Subscription, Merger And Exchange Agreement

Exhibit 10.1


[Execution Version] SUBSCRIPTION, MERGER AND EXCHANGE AGREEMENT Dated as of September 29, 2005, Among AMERIPATH HOLDINGS, INC., AMERIPATH GROUP HOLDINGS, INC., AQUA ACQUISITION CORP., THE STOCKHOLDERS OF AMERIPATH HOLDINGS, INC. SET FORTH ON THE SIGNATURE PAGES HEREOF, And THE STOCKHOLDERS OF SPECIALTY LABORATORIES, INC. SET FORTH ON THE SIGNATURE PAGES HEREOF


TABLE OF CONTENTS

Page


ARTICLE I THE SUBSCRIPTION, MERGER AND EXCHANGE 2

SECTION 1.01

The Subscription, Merger and Exchange 2

SECTION 1.02

Closing 4

SECTION 1.03

Effective Time 4

SECTION 1.04

Effects 4

SECTION 1.05

Certificate of Incorporation and Bylaws 4

SECTION 1.06

Directors and Officers 5

SECTION 1.07

Adjustment to Purchase Price 5

ARTICLE II

EFFECT ON THE CAPITAL STOCK OF THE CONSTITUENT

CORPORATIONS; EXCHANGE OF CERTIFICATES 6

SECTION 2.01

Effect of Merger on Capital Stock 6

ARTICLE III REPRESENTATIONS AND WARRANTIES OF AQUA 6

SECTION 3.01

Organization, Standing and Power 7

SECTION 3.02

Aqua Subsidiaries; Equity Interests 7

SECTION 3.03

Capital Structure 7

SECTION 3.04

Authority; Execution and Delivery, Enforceability 8

SECTION 3.05

No Conflicts; Consents 8

SECTION 3.06

SEC Documents; Undisclosed Liabilities 9

SECTION 3.07

Absence of Certain Changes or Events 10

SECTION 3.08

Taxes 10

SECTION 3.09

Absence of Changes in Benefit Plans 12

SECTION 3.10

ERISA Compliance 12

SECTION 3.11

Litigation 13

SECTION 3.12

Compliance with Applicable Laws 14

SECTION 3.13

Material Contracts 15

SECTION 3.14

Intellectual Property 17

SECTION 3.15

Permits 17

SECTION 3.16

Environmental Matters 17

SECTION 3.17

Real Property 18

SECTION 3.18

Insurance 18


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SECTION 3.19

Labor Matters 19

SECTION 3.20

Affiliated Transactions 19

SECTION 3.21

Brokers 20

ARTICLE IV

REPRESENTATIONS AND WARRANTIES WITH RESPECT TO

HOLDINGS AND MERGER SUB 20

SECTION 4.01

Organization, Standing and Power 20

SECTION 4.02

Holdings 20

SECTION 4.03

Merger Sub 20

SECTION 4.04

Authority; Execution and Delivery, Enforceability 20

SECTION 4.05

No Conflicts 21

SECTION 4.06

Brokers 21

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF AQUA

STOCKHOLDERS 21

SECTION 5.01

Organization; Authority; Execution and Delivery, Enforceability 21

SECTION 5.02

No Conflicts 21

SECTION 5.03

Aqua Common Stock 22

SECTION 5.04

Brokers 22

ARTICLE VI

REPRESENTATIONS AND WARRANTIES OF FOUNDER

PARTIES 22

SECTION 6.01

Organization; Authority; Execution and Delivery, Enforceability 22

SECTION 6.02

No Conflicts 22

SECTION 6.03

Silver Common Stock 23

SECTION 6.04

Brokers 23

ARTICLE VII COVENANTS RELATING TO CONDUCT OF BUSINESS 23

SECTION 7.01

Conduct of Business 23

ARTICLE VIII ADDITIONAL AGREEMENTS 24

SECTION 8.01

Access to Information; Confidentiality 24

SECTION 8.02

Best Efforts; Notification 25

SECTION 8.03

Fees and Expenses 25

SECTION 8.04

Public Announcements 25

SECTION 8.05

Transfer Taxes 25

ARTICLE IX CONDITIONS PRECEDENT 26


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SECTION 9.01

Conditions to Each Party' s Obligation To Effect The Transactions 26

SECTION 9.02

Conditions to Obligations of Aqua and Holdings 26

SECTION 9.03

Conditions to Obligations of Founder Parties 26

ARTICLE X TERMINATION, AMENDMENT AND WAIVER 27

SECTION 10.01

Termination 27

SECTION 10.02

Effect of Termination 28

SECTION 10.03

Amendment; Extension; Waiver 28

ARTICLE XI GENERAL PROVISIONS 29

SECTION 11.01

Nonsurvival of Representations and Warranties 29

SECTION 11.02

Notices 29

SECTION 11.03

Definitions 30

SECTION 11.04

Interpretation 31

SECTION 11.05

Severability 31

SECTION 11.06

Counterparts 31

SECTION 11.07

Entire Agreement; Third-Party Beneficiaries 31

SECTION 11.08

Governing Law 32

SECTION 11.09

Assignment 32

SECTION 11.10

Enforcement; Jurisdiction; WAIVER OF JURY TRIAL 32

Exhibit A Amended and Restated Charter A-1

Exhibit B Form of Joinder B-1

Exhibit C Founder Agreement C-1

Exhibit D Holdings Stockholders' Agreement D-1

Exhibit E Registration Rights Agreement E-1

Exhibit F Certificate of Incorporation of the Surviving Corporation F-1


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SUBSCRIPTION, MERGER AND EXCHANGE AGREEMENT (this " Agreement" ), dated as of September 29, 2005, among AMERIPATH HOLDINGS, INC., a Delaware corporation (" Aqua" ), AMERIPATH GROUP HOLDINGS, INC., a Delaware corporation and a wholly owned subsidiary of Aqua (" Holdings" ), AQUA ACQUISITION CORP., a Delaware corporation and a wholly owned subsidiary of Holdings (" Merger Sub" ), the stockholders of Aqua set forth on Schedule 1.01(a) hereto (collectively, the " Aqua Stockholders" ), and the stockholders of Specialty Laboratories, Inc., a California corporation (" Silver" ) set forth on Schedule 1.01(b) hereto (collectively, the " Founder Parties" ).

WHEREAS, Aqua has organized Holdings, and Holdings has organized Merger Sub, for the purpose of effecting the transactions contemplated hereby;

WHEREAS, Holdings shall issue 55,121,279 shares of the common stock, par value $0.01 per share, of Holdings (" Holdings Common Stock" ) and 55,121,279 shares of Series A participating preferred stock, par value $0.001 per share, of Holdings (" Holdings Preferred Stock" ) to Aqua Stockholders in exchange for an aggregate $45,900,000, and 47,471,279 shares of the common stock, par value $ 0.01, of Aqua (" Aqua Common Stock" ), subject to adjustment in accordance with Sections 1.01(a) and 1.07 hereof and otherwise on the terms and subject to the conditions set forth in this Agreement;

WHEREAS, Holdings shall issue 19,930,208 shares of Holdings Common Stock and 19,930,208 shares of Holdings Preferred Stock to Founder Parties in exchange for 9,025,000 shares of the common stock, no par value, of Silver (" Silver Common Stock" ), subject to adjustment in accordance with Sections 1.01(b) and 1.07 hereof and otherwise on the terms and subject to the conditions set forth in this Agreement;

WHEREAS, the parties intend, by executing this Agreement, that the foregoing exchanges of Aqua Common Stock and Silver Common Stock for Holdings Common Stock and Holdings Preferred Stock qualify as a tax-free exchange under Section 351 of the Internal Revenue Code of 1986, as amended (the " Code" );

WHEREAS, the respective Boards of Directors of Merger Sub and Aqua have approved and declared advisable, and the Board of Directors of Holdings has approved, the merger of Merger Sub with and into Aqua on the terms and subject to the conditions set forth in this Agreement, and the stockholders of Merger Sub and Aqua have adopted this Agreement;

WHEREAS, simultaneously with the execution of this Agreement, Aqua, AmeriPath, Inc., a Delaware corporation (" Opco" ), Silver and Silver Acquisition Corp., a California corporation and a wholly owned subsidiary of Opco (" Silver Merger Sub" ), have entered into an Agreement and Plan of Merger (the " Silver Merger Agreement" ), pursuant to which Silver Merger Sub shall be merged with and into Silver (the " Silver Merger" ) and as a result, Opco will acquire all of the outstanding stock of Silver immediately after the consummation of the transactions contemplated by this Agreement;

WHEREAS, in connection with the transactions contemplated by this Agreement, the Certificate of Incorporation of Holdings shall be amended and restated in the form of Exhibit A hereto (the " Restated Holdings Charter" ); and


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WHEREAS, the parties hereto desire to make certain representations, warranties, covenants and agreements in connection with the Transactions (as defined in Section 1.01) and also to prescribe various conditions to the Transactions.

NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements herein contained, the parties hereto, intending to be legally bound, hereby agree as follows: ARTICLE I The Subscription, Merger and Exchange

SECTION 1.01 The Subscription, Merger and Exchange . On the terms and subject to the conditions set forth in this Agreement, and in accordance with the Delaware General Corporation Law (the " DGCL" ), the following transactions shall take place at the Closing (as defined in Section 1.02) (the transactions contemplated by this Section 1.01 are referred to in this Agreement collectively as the " Transactions" ):

(a) Each Aqua Stockholder shall (i) subscribe and pay for and Holdings shall issue to such Aqua Stockholder the number of fully paid and nonassessable shares of Holdings Common Stock and Holdings Preferred Stock set forth opposite the name of such Aqua Stockholder on Schedule 1.01(a) of this Agreement under the headings " Holdings Common Shares From Cash" and " Holdings Preferred Shares From Cash," respectively, at a purchase price of $1.20 (the " Holdings Common Stock Price" ) per share of Holdings Common Stock in cash and $4.80 (the " Holdings Preferred Stock Price" ) per share of Holdings Preferred Stock in cash (collectively, the " Holdings Subscription" ), or (ii) sell and transfer the number of shares of Aqua Common Stock set forth opposite such Aqua Stockholder' s name on Schedule 1.01(a) of this Agreement under the heading " Contributed Shares" to Holdings, and, in exchange therefor, Holdings shall issue to such Aqua Stockholder the number of fully paid and nonassessable shares of Holdings Common Stock and Holdings Preferred Stock set forth opposite the name of such Aqua Stockholder on Schedule 1.01(a) of this Agreement under the headings " Holdings Common Shares From Contribution" and " Holdings Preferred Shares From Contribution," respectively (the " Aqua Stockholder Exchange" ). In addition, prior to the Effective Time (as defined below), it is contemplated that, with the consent of Aqua, certain additional stockholders of Aqua (" Additional Aqua Stockholders" ) shall, by execution and delivery of a joinder in the form attached as Exhibit B hereto (a " Joinder" ), agree to become parties to this Agreement and be bound by the terms and conditions hereof as if an Aqua Stockholder hereunder. The Additional Aqua Stockholders shall be entitled to contribute shares of Aqua Common Stock to Holdings, and in exchange for each such share, Holdings shall issue to such stockholders fully paid and nonassessable shares of Holdings Common Stock and fully paid and nonassessable shares of Holdings Preferred Stock, in each case, in the same proportion and at the same price as the shares of Holdings Common Stock and Holdings Preferred Stock to be issued in the Aqua Stockholder Exchange. Upon execution and delivery of a Joinder by any Additional Aqua Stockholder, Schedule 1.01(a) shall be amended, without any further action by any of the parties hereto, to reflect the contribution to be made by such Additional Aqua Stockholder.


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(b) Each Founder Party shall sell and transfer the number of shares of Silver Common Stock set forth opposite the name of such Founder Party on Schedule 1.01(b) of this Agreement under the heading " Contributed Shares" to Holdings, and, in exchange therefor, Holdings shall issue to such Founder Party the number of fully paid and nonassessable shares of Holdings Common Stock and Holdings Preferred Stock set forth opposite the name of such Founder Party on Schedule 1.01(b) of this Agreement under the headings " Holdings Common Shares From Contribution" and " Holdings Preferred Shares From Contribution," respectively (collectively, the " Founder Exchange" ). Notwithstanding the foregoing, if, at the Effective Time, the Founder Parties do not hold an aggregate 20% or more of the outstanding shares of Holdings Common Stock and an aggregate 20% or more of the outstanding shares of Holdings Preferred Stock, then the shares of Silver Common Stock to be contributed by the Specialty Family Limited Partnership pursuant to the Founder Exchange shall be increased such that at the Effective Time, the Founder Parties hold an aggregate 20% of the outstanding shares of Holdings Common Stock and an aggregate 20% of the outstanding shares of Holdings Preferred Stock. In any such event Schedule 1.01(b) shall be amended, without any further action by any of the parties hereto, to reflect the additional contribution to be made by the Specialty Family Limited Partnership.

(c) (i) Holdings and James B. Peter, M.D., Ph.D. (" Founder" ) shall execute and deliver the agreement relating to services to be provided by Founder in the form attached as Exhibit C (the " Founder Agreement" ), and (ii) Holdings, Aqua Stockholders and Founder Parties shall execute and deliver the Holdings Stockholders' Agreement in the form attached as Exhibit D (the " Holdings Stockholders' Agreement" ) and the Registration Rights Agreement in the form attached as Exhibit E (the " Registration Rights Agreement" ). The Founder Agreement, the Holdings Stockholders' Agreement and the Registration Rights Agreement are, collectively, the " Holdings Agreements ."

(d) Merger Sub shall be merged with and into Aqua at the Effective Time (as defined in Section 1.03) (the " Merger" ). At the Effective Time, the separate corporate existence of Merger Sub shall cease and Aqua shall continue as the surviving corporation (the " Surviving Corporation" ).

(e) At the Effective Time, Holdings and Aqua shall take all action necessary such that each outstanding option to purchase shares of Aqua Common Stock (an " Aqua Option" ), whether or not then exercisable, shall be cancelled and shall entitle the holder thereof to receive, as soon as reasonably practicable after the surrender thereof, only an amount in cash equal to the product of (x) the total number of shares of Aqua Common Stock subject to the Aqua Option times (y) the excess, if any, of the value of the Merger Consideration over the exercise price per share of Aqua Common stock under such Aqua Option, less applicable Taxes required to be withheld with respect to such payment. The Aqua Option Plan (as defined in Section 3.03) shall be terminated immediately after the Effective Time, and the provisions in any agreement, arrangement or other benefit plan providing for the issuance, transfer or grant of any capital stock of Aqua or any interest in respect of any capital stock of Aqua shall be deleted immediately after the Effective Time, and Aqua shall take such actions to ensure that following the Effective Time no holder of an Aqua Option or any participant in or a party to the Aqua Option Plan or any similar plan or other agreement, arrangement or benefit plan shall have any


-3- right thereunder to acquire any capital stock or any interest in respect of any capital stock of the Surviving Corporation.

SECTION 1.02 Closing . The closing (the " Closing" ) of the Transactions shall take place at the offices of Ropes & Gray LLP, 45 Rockefeller Plaza, New York, New York, 10111 as promptly as practicable after all the conditions set forth in Article IX have been satisfied (or, to the extent permitted by Law (as defined in Section 3.05), waived by the parties entitled to the benefits thereof), in each case other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions (and in any event, not more than two business days following the satisfaction or waiver of all such conditions), or at such other place, time and date as shall be agreed in writing between Aqua and Founder. The date on which the Closing occurs is referred to in this Agreement as the " Closing Date" . Notwithstanding anything to the contrary set forth herein, (i) the Holdings Subscription, the Aqua Stockholder Exchange and the Founder Exchange shall be deemed to occur simultaneously with each other, in each case, immediately prior to the Effective Time, and (ii) the Effective Time shall be deemed to occur immediately prior to the effective time of the Silver Merger. All amounts of cash contributed to Holdings by the applicable Aqua Stockholders in exchange for shares of Holdings Common Stock and Holdings Preferred Stock hereunder shall be delivered to Holdings at the Closing by wire transfer of immediately available funds to an account designated by Holdings to such Aqua Stockholders. All certificates (or affidavits of loss reasonably acceptable to Holdings), each accompanied by a stock power duly executed by the record holders thereof, representing the shares of Aqua Common Stock or Silver Common Stock contributed to Holdings in accordance with Section 1.01 shall be delivered to Holdings at the Closing. At the Closing, Aqua shall surrender to Holdings the certificate representing all of the issued and outstanding shares of Holdings Common Stock prior to the Effective Time and such shares shall be cancelled at Closing in consideration for $6.00 per share payable by Holdings.

SECTION 1.03 Effective Time . Prior to the Closing, Aqua shall prepare, and on the Closing Date Aqua shall cause to be filed with the Secretary of State of the State of Delaware a certificate of merger or other appropriate documents (in any such case, the " Certificate of Merger" ) executed in accordance with Section 251 of the DGCL and shall make all other filings or recordings required under the DGCL. The Merger shall become effective at such time as the Certificate of Merger is duly filed with the Secretary of State of the State of Delaware or at such other time as Aqua shall specify in the Certificate of Merger (the time the Merger becomes effective being the " Effective Time" ).

SECTION 1.04 Effects . The Merger shall have the effects set forth in the DGCL, including Section 259 of the DGCL.

SECTION 1.05 Certificate of Incorporation and Bylaws .

(a) Certificate of Incorporation . The Certificate of Incorporation of the Surviving Corporation shall be amended at the Effective Time to read in the form of Exhibit F , and, as so amended, such Certificate of Incorporation shall be the Certificate of Incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable Law.


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(b) Bylaws . The Bylaws of Aqua as in effect immediately prior to the Effective Time shall be the Bylaws of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable Law.

SECTION 1.06 Directors and Officers.

(a) Directors . The directors of Aqua immediately prior to the Effective Time shall be the directors of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be.

(b) Officers . The officers of Aqua immediately prior to the Effective Time shall be the officers of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected or appointed and qualified, as the case may be.

SECTION 1.07 Adjustment to Purchase Price . The parties acknowledge and agree that the Holdings Subscription, the Aqua Stockholder Exchange and the Founder Exchange each assume that (i) the per share value of a share of Aqua Common Stock contributed to Holdings prior to the Effective Time is $6.00, (ii) the per share value of a share of Silver Common Stock contributed to Holdings prior to the Effective Time is $13.25, (iii) 20% of the value of cash and contributed securities in such Transactions will be used to subscribe for, or will be exchanged for, Holdings Common Stock (the " Holdings Common Allocation" ), (iv) 80% of the value of cash and contributed securities in such Transactions will be used to subscribe for, or will be exchanged for, Holdings Preferred Stock (the " Holdings Preferred Allocation" ), and (v) the per share value of the shares of Holdings Common Stock and Holdings Preferred Stock issued in such transactions are the Holdings Common Stock Price and the Holdings Preferred Stock Price, respectively. Notwithstanding the foregoing, the parties agree that it may be in the best interest of Holdings to adjust the Holdings Common Allocation and the Holdings Preferred Allocation or sell shares of Holdings Common Stock and Holdings Preferred Stock at a price per share other than the Holdings Common Stock Price and the Holdings Preferred Stock Price, respectively. Accordingly, the parties agree that Holdings shall be entitled to amend this agreement to adjust one or more of the Holdings Common Allocation, the Holdings Preferred Allocation, the Holdings Common Stock Price and Holdings Preferred Stock Price, provided that pursuant to any such amendment (A) the per share value of a share of Aqua Common Stock contributed to Holdings shall remain $6.00, (B) the per share value of a share of Silver Common Stock contributed to Holdings shall remain at $13.25, (C) the sum of the amended Holdings Common Allocation and amended Holdings Preferred Allocation equals 100%, (D) the sum of the amended Holdings Common Stock Price and amended Holdings Preferred Stock equals $6.00, and (E) any such amended Holdings Common Allocation, amended Holdings Preferred Allocation, amended Holdings Common Stock Price and amended Holdings Preferred Stock Price shall apply to each of the Holdings Subscription, the Aqua Stockholder Exchange and the Founder Exchange. Upon any such amendment, Schedules 1.01(a) and 1.01(b) shall be amended, without any further action by any of the parties hereto, to reflect the foregoing amendments to the Holdings Common Allocation, the Holdings Preferred Allocation, the Holdings Common Stock Price and the Holdings Preferred Stock Price, if any.


-5- ARTICLE II Effect on the Capital Stock of the Constituent Corporations; Exchange of Certificates

SECTION 2.01 Effect of Merger on Capital Stock . At the Effective Time, by virtue of the Merger and without any action on the part of the holder of any capital stock of Aqua or Merger Sub:

(a) Capital Stock of Merger Sub . Each issued and outstanding share of capital stock of Merger Sub shall be converted into and become one fully paid and nonassessable share of common stock, par value $0.01 per share, of the Surviving Corporation.

(b) Cancellation of Certain Owned Shares . Each share of the common stock, par value $0.01, of Aqua (" Aqua Common Stock" ), that is held in the treasury of Aqua, or outstanding and held by Holdings or any direct or indirect wholly owned subsidiary of Aqua, shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and no Holdings Common Stock or other consideration shall be delivered or deliverable in exchange therefor.

(c) Conversion of Aqua Common Stock . Subject to Section 2.01(b), each share of Aqua Common Stock that is issued and outstanding prior to the Effective Time, other than Dissenting Shares (as defined in Section 2.01(d)), shall be converted into the right to receive $6.00 in cash (collectively, the " Merger Consideration" ). As of the Effective Time, all such shares of Aqua Common Stock shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate representing any such shares of Aqua Common Stock shall cease to have any rights with respect thereto, except the right to receive Merger Consideration upon surrender of such certificate, without interest.

(d) Dissenting Shares . Notwithstanding anything in this Agreement to the contrary, shares of Aqua Common Stock that are issued and outstanding immediately prior to the Effective Time and that are held by a holder who was entitled to and has validly demanded appraisal rights in accordance with Section 262 of the DGCL (" Dissenting Shares" ) shall not be converted into the right to receive the Merger Consideration unless and until such holder shall have failed to perfect or shall have effectively withdrawn or lost such holder' s appraisal rights under the DGCL but instead shall be converted into the right to receive payment from the Surviving Corporation with respect to such Dissenting Shares in accordance with the DGCL. If any such holder shall have failed to perfect or shall have effectively withdrawn or lost such right, each share of such holder shall be treated as a share of Aqua Common Stock that had been converted as of the Effective Time into the right to receive the Merger Consideration in accordance with Section 2.01(c). ARTICLE III Representations and Warranties of Aqua

Aqua represents and warrants to the Founder Parties that, except as set forth in the


-6- corresponding section of the letter, dated as of the date of this Agreement, from Aqua to the Founder Parties (the " Aqua Disclosure Letter" ), or in any other section of Aqua Disclosure Letter if the relevance of such disclosure or matter is reasonably apparent (except that no matter shall be deemed to be disclosed for purposes of Section 3.05 or Section 3.20 of Aqua Disclosure Letter if it is not set forth or cross-referenced in such section of Aqua Disclosure Letter):

SECTION 3.01 Organization, Standing and Power . Each of Aqua and each of its subsidiaries (the " Aqua Subsidiaries" ) is a corporation, partnership or limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and has full corporate, partnership or limited liability company power and authority to conduct its businesses as presently conducted. Aqua and each Aqua Subsidiary is duly qualified to do business as a foreign corporation, partnership or limited liability company and is in good standing in each jurisdiction where the nature of its business or the ownership or leasing of its properties make such qualification necessary, except where the failure to so qualify has not had and could not reasonably be expected to have an Aqua Material Adverse Effect (as defined in Section 11.03). Aqua has made available to the Founder Parties true and complete copies of the articles of incorporation of Aqua, as amended to the date of this Agreement (as so amended, the " Aqua Charter" ), the Bylaws ...