going concern. We also consent to the reference to us under the heading "Experts" in such Registration Statement. /s/Deloitte & Touche LLP Deloitte & Touche LLP Costa Mesa, California November 25, 1996 E-5 EX-23.5 26 CONSENTS OF EXPERTS AND COUNSEL Exhibit 23.5 Consent of Ernst & Young LLP, Independent Auditors We consent to the reference to our firm under the caption "Experts" and to the use of our report dated May 19, 1994, relating to the combined financial statements of Maryland Medical Laboratory, Inc. and affiliates (not presented separately herein) in Amendment No. 1 to the Registration Statement on Form S-1 and related Prospectus of Corning Clinical Laboratories Inc. dated November 25, 1996. /s/ Ernst & Young LLP Ernst & Young LLP Baltimore, Maryland November 25, 1996 E-6 EX-23.6 27 CONSENTS OF EXPERTS AND COUNSEL [Project Hope Letterhead] November 23, 1996 Legal Department Corning Clinical Laboratiories, Inc. One Malcolm Avenue Teterboro, NJ 07608 Dear Ms. Serocke: This letter serves as written consent for Corning Clinical Laboratories to include my name and information in the filing to the Securities and Exchange Commission on Monday, November 25, 1996 as a potential new member of the board of directors of Quest Diagnostics, Inc. Sincerely, /s/ Gail R. Wilensky, Ph.D. John M. Olin Senior Fellow Project HOPE -----END PRIVACY-ENHANCED MESSAGE-----