UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
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Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[x] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Laboratory Corporation of America Holdings
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(Name of Registrant as Specified In Its Charter)
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
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Notes:
LOGO
Laboratory Corporation of America(R)
Holdings
358 South Main Street
Burlington, NC 27215
Telephone: 336-229-1127
April 30, 1999
Dear Stockholder:
You are cordially invited to attend the 1999 Annual Meeting of Stockholders of
Laboratory Corporation of America Holdings. The meeting will be held at The
Paramount Theater, 128 East Front Street, Burlington, NC 27215, on Wednesday,
June 16, 1999 at 9:00 a.m., Eastern Daylight time.
The notice of the Annual Meeting and Proxy Statement which are attached
provide information concerning the matters to be considered at the meeting.
Whether or not you plan to attend the meeting in person, your shares should be
represented and voted at the meeting. Accordingly, after reading the enclosed
proxy statement, kindly mark the proxy card to indicate your vote, date and sign
the proxy card, and return it in the enclosed, postage-paid envelope as soon as
conveniently possible. If you desire to vote in accordance with the Board of
Directors' recommendations, you need not mark your votes on the proxy card, but
need to sign, date, and return it in the enclosed postage-paid envelope in order
to record your vote. Proxy voting via the Internet or telephone is now available
to many stockholders. Using the Internet to vote results in substantial savings
on return postage for the Company. Your enclosed proxy card will indicate
whether these voting options are available to you and how to use them. If you
later decide to attend the meeting and wish to vote your shares personally, you
may revoke your proxy at any time before it is exercised.
Sincerely,
LOGO
Thomas P. Mac Mahon
Chairman of the Board, President and
Chief Executive Officer
LOGO
LABORATORY CORPORATION OF AMERICA HOLDINGS
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Laboratory Corporation of America Holdings:
Notice is hereby given that the 1999 Annual Meeting (the "Annual Meeting") of
the stockholders of Laboratory Corporation of America Holdings (the "Company")
will be held at The Paramount Theater, 128 East Front Street, Burlington, NC
27215, on Wednesday, June 16, 1999 at 9:00 a.m., Eastern Daylight time, for the
following purposes:
1. To elect all of the members of the Company's board of directors to serve
until the Company's next annual meeting and until such directors' successors
are elected and shall have qualified.
2. To approve the Company's Amended and Restated 1999 Stock Incentive Plan.
3. To approve amendments to the Company's 1997 Employee Stock Purchase Plan
to increase by 4,000,000 the number of shares of Common Stock of the Company
authorized for issuance under such plan.
4. To ratify the appointment of PricewaterhouseCoopers LLP as the Company's
independent accountants for the year ending December 31, 1999.
5. To transact such other business as may properly come before the Annual
Meeting or at any adjournments thereof.
A proxy statement describing the matters to be considered at the Annual
Meeting is attached to this notice. Only stockholders of record at the close of
business on April 19, 1998 are entitled to notice of, and vote at, the Annual
Meeting and at any adjournments thereof.
By Order of the Board of Directors
LOGO
Bradford T. Smith
Secretary
April 30, 1999
PLEASE COMPLETE, SIGN AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE. THIS WILL ENSURE THAT YOUR SHARES ARE VOTED
IN ACCORDANCE WITH YOUR WISHES.
1
LABORATORY CORPORATION OF AMERICA HOLDINGS
358 SOUTH MAIN STREET
BURLINGTON, NORTH CAROLINA 27215
PROXY STATEMENT
This Proxy Statement is being furnished in connection with the solicitation by
the Board of Directors of Laboratory Corporation of America Holdings, a Delaware
corporation (the "Company"), of proxies to be voted at the 1999 annual meeting
of stockholders to be held at The Paramount Theater, 128 East Front Street,
Burlington, NC 27215, on Wednesday, June 16, 1999 at 9:00 a.m., Eastern Daylight
time, and at any adjournments thereof (the "Annual Meeting"). The Notice of
Annual Meeting, this Proxy Statement, and the accompanying proxy card are first
being mailed to stockholders on or about May 3, 1999.
At the Annual Meeting, the Company's stockholders will be asked (i) to elect
the following persons as directors of the Company to serve until the Company's
next annual meeting and until such directors' successors are elected and shall
have qualified: Thomas P. Mac Mahon, Jean-Luc Belingard, Wendy E. Lane, Robert
E. Mittelstaedt, Jr., James B. Powell, M.D., David B. Skinner, M.D. and Andrew
G. Wallace, M.D., (ii) to approve the Company's Amended and Restated 1999 Stock
Incentive Plan, (iii) to approve amendments to the Company's 1997 Employee Stock
Purchase Plan to increase by 4,000,000 the number of shares of Common Stock of
the Company authorized for issuance under such plan, (iv) to ratify the
appointment of PricewaterhouseCoopers LLP as the Company's independent
accountants for the year ending December 31, 1999, and (iii) to take such other
action as may properly come before the Annual Meeting or any adjournments
thereof.
GENERAL INFORMATION
Solicitation and Voting of Proxies; Revocation; Record Date
All proxies duly executed and received by the Company will be voted on all
matters presented at the Annual Meeting in accordance with the instructions
given therein by the person executing such proxy or, in the absence of such
instructions, will be voted in favor of the election to the Company's Board of
Directors of the seven nominees for director identified in this Proxy Statement,
the approval of the Amended and Restated 1999 Stock Incentive Plan and the
approval of the amendments to the Employee Stock Purchase Plan, the ratification
of the appointment of PricewaterhouseCoopers LLP as the Company's independent
accountants for 1999. Any stockholder may revoke his proxy at any time prior to
the Annual Meeting before it is voted by written notice to such effect delivered
to the Company at 358 South Main Street, Burlington, North Carolina 27215,
Attention: Bradford T. Smith, Secretary, by delivery prior to the Annual Meeting
of a subsequently dated proxy or by attending the Annual Meeting and voting in
person.
Solicitation of proxies may be made by mail and may also be made by personal
interview, telephone and facsimile transmission, and by directors, officers, and
regular employees of the Company without special compensation therefor. The
expenses of the preparation of proxy materials and the solicitation of proxies
for the Annual Meeting will be paid by the Company. The Company expects to
reimburse banks, brokers, and other persons for their reasonable, out-of-pocket
expense in handling proxy materials for beneficial owners.
Only holders of record of the common stock, par value $0.01 per share, of the
Company ("Common Stock") at the close of business on April 19, 1999 (the "Record
Date") will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on the Record Date, there were issued and outstanding
126,254,497 shares of Common Stock.
A quorum for the Annual Meeting consists of a majority of the total number of
shares of Common Stock outstanding on the Record Date and entitled to vote,
present in person or represented by proxy. Directors of the Company will be
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elected by a plurality vote of the shares of Common Stock represented at the
Annual Meeting and entitled to vote. Accordingly, abstentions and broker non-
votes will not affect the outcome of the election. The affirmative vote of a
majority of the shares of Common Stock represented at the Annual Meeting and
entitled to vote is required for the approval of the Amended and Restated 1999
Stock Incentive Plan, the approval of the amendments to the Employee Stock
Purchase Plan and the ratification of the appointment of PricewaterhouseCoopers
LLP as the Company's independent accountants for the year ending December 31,
1999. On such item, an abstention or broker non-vote will have no effect on the
vote to ratify the appointment of independent accountants. As of April 19, 1999,
the directors and executive officers of the Company beneficially owned an
aggregate of 2,829,657 shares of Common Stock, representing approximately 2% of
the total number of shares of Common Stock outstanding on the Record Date and
entitled to vote.
Beneficial Ownership
On April 28, 1995 (the "Effective Date"), Roche Biomedical Laboratories, Inc.
("RBL"), then a wholly-owned subsidiary of HLR Holdings Inc. ("HLR"), merged
with and into the Company (the "Merger") pursuant to an Agreement and Plan of
Merger (the "Merger Agreement") dated as of December 13, 1994, among the
Company, RBL, HLR and Hoffmann-La Roche Inc., a New Jersey corporation
("Hoffmann-La Roche"). In the Merger, HLR was issued 49,008,538 shares of Common
Stock, and Roche Holdings, Inc., a Delaware corporation ("Holdings") was issued
12,320,718 shares of Common Stock, representing in the aggregate approximately
48.6% of the outstanding shares of Common Stock as of the Record Date, in
exchange for all of the outstanding shares of common stock of RBL and
$135,651,100 in cash. At the time, HLR was a wholly-owned subsidiary of
Hoffmann-La Roche. Hoffmann-La Roche is a wholly-owned subsidiary of Holdings
which is in turn an indirect wholly-owned subsidiary of Roche Holding Ltd, a
Swiss Corporation ("Roche Holding"). Holdings and its affiliates (other than the
Company and its subsidiaries) are collectively referred to herein as "Roche."
Subsequent to the Merger, all of the Common Stock owned by HLR was transferred
to Holdings. The Merger Agreement was included as an exhibit to the annual
report on Form 10-K of the Company for the year ended December 31, 1994 filed
with the Securities and Exchange Commission (the "Commission").
In connection with the Merger, the Company distributed a dividend consisting
of warrants to purchase an aggregate of 13,285,368 shares of Common Stock for
$22.00 (subject to adjustments) on April 28, 2000 to stockholders of record of
shares of Common Stock as of April 21, 1995, (each such warrant a "Warrant" and,
together with the Roche Warrants, as defined below, the "Warrants"). In
addition, pursuant to the Merger Agreement, on April 28, 1995, Hoffmann-La Roche
purchased Warrants to purchase 8,325,000 shares of Common Stock (the "Roche
Warrants") from the Company for an aggregate purchase price of $51,048,900.
In connection with the Merger, the Company, HLR, Hoffmann-La Roche and
Holdings entered into a stockholder agreement dated as of April 28, 1995 (the
"Stockholder Agreement"). In December 1996, HLR was merged with and into
Hoffmann-La Roche and the shares of Common Stock owned by HLR subsequently
transferred from Hoffmann-La Roche to Holdings. The Stockholder Agreement
contains certain provisions relating to (i) the governance of the Company
following the Merger, including, but not limited to, the composition of the
Board of Directors, (ii) the issuance, sale, and transfer of the Company's
Equity Securities (as defined in the Stockholder Agreement) by the Company and
Roche, (iii) the acquisition of additional Equity Securities of the Company by
Roche, and (iv) the registration rights granted by the Company to Roche with
respect to the Company's Equity Securities. A copy of the Stockholder Agreement
dated April 28, 1995 was included as an exhibit to the Company's report on Form
8-K filed with the Commission on May 12, 1995 in connection with the
consummation of the Merger.
Roche has informed the Company that it will vote for the election of each of
the nominees to the Board of Directors identified herein, the approval of the
Amended and Restated 1999 Stock Incentive Plan and the approval of the
amendments to the Employee Stock Purchase Plan and the ratification of the
appointment of PricewaterhouseCoopers LLP as the Company's independent
accountants for 1999.
The Board of Directors of the Company recommends that stockholders vote "FOR"
the election of each of the nominees for director of the Company (as specified
below), the approval of the Amended and Restated 1999 Stock Incentive Plan and
the approval of the amendments to the Employee Stock Purchase Plan, and the
ratification of the appointment of PricewaterhouseCoopers LLP as the Company's
independent accountants for 1999.
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ITEM 1: ELECTION OF DIRECTORS
All of the Company's directors will be elected at the Annual Meeting to serve
until the next succeeding annual meeting of the Company and until their
successors are elected and shall have qualified. All of the nominees listed
below are currently serving as members of the Board of Directors. Except as
herein stated, the proxies solicited hereby will be voted FOR the election of
such nominees unless the completed proxy card directs otherwise.
The governance provisions of the Stockholder Agreement provide, among other
things, that the Board of Directors of the Company will (subject to specified
exceptions) be comprised of seven members, consisting of three designees of
Holdings (the "Roche Directors") and four Independent Directors (as defined
therein) nominated by the Nominating Committee of the Board of Directors. The
persons nominated to serve as Roche Directors are Mr. Mac Mahon, Dr. Powell and
Mr. Belingard. The persons nominated to serve as Independent Directors are Ms.
Lane, Mr. Mittelstaedt, Dr. Skinner, and Dr. Wallace.
The Stockholder Agreement provides that, among other things, certain actions
by the Company will require approval by a majority of the entire Board of
Directors of the Company, which majority must include at least a majority of the
Roche Directors and at least one Independent Director (a "Special Majority
Vote"). Included in these items is any change in the size or composition of the
Board of Directors or any committee thereof and the establishment of a new
committee of the Board of Directors.
The Board of Directors has been informed that all of the nominees listed below
are willing to serve as directors, but if any of them should decline or be
unable to act as a director, the individuals named in the proxies may vote for a
substitute designated by the Board of Directors. The Company has no reason to
believe that any nominee will be unable or unwilling to serve.
Nominees For Election As Directors
The name, age (as of April 30, 1999), principal occupation for the last five
years, selected biographical information, and period of service as a director of
the Company of each nominee are set forth below:
Thomas P. Mac Mahon (52) has served as Chairman of the Board and Director
since April 28, 1996. Prior to such date and since April 28, 1995, the Merger,
he served as Vice Chairman and Director. Mr. Mac Mahon has been President and
Chief Executive Officer since January 1997. Mr. Mac Mahon was Senior Vice
President of Hoffmann-La Roche Inc. from 1993 to January 1997 and President of
Roche Diagnostics Group and a Director and member of the Executive Committee of
Hoffmann-La Roche from 1988 to January 1997. Mr. Mac Mahon was also a Director
of HLR until December 1996. As Senior Vice President of Hoffmann-La Roche Inc.
and President of Roche Diagnostics Group, Mr. Mac Mahon was responsible for the
management of all United States operations of the diagnostic business of
Hoffmann-La Roche. Mr. Mac Mahon is also a Director on the Board of AutoCyte,
Inc. ("AutoCyte"). Mr. Mac Mahon is a member of the Executive and Management
Committees of the Company.
Jean-Luc Belingard (50) has served as a Director of the Company since the
Merger. Mr. Belingard has served as Chief Executive Officer of Pierre Fabre
S.A., a diversified French health care holding company, since January 1999. His
current responsibilities include the management of the worldwide pharmaceutical,
cosmetic and communication business of Pierre Fabre S.A. Prior to this
position, Mr. Belingard was Director General of the Diagnostics Division and
member of the Executive Committee of F. Hoffmann-La Roche Ltd ("F. Hoffmann-La
Roche"), Basel, Switzerland, a subsidiary of Roche Holding. He joined F.
Hoffmann-La Roche in 1982, and held various positions prior to joining Pierre
Fabre S.A. Mr. Belingard is also a Director of Perkin-Elmer Corporation,
Norwalk, Connecticut and a Foreign Trade Advisor to the French Government.
Wendy E. Lane (48) has been a Director of the Company since November 1996. Ms.
Lane has been Chairman of Lane Holdings, Inc., an investment firm, since 1992.
Prior to forming Lane Holdings, Inc., Ms. Lane was a Principal and
4
Managing Director of Donaldson, Lufkin & Jenrette, an investment banking firm,
serving in these and other positions from 1980 to 1992.
Robert E. Mittelstaedt, Jr. (55) has been a Director of the Company since
November 1996. Mr. Mittlestaedt is Vice Dean of The Wharton School of the
University of Pennsylvania and Director of the Aresty Institute of Executive
Education. Mr. Mittelstaedt has held these and other positions with the Wharton
school since 1973, with the exception of the period from 1985 to 1989 when he
founded, served as President and Chief Executive Officer, and sold Intellego,
Inc., a company engaged in practice management, systems development, and service
bureau billing operations in the medical industry. Mr. Mittelstaedt also serves
as a Director of Innovative Solutions & Support, Inc., A.G. Simpson, Inc., and
HIP Foundation, Inc.
James B. Powell, M.D. (60) has served as a Director of the Company since the
Merger. From the Merger to January 1997, Dr. Powell served as President and
Chief Executive Officer of the Company. Previously, Dr. Powell was President of
RBL from 1982 until the Merger. Dr. Powell has been President and Chief
Executive Officer of AutoCyte, Inc., a developer of analytical systems for
cytology and pathology, since January 1997. Dr. Powell is a Director and a
principal investor in AutoCyte. He is a medical doctor and became certified in
anatomic and clinical pathology in 1969. Dr. Powell also serves as a Director
of Mid-Carolina Bank, North Carolina Trust Co., New Century Finance, Pathology
Partners, Frozen Drems, LLC, and Warren Land Co.
David B. Skinner, M.D. (64) has served as a Director of the Company since the
Merger. Dr. Skinner has been President and Chief Executive Officer of New York
Hospital and Professor of Surgery at Cornell Medical School since 1987. He was
the Chairman of the Department of Surgery and Professor of Surgery at the
University of Chicago Hospitals and Clinics from 1972 to 1987.
Andrew G. Wallace, M.D. (64) has served as a Director of the Company since the
Merger. Dr. Wallace has served as both the Dean of Dartmouth Medical School and
Vice President for Health Affairs at Dartmouth College since 1990. He was the
Vice Chancellor for Health Affairs at Duke University and the Chief Executive
Officer of Duke Hospital from 1981 to 1990. Dr. Wallace also serves as a
Director of Welch Gllyn.
The Board of Directors of the Company recommends that stockholders vote "FOR"
the election of each of the nominees for director listed above.
Board of Directors and its Committees
The Board of Directors has an Audit Committee, an Employee Benefits Committee,
an Ethics and Quality Assurance Committee, and a Nominating Committee.
The Audit Committee, currently consisting of Dr. Skinner, Mr. Mittelstaedt,
and Dr. Wallace, makes recommendations, among other things, to the Board
regarding the engagement of the Company's independent accountants, reviews the
plan, scope and results of the audit, reviews with the accountants and
management the Company's policies and procedures with respect to internal
accounting and financial controls, and reviews changes in accounting policy and
the scope of the non-audit services which may be performed by the Company's
independent accountants. Pursuant to the Stockholder Agreement, the Audit
Committee is comprised entirely of Independent Directors.
The Ethics and Quality Assurance Committee, currently consisting of Ms. Lane,
Mr. Mac Mahon, Dr. Powell, Dr. Skinner, and Dr. Wallace, is responsible for
ensuring that the Company adopts and implements procedures that require the
Company's employees to act in accordance with high ethical standards and to
deliver high quality services.
The Employee Benefits Committee, currently consisting of Mr. Belingard, Ms.
Lane, and Dr. Skinner, makes recommendations to the Board regarding compensation
and benefit policies and practices and incentive arrangements for the Executive
Officers and key managerial employees of the Company. The Employee Benefits
Committee also considers and grants awards under the Company's incentive plans,
subject to a Special Majority Vote of the Board as described
5
above. Pursuant to the Stockholder Agreement, the Employee Benefits Committee is
comprised of a majority of Independent Directors.
The Nominating Committee, currently consisting of Ms. Lane, Mr. Mac Mahon, and
Dr. Wallace, is responsible for recommending the nomination of directors.
Pursuant to the Stockholder Agreement, the Nominating Committee is comprised of
one Roche Director and two Independent Directors and acts by a majority vote of
the entire committee.
The Nominating Committee will consider suggestions for Board nominees made by
stockholders. A stockholder may recommend a person for nomination to the Board
at the 2000 annual meeting of stockholders by giving notice thereof and
providing certain information set forth in the Company's By-Laws, in writing, to
the Secretary of the Company at 358 S. Main Street, Burlington, NC 27215. Such
nominations must be received no later than January 3, 2000.
During 1998, the Board of Directors held nine meetings and acted once by
unanimous written consent of all members thereof, each in accordance with the
Company's By-Laws and applicable Delaware corporation law. The Employee Benefits
Committee held four meetings; the Audit Committee held five meetings; and the
Ethics and Quality Assurance Committee held two meetings in 1998. The Nominating
Committee held no meetings in 1998. During 1998, none of the directors attended
fewer than 89% of the meetings of the Board and the committees of which he or
she was a member with the exception of Dr. Wallace who attended six of nine
meetings of the Board of Directors in 1998, Mr. Belingard who attended five of
nine meetings of the Board of Directors and did not attend two of the four
Employee Benefits Committee meetings held in 1998, and Ms. Lane did not attend
one of the two Ethics and Quality Assurance Committee meetings held in 1998.
Compensation of Directors
Directors who are currently not receiving compensation as officers or
employees of the Company are paid an annual retainer of $30,000, payable in
monthly installments, and a fee of $1,000 for each meeting of the Board of
Directors or of any Committee thereof that they attend, and receive
reimbursement of expenses they incur for attending any meeting. Pursuant to the
Non-Employee Director Stock Plan (the "Director Stock Plan") approved by the
stockholders of the Company, 50% of such annual retainer shall be payable in
cash and 50% shall be payable in Common Stock of the Company. In 1998, Messrs.
Mittelstaedt and Belingard, Drs. Skinner, Powell and Wallace, and Ms. Lane each
earned 8,134 shares of Common Stock under the Director Stock Plan in 1998.
EXECUTIVE OFFICERS
The following table sets forth as of the date hereof the Executive Officers of
the Company.
Name Age Office
---- --- ------
Thomas P. Mac Mahon............. 52 Chairman of the Board, President, and Chief Executive Officer
Wesley R. Elingburg............. 42 Executive Vice President, Chief Financial Officer, and Treasurer
Myla P. Lai-Goldman, M.D........ 41 Executive Vice President, Chief Scientific Officer, and Medical
Director
Richard L. Novak................ 58 Executive Vice President and Chief Operating Officer
Bradford T. Smith............... 45 Executive Vice President of Public Affairs, Human Resources,
Law and Compliance, and Secretary
Stevan R. Stark................. 51 Executive Vice President of Sales and Marketing
6
Thomas P. Mac Mahon has served as Chairman of the Board and a Director since
April 28, 1996. Prior to such date and since April 28, 1995, the Merger, he
served as Vice Chairman and a Director. Mr. Mac Mahon has been President and
Chief Executive Officer of the Company since January 1997. Mr. Mac Mahon was
Senior Vice President of Hoffmann-La Roche Inc. from 1993 to January 1997 and
President of Roche Diagnostics Group and a Director and member of the Executive
Committee of Hoffmann-La Roche from 1988 to December 1996. Mr. Mac Mahon was
also a Director of HLR until December 1996. As Senior Vice President of
Hoffmann-La Roche Inc. and President of Roche Diagnostics Group, Mr. Mac Mahon
was responsible for the management of all United States operations of the
diagnostic business of Hoffmann-La Roche. Mr. Mac Mahon is also a Director on
the Board of AutoCyte, Inc. Mr. Mac Mahon is a member of the Executive and
Management Committees of the Company.
Wesley R. Elingburg has served as Executive Vice President, Chief Financial
Officer, and Treasurer since October 1996. Prior to this date and since the
Merger, Mr. Elingburg was Senior Vice President--Finance. Mr. Elingburg is
responsible for the day to day supervision of the finance function of the
Company, including treasury functions. Previously, Mr. Elingburg served as
Senior Vice President--Finance and Treasurer of RBL from 1988 through April 1995
and Assistant Vice President of Hoffmann-La Roche from 1989 until the Merger in
April 1995. Mr. Elingburg is a member of the Executive and Management Committees
of the Company.
Richard L. Novak has served as Executive Vice President of the Company since
March 1997. Prior to joining the Company, Mr. Novak was employed by SmithKline
Beecham Clinical Laboratories serving in a variety of senior management
positions including Senior Vice President, U.S. Operations and most recently
President, International. Mr. Novak oversees the Company's Operations which
includes the Mid-Atlantic, Northeast, South, Florida, South Atlantic, Great
Lakes, Central, Midlands, Southwest and West Divisions. Mr. Novak is a member of
the Executive and Management Committees of the Company.
Bradford T. Smith has served as Executive Vice President, and Secretary since
the Merger. He was appointed Compliance Officer in August 1996. Mr. Smith also
oversees the Company's Public Affairs, Human Resources and Law operations.
Previously, Mr. Smith served as Assistant General Counsel of Hoffmann-La Roche,
Division Counsel of RBL and Assistant Secretary and member of RBL's Senior
Management Committee from 1988 until April 1995. Mr. Smith served as Assistant
Secretary of Hoffmann-La Roche from 1989 until the Merger and as an Assistant
Vice President of Hoffmann-La Roche during 1992 and 1993. Mr. Smith is a member
of the Executive and Management Committees of the Company.
Stevan R. Stark has served as Executive Vice President since October 1996 and
was Senior Vice President, New York Division, Cranford Region, and
Alliance/Hospital Division since the Merger in April 1995. Mr. Stark oversees
the Company's sales and marketing operations including business alliances,
managed care, and new business development. Previously, Mr. Stark was a Vice
President and Division Manager from 1991 to 1995 and a Division Manager from
1986 to 1991. He joined the Company in 1983. Mr. Stark is a member of the
Executive and Management Committees of the Company.
Myla P. Lai-Goldman, M.D. was appointed Executive Vice President, Chief
Scientific Officer, and Medical Director in April 1998. Dr. Goldman, who holds a
medical degree from Columbia University, was named Senior Vice President of the
Company in 1997 and has held the position of Medical Director for the Center for
Molecular Biology and Pathology since 1991 (with RBL and subsequently the
Company). She joined RBL in 1990. Dr. Goldman manages the Center for Molecular
Biology and Pathology at the Company's Research Triangle Park, N.C. facility.
Dr. Goldman is Board Certified in Anatomic and Clinical Pathology and serves as
a member of the Executive and Management Committees of the Company.
7
EXECUTIVE COMPENSATION AND BENEFIT PLANS
Executive Compensation
The compensation paid by the Company during the year ended December 31, 1998
to certain Executive Officers is set forth below. The Executive Officers named
are the Chief Executive Officer during the year, the four other most highly
compensated Executive Officers serving at year end, and a former Executive Vice
President who would have been included in the table had he not resigned at year
end.
Summary Compensation Table
Long-Term
Compensation
Name and Principal Position Annual Compensation Awards
--------------------------- ------------------- ------
Securities
Underlying All Other
Year Salary(1)($) Bonus(2)($) Options/SARs(#) Compensation(3)($)
------ ------------- ------------- ----------------- -------------------
Thomas P. Mac Mahon.......................... 1998 $600,000 $382,328 1,000,000 $ 38,884
President and Chief Executive 1997 $600,000 $355,040 500,000 26,779
Officer(4) 1996 -- -- -- --
Wesley R. Elingburg.......................... 1998 240,000 111,399 232,000 19,256
Executive Vice President, Chief 1997 225,000 99,563 210,000 18,177
Financial Officer, and Treasurer 1996 187,500 -- -- 14,897
Bradford T. Smith............................ 1998 240,000 131,507 232,000 22,408
Executive Vice President, General 1997 225,000 114,389 210,000 19,910
Counsel, Corporate Compliance 1996 210,227 100,000 -- 15,471
Officer, and Secretary
Richard L. Novak............................. 1998 268,750 162,382 300,000 37,688
Executive Vice President and Chief 1996 229,167 92,032 210,000 18,950
Operating Officer(6) 1995 -- -- -- --
Stevan R. Stark.............................. 1998 230,250 117,935 232,000 23,802
Executive Vice President--Sales and 1997 225,000 99,045 210,000 226,698
Marketing(5) 1996 190,865 120,000 -- 18,979
Larry L. Leonard............................. 1998 337,000 167,879 300,000 27,644
Former Executive Vice President-- 1997 325,000 133,349 210,000 27,990
Western Operations(7) 1996 331,250 252,500 -- 21,215
James B. Powell.............................. 1998 -- -- -- --
Former President and Chief 1997 43,750 -- -- 2,715
Executive Officer(4) 1996 525,000 600,000 -- 49,584
__________
(1) Includes salary paid or accrued for each indicated year.
(2) Includes bonus accrued or paid for each indicated year and other payments,
excluding severance, made pursuant to employment agreements.
(3) Includes paid auto allowance, executive long-term disability premiums,
relocation expenses, 401(a) and (k) contributions, personal financial
planning, and group life premiums. Individual annual amounts exceeding 25%
of the total all other compensation for each individual are as follows: (i)
executive long-term disability premiums of
8
$13,265 in 1998 and $9,895 in 1997 for Mr. Mac Mahon; (ii) paid auto
allowance of $8,280 in 1998 and 1997 for Messrs. Leonard and Smith, $7,860
in 1998 and 1997, and $7,830 in 1996 for Mr. Elingburg, $6,900 in 1997 for
Mr. Novak, $8,215 in 1996 for Mr. Smith, and $8,165 in 1996 for Mr. Leonard;
(iii) relocation expenses of $10,183 in 1998 for Mr. Novak, $210,547 in 1997
and $11,275 in 1996 for Mr. Stark; (iv) 401(a) and (k) contributions of
$8,280 in 1997 for Mr. Mac Mahon, $1,313 in 1997 for Mr. Powell, and $4,500
in 1996 for Messrs. Elingburg and Smith; (v) group life premiums of $8,551
in 1998, $9,263 in 1997 and $8,550 in 1996 for Mr. Leonard, $713 in 1997 for
Mr. Powell, and $5,700 in 1997 for Mr. Novak; and (vi) personal financial
planning of $28,319 in 1996 for Mr. Powell.
(4) Mr. Mac Mahon was appointed President and Chief Executive Officer effective
January 7, 1997. Dr. Powell resigned his position as President and Chief
Executive Officer as of January 6, 1997.
(5) Mr. Stark was appointed an Executive Officer of the Company in October 1996.
(6) Mr. Novak was appointed an Executive Officer of the Company in March 1997.
(7) Dr. Leonard retired from the Company, effective December 31, 1998.
Stock Option Transactions in 1998
During 1998, the following grants were made under the 1997 Stock Option Plan
for the Executive Officers named in the Summary Compensation Table:
Option/SAR Grants in 1998
Percentage
Number of of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees Base Price Expiration
Name Granted(1) in 1998 ($/Sh) Date
---- ---------- ------- ------ ----
Thomas P. Mac Mahon................ 1,000,000 19% $1.938 3/26/08 $1,096,270
Larry L. Leonard................... 300,000 6% $1.938 3/26/08 $ 328,881
Richard L. Novak................... 300,000 6% $1.938 3/26/08 $ 328,881
Wesley R. Elingburg................ 232,000 4% $1.938 3/26/08 $ 254,335
Bradford T. Smith.................. 232,000 4% $1.938 3/26/08 $ 254,335
Stevan R. Stark.................... 232,000 4% $1.938 3/26/08 $ 254,335
(1) For each grant of non-qualified options made in 1998, the exercise price is
equivalent to the fair market price per share on the date of the grant. The
options vested with respect to one third of the shares covered hereby on the
first anniversary of the date of grant and an additional one third will vest
on each of the second and third anniversaries of such date, subject to their
earlier termination.
(2) Valuation based upon the Black-Scholes option pricing model with the
following assumptions: expected dividend yield 0.0%, volatility of 0.499,
risk-free interest rate of 4.44%, and an expected life of five years.
9
The following chart shows, for 1998, the number of stock options exercised and
the 1998 year-end value of the options held by the Executive Officers named in
the Summary Compensation Table:
Aggregated Option/SAR Exercises in 1998
and Year-End 1998 Option/SAR Values
Number of Value of
Securities Unexercised
Underlying In-the-Money
Options/SARs Options/SARs
at Year-End at Year-End ($)(1)
Shares ----------- ------------------
Acquired on Value Exercisable/ Exercisable/
Name Exercise(#) Realized($) Unexercisable Unexercisable
---- ----------- ----------- ------------- -------------
Thomas P. Mac Mahon...................... 0 $0 333,334 $0
1,166,666 0
Wesley R. Elingburg...................... 0 0 165,000 0
302,000 0
Larry L. Leonard......................... 0 0 184,130 0
370,000 0
Bradford T. Smith........................ 0 0 170,000 0
302,000 0
Stevan R. Stark.......................... 0 0 173,601 0
302,000 0
Richard L. Novak......................... 0 0 140,000 0
370,000 0
(1) Calculated using actual December 31, 1998 closing price per common share on
the NYSE Composite Tape of $1.375.
Retirement Benefits and Savings Plan
The following tables set forth the estimated annual retirement benefits
payable at age 65 to persons retiring with the indicated average direct
compensation and years of credited service, on a straight life annuity basis
after Social Security offset, under the Company's Employees' Retirement Plan, as
supplemented by the Company's Pension Equalization Plan.
Pension Plan Table(1)
Wesley R. Elingburg and Bradford T. Smith
Five-year
average 10 15 20 25 30
Compensation(2) Years(3) Years(3) Years(3) Years(3) Years(3)
--------------- ------- -------- -------- -------- --------
$50,000............................. $ 7,248 $10,706 $ 14,164 $ 17,622 $ 17,622
100,000............................. 17,111 25,501 33,890 42,280 42,280
150,000............................. 27,111 40,501 53,890 67,280 67,280
200,000............................. 37,111 55,501 73,890 92,280 92,280
250,000............................. 47,111 70,501 93,890 117,280 117,280
300,000............................. 57,111 85,501 113,890 142,280 142,280
315,648............................. 60,241 90,195 120,150 150,104 150,104
10
Pension Plan Table(4)
Thomas P. Mac Mahon, Richard L. Novak, Stevan R. Stark and Larry L. Leonard
Five-year
average 10 15 20 25 30
Compensation(2) Years(3) Years(3) Years(3) Years(3) Years(3)
--------------- ------- ------- -------- -------- --------
$50,000............................. $ 6,584 $ 9,877 $ 13,169 $ 16,461 $ 19,753
100,000............................. 17,111 23,732 31,643 39,553 47,464
150,000............................. 27,111 37,772 50,363 62,953 75,544
200,000............................. 37,111 51,812 69,083 86,353 103,624
250,000............................. 47,111 65,852 87,803 109,753 131,704
300,000............................. 57,111 79,892 106,523 133,153 159,784
315,648............................. 60,241 84,286 112,381 140,476 168,572
(1) The Retirement Plan, as supplemented by the Pension Equalization Plan, is a
defined benefit pension plan designed, in conjunction with the Company's
Pension Equalization Plan, to provide an employee having 25 years of
credited service with an annuity equal to 50% of final average compensation
less 50% of estimated individual Social Security benefits. The benefit is
then converted from a life annuity to an actuarially equivalent life annuity
with a ten year guarantee. In addition, following retirement from active
service, an additional benefit is paid from the Pension Equalization Plan
designed to provide for a portion of their postretirement medical benefit.
For 1998, this additional benefit amounted to $332.
(2) Highest consecutive five-year average base compensation during final ten
years. Compensation considered for this five year average is reflected in
the Summary Compensation Table under the heading "salary." Under the
Equalization Plan, a maximum of $300,000 final average compensation is
considered for benefit calculation indexed beginning in 1997 based on the
percentage change in the unrounded compensation limit under IRC Section 401
(a)(17) of the Code. For 1998, this limit is $315,648. No bonuses are
considered.
(3) Under the plans, the normal form of benefit for an unmarried participant is
a life annuity with a guaranteed minimum payment for ten years. For an
unmarried participant, the normal form is a 50% joint and survivor annuity,
which is actuarially equivalent to the normal form for an unmarried
participant. The above tables are determined with regard to a life only form
of payment; thus, payment using a ten year guarantee would produce a lower
annual benefit.
(4) The Retirement Plan, as supplemented by the Pension Equalization Plan, is a
defined benefit pension plan designed, in conjunction with the Company's
Pension Equalization Plan, to provide an employee having 30 years of
credited service with an annuity equal to 52% of final average compensation
less 50% of estimated individual Social Security benefits.
Credited service is defined generally as all periods of employment with the
Company, a participating subsidiary or with Revlon prior to 1992, or RBL or an
affiliate, after attainment of age 21 and completion of one year of service (age
25 and completion of one year of service if hired before January 1, 1985). Final
average compensation is defined as average annual base salary during the five
consecutive years in which base salary was highest out of the last ten years
prior to normal retirement age or earlier termination. The Employee Retirement
Income Security Act of 1974, as amended, places certain maximum limitations upon
the annual benefit payable under all qualified plans of an employer to any one
individual. The limitation solely with respect to defined benefit pension plans
was $130,000 for 1998 and will be subject to cost of living adjustments for
future years. In addition, the Tax Reform Act of 1986 limits the amount of
compensation that can be considered in determining the level of benefits under
qualified plans. The applicable limit for 1998 was $160,000. The Company
believes that, with respect to certain employees, annual retirement benefits
computed in accordance with the Retirement Plan's benefit formula may be greater
than those which would be provided with regard to such qualified plan
limitation. The Company's non-qualified, unfunded, Equalization Plan is designed
to provide for the payment of the difference, if any, between the amount of such
maximum limitation and the annual benefit that would be payable under the
Retirement Plans but for such limitation, subject to the allowed maximum
compensation limit under the Equalization Plan.
As of December 31, 1998, credited years of service under the retirement plans
for the following individuals are for Mr. Mac Mahon--1.0 years, Mr. Elingburg--
17.4 years, Dr. Leonard--27.8 years, Mr. Smith--15.9 years, Mr. Stark--14 years,
and Mr. Novak--0.5 years.
Compensation Plans and Arrangements
On April 17, 1996, the Board of Directors approved the Master Senior Executive
Severance Plan (the "Severance Plan") which provides severance to certain key
employees. The Severance Plan provides for severance payments of two times
annual salary and targeted bonus then in effect for the President and Chief
Executive Officer and the Executive Vice
11
Presidents of the Company and severance payments of one times annual salary and
targeted bonus then in effect for Senior Vice Presidents upon the occurrence of
a qualifying termination. Qualifying termination is generally defined as
involuntary termination without cause or voluntary termination with Good Reason,
as defined. Good reason ("Good Reason") is defined as a reduction in base salary
or targeted bonus as a percentage of salary, relocation to an office location
more than seventy-five (75) miles from the employee's current office without
consent of the employee, or a material reduction in job responsibilities or
transfer to another job without the consent of the employee. Good Reason shall
not include a reduction in base salary or targeted bonus where such reduction is
pursuant to a Company-wide reduction of base salaries and/or targeted bonuses.
In addition, the Severance Plan may not be amended or terminated within thirty-
six (36) months of a change in control, as defined. A copy of the Severance Plan
was included as an exhibit to the report on Form 8-K of the Company filed with
the Commission on October 24, 1996.
Employee Benefits Committee Report on Executive Compensation
The Employee Benefits Committee of the Board of Directors (for the purposes of
this section, the "Committee") makes recommendations to the Board of Directors
regarding compensation and benefit policies and practices and incentive
arrangements for Executive Officers and key managerial employees of the Company.
The Committee also considers and grants awards under the Company's incentive
plans, subject to a Special Majority Vote of the Board as described above under
"Item 1: Election of Directors."
The Committee is comprised of a majority of Independent Directors. During
1998, the Committee met four times to review and evaluate executive compensation
and benefit programs, including information provided to the Company by
independent compensation and benefit consultants.
Executive Officer Compensation Policies. The Committee's executive
compensation policies are designed to (a) attract and retain the best
individuals critical to the success of the Company, (b) motivate and reward such
individuals based on corporate business unit and individual performance, and (c)
align executives' and stockholders' interests through equity-based incentives.
Compensation for executives is based on the following principles: variable
compensation should comprise a significant part of an executive's compensation,
with the percentage at-risk increasing at increased levels of responsibility;
employee stock ownership aligns the interest of employees and stockholders;
compensation must be competitive with that offered by companies that compete
with the Company for executive talent; and differences in executive compensation
within the Company should reflect differing levels of responsibility and/or
performance.
In addition, the Committee adopted policies in 1995 relating to the
integration of the compensation programs of the two companies in the Merger,
which it continues to implement. The Committee determined that salaries would
not be reduced as a result of the Merger. The Committee also decided that rather
than renewing existing employment contracts, it would continue RBL's policy of
motivating and retaining key employees with awards of incentive compensation and
the adoption of a severance program (see "Compensation Plans and Arrangements"
above for a description of the severance program). Moreover, consummation of the
Merger and achievement of planned Merger synergies were designated as and
continue to be important bases for incentive awards.
A key determinant of overall levels of compensation is the pay practices of
ten public companies in the medical supply and medical service industry with
revenue comparable to the Company's (the "peer group"). The peer group was
chosen by the Company's independent compensation and benefit consultants and
includes some, but not all, of the members of the Peer Group used for stock
price comparisons (see "--Common Stock Performance" below).
There are three components to the Company's executive compensation program:
base salary, annual incentive compensation, and long-term incentive
compensation. The more senior the position, the greater the portion of
compensation that varies with performance.
Base salaries are set by the Committee and are designed to be competitive with
the peer group companies described above. Generally, the Committee targets
salary levels in the second and third quartile of the peer group, adjusted to
reflect
12
the individual's job experience and responsibility. Changes in base salaries are
based on the peer group's practices, the Company's performance, the individual's
performance, and increases in cost of living indexes. The corporate performance
measures used in determining adjustments to Executive Officers' base salaries
are the same performance measures used to determine annual and long-term
incentive compensation discussed below. Base salaries are reviewed and adjusted
annually.
Under the Company's annual Bonus Incentive Plan, adopted by the stockholders
in 1995, annual incentive compensation is paid in the form of a cash bonus and
is generally based on the attainment of specified corporate performance
measures, which are established by the Committee at the beginning of the year.
The measures used are EBITDA, total accessions, operating expenses and certain
other specific measures. A total of $1.1 million in benefits were paid to
certain Executive Officers in 1998 (see "Summary Compensation Table" for amounts
paid to certain Executive Officers under the plan in 1998).
Long-term incentive compensation is paid in part in the form of stock options
granted under the Company's Stock Option Plans. The Committee believes that
grants of stock options align stockholder value and Executive Officer interests.
Stock options are granted in amounts that are directly related to the level of
responsibility of the grantees as compared with their peer group counterparts.
The number of options granted is established after determining the projected
value of such options as derived from the Black-Scholes option pricing model.
The size of previous grants and the number of shares held by an executive are
not considered in determining annual award levels.
As provided in the Company's Stock Option Plans, stock options are granted
with an exercise price equal to the fair market value per share on the date of
grant or other appropriate date as determined by the Board of Directors. Of the
options granted to the Executive Officers in 1998, one-third of the options
granted vest on the anniversary date of grant, with the remainder vesting in
annual equal increments through the third anniversary of the date of grant. No
stock option awards are made in the absence of satisfactory performance which is
evaluated by the Committee based on the executive's individual contribution to
the long-term health and growth of the Company. A total of 2,296,000 options
were granted to certain Executive Officers in 1998 (see "Option/SAR Grants in
1998").
Chief Executive Officer Compensation. Thomas P. Mac Mahon was paid $600,000 in
base salary for the year ended December 31, 1998. Mr. Mac Mahon's base salary,
annual incentive compensation and long-term incentive compensation were
determined in the same manner as described above for other Executive Officers.
Mr. Mac Mahon became eligible to participate in the Company's Retirement
Benefits and Savings Plan in 1998.
Limit on Deductibility of Compensation. The Omnibus Budget Reconciliation Act
of 1993 ("OBRA") limits the deductibility of compensation paid to the chief
executive officer and each of the four highest paid employees of public
companies to $1 million for fiscal years beginning on or after January 1, 1994.
Certain types of compensation arrangements entered into prior to February 17,
1993 are excluded from the limitation. The Company's general policy is to
preserve the tax deductibility of compensation paid to its Executive Officers.
OBRA recognizes stock option plans as performance-based if such plans meet
certain requirements. The Company's Option Plans are structured to meet the
requirements of OBRA. In future years, the Committee will consider taking such
steps as it deems necessary to qualify compensation so as to not be subject to
the limit on deductibility.
The Employee Benefits Committee
Jean-Luc Belingard
Wendy E. Lane
David B. Skinner, M.D.
13
Common Stock Performance
The Commission requires a five-year comparison of stock performance for the
Company with stock performance of appropriate similar companies. The Common
Stock is traded on the New York Stock Exchange, Inc. (the "NYSE"). Set forth
below is a line graph comparing the yearly percentage change in the cumulative
total stockholder return on the Common Stock and the cumulative total return on
the Standard & Poor's Composite-500 Stock Index and the weighted average
cumulative total return (based on stock market capitalization) on the stock of
each of the members of a peer group of companies. The Peer Group includes six
publicly traded medical service and medical supply companies and one clinical
laboratory company which is a direct competitor of the Company, all with sales
ranging from approximately $1.1 billion to $3.9 billion. Other direct
competitors of the Company are either substantially smaller than the Company or
are subsidiaries of much larger diversified corporations and are therefore not
believed to be appropriate peer companies. The Peer Group includes: Allergan,
Inc., Quest Diagnostics, Incorporated, C.R. Bard Inc., Magellan Health Services
Inc., Fisher Scientific International Inc., Thermo Electron Corporation, and
Bausch & Lomb Inc.
[LINE GRAPH APPEARS HERE]
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
Company $ 94 $ 66 $ 20 $ 12 $ 10
S&P 500 $ 101 $ 139 $ 171 $ 228 $ 293
Peer Group $ 94 $ 127 $ 136 $ 145 $ 153
14
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND MANAGEMENT
The following table sets forth as of April 19, 1999, the total number of
shares of Common Stock beneficially owned, and the percent so owned, by (i) each
director of the Company who is a beneficial owner of any shares of Common Stock,
(ii) each person known to the Company to be the beneficial owner of more than 5%
of the outstanding Common Stock, (iii) the officers named in the "Summary
Compensation Table" set forth above, and (iv) all current directors and
Executive Officers as a group. The number of shares owned are those
"beneficially owned," as determined under the rules of the Commission, and such
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rules, beneficial ownership includes any shares as to which
a person has sole or shared voting power or investment power and any shares of
Common Stock which the person has the right to acquire within 60 days through
the exercise of any option, warrant or right, through conversion of any
security, or pursuant to the automatic termination of power of attorney or
revocation of trust, discretionary account or similar arrangement.
Amount and Nature
of Beneficial
Amount and Nature Ownership of
Beneficial Owner of Beneficial Common Stock
---------------- Ownership of Percent Assuming Full Percent
Common Stock of Class Conversion(1) of Class
------------ --------- ------------- ---------
Roche Holdings, Inc...................................... 61,329,256(2) 48.6% 166,655,278(2) 51.3%
15 East North Street
Dover, DE 19901
Wellington Management Company, LLP....................... 13,002,580(3) 10.2% 13,002,580(6) 4.0%
75 State Street
Boston, MA 02109
Thomas P. Mac Mahon...................................... 937,330 * 981,039(4) *
Jean-Luc Belingard....................................... 19,788 * 26,661(4) *
Wendy E. Lane............................................ 16,738 * 18,465(4) *
Robert E. Mittelstaedt, Jr............................... 16,738 * 18,338(4) *
James B. Powell.......................................... 27,792 * 35,974(4) *
David B. Skinner......................................... 19,788 * 26,643(4) *
Andrew G. Wallace........................................ 19,788 * 19,788 *
Larry L Leonard.......................................... 366,279(5) * 366,279 *
Bradford T. Smith........................................ 317,334(5) * 317,334 *
Stevan R. Stark.......................................... 326,220(5) * 326,220 *
Wesley R. Elingburg...................................... 318,249(5) * 318,249 *
Richard L. Novak......................................... 313,225(5) * 313,225 *
All current directors and Executive Officers as a group
(13 persons)............................................ 2,829,657 2.2% 2,898,022 *
__________
* Less than 1%
(1) For purposes of disclosing beneficial ownership, Common Stock includes the
total number of shares of Common Stock that would result from an assumed
conversion of 100% of the Company's Convertible Preferred stock at a ratio
of 18.1818 shares of Common per share of Preferred.
(2) As reported on the Schedule 13D filed with the Commission on May 8, 1995, on
behalf of Roche Holdings, Inc. Roche Holdings Inc. is an indirect wholly-
owned subsidiary of Roche Holding. Dr. h.c. Paul Sacher, an individual and
citizen of Switzerland has, pursuant to an agreement, the power to vote a
majority of the voting shares of Roche Holding. Includes 105,326,022 shares
of Common Stock assumed to be converted from ownership of 5,792,937 shares
of Preferred Stock.
15
(3) As reported in the Schedule 13G/A filed with the Commission on February 9,
1999, on behalf of Wellington Management Company, LLP ("Wellington").
Wellington owns shared voting power on 2,488,289 of the above listed shares.
(4) Includes shares of Common Stock assumed to be converted from ownership of
shares of Preferred Stock as indicated for the following individuals:
43,709 shares (2,404 shares of Preferred Stock), Mr. Mac Mahon; 6,873 shares
(378 shares of Preferred Stock), Mr. Belingard; 1,727 shares (95 shares of
Preferred Stock), Ms. Lane; 1,600 shares (88 shares of Preferred Stock), Mr.
Mittlestaedt; 8,182 shares (450 shares of Preferred Stock), Dr. Powell; and
6,855 shares (377 shares of Preferred Stock), Dr. Skinner.
(5) Beneficial ownership by officers of the Company includes shares of Common
Stock which such officers have the right to acquire upon the exercise of
options which either are vested or which may vest within 60 days. The number
of shares of Common Stock included in the table as beneficially owned which
are subject to such options is as follows: Mr. Mac Mahon--833,334; Dr.
Leonard--354,130; Mr. Smith--317,334, Mr. Stark--320,935, Mr. Elingburg--
312,334, all directors and Executive Officers as a group--2,538,901.
(6) The Company is unaware of any Preferred Stock held either directly or
indirectly by Mr. Perelman or Wellington.
ITEM TWO: APPROVAL OF AMENDED AND RESTATED 1999 STOCK INCENTIVE PLAN
On May 19, 1997, the Board of Directors approved the Laboratory Corporation of
America Holdings' 1997 Employee Stock Option Plan (the "1997 Option Plan") which
had been approved by the Employee Benefits Committee on May 19, 1997, and the
shareholders of the Company subsequently approved such plan. On December 17,
1997, the Board of Directors approved an amendment to the 1997 Option Plan to
expand the definition of "employees" eligible to receive awards under such plan
to include independent contractors, consultants, advisors and other individuals
providing services to the Company. On April 30, 1999, the Board of Directors
approved further amendments to the 1997 Plan, and the incorporation of such
amendments into an amended and restated version of such Plan (the amended and
restated plan, the "1999 Incentive Plan"). The principal purpose of such
amendments is to permit the issuance of shares of restricted stock ("Restricted
Shares") under such plan and authorize 3.2 million additional shares for
issuance under such plan. Prior to such amendments, the number of shares
authorized for issuance under the plan was 6 million. However, as of the date
hereof, under the unamended plan, there are available for grant only
approximately 800,000 shares. The effect of the amendment is to authorize an
aggregate of 9.2 million shares for issuance under the plan, of which
approximately 4 million shares will be available for grant, including the
restricted share grants authorized at the March 17, 1999 Board meeting discussed
below. The summary description herein of the principal features of the 1999
Incentive Plan is qualified by reference to the 1999 Incentive Plan, which is
attached hereto as Annex I.
The purpose of the 1999 Incentive Plan is to attract and retain the best
available employees for the Company and to encourage the highest level of
performance by such employees, thereby enhancing the value of the Company for
the benefit of its stockholders. The 1999 Incentive Plan is also intended to
motivate employees to contribute to the Company's future growth and
profitability and to reward their performance in a manner that provides them
with a means to increase their holdings of Common Stock and aligns their
interests with the interests of the stockholders of the Company.
The 1999 Incentive Plan will be administered by the Employee Benefits
Committee appointed by the Company's Board of Directors. During the ten-year
period ending on the tenth anniversary of the adoption of the 1997 Option Plan,
the Employee Benefits Committee will have authority, subject to the terms of the
1999 Incentive Plan, to determine when and to whom to make awards under the
plan, the number of shares to be covered by the awards, the types and terms of
options and awards granted and the exercise price of the shares of common stock
covered by options and stock appreciation rights ("SARs"), and to prescribe,
amend and rescind rules and regulations relating to the 1999 Incentive Plan.
Under the terms of the 1999 Incentive Plan, incentive stock options ("ISOs")
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), non-qualified stock options ("NQSOs"), SARs and Restricted
Shares may be granted by the Employee Benefits Committee in its discretion to
key employees (including officers and directors who are employees, independent
contractors and consultants) of the Company and any of its affiliates, except
that ISOs may be granted only to employees of the Company and its parent company
and any subsidiary
16
corporation. Due to the provision of the 1999 Incentive Plan which permits
awards in the discretion of the Employee Benefits Committee, it is not possible
to determine how many employees of the Company and its affiliates may be
eligible for grants of options, SARs and Restricted Shares. The 1999 Incentive
Plan generally provides that no individual employee may be granted options or
SARs representing an aggregate of more than 750,000 shares of Common Stock in
any year. The aggregate number of shares of Common Stock as to which options,
SARs and Restricted Shares may be granted under the 1999 Incentive Plan may not
exceed 9.2 million shares, of which approximately 4 million shares are available
for grant, including the restricted stock grants discussed below.
The exercise price of an ISO or a NQSO ("Option Price") may not be less than
one hundred percent (100%) of the fair market value of the shares of Common
Stock on the date of grant, except that, in the case of an ISO granted to an
individual who, at the time the ISO is granted, owns shares possessing more than
ten percent of the total combined voting power of all classes of Common Stock,
such Option Price may not be less than one hundred ten percent (110%) of such
fair market value. The Option Price of, and the number of shares covered by,
each option will not change during the life of the option, except for
adjustments to reflect stock dividends, splits, other recapitalizations or
reclassifications or changes affecting the number or kind of outstanding shares.
The shares of Common Stock purchased upon the exercise of an option are to be
paid for in cash (including cash that may be received from the Company at the
time of exercise as additional compensation) or through the delivery of other
shares of Common Stock with a value equal to the total option price or in a
combination of cash and such shares, or with money lent by the Company to the
optionee in compliance with applicable law and on terms and conditions to be
determined by the Company.
No option may be transferred by an optionee during his lifetime. If the
employment of an optionee terminates for any reason (other than by reason of
death, disability or retirement) the optionee may, within the three-month period
following such termination, exercise such options to the extent he was entitled
to exercise such option at the date of termination. If an optionee dies while
employed (or within three months after termination of employment) or terminates
employment by reason of disability or retirement, all previously granted options
(whether or not then exercisable), may, unless earlier terminated in accordance
with their terms, be exercised by the person or persons to whom the optionee's
rights pass within one year after the optionee's death or by the optionee within
one year after the optionee's disability or retirement.
The Employee Benefits Committee may also grant SARs either alone ("Free
Standing Rights") or in conjunction with all or part of an option ("Related
Rights"). Upon the exercise of a SAR, a holder is entitled, without payment to
the Company, to receive cash, unrestricted shares of Common Stock or any
combination thereof, as determined by the Employee Benefits Committee, in an
amount equal to the excess of the fair market value of one share of Common Stock
over the option price specified in the related option (or in the case of a Free
Standing Right, the price per share specified in such right) multiplied by the
number of shares in respect of which the SAR is exercised.
The Company is required to charge earnings at the close of each accounting
period during which the SARs are outstanding. The charge will be equal to the
amount by which the fair market value of the shares of stock subject to the SARs
exceeds the price for which the SARs may be exercised, less the tax deduction to
which the Company may be entitled if the SARs were exercised and less any
portion of such amount charged to earnings in prior periods. In the event that
the stock subject to the SARs has depreciated in market value since the last
accounting period, there will be a credit to earnings.
The Company may also grant Restricted Shares under the 1999 Incentive Plan,
subject to the terms of the plan and any applicable award agreement. Such
Restricted Shares may be subject to transfer restrictions and are subject to
forfeiture upon certain termination of employment events which occur prior to
vesting. The vesting terms will be set forth in award agreements.
Under the 1999 Incentive Plan, the exercisability of options and Related
Rights and the vesting of Restricted Shares will be accelerated upon a Change in
Control of the Company (as defined in the 1999 Incentive Plan). If the
exercisability of an option or SAR, or vesting of a Restricted Share is so
accelerated, payments made with respect to such option, SAR or Restricted Share
may constitute an "excess parachute payment" that is not deductible by the
Company in
17
whole or in part under Section 280G of the Code. Such acceleration may also
subject the holder of such option or SAR or Restricted Share to a 20% federal
excise tax under Section 4999 of the Code on all or a portion of the value
conferred on such holder by reason of the Change in Control. Award agreements
may provide that the Company will reimburse such holder for the full amount of
any such excise tax imposed.
Unless terminated by action of the Board of Directors or the Employee Benefits
Committee, no awards may be granted under the 1999 Incentive Plan after May 19,
2007. The 1999 Incentive Plan may be amended or terminated at any time by the
Board of Directors, except that no amendment may be made without shareholder
approval if the Employee Benefits Committee determines that such approval is
necessary to comply with any tax or regulatory requirement, including any
approval requirement which is a prerequisite for exemptive relief from Section
16 of the Securities Exchange Act of 1934, as amended (the "1934 Act"), for
which or with which the Employee Benefits Committee determines that it is
desirable to qualify or comply. The Employee Benefits Committee may amend the
terms of any award granted, retroactively or prospectively, but no amendment may
adversely affect any vested award without the holder's consent.
In the event of a stock split, stock dividend, subdivision or combination of
the shares of Common Stock or other change in corporate structure affecting the
shares of Common Stock, the Employee Benefits Committee may make such
adjustments to the number of shares authorized under the 1999 Incentive Plan and
to outstanding awards thereunder as it deems necessary.
The Plan is not subject to any provision of ERISA and is not qualified under
Section 401(a) of the Code.
Federal Tax Consequences
Generally, when an optionee exercises a NQSO, the difference between the
Option Price and any higher fair market value of the shares of Common Stock on
the date of exercise will be ordinary income to the optionee and will be
generally allowed as a deduction for federal income tax purposes to the
employer.
Any gain or loss realized by an optionee on disposition of the Common Stock
acquired upon exercise of a NQSO will generally be capital gain or loss to such
optionee, long-term or short-term depending on the holding period, and will not
result in any additional tax consequences to the employer. The optionee's basis
in the shares of Common Stock is determined generally at the time of exercise.
When an optionee exercises an ISO while employed by the Company or a
subsidiary or within three months (one year for disability) after termination of
employment by reason of retirement or death, no ordinary income will be
recognized by the optionee at that time, but the excess (if any) of the fair
market value of the shares of Common Stock acquired upon such exercise over the
Option Price will be an adjustment to taxable income for purposes of the federal
alternative minimum tax applicable to individuals. If the shares of Common
Stock acquired upon exercise of the ISO are not disposed of prior to the
expiration of one year after the date of acquisition and two years after the
date of grant of the option, the excess (if any) of the sales proceeds over the
aggregate Option Price of such shares of Common Stock will be long-term capital
gain, but the employer will not be entitled to any tax deduction with respect to
such gain. Generally, if the shares of Common Stock are disposed of prior to
the expiration of such periods (a "Disqualifying Disposition"), the excess of
the fair market value of such shares at the time of exercise over the aggregate
Option Price (but not more than the gain on the disposition if the disposition
is a transaction on which a loss, if realized, would be recognized) will be
ordinary income at the time of such Disqualifying Disposition (and the employer
will generally be entitled to a federal income tax deduction in a like amount).
Any gain realized by the optionee as the result of a Disqualifying Disposition
that exceeds the amount treated as ownership income will be capital in nature,
long-term or short-term depending on the holding period. If an ISO is exercised
more than three months (one year for disability) after termination of
employment, the tax consequences are the same as described above for NQSOs.
When a Participant exercises SARs, the amount of cash and the fair market
value of property received (including Shares), unless the property is subject to
transfer restrictions or forfeiture, will be ordinary income to the participant
and will be allowed as a deduction for federal income tax purposes to the
Company or a subsidiary.
18
In the absence of an election by a participant under Section 83(b) of the
Code, the grant of Restricted Shares will not result in taxable income to the
participant or a deduction to the Company or its subsidiary or affiliate in the
year of the grant. The value of such Restricted Shares will be taxed to a
participant in the year in which the restrictions lapse. Alternatively, a
participant may elect to treat as income in the year of grant the fair market
value of the Restricted Shares on the date of grant, provided the Participant
makes an election under Section 83(b) of the Code within thirty days after the
date of such grant. If such an election were made, a participant would not be
allowed to deduct at a later date the amount included as taxable income if he
should forfeit the Restricted Shares to the Company or its subsidiary or
affiliate. Generally, the amount of ordinary income recognized by a participant
is deductible by the Company or its subsidiary or affiliate in the year the
income is recognized by the participant. If the participant does not make an
election under Section 83(b) of the Code, dividends paid on the Shares prior to
the lapse of restrictions on such Shares will be taxable to the participant as
additional compensation in the year received free of restrictions, and the
Company or its subsidiary or affiliate will be allowed a corresponding
deduction.
Special rules may apply to a participant who is subject to Section 16 of the
1934 Act. Certain additional special rules apply if the exercise price for an
option is paid in shares of Common Stock previously owned by the optionee rather
than in cash.
The foregoing discussion summarizes the federal income tax consequences of the
1999 Incentive Plan based on current provisions of the Code, which are subject
to change. This summary does not cover any state or local tax consequences of
participation in the 1999 Incentive Plan.
On March 17, 1999, the Board authorized the grant of 1.6 million Restricted
Shares to employees, such grants to be made on the date the 1999 Incentive Plan
is approved by shareholders. Also, on March 17, 1999, the Board authorized the
President and Chief Executive Officer to grant options with respect to up to
1,000,000 shares, subject to availability.
Awards with respect to 5,249,880 shares of Common Stock were granted under the
Company's existing incentive plans in 1998.
The Board of Directos of the Company recommends that stockholders vote "FOR"
the approval of the adoption of the 1999 Incentive Plan.
ITEM THREE: APPROVAL OF AMENDMENTS TO THE COMPANY'S EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors recommends approval by the shareholders of the
amendment to the 1997 Employee Stock Purchase Plan (the "Stock Purchase Plan").
The shareholders approved the Stock Purchase Plan at the November 20, 1996
meeting of the Company's shareholders. The Stock Purchase Plan is designed to
give all eligible employees an increased personal interest in the success and
progress of the Company by encouraging their ownership of Common Stock of the
Company. The maximum number of shares of the Company's Common Stock subject to
the Plan, prior to amendment, was 3,500,000 shares, with proportionate
adjustments of such amount in the case of stock dividends, stock splits or other
stock changes. As of April 29, 1999, approximately 3,224,248 shares had been
awarded under the Stock Purchase Plan. On April 30, 1999, the Board approved an
amendment to the Stock Purchase Plan, subject to approval of the shareholders,
to increase by 4 million the number of shares of Common Stock of the Company
authorized for issuance under the Stock Purchase Plan. The Board adopted this
amendment to ensure that the Company can continue to allow participation in the
Stock Purchase Plan by eligible employees as only 275,752 shares are currently
available for issuance under such plan. The text of the amendment is set forth
as Annex II to this Proxy Statement.
The Stock Purchase Plan provides for the granting of options to all eligible
employees of the Company and its subsidiaries, both officers and non-officers,
entitling them to purchase shares of the Common Stock of the Company at a
discounted price. All employees of the Company or its subsidiaries will be
eligible to participate in the Stock Purchase Plan, except part-time and
temporary employees and employees owning 5% or more of the total voting power or
value of all classes of stock of the Company. Under the Stock Purchase Plan,
only those directors and nominees for director who are full-time employees of
the Company or a subsidiary are eligible to receive options.
19
For each six-month period (an "Offering Period") commencing January 1 or July
1 (the "Offering Date") during the term of the Stock Purchase Plan, each
eligible employee receives an option to purchase up to the largest whole number
of shares obtained by dividing (i) between one and ten percent (as specified by
the employee) of such employee's compensation for the Offering Period by (ii)
the Option Price (as defined below). At the end of an Offering Period, on
either June 30 or December 31 (the "Exercise Date"), the amount deducted from
each eligible employee's compensation during the Offering Period is used to
purchase shares of the Company's Common Stock for the benefit of that employee.
The price at which the shares will be purchased (the "Option Price") will be 85%
of the fair market value of a share of Common Stock on the Offering Date or the
Exercise Date, whichever is lower. Generally, fair market value will be the
average of the high and low sales prices of the Common Stock on that date.
Prior to the Exercise Date, the amounts deducted from an employee's salary may
be used by the Company for general corporate purposes but will be recorded as
being in separate accounts ("Purchase Accounts") for each employee.
Participating employees can avoid purchasing Common Stock on an Exercise Date
and the funds designated for their Purchase Accounts will be paid to them if
they so elect by written notice to the Company on or before the Exercise Date.
Other than terminating their participation, employees may not change the level
of their participation with respect to an Offering Period during such Offering
Period. The aggregate fair market value of all shares of the Company and its
subsidiaries which an employee has an option to purchase under employee stock
option plans may not exceed $25,000 in any calendar year.
The Stock Purchase Plan provides that if an employee's employment terminates
for any reason other than death, then such employee's options terminate
immediately and all funds deducted from the employee's compensation during the
current Offering Period will be paid to the employee. Options are not
transferable except by will or by the laws of descent and distribution, and will
be exercisable, during the employee's lifetime, only such employee.
The Stock Purchase Plan provides that options will become immediately
exercisable in full upon the occurrence of certain events involving a change in
control of the Company. Such events include: the adoption of a plan of merger
or similar transaction involving the Company in which the Company's stockholders
would receive less than 50% of the voting stock of the surviving corporation;
the approval by the Board of Directors of the sale or transfer by the Company of
a majority of the stock of a significant subsidiary of the Company or
substantially all of the Company's or such a subsidiary's assets; certain
acquisitions of more than 20% of the Common Stock by any person or group other
than a person or group who beneficially owned, as of the Offering Date, more
than 5% of the Common Stock unless prior approval of the Board of Directors is
received; certain significant changes in the membership of the Board of
Directors; or any other transaction that would constitute a change in control
required to be reported by the Company in a proxy statement. In addition, upon
the approval of the dissolution or liquidation of the Company, all options shall
become exercisable in full. Upon the occurrence of the dissolution or
liquidation of the Company, or upon the consummation of a merger or
consolidation in which the Company's stockholders do not receive at least 50% of
the voting stock of the resulting corporation, all options not exercised shall
terminate, but the participating employees will have the option of purchasing
the shares or being paid the amount designated in their Purchase Accounts prior
to such occurrence.
The date for the initial grant of options under the Stock Purchase Plan was
January 1, 1997. The Stock Purchase Plan will terminate December 31, 2006 and
is administered by the Employee Benefits Committee of the Board of Directors of
the Company. The Committee will be able to prescribe rules and regulations for
such administration and to decide questions with respect to the interpretation
or application of the Plan. In addition, the Committee will have the authority
to alter, amend, suspend or discontinue the Stock Purchase Plan at any time
without notice, except that no such action may adversely affect the rights of
any participating employee. In addition, the Committee may not increase the
number of shares of Common Stock issuable under the Stock Purchase Plan, change
the formula determining the price at which options may be exercised or increase
the maximum number of shares an eligible employee may purchase under the Stock
Purchase Plan. Furthermore, the Stock Purchase Plan is designed to meet the
requirements of Rule 16b-3 under the Exchange Act with respect to participation
by insiders of the Company, and, in accordance therewith, certain amendments may
require the approval of the Company's stockholders.
Options will be granted on the condition that a registration statement under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Common Stock to be issued subject to such option has become effective and a
copy of the prospectus has been delivered to each participant.
20
Options under the Stock Purchase Plan will be statutory stock options of the
kind recognized by Section 423 of the Internal Revenue Code of 1986, as amended
(the "Code"). For federal income tax purposes, neither the grant nor the
exercise of the options will be a taxable event to the participants. The
disposition, however, of the shares acquired through the exercise of the options
will be a taxable event. The tax consequences of such a disposition will depend
upon the respective holding periods of the options and options shares. The
statutory holding period for the Stock Purchase Plan is the later of two years
after the Offering Date or one year from the date of transfer of the stock to
the employee.
If a disposition of the shares is made after the end of the holding period, a
portion of the gain, if any, will be taxed as ordinary income, which portion
will be determined by subtracting the option price from the lesser of (a) the
fair market value of the shares on the date the option was granted or (b) the
fair market value of the shares on the disposition date. The remaining portion
of the gain, if any, will be taxed as capital gain for federal income tax
purposes. When the holding period described above is met, the Company is not
allowed to deduct any amount for federal income tax purposes with respect to the
issuance or exercise of the options or the sale of the underlying shares.
If a disposition of the shares is made before the end of the holding period,
the amount of the gain which will be taxed as ordinary income will be determined
by subtracting the option price from the fair market value of the shares on the
date on which the option was exercised. The amount treated as ordinary income
would be added to the employee's basis in calculating whether any capital gain
or loss is to be recognized on the disposition. In the year of such early
disposition, the Company will generally be entitled to a business deduction for
federal income tax purpose sin an amount equal to the ordinary income.
The Stock Purchase Plan is not qualified under the provisions of Section
401(a) of the Code and is not subject to any of the provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
The number of shares of the Company's Common Stock that will be purchased
under the Stock Purchase Plan by its employees if it is amended cannot be
estimated by the Company. The number of shares that were purchased by the
employees if the Stock Purchase Plan for fiscal year 1998 was 1,655,590.
The Board of Directors of the Company recommends that stockholders vote "FOR"
approval of the amendment ot the 1997 Employee Stock Purchase Plan.
ITEM 4: RATIFICATION OF INDEPENDENT ACCOUNTANTS
Upon the recommendation of the Audit Committee, the Board of Directors has
appointed PricewaterhouseCoopers LLP ("PwC") to audit the accounts of the
Company for the year ending December 31, 1999. For the year ended December 31,
1998 the Company's accounts were audited by PwC.
PwC's report on the financial statements of the Company for the year ended
December 31, 1998 did not contain an adverse opinion or a disclaimer of opinion
and was not qualified or modified as to uncertainty, audit scope, or accounting
principles.
To the knowledge of management and the Audit Committee of the Board of
Directors of the Company, in connection with the audit of the Company's
financial statements for the year ended December 31, 1998, there were no
disagreements with PwC on any matters of accounting principles or practices,
financial statement disclosure, or auditing scope and procedure which, if not
resolved to the satisfaction of PwC, would have caused PwC to make reference to
the matter in its reports.
Representatives of PwC will be present at the Annual Meeting with the
opportunity to make a statement if they desire to do so and will be available to
respond to appropriate questions.
Stockholder ratification of the appointment of PwC as the Company's
independent accountants is not required by the Company's bylaws or otherwise.
The Board of Directors has elected to seek such ratification as a matter of good
21
corporate practice. Should the stockholders fail to ratify the appointment of
PwC as the Company's independent accountants for the year ending December 31,
1999, the Board of Directors will consider whether to retain that firm for such
year.
The Board of Directors of the Company recommends that stockholders vote "FOR"
the ratification of the appointment of PwC as the Company's independent
accountants for 1999.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Stockholder Agreement
In connection with the Merger, the Company, HLR, Holdings and Hoffmann-La
Roche entered into the Stockholder Agreement dated as of April 28, 1995. In
December 1996, HLR was merged with and into Hoffmann-La Roche and the shares of
Common Stock owned by HLR subsequently transferred from Hoffmann-La Roche to
Holdings. The Stockholder Agreement contains certain provisions relating to (i)
the governance of the Company following the Merger, including but not limited to
the composition of the Board of Directors, (ii) the issuance, sale, and transfer
of the Company's Equity Securities (as defined therein) by the Company and
Hoffmann-La Roche, (iii) the acquisition of additional Equity Securities, and
(iv) the registration rights granted by the Company to Holdings and Hoffmann-La
Roche with respect to the Company's Equity Securities.
Pursuant to the Stockholder Agreement, the Board of Directors of the Company
will (subject to specified exceptions) be comprised of seven members, consisting
of three "Roche Directors" and four Independent Directors nominated by the
Nominating Committee of the Board of Directors.
The Stockholder Agreement also provides that, among other things, certain
actions by the Company will require approval by a majority of the Roche
Directors and at least one Independent Director (a "Special Majority Vote").
Included in these items is any change in the size or composition of the Board of
Directors or any committee thereof and the establishment of a new committee of
the Board of Directors, and with certain exceptions, the issuance of securities
by the Company.
The Stockholder Agreement also provides that, except under certain
circumstances, which include the issuance of Common Stock pursuant to a public
offering, the Company may not issue any equity securities unless Holdings is
offered the opportunity to purchase an amount of such stock necessary to
maintain its interest.
Pursuant to the Stockholder Agreement, Holdings and its affiliates (other than
the Company and its subsidiaries) have the right to acquire Equity Securities
(as defined therein) to the extent that, after giving effect thereto, their
Total Voting Power would not exceed 75%. Moreover, Holdings and its affiliates
(other than the Company and its subsidiaries) may acquire additional Equity
Securities notwithstanding the fact that after giving effect thereto, their
Total Voting Power would exceed 75%, if Holdings and its affiliates (other than
the Company and its subsidiaries) or any one of them offers, prior to
consummation of such purchase, to purchase all outstanding Equity Securities and
holders of Equity Securities totaling more than 50% of the outstanding Equity
Securities (excluding Equity Securities held by Holdings and its affiliates
(other than the Company and its subsidiaries)) accept such offer. After the
third anniversary of the Merger, the Stockholder Agreement does not restrict
purchases by Holdings or its affiliates of Equity Securities.
In addition, the Stockholder Agreement contains a Demand Registration
provision pursuant to which the Company is obligated, upon the request of
Holdings, or Hoffmann-La Roche, to file registration statements with the
Commission covering any shares of Common Stock owned by those parties which are
restricted securities within the meaning of Rule 144(a)(3) of the Securities Act
of 1933, as amended (the "Securities Act"). Holdings and Hoffmann-La Roche will
also have the right to include such securities in any registration statement
filed by the Company offering securities for its own account or for the account
of any holder other than Mafco or any of its affiliates, subject to certain
reductions if the managing underwriter determines that the size of the offering
or the combination of securities offered would materially interfere with the
offering.
22
The Sharing and Call Option Agreement
In connection with the Merger Agreement, HLR, Mafco Holdings, Inc. ("Mafco"),
a Delaware corporation and indirect wholly-owned subsidiary of M&F Holdings,
National Health Care Group, Inc. ("NHCG"), and the Company entered into the
Sharing and Call Option Agreement dated as of December 13, 1994 (the "Sharing
and Call Option Agreement"). The Sharing and Call Option Agreement provides,
among other things, that at any time after the third anniversary of the Merger,
Hoffmann-La Roche (the successor to HLR as discussed above) or one of its
affiliates (such party, a "Purchaser") (other than the Company) may exercise the
right, which right may only be exercised once, to purchase all, but not less
than all, the shares of Common Stock then owned by NHCG, Mafco or any of their
controlled affiliates. The Sharing and Call Option Agreement provides that the
Purchaser, will, if it elects to exercise this purchase right, pay a price per
share for the shares to be purchased equal to 102% of the average closing price
per share of such security as reported on the principal national securities
exchange on which such shares are listed, or if not so listed, as reported on
the National Association of Securities Dealers, Inc. Automated Quotation System-
- -National Market System, for the 30 trading days before the date of such
exercise.
In addition, in accordance with the Sharing and Call Option Agreement, the
Company has filed with the Commission a registration statement on Form S-3 (the
"Registration Statement") which has been declared effective by the Commission
and includes a resale prospectus that permits NHCG (or any of its pledgees) to
sell shares of Common Stock and Warrants received by NHCG in the Merger without
restriction. The Company has agreed to use its best efforts to prepare and file
with the Commission such post-effective amendments to the Registration Statement
or other filings as may be necessary to keep such Registration Statement
continuously effective for a period ending on the third anniversary of the date
of the Sharing and Call Option Agreement and during such period to use its best
efforts to cause the resale prospectus to be supplemented by any required
prospectus supplement. The Company has also agreed to pay all of the
Registration Expenses (as defined therein) arising from exercise of the
registration rights set forth in the Sharing and Call Option Agreement. A copy
of the Sharing and Call Option Agreement was filed with the Commission by the
Company as an exhibit to the 1994 10-K.
Registration Rights Agreement
In addition to those registration rights granted to NHCG under the Sharing and
Call Option Agreement, the Company and NHCG also are parties to a registration
rights agreement dated as of April 30, 1991 (the "Registration Rights
Agreement") pursuant to which the Company is obligated, upon the request of
NHCG, to file registration statements ("Demand Registration Statements") from
time to time with the Commission covering the sale of any shares of Common Stock
owned by NHCG upon the completion of certain public offerings by the Company of
shares of Common Stock in 1991. Such Demand Registration Statements may also
cover the resale from time to time of any shares of Common Stock that NHCG may
purchase in the open market at a time when it is deemed to be an affiliate (as
such term is defined under Rule 144 under the Securities Act of 1933, as
amended), and certain securities issued in connection with a combination of
shares, recapitalization, reclassification, merger or consolidation, or other
pro rata distribution. NHCG will also have the right to include such Common
Stock and other securities in any registration statement filed by the Company
for the underwritten public offering of shares of Common Stock (whether or not
for the Company's account), subject to certain reductions in the amount of such
Common Stock and securities if the managing underwriters of such offering
determine that the inclusion thereof would materially interfere with the
offering. The Company agreed not to effect any public or private sale,
distribution or purchase of any of its securities which are the same as or
similar to the securities covered by any Demand Registration Statement during
the 15-day period prior to, and during the 45-day period beginning on, the
closing date of each underwritten offering under such registration statement and
NHCG agreed to a similar restriction with respect to underwritten offerings by
the Company. NHCG's rights under the Registration Rights Agreement are
transferable as provided therein.
Until the third anniversary of the Sharing and Call Option Agreement, when the
Company's obligation to keep the Registration Statement effective expires, the
registration rights granted to NHCG pursuant to the Registration Rights
Agreement are substantially duplicative of those granted pursuant to the Sharing
and Call Option Agreement. After such date and only to the extent that NHCG
still holds shares of Common Stock or Warrants that it held as of or received in
the
23
Merger, NHCG will continue to be entitled to the registration rights
described in the preceding paragraph, unless the Registration Rights Agreement
has been otherwise amended or terminated.
Tax Allocation Arrangement
Until May 7, 1991, the Company was included in the consolidated federal income
tax returns, and in certain state income tax returns, of Mafco, M&F Holdings,
Revlon Group, and Revlon. As a result of the reduction of M&F Holdings' indirect
ownership interest in the Company on May 7, 1991, the Company is no longer a
member of the Mafco consolidated tax group. For periods subsequent to May 7,
1991, the Company files its own separate federal, state, and local income tax
returns. Nevertheless, the Company will remain obligated to pay to M&F Holdings
(or other members of the consolidated group of which M&F Holdings is a member)
any income taxes the Company would have had to pay (in excess of those which it
has already paid) if it had filed separate income tax returns for taxable
periods beginning on or after January 1, 1985 (but computed without regard to
(i) the effect of timing differences (i.e., the liability or benefit that
otherwise could be deferred will be, instead, includible in the determination of
current taxable income) and (ii) any gain recognized on the sale of any asset
not in the ordinary course of business). In addition, despite the reduction of
M&F Holdings' indirect ownership of the Company, the Company will continue to be
subject under existing federal regulations to several liability for the
consolidated federal income taxes for any consolidated return year in which it
was a member of any consolidated group of which Mafco, M&F Holdings, Revlon
Group, or Revlon was the common parent. However, Mafco, M&F Holdings, Revlon
Group, and Revlon have agreed to indemnify the Company for any federal income
tax liability (or any similar state or local income tax liability) of Mafco, M&F
Holdings, Revlon Group, Revlon, or any of their subsidiaries (other than that
which is attributable to the Company or any of its subsidiaries) that the
Company would be required to pay.
Certain Other Transactions with Roche
At December 31, 1998, 61,329,256 shares of the Company's outstanding common
stock, or approximately 49.6% at December 31, 1998, were owned by Roche. In
addition, Roche owned 5,672,399 shares of the Company's redeemable convertible
preferred stock at December 31, 1998, or approximately 52.7%. No voting rights
are associated with the redeemable preferred shares.
As of December 31, 1998, the number of warrants outstanding to purchase the
Company's common stock was 22,151,308, of which 8,325,000 warrants were held by
an affiliate of Roche. These warrants are exercisable at a price of $22.00 per
share and expire on April 28, 2000.
The Company has certain on-going arrangements with Roche for the purchase by
the Company of certain products and the licensing by the Company from Roche of
certain diagnostic technologies, with an aggregate value of approximately $33.0
million in 1998. In addition, the Company made royalty payments to Roche in the
amount of $2.9 million in 1998. The Company provides certain diagnostic testing
and support services to Roche in connection with Roche's clinical pharmaceutical
trials, with an aggregate value of approximately $0.5 million in 1998. Each of
these arrangements was entered into in the ordinary course of business, on an
arm's-length basis, and on terms which the Company believes are no less
favorable to it than those obtainable from unaffiliated third parties.
Certain Transactions with AutoCyte, Inc.
Dr. Powell is President, Chief Executive Officer and a Director on the Board
of AutoCyte, Inc. and has a beneficial ownership of 15.5% of AutoCyte's common
stock. Mr. MacMahon serves on the Board of AutoCyte and has a beneficial
ownership of less than 1% of AutoCyte's common stock.
The Company has certain on-going arrangements with AutoCyte for the purchase
by the Company of certain products with an aggregate value of approximately $0.7
million in 1998.
24
In 1998, AutoCyte (i) leased a portion of the Company's facility in Elon
College, North Carolina and (ii) purchased cytology services for total payments
of approximately $0.1 million to the Company.
STOCKHOLDER PROPOSALS
Under the rules and regulations of the Commission as currently in effect, any
holder of at least $1,000 in market value of Common Stock who desires to have a
proposal presented in the Company's proxy material for use in connection with
the annual meeting of stockholders to be held in 2000 must transmit that
proposal (along with his name, address, the number of shares of Common Stock
that he holds of record or beneficially, the dates upon which the securities
were acquired and documentary support for a claim of beneficial ownership) in
writing as set forth below. Proposals of stockholders intended to be presented
at the next annual meeting must be received by Bradford T. Smith, Secretary,
Laboratory Corporation of America Holdings, 358 South Main Street, Burlington,
North Carolina 27215, no later than January 3, 2000. This date was calculated
based on a planned meeting date in early June 2000.
Holders of Common Stock who want to have proposals submitted for consideration
at future meetings of stockholders should consult the applicable rules and
regulations of the Commission with respect to such proposals, including the
permissible number and length of proposals and other matters governed by such
rules and regulations.
ADDITIONAL INFORMATION
The Company will make available a copy of the 1998 Form 10-K and any quarterly
reports on Form 10-Q filed thereafter, without charge, upon written request to
the Secretary, Laboratory Corporation of America Holdings, 358 South Main
Street, Burlington, North Carolina 27215. Each such request must set forth a
good faith representation that, as of the Record Date (April 19, 1999) the
person making the request was a beneficial owner of Common Stock entitled to
vote.
In order to ensure timely delivery of such document prior to the annual
meeting, any request should be received by the Company promptly.
OTHER BUSINESS
The Company knows of no other matters which may come before the Annual
Meeting. However, if any such matters properly come before the Annual Meeting,
the individuals named in the proxies will vote on such matters in accordance
with their best judgment.
By Order of the Board of Directors
LOGO
Bradford T. Smith
Secretary
April 30, 1999
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ANNEX I
LABORATORY CORPORATION OF AMERICA HOLDINGS
AMENDED AND RESTATED 1999 STOCK INCENTIVE PLAN
1. Purpose; Restrictions on Amount Available under this Plan.
This Amended and Restated 1999 Stock Incentive Plan (this "Plan") is
intended to encourage stock ownership by employees of Laboratory Corporation of
America Holdings (the "Company") and employees of Affiliate Corporations (as
defined in Section 2(a) hereof), so that they may acquire or increase their
proprietary interest in the Company, and to encourage such employees to remain
in the employ of the Company and to put forth maximum efforts for the success of
the business of the Company. It is further intended that options granted by the
Committee pursuant to Section 6 of this Plan shall constitute "incentive stock
options" ("Incentive Stock Options") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, and the regulations issued thereunder
(the "Code"), and options granted by the Committee pursuant to Section 7 of this
Plan shall constitute "nonqualified stock options" ("Nonqualified Stock
Options"). Grants under this Plan may consist of Incentive Stock Options,
Nonqualified Stock Options (collectively, "Options"), stock appreciation rights
("Rights"), which Rights may be either granted in conjunction with Options
("Related Rights") or unaccompanied by Options ("Free Standing Rights"), or
restricted stock awards ("Restricted Shares"), as hereinafter set forth.
2. Definitions.
As used in this Plan, the following words and phrases shall have the
meanings indicated:
(a) "Affiliate Corporation" or "Affiliate" shall mean any
corporation, directly or indirectly, through one or more intermediaries,
controlling, controlled by, or under common control with the Company.
(b) "Award" shall mean an Option, a Right or Restricted Share granted
hereunder.
(c) "Award Agreement" shall have the meaning set forth in Section 3
hereof.
(d) "Change in Control" shall mean circumstances under which Roche
Holding Ltd or any corporation directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control with
Roche Holding Ltd ceases to maintain "beneficial ownership" (as defined in
Rule 13d-3 of the Exchange Act), individually or in the aggregate, of
securities of the Company representing five percent (5%) or more of the
combined voting power of the Company's then outstanding securities.
(e) "Common Stock" shall mean shares of the Company's common stock,
par value $0.01 per share.
(f) "Disability" shall mean a Participant's inability to engage in
any substantial gainful activity by reason of medically determinable
physical or mental impairment that can be expected to result in death or
that has lasted or can be expected to result in death or that has lasted or
can be expected to last for a continuous period of not less than twelve
(12) months.
(g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(h) "Fair Market Value" per share as of a particular date shall mean
(i) the closing sales price per share of Common Stock on a national
securities exchange for the last preceding date on which there was a sale
of such Common Stock on such exchange, or (ii) if the shares of Common
Stock are then traded on an over-the-counter market, the average of the
closing bid and asked prices for the shares of Common Stock in such over-
the-market for the last preceding date on which there was a sale of such
Common Stock in such market, or (iii) if the shares of Common Stock are not
then listed on a national securities exchange or traded in an over-the-
counter market, such value as the Committee in its discretion may
determine.
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(i) "Parent Corporation" shall mean any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if,
at the time of granting an Award, each of such corporations (other than the
Company) owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
(j) "Participant" shall have the meaning set forth in Section 4
hereof.
(k) "Retirement" shall mean a Participant's termination of employment
in accordance with the provisions of the Company's Employee Retirement Plan
at such Participant's Normal Retirement Date, as defined in such plan.
(l) "Subsidiary Corporation" shall mean any corporation (other than
the Company) in an unbroken chain of corporations beginning with the
Company if, at the time of granting an option, each of such corporations
other than the last corporation in the unbroken chain owns stock possessing
fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
(m) "Ten Percent Stockholder" shall mean a Participant who, at the
time an Incentive Stock Option is granted, owns stock possessing more than
ten percent (10%) of the total combined voting power of all classes of
stock of the Company or of its Parent Corporation or Subsidiary
Corporations.
3. Administration.
This Plan shall be administered by a committee (the "Committee") appointed
by the Board of Directors of the Company (the "Board"), which shall be comprised
of two or more persons, each of whom shall qualify as a "Non-Employee Director"
as described in Rule 16b-3(b)(3)(i) promulgated under the Exchange Act.
The Committee shall have the authority in its discretion, subject to and
not inconsistent with the express provisions of this Plan, to administer this
Plan and to exercise all the powers and authorities either specifically granted
to it under this Plan or necessary or advisable in the administration of this
Plan, including, without limitation, the authority to grant Awards; to designate
Participants; to determine the type or types of Awards to be granted to a
Participant; to determine which Options shall constitute Incentive Stock Options
and which Options shall constitute Nonqualified Stock Options; to determine
which Rights (if any) shall be granted in conjunction with Options; to determine
the purchase price of the shares of Common Stock covered by each Option (the
"Option Price"); to determine the persons to whom, and the time or times at
which, Awards shall be granted; to determine the number of shares to be covered
by each Award; to interpret this Plan; to prescribe, amend and rescind rules and
regulations relating to this Plan; to determine the terms and provisions of the
agreements (which need not be identical) entered into in connection with Awards
granted under this Plan (each an "Award Agreement"); and to make all other
determinations deemed necessary or advisable for the administration of this
Plan. The Committee may delegate to one or more of its members or to one or
more agents such administrative duties as may be deemed advisable, and the
Committee or any person to whom it has delegated duties as aforesaid may employ
one or more persons to render advice with respect to any responsibility the
Committee or such person may have under this Plan.
No member of the Board of Directors or Committee shall be liable for any
action taken or determination made in good faith with respect to this Plan or
any Award granted hereunder.
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4. Eligibility.
Awards may be granted to key employees (including, without limitation,
officers and directors who are employees) of the Company or its present or
future Affiliate Corporations. For purposes of the foregoing, "employee" shall
mean any employee, independent contractor, consultant, advisor, or similar
individual who is providing or who has agreed to provide services to the Company
or to any of its present or future Affiliate Corporations. Notwithstanding any
provision of this paragraph, Incentive Stock Options shall be granted only to
individuals who, on the date of such grant, are employees of the Company or a
Parent Corporation or a Subsidiary Corporation. In determining the persons to
whom Awards shall be granted and the number of shares to be covered by each
Award, the Committee shall take into account the duties of the respective
persons, their present and potential contributions to the success of the Company
and such other factors as the Committee shall deem relevant in connection with
accomplishing the purpose of this Plan. A person to whom an Award has been
granted hereunder is sometimes referred to herein as a "Participant."
A Participant shall be eligible to receive more than one grant of an Award
during the term of this Plan, but only on the terms and subject to the
restrictions hereinafter set forth.
5. Stock.
The stock subject to Awards hereunder shall be shares of Common Stock. Such
shares may, in whole or in part, be authorized but unissued shares or shares
that shall have been or that may be reacquired by the Company. The aggregate
number of shares of Common Stock as to which Awards may be granted from time to
time under this Plan shall not exceed 9,200,000 of which the number of shares of
Common Stock as to which Restricted Shares may be granted from time to time
under this Plan shall not exceed 3,200,000. No person may be granted Options or
Rights under this Plan representing an aggregate of more than 750,000 shares of
Common Stock in any year. The limitations established by the preceding three
sentences shall be subject to adjustment as provided in Section 11 hereof.
To the extent that (1) any Award expires, is terminated or forfeited
without being exercised, settled or with respect to Restricted Shares, vested,
(2) any Option is surrendered on exercise of a Right for cash or the issuance of
fewer shares of Common Stock than issuable under such surrendered Option, or (3)
any Free Standing Right expires or is terminated without being exercised, the
shares of Common Stock issuable thereunder, less such shares issued, shall
become available for grants of Awards.
6. Incentive Stock Options.
Options granted pursuant to this Section 6 are intended to constitute
Incentive Stock Options and shall be subject to the following special terms and
conditions, in addition to the general terms and conditions specified in
Sections 5 and 8 hereof:
(a) Value of Shares. The aggregate Fair Market Value (determined as
of the date the Incentive Stock Option is granted) of the shares of Common
Stock with respect to which Options granted under this Plan and all other
option plans of the Company, any Parent Corporation and any Subsidiary
Corporation become exercisable for the first time by a Participant during
any calendar year shall not exceed $100,000.
(b) Ten Percent Stockholders. In the case of an Incentive Stock
Option granted to a Ten Percent Stockholder, (i) the Option Price shall not
be less than one hundred ten percent (110%) of the Fair Market Value of a
share of Common Stock of the Company on the date of grant of such Incentive
Stock Option, and (ii) the exercise period shall not exceed five (5) years
from the date of grant of such Incentive Stock Option.
7. Nonqualified Stock Options.
Options granted pursuant to this Section 7 are intended to constitute
Nonqualified Stock Options and shall be subject only to the general terms and
conditions specified in Sections 5 and 8 hereof.
8. Terms and Conditions of Options.
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Each Option granted pursuant to this Plan shall be evidenced by a written
Award Agreement between the Company and the Participant, which agreement shall
comply with and be subject to the following terms and conditions:
(a) Number of Shares. Each Award Agreement shall state the number
of shares of Common Stock to which the Option relates.
(b) Type of Option. Each Award agreement shall specifically identify
the portion, if any, of the Option which constitutes an Incentive Stock
Option and the portion, if any, which constitutes a Nonqualified Stock
Option.
(c) Option Price. Each Award Agreement shall state the Option Price
per share of Common Stock, which shall be not less than one hundred percent
(100%) of the Fair Market Value of a share of Common Stock of the Company
on the date of grant of the Option and which, in the case of Incentive
Stock Options, shall be further subject to the limitation described in
Section 6(b) hereof. The Option Price shall be subject to adjustment as
provided in Section 11 hereof. The date on which the Committee adopts a
resolution expressly granting an Option shall be considered the day on
which such Option in granted.
(d) Medium And Time of Payment. The Option Price shall be paid or
satisfied in full, at the time of exercise, in cash or in shares of Common
Stock owned by the Participant for at least six months (which are not the
subject of any pledge or other security interest) having a Fair Market
Value equal to such Option Price or in a combination of cash and such
shares, and may be effected in whole or in part, at the discretion of the
Committee (i) with monies received from the Company at the time of exercise
as a compensatory cash payment, or (ii) with monies borrowed from the
Company pursuant to repayment terms and conditions as shall be determined
from time to time by the Committee, in its discretion separately with
respect to each exercise of Options and each Participant; provided,
however, that each such method and time for payment and each such borrowing
and terms and conditions of security, if any, and repayment shall be
permitted by and be in compliance with applicable law.
(e) Term and Exercise of Options. Options shall be exercisable over
the exercise period as and at the times and upon the conditions that the
Committee may determine, as reflected in the Award Agreement; provided,
however, that the Committee shall have the authority to accelerate the
exercisability of any outstanding Option at such time and under such
circumstances as it, in its sole discretion, deems appropriate. The
exercise period shall be determined by the Committee; provided, however,
that in the case of any Incentive Stock Option, such exercise period shall
not exceed ten (10) years from the date of grant of such Incentive Stock
Option and such exercise period shall be further limited in circumstances
described in Section 6(b) hereof. The exercise period shall be subject to
earlier termination as provided in Section 8(f) and 8(g) hereof. An Option
may be exercised as to any or all full shares of Common Stock as to which
the Option has become exercisable, by giving written notice of such
exercise to the Committee; provided, however, that an Option may not be
exercised at any one time as to fewer than one hundred (100) shares (or
such number of shares as to which the Option is then exercisable if such
number of shares is less than one hundred (100)).
(f) Termination of Employment. Except as provided in this Section
8(f) and in Section 8(g) hereof, an Option may not be exercised unless the
Participant is then in the employ of (1) the Company, (2) an Affiliate
Corporation or (3) a corporation issuing or assuming the Option in a
transaction to which Section 424 of the Code applies or a parent
corporation or subsidiary corporation of the corporation described in this
Clause 3, and unless the Participant has remained continuously so employed
since the date of grant of the Option. In the event that the employment of
a Participant shall terminate (other than by reason of death, Disability or
Retirement), all Options of such Participant that are exercisable at the
time of such termination may, unless earlier terminated in accordance with
their terms, be exercised within three (3) months after such termination.
Nothing in this Plan or in any Option or Right granted pursuant hereto
shall confer upon an individual any right to continue in the employ of the
Company or any of its Affiliate Corporations or interfere in any way with
the right of the Company or any such Affiliate Corporation to terminate
such employment at any time.
29
(g) Acceleration of Benefits upon Death, Disability or Retirement of
Participant or a Change in Control. If (i) a Participant shall die while
employed by the Company or an Affiliate Corporation thereof, (ii) a
Participant shall die within three (3) months after the termination of such
Participant's employment, (iii) the Participant's employment shall
terminate by reason of Disability or Retirement, or (iv) there is a Change
in Control, then in any such case all Options theretofore granted to such
Participant (whether or not then exercisable) may, unless earlier
terminated or expired in accordance with their terms, be exercised by the
Participant or by the Participant's estate or by a person who acquired the
right to exercise such Option by bequest or inheritance or otherwise by
reason of the death or Disability of the Participant, at any time within
one year after the date of death, Disability or Retirement of the
Participant or the Change in Control.
(h) Nontransferability of Options. Options granted under this Plan
shall not be transferable otherwise than by will or by the laws of descent
and distribution, and Options may be exercised, during the lifetime of the
Participant, only by the Participant or by his guardian or legal
representative.
(i) Rights as a Stockholder. A Participant who is the holder of an
Option or a transferee of an Option shall have no rights as a stockholder
with respect to any shares covered by the Option until the date of the
issuance of a stock certificate to him or her for such shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether
in cash, securities or other property) or distribution of other rights for
which the record date is prior to the date such stock certificate is
issued, except as provided in Section 11 hereof.
(j) Other Provisions. The Award Agreements authorized under this
Plan shall contain such other provisions, including, without limitation,
(i) the granting of Rights, (ii) the imposition of restrictions upon the
exercise of an Award, and (iii) in the case of an Incentive Stock Option,
the inclusion of any condition not inconsistent with such Option qualifying
as an Incentive Stock Option, as the Committee shall deem advisable.
9. Stock Appreciation Rights.
(a) Grant and Exercise. In the case of a Nonqualified Stock Option,
Related Rights may be granted either at or after the time of the grant of such
Option. In the case of an Incentive Stock Option, related Rights may be granted
only at the time of the grant of the Incentive Stock Option.
A Related Right or applicable portion thereof granted with respect to a
given Option shall terminate and no longer be exercisable upon the termination
or exercise of the related Option, except that, unless otherwise provided by the
Committee at the time of grant, a Related Right granted with respect to less
than the full number of shares covered by a related Option shall only be reduced
if and to the extent that the number of shares covered by the exercise or
termination of the related Option exceeds the number of shares not covered by
the Right.
A Related Right may be exercised by a Participant, in accordance with
paragraph (b) of this Section 9, by surrendering the applicable portion of the
related Option. Upon such exercise and surrender, the Participant shall be
entitled to receive an amount determined in the manner prescribed in paragraph
(b) of this Section 9. Options which have been so surrendered, in whole or in
part, shall no longer be exercisable to the extent the Related Rights have been
exercised.
(b) Terms and Conditions. Rights shall be subject to such terms and
conditions, not inconsistent with the provisions of this Plan, as shall be
determined from time to time by the Committee and as evidenced by a written
Award Agreement between the Company and the Participant, including the
following:
(1) Related Rights shall be exercisable only at such time or times
and to the extent that the Options to which they relate shall be
exercisable in accordance with the provisions of Section 6, 7, 8 and this
Section 9 of this Plan; provided, however, that any Related Right shall not
be exercisable during the first six (6) months of the term of the Related
Right, except that this additional limitation shall not apply in the event
of death of the Participant prior to the expiration of the six (6) month
period.
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(2) Upon the exercise of a Related Right, a Participant shall be
entitled to receive up to, but not more than, an amount in cash or shares
of Common Stock equal in value to the excess of the Fair Market Value of
one (1) share of Common Stock over the option price per share specified in
the related Option multiplied by the number of shares in respect of which
the Related Right shall have been exercised, with the Committee having the
right to determine the form of payment.
(3) Related Rights shall be transferable only when and to the extent
that the underlying Option would be transferable under paragraph (h) of
Section 8 of this Plan.
(4) A Related Right granted in connection with an Incentive Stock
Option may be exercised only if and when the market price of the Common
Stock subject to the Incentive Stock Option exceeds the exercise price of
such Option.
(5) Free Standing Rights shall be exercisable at such time or times
and subject to such terms and conditions as shall be determined by the
Committee at or after grant; provided, however, that Free Standing Rights
shall not be exercisable during the first (6) six months of the term of the
Free Standing Right, except that this limitation shall not apply in the
event of death of the recipient of the Free Standing Right prior to the
expiration of the six-month period.
(6) The term of each Free Standing Right shall be fixed by the
Committee, but no Free Standing Right shall be exercisable more than ten
(10) years after the date such right is granted.
(7) Upon the exercise of a Free Standing Right, a Participant shall
be entitled to receive up to, but not more than, an amount in cash or
shares of Common Stock equal in value to the excess of the Fair Market
Value of one share of Common Stock over the price per share specified in
the Free Standing Right (which shall be no less than one hundred percent
(100%) of the Fair Market Value of the Common Stock on the date of grant)
multiplied by the number of shares in respect of which the Right is being
exercised, with the Committee having the right to determine the form of
payment.
(8) No Free Standing Right shall be transferable by the Participant
otherwise than by will or by the laws of descent and distribution, and all
such rights shall be exercisable, during the Participant's lifetime, only
by the Participant or his legal guardian or legal representative.
(9) In the event of the termination of employment of a recipient of a
Free Standing Right, such right shall be exercisable to the same extent
that an Option would have been exercisable in the event of the termination
of employment of a Participant.
10. Restricted Shares.
(a) Grant. Subject to the provisions of this Plan, the Committee shall
have sole and complete authority to determine the Participants to whom
Restricted Shares shall be granted, the number of Restricted Shares to be
granted to each Participant, the duration of the period during which, and the
conditions under which, the Restricted Shares may be forfeited to the Company,
and the other terms and conditions of such Awards.
(b) Transfer Restrictions. Restricted Shares may not be sold, assigned,
transferred, pledged or otherwise encumbered, except as provided in an Award
Agreement. Certificates issued in respect of Restricted Shares shall be
registered in the name of the Participant and deposited by such Participant,
together with a stock power endorsed in blank, with the Company. Upon the lapse
of the restrictions applicable to such Restricted Shares, the Company shall
deliver such certificates to the Participant or the Participant's legal
representative.
(c) Dividends and Distributions. Dividends and other distributions paid on
or in respect of Restricted Shares, if any, may be paid directly to the
Participant, or may be reinvested in additional Restricted Shares, as determined
by the Committee in its sole discretion.
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(d) Acceleration of Benefits upon Death, Disability or Retirement of
Participant or a Change in Control. If (i) a Participant shall die while
employed by the Company or an Affiliate Corporation thereof, (ii) the
Participant's employment shall terminate by reason of Disability or Retirement,
or (iii) there is a Change in Control, then in any such case all Restricted
Shares theretofore granted to such Participant shall become immediately vested
and nonforfeitable.
11. Effect of Certain Changes.
(a) If there is any change in the number of outstanding shares of Common
Stock by reason of any stock dividend, stock split, recapitalization,
combination, exchange of shares, merger, consolidation, liquidation, split-up,
spin-off or other similar change in capitalization, any distribution to
shareholders, including a rights offering, other than cash dividends, or any
like change, then the number of shares of Common Stock available for Awards, the
number of such shares of Common Stock covered by outstanding Awards, and the
price per share of Options or the applicable market value of Rights, shall be
proportionately adjusted by the Committee to reflect such change or
distribution; provided, however, that any fractional shares resulting from such
adjustment shall be eliminated.
(b) In the event of a change in the Common Stock as presently constituted,
which is limited to a change of all of its authorized shares with par value into
the same number of shares with a different par value or without par value, the
shares resulting from any such change shall be deemed to be Common Stock within
the meaning of this Plan.
(c) To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Committee,
whose determination in that respect shall be final, binding and conclusive,
provided that each Incentive Stock Option granted pursuant to this Plan shall
not be adjusted in a manner that causes such option to fail to continue to
qualify as an Incentive Stock Option within the meaning of Section 422 of Code.
12. Agreement by Participant Regarding Withholding Taxes.
If the Committee shall so require, as a condition of grant, exercise, or
settlement or otherwise, each Participant shall agree that:
(a) no later than the date a Participant recognizes taxable income in
connection with an Award granted hereunder in connection with the exercise
or settlement of such Award or otherwise, the Participant will pay to the
Company or make arrangements satisfactory to the Committee regarding
payment of any federal, state or local taxes of any kind required by law to
be withheld upon the exercise or settlement of such Award (any such tax, a
"Withholding Tax"); and
(b) the Company shall, to the extent permitted or required by law,
have the right to deduct any Withholding Tax from any payment of any kind
otherwise due to the Participant.
13. Gross-Up for Excise Tax.
An Award Agreement may provide that in the event that a Participant becomes
entitled by reason of a Change of Control to the accelerated vesting of an
Award, if such Participant will be subject to excise tax (the "Excise Tax")
under Section 4999 of the Code, the Company shall pay to such Participant as
additional compensation an amount (the "Gross-Up Payment") which, after payment
by such Participant of all taxes (including any federal, state and local income
tax and excise tax upon the payment provided for by this Section 13) allows
Participant to retain an amount of the Gross-Up Payment equal to the Excise Tax.
For purposes of determining whether a Participant will be subject to the Excise
Tax and the amount of such Excise Tax, (i) any other payments or benefits
received or to be received by such Participant in connection with a Change in
Control of the Company or the Participant's termination of employment (whether
pursuant to the terms of the Award Agreement or any other plan, arrangement or
agreement with the Company, any entity whose actions result in a Change in
Control of the Company or any entity affiliated with the Company or such entity)
shall be treated as "parachute payments" within the meaning of Section
280G(b)(2) of the Code, and all "excess parachute payments" within the meaning
of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax,
unless in the opinion of tax counsel selected by the Company's independent
auditors and reasonably acceptable to the Participant such other payments or
benefits (in whole or in part) do not constitute parachute payments, including
by reason of Section
32
280G(b)(4)(A) of the Code, or such excess parachute payments (in whole or in
part) represent reasonable compensation for services actually rendered, within
the meaning of Section 280G(b)(4)(B) of the Code, or are otherwise not subject
to the Excise Tax, (ii) the amount of payments or benefits treated as subject to
the Excise Tax shall be equal to the lesser of (A) the total amount of payments
or benefits conferred on such Participant by reason of the Change of Control or
(B) the amount of excess parachute payments within the meaning of Section
280G(b)(1) of the Code (after applying clause (i), above), and (iii) the value
of any noncash benefits or any deferred payment or benefit shall be determined
by the Company's independent auditors in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount
of the Gross-Up Payment, the Participant shall be deemed to pay federal income
taxes at the highest marginal rate of federal income taxation in the calendar
year in which the Gross-Up Payment is to be made and state and local income
taxes at the highest marginal rate of taxation in the state and locality of the
Participant's residence on the date on which the Excise Tax is incurred, net of
the maximum reduction in federal income taxes which could be obtained from
deduction of such state and local taxes. In the event that the Excise Tax is
subsequently determined to be less than the amount taken into account hereunder,
the Participant shall repay to the Company, at the time that the amount of such
reduction in Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (plus that portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income tax
deduction) plus interest on the amount of such repayment at the rate provided in
Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is
determined to exceed the amount taken into account hereunder (including by
reason of any payment the existence or amount of which cannot be determined at
the time of the Gross-Up Payment), the Company shall make an additional Gross-Up
Payment in respect of such excess (plus any interest, penalties or additions
payable by the Participant with respect to such excess) at the time that the
amount of such excess finally is determined. The Participant and the Company
each shall reasonably cooperate with the other in connection with any
administrative or judicial proceedings concerning the existence or amount of
liability for Excise Tax.
14. Termination and Amendment.
Unless terminated by action of the Board of Directors or the Committee, no
Awards may be granted under this Plan after May 19, 2007. This Plan may be
amended or terminated at any time by the Committee, except that no amendment may
be made without shareholder approval if the Committee determines that such
approval is necessary to comply with any tax or regulatory requirement,
including any approval requirement which is a prerequisite for exemptive relief
from Section 16 of the Exchange Act, for which or with which the Committee
determines that it is desirable to qualify or comply. The Committee may amend
the terms of any Award Agreement and any Award granted, retroactively or
prospectively, but no amendment may adversely affect any vested Award without
the holder's consent.
15. Effectiveness; Approval of Stockholders.
This Plan, as amended and restated, shall take effect upon its adoption by
the Board of Directors, but its effectiveness and the exercise of any Awards
granted subsequent to the effectiveness of the amendment shall be subject to the
approval of the holders of a majority of the voting shares of the Company, which
approval must occur within twelve (12) months after the date this Plan is
adopted by the Board.
16. Effect of Headings.
The section and subsection headings contained herein are for convenience only
and shall not affect the construction hereof.
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ANNEX II
ARTICLE IV. Stock:
The stock subject to the Options to be issued hereunder shall be Common
Stock. The maximum number of such shares to be issued upon the exercise of the
Options hereby granted shall be an aggregate of seven million five hundred
thousand (7,500,000) shares of Common Stock (the "Available Shares").
For each Offering Period hereunder, an eligible employee (hereinafter
called "Optionee") shall have an option to purchase up to the largest number of
whole and fractional shares available at the Option Price (as described in
Article V(a) obtained by having deducted from such Optionee's Compensation for
each payroll period during an Offering Period an amount not less than one
percent (1%) or more than ten percent (10%) of such Optionee's Compensation for
the payroll period. The term "Compensation" as used herein includes regular
base pay (including any shift differentials) at the rate in effect on the
Offering Date, but excludes any bonus, overtime payment, sales commission,
contribution to any Code (S)125 or 401(k) plan or other form of extra
compensation.
If in any Offering Period the total number of shares of Common Stock for
which Options are exercised exceeds the number of Available Shares remaining
under the Plan, the Administrator shall make a pro rata allocation of the
Available Shares in as nearly a uniform manner as shall be practicable and as it
shall deem to be equitable, and the balance of payroll deductions credited to
the Purchase Account of each Optionee shall be returned to each Optionee as
promptly as possible.
Except as expressly provided otherwise in Article III hereof, payment for
Common Stock purchased under the Option shall be made only by payroll deductions
over a designated Offering Period.
Notwithstanding the foregoing provisions of this Plan, no Option shall
permit an Optionee to purchase in any single calendar year a number of shares
which together with all other shares in the corporation and any Subsidiaries
which such Optionee may be entitled to purchase in such year pursuant to options
issued under any employee stock purchase plan, has an aggregate fair market
value (determined in each case as of the date such options are granted) in
excess of $25,000. This limitation applies only to options granted under
"employee stock purchase plans" as defined by (S)423 of the Code, and does not
limit the amount of stock which an Optionee may purchase under any other stock
option or bonus plans then in effect.
34
STOCKHOLDERS' PROXY SOLICITED BY THE BOARD OF DIRECTORS OF
LABORATORY CORPORATION OF AMERICA HOLDINGS
To: Laboratory Corporation of America Holdings
I appoint Bradford T. Smith and Wesley R. Elingburg individually and
together, as my proxies, with power of substitution, to vote all of my
LABORATORY CORPORATION OF AMERICA HOLDINGS common stock at the Annual Meeting of
stockholders of LABORATORY CORPORATION OF AMERICA HOLDINGS to be held at The
Paramount Theater, 128 East Front Street, Burlington, N.C., 27215 on Wednesday,
June 16, 1999 at 9:00 a.m., Eastern Daylight time, and at any adjournment or
postponement of the meeting.
My proxies will vote the shares represented by this proxy as directed on
the other side of this card, but in the absence of any instructions from me, my
proxies will vote "FOR" the election of all the nominees listed under Item 1 and
"FOR" Item 2, Item 3 and Item 4. My proxies may vote according to their
discretion on any other matter which may properly come before the meeting. I may
revoke this proxy prior to its exercise.
Please sign and date the other side of the card.
(Please fill in the appropriate boxes on the other side.)
When OK to Print -- Remove ALL Red Items
[x] Please mark your
votes as in this DO NOT PRINT IN THIS AREA
example
- -------------------------------------------------------------------------------
The Board of Directors recommends that you vote "FOR" all the nominees listed
under Item No. 1 and "FOR" Item No. 2, Item No. 3 and Item No. 4.
FOR ALL WITHHOLD AUTHORITY
1. Election of all NOMINEES for all nominee
the members of the
Company's Board of
Directors. [_] [_]
For, except vote withheld from the following nominees(s).
_________________________________________________________
Nominee:
Thomas P. Mac Mahon, James B.
Powell, M.D., Jean-Luc Belingard,
Wendy E. Lane, Robert E.
Mittelstaedt, Jr., David B. Skinner,
M.D. and Andrew G. Wallace, M.D.
FOR AGAINST ABSTAIN
2. Approval of the Laboratory
Corporation of America Holdings [_] [_] [_]
Amended and Restated 1999
Stock Incentive Plan
3. Approval of amendments to [_] [_] [_]
the Laboratory Corporation
of America Holdings 1997
Employee Stock Purchase Plan
4. Ratification of the appointment [_] [_] [_]
of PricewaterhouseCoopers LLC
as Laboratory Corporation of
America Holdings'independent
accountant for 1999.
SHAREHOLDER NAME AND ADDRESS
DO NOT PRINT IN THIS AREA
Signatures(s) _____________________________ Date: __________ Signature(s) ____________________________ Date: _______________
NOTE: Please sign exactly as name(s) appear(s) above. If acting as an executor,
administrator, trustee, guardian, etc. you should so indicate signing. If the
shareholder is a corporation, please sign the full corporate name, by duly
authorized officer. If shares are held jointly, each shareholder should sign.
Date and promptly return the card in the envelope provided.
