LabOne, Inc.
10310 West 84th Terrace
Lenexa, Kansas 66214
(913) 888-1770
----------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 14, 1998
----------------------------------------
The annual meeting of the stockholders of LabOne, Inc. (LabOne), a
Delaware corporation, will be held at the offices of LabOne, 10310 West 84th
Terrace, Lenexa, Kansas, on Thursday, May 14, 1998, at 3:00 P.M., Central
Daylight Time, for the following purposes:
1. To elect 11 directors as set forth in the accompanying Proxy
Statement.
2. To act on a proposal to approve the 1997 Long-Term Incentive
Plan.
3. To ratify the appointment of KPMG Peat Marwick LLP as
independent certified public accountants of the corporation
and its subsidiary for the present fiscal year.
4. To transact such other business as may properly come before
the meeting and any adjournment thereof.
Stockholders of record at the close of business on March 16, 1998 are entitled
to vote at the meeting.
YOUR VOTE IS IMPORTANT. PLEASE DATE, SIGN AND RETURN THE ACCOMPANYING PROXY
PROMPTLY IN THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU INTEND TO BE PRESENT AT
THE MEETING. Sending in your Proxy now will not interfere with your rights to
attend the meeting or to vote your shares personally at the meeting if you wish
to do so.
All stockholders are cordially invited to attend the meeting.
By Order of the Board of Directors
GREGG R. SADLER
Secretary Dated: April 13, 1998
LabOne, Inc.
10310 West 84th Terrace
Lenexa, Kansas 66214
(913) 888-1770
--------------------------------
PROXY STATEMENT
INTRODUCTION
This Proxy Statement is furnished to the stockholders of LabOne, Inc.
(LabOne), a Delaware corporation, in connection with the solicitation of
proxies by the Board of Directors of LabOne for use at the Annual Meeting of
Stockholders to be held on Thursday, May 14, 1998, at 3:00 P.M., Central
Daylight Time, at the offices of LabOne, 10310 West 84th Terrace, Lenexa,
Kansas, and at any adjournment thereof (the Annual Meeting). This Proxy
Statement, the Notice and the accompanying form of Proxy were first mailed to
the stockholders of LabOne on or about April 13, 1998.
A copy of LabOne's annual report for the fiscal year ended December 31,
1997, is enclosed herewith. Such report is not incorporated in the Proxy
Statement and is not to be deemed a part of the proxy soliciting material.
VOTING
Stockholders of record at the close of business on March 16, 1998, are
entitled to notice of and to vote at the meeting. There were 13,135,552 shares
of common stock outstanding at the close of business on that date.
Stockholders are entitled to one vote per share on all matters submitted at the
Annual Meeting.
When a Proxy in the accompanying form is properly executed and returned,
the shares represented by the Proxy will be voted at the Annual Meeting in
accordance with the instructions thereon. If no instructions are specified,
such shares will be voted for (1) the nominees for directors named herein, (2)
the approval of the 1997 Long-Term Incentive Plan, and (3) the ratification of
the selection of the independent public accountants. Abstentions and broker
nonvotes are counted for purposes of determining whether there is a quorum for
the transaction of business at the meeting. In tabulating the votes cast on
proposals presented to stockholders, abstentions are counted and broker
nonvotes are not counted for purposes of determining whether a proposal has
been approved.
A stockholder may revoke his or her Proxy at any time before it is voted
by giving to the Secretary of LabOne written notice of revocation bearing a
later date than the Proxy, by submitting a later-dated Proxy, or by revoking
the Proxy and voting in person at the Annual Meeting. Attendance at the Annual
Meeting will not in and of itself constitute a revocation of a Proxy. Any
written notice revoking a Proxy should be sent to Mr. Gregg R. Sadler,
Secretary, LabOne, 10310 West 84th Terrace, Lenexa, Kansas 66214.
-1-
PROPOSAL 1
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ELECTION OF DIRECTORS
INFORMATION CONCERNING NOMINEES
FOR ELECTION AS DIRECTORS
The stockholders will be asked to elect 11 Directors at the Annual
Meeting. Each of the persons listed below will be nominated to hold office for
a one-year term and until his successor is elected and qualified, or until his
earlier death, resignation or removal. It is expected that each of such
nominees will be available for election, but in the event that any of them
should become unavailable, the persons named in the accompanying Proxy will
vote for a substitute nominee or nominees designated by the Board of Directors.
The terms of office of the present Directors will expire upon the election of
their successors at the Annual Meeting.
Principal Occupation,
Five-Year Employment A Director
History and Other of LabOne
Name (Age) Directorships (1) Since
- ---------- --------------------- ----------
Joseph H. Brewer, Infectious Disease Specialist, 1988
M.D. (46) St. Luke's Hospital, Kansas City,
Missouri. Dr. Brewer is also an
Assistant Clinical Professor of
Medicine at the University of
Missouri - Kansas City
William D. Grant Retired. Formerly Chairman Emeritus 1989
(81) of the Board of Directors of Lab
Holdings, Inc. (Lab Holdings), Kansas
City, Missouri (formerly Seafield
Capital Corporation), a holding company
which owns 81.6% of the outstanding
stock of LabOne. Mr. Grant is also a
director of SLH Corporation (SLH), a
company formed in 1996 to manage and
develop real estate, energy and
miscellaneous assets previously owned
by Lab Holdings. (2)
-2-
W. Thomas Grant II Chairman of the Board of Directors, 1983
(47) President and Chief Executive
Officer of LabOne. Mr. Grant is also
a director of Commerce Bancshares,
Inc., Kansas City Power & Light
Company, Response Oncology, Inc.,
SLH and AMC Entertainment, Inc. (3)
Thomas J. Hespe Executive Vice President-Sales 1995
(41) and Marketing of LabOne. (4)
Richard A. Rifkind, Chairman of the Sloan-Kettering 1987
M.D. (67) Institute, New York, New York, a
medical research institution.
Gregg R. Sadler, Executive Vice President- 1985
FSA (47) Administration and Secretary of
LabOne and President-Insurance
Laboratory Division. (5)
Richard S. Schweiker Retired. Formerly President of the 1995
(71) American Council of Life Insurance,
Washington, D.C., a life insurance
trade association. Mr. Schweiker is
also a director of Tenet Healthcare
Corporation.
James R. Seward President, Chief Executive Officer 1995
(45) and a director of SLH. Mr. Seward
is also a director of Response
Oncology, Inc. (6)
Robert D. Thompson Executive Vice President, Chief 1995
(36) Operating Officer and Chief
Financial Officer of LabOne. (7)
John E. Walker Retired. Formerly Managing Director 1984
(59) Reinsurance of Business Men's
Assurance Company of America.
Mr. Walker is also a director of
FBL, Inc.(8)
R. Dennis Wright, Member of Hillix, Brewer, Hoffhaus, 1987
Esq. (55) Whittaker & Wright, L.L.C., Kansas
City, Missouri and Chairman of its
Executive Committee.(9)
- ------------
-3-
(1) Unless otherwise indicated, each Director has had the same principal
occupation during the last five years.
(2) Mr. W. D. Grant was Chairman Emeritus of Lab Holdings from 1993 to 1997.
Prior thereto he served as Chairman of the Board of Lab Holdings. He is
the father of W. Thomas Grant II.
(3) Mr. W. Thomas Grant II was appointed Chairman of the Board of Directors,
President and Chief Executive Officer of LabOne in 1995. He was Chairman
of the Board of Lab Holdings from 1993 to 1997. Prior thereto he was
president of Lab Holdings and Chairman of the Board of LabOne. He is the
son of W. D. Grant.
(4) Mr. Hespe was appointed Executive Vice President - Sales and Marketing in
1995. From 1990 to 1995, Mr. Hespe was Executive Vice President Sales
and Marketing of Allscrips Pharmaceuticals, Vernon Hills, Illinois, a
distributor of managed care pharmaceutical products and services with
annual revenues of approximately $70 million. Mr. Hespe's
responsibilities with Allscrips included developing strategies for market
expansion and developing business with managed care organizations,
including hospitals, physicians, HMO organizations, third party
administrators, consulting firms, self-insured employers and insurance
companies.
(5) Mr. Sadler was appointed President-Insurance Laboratory Division in 1994.
He was appointed Executive Vice President-Administration in 1993. Prior
thereto he was Executive Vice-President. He has served as Secretary
since 1988.
(6) Mr. Seward was appointed President and Chief Executive Officer of SLH in
1996. He was Executive Vice President of Lab Holdings from 1993-1997 and
served as its Chief Financial Officer from 1990-1997.
(7) Mr. Thompson was appointed Executive Vice President - Finance, Chief
Financial Officer and Treasurer in December 1993. He was Vice President-
Business Development Planning from August 1993 to December 1993. He was
an independent financial consultant from 1992 to 1993.
(8) Mr. Walker retired as Managing Director-Reinsurance of Business Men's
Assurance Company of America in 1996. Mr. Walker served as Vice Chairman
of the Board of Directors of LabOne prior to 1994.
(9) Hillix, Brewer, Hoffhaus, Whittaker & Wright, L.L.C., provides legal
services to LabOne, for which it was paid $357,458 in fees during
1997.
Meetings of the Board of Directors and Committees
There were four meetings of the Board of Directors during 1997. The
Board of Directors has an Audit Committee, a Compensation Committee and an
Executive Committee. During 1997 the Audit Committee met three times and the
Compensation Committee and Executive Committee each met four times. All
Directors attended 75 percent or more of the total number of all meetings of
-4-
the Board and of Committees of which they are members during 1997, with the
exception that Neal L. Patterson was unable to attend the February 14 and May 9
meetings of the Audit Committee; the May 10 Executive Committee meeting; and
the February 14 Board meeting.
The Audit Committee consists of Mr. Seward, Chairman, and Messrs. W. D.
Grant, Walker and Wright. The Audit Committee reviews LabOne's financial
statements with the independent auditors, determines the effectiveness of the
audit effort through meetings with the independent auditors and officers of
LabOne, inquires into the effectiveness of LabOne's internal controls through
discussions with the independent auditors, reports to the Board on its
activities and recommendations, and recommends to the Board the appointment of
independent auditors for the ensuing year.
The Compensation Committee consists of Mr. Schweiker, Chairman, and
Messrs. Brewer and Rifkind. The purpose of the Compensation Committee is to
oversee LabOne's compensation structure, incentive plans and other employee
benefits. The Compensation Committee reviews and recommends adjustments to the
officers' salary structure. It approves cash awards to nonofficer employees
and recommends to the Board amounts to be set aside and cash awards to be paid
to officers under LabOne's cash bonus plan. The Committee recommends to the
Board compensation for nonofficer directors, monitors the administration of
employee benefit plans and reviews significant employee supplementary pension
or termination arrangements.
The Executive Committee consists of Mr. W. Thomas Grant II, Chairman, and
Messrs. Hespe, Sadler, Seward and Thompson. The purpose of the Executive
Committee is to act on behalf of the Board of Directors and to serve in an
advisory capacity to management. The Executive Committee also develops,
recommends and reviews policy guidelines for all investments and borrowings of
LabOne and recommends outside investment management firms to provide services
to LabOne. The Executive Committee exercises all the powers and authority of
the Board in interim periods between meetings of the Board, except as limited
by Delaware law, and reports all of its actions to the Board.
LabOne does not have a standing nominating committee of the Board of
Directors or a committee performing a similar function.
-5-
Executive Officers
<TABLE>
The executive officers of LabOne are as follows:
<CAPTION>
Five-Year An Executive
Employment of LabOne
Name (Age) Positions History Since
- ---------- ---------------- --------------------------------- ------
<S> <C> <C> <C>
W. Thomas Grant II Chairman of the (1) 1995
(47) Board of Directors,
President and Chief
Executive Officer
Gregg R. Sadler, Executive Vice President- (2) 1988
FSA (47) Administration and
Secretary and President-
Insurance Laboratory
Division
Robert D. Thompson Executive Vice President (3) 1993
(36) Chief Operating
Officer and Chief
Financial Officer
Roger K. Betts Executive Vice President- Mr. Betts was appointed Executive Vice 1983
(55) Sales-Insurance President-Sales-Insurance Laboratory
Laboratory Division Division in 1994. He was Senior
Vice President-Sales of the
Division from 1993 to 1994. Prior
thereto he was Senior Vice President-
Technical Sales & Support.
Thomas J. Hespe Executive Vice (4) 1995
(41) President-Sales
and Marketing of
LabOne.
Carl W. Ludvigsen Executive Vice President- Dr. Ludvigsen was appointed Executive 1989
Jr., M.D., Ph.D., Corporate Development Vice President-Corporate Development
J.D., FCAP, FCLM and Chief Medical and Chief Medical Officer in December
(45) Officer 1996. He was Executive Vice President-
Operations and Chief Operating Officer
from December 1993 to November 1996.
He was Executive Vice President
from August to December 1993.
Prior thereto he was Senior Vice
President and Chief Pathologist.
-6-
Michael A. Peat, Executive Vice Dr. Peat was appointed Executive Vice 1996
Ph.D. (50) President- President-Toxicology in May 1996.
Toxicology He was Senior Vice President-
Toxicology from 1994 to 1996. Prior
thereto he was Vice President of
Toxicology of Roche Biomedical
Laboratories, Inc., Research Triangle
Park, North Carolina.
Roy K. Vance Executive Vice Mr. Vance was appointed Executive 1996
(44) President-Laboratory Vice President-Laboratory Operations
Operations in November 1996. From 1993 to 1996
he was Vice President-Laboratory
Operations. Prior thereto he was
Director of Laboratory Operations.
Thomas H. Executive Vice Mr. Bienvenu was appointed Executive 1997
Bienvenu II President- Vice President-Information Systems and
(48) Information Systems Technology in May 1997. He was Senior
and Technology Vice President-Marketing Information
Systems and Technology from October
1994 to December 1994. Prior thereto
he was Director of Marketing Information
Technology.
Kurt E. Vice President- Mr. Gruenbacher was appointed 1994
Gruenbacher, CPA, Finance, Chief Treasurer in November 1997. He was
CMA, CFM (38) Accounting Officer appointed Vice President-Finance and
and Treasurer Chief Accounting in May 1995. From 1994
to 1995 he was Corporate Controller.
From 1993 to 1994 he was Director,
Financial Analysis and Budgets. Prior
thereto he was Manager, Financial
Analysis and Budgets.
</TABLE>
(1) See footnote (3) on page 4 hereof for Mr. Grant's five-year employment
history.
(2) See footnote (5) on page 4 hereof for Mr. Sadler's five-year employment
history.
(3) See footnote (7) on page 4 hereof for Mr. Thompson's five-year
employment history.
(4) See footnote (4) on page 4 hereof for Mr. Hespe's five-year employment
history.
-7-
PROPOSAL 2
----------
APPROVAL OF 1997 LONG-TERM INCENTIVE PLAN
The Board of Directors has adopted the LabOne, Inc. 1997 Long-Term
Incentive Plan (the "Plan"), subject to the approval of the stockholders of
LabOne.
The purpose of the Plan is to further the earnings of LabOne and its
subsidiaries by: (a) assisting LabOne and its subsidiaries in attracting,
retaining and motivating officers, directors, employees and consultants of high
caliber and potential and (b) providing for the award of long-term incentives
to such officers, directors, employees and consultants.
The principal features of the Plan are summarized below. The summary is
qualified in its entirety by reference to the full text of the Plan set forth
in Exhibit A attached hereto.
Administration of the Plan
- --------------------------
The Plan is to be administered by a committee (the "Committee") consisting
of two or more members of the Board of Directors of LabOne ("Board") appointed
from time to time by the Board. Under the Plan, the Board may bifurcate the
powers of the Committee among one or more separate committees, or retain all
powers and duties of the Committee in a single committee. The Plan provides
that, except as otherwise determined by the Board, (a) if a Committee is
authorized to grant awards under the Plan ("Awards") or make determinations
with respect to any participant who is subject to Rule 16b-3 ("Rule 16b-3")
under the Securities Exchange Act of 1934, as amended from time to time (the
"1934 Act"), each member of such Committee must be a "non-employee director"
within the meaning of Rule 16b-3, and (b) if a Committee is authorized to
grant Awards or make determinations with respect to a "Covered Employee" under
the Plan, each member of such Committee must be an "outside director" within
the meaning of Section 162(m) ("Section 162(m)") of the Internal Revenue Code
of 1986, as amended from time to time (the "Code"). The Plan authorizes the
Board in its discretion to exercise the powers and duties of the Committee
under the Plan at any time and from time to time. The Plan is currently
administered by the Long-Term Incentive Plan Committee of the Board of
Directors.
The Plan grants the Committee full and final power and authority to
administer and interpret the Plan, including without limitation the power and
authority to determine the eligible persons to whom Awards shall be made under
the Plan and the type or types of Awards to be granted to any eligible person
under the Plan. The Committee is authorized under the Plan to delegate to one
or more executive officers of LabOne or any subsidiary the power to make Awards
to any participant who is not subject to Rule 16b-3 or a "Covered Employee" as
defined in the Plan.
-8-
Shares Subject to the Plan
- --------------------------
1,000,000 shares of Common Stock, $.01 par value per share, of LabOne
("Shares") are available for the grant of Awards under the Plan, subject to
appropriate adjustment by the Committee upon changes in capitalization and
certain other events as provided in the Plan. The Plan provides that if for
any reason any Award expires or lapses or is terminated, surrendered,
forfeited, cancelled, exercised or settled in a manner that results in fewer
Shares outstanding than were awarded pursuant to such Award, any Shares subject
to such Award, to the extent of such expiration, lapse, termination,
surrender, forfeiture, cancellation or decrease, shall again be available for
award under the Plan.
The closing price of LabOne's Common Stock on March 27, 1998, as reported
by the Wall Street Journal, was $16.75 per Share.
------------------
Limits on Individual Awards
- ---------------------------
Subject to appropriate adjustment by the Committee upon changes in
capitalization and certain other events as provided in the Plan, (a) the
maximum number of Shares subject to stock options and underlying stock
appreciation rights which may be granted in the aggregate under the Plan in
any calendar year to any participant is 150,000 Shares and (b) the maximum
number of Shares subject to restricted stock awards which may be granted in the
aggregate under the Plan in any calendar year to any Participant is 150,000
Shares. In addition, the maximum amount of compensation payable in respect of
performance unit awards, other stock-based awards under paragraph 10 of the
Plan, cash in addition to an Award and dividend equivalents that may be paid in
the aggregate under the Plan in any calendar year to any participant is
$1,500,000.
Eligibility
- -----------
All officers, directors, key employees and consultants of LabOne and its
subsidiaries are eligible to receive Awards under the Plan. The Plan defines
key employees as employees determined by the Committee to be capable of
contributing significantly to the profitability and success of LabOne and its
subsidiaries. The Plan provides that Incentive Stock Options may be granted
only to persons eligible to receive such options under the Code. The
approximate number of directors of LabOne and its subsidiaries eligible to
receive Awards under the Plan is seven and the approximate number of officers
and key employees of LabOne and its subsidiaries eligible to receive Awards
under the Plan is 645.
Forms of Awards
- ---------------
Under the Plan, Awards may be made from time to time by the Committee in
the form of stock options to purchase Shares, stock appreciation rights,
performance units, restricted stock, other stock-based awards or any
combination of the above. In addition, the Committee may provide for cash
payments to participants in addition to an Award, or loans to participants in
connection with all or any part of an Award, and may provide in any Award the
right to dividends or dividend equivalents.
-9-
Stock Options
- -------------
The Committee is authorized under the Plan to grant stock options, which
may be incentive stock options ("Incentive Stock Options") or nonqualified
stock options ("Nonqualified Stock Options"). Subject to the provisions of the
Plan, the Committee is authorized to determine the terms and conditions of each
stock option granted by the Committee, provided that the exercise price per
Share with respect to any stock option shall not be less than the par value of
a Share.
The Committee is authorized under the Plan to determine the form of
payment of the purchase price of the Shares with respect to which an option is
exercised, which may include without limitation (a) cash, (b) Shares at fair
market value, (c) the optionee's written request to LabOne to reduce the number
of Shares otherwise issuable to the optionee upon the exercise of the option by
a number of Shares having a fair market value equal to such purchase price,
(d) a payment commitment of a financial institution or brokerage firm in
connection with the "cashless exercise" of an option, (e) any other lawful
consideration, including, without limitation, an Award or a note or other
commitment satisfactory to the Committee or (f) a combination of any of the
foregoing. The Committee may provide for circumstances under which a stock
option shall become immediately exercisable, in whole or in part, and may
accelerate the exercisability of any stock option under the Plan, in whole
or in part, at any time. The terms of any Incentive Stock Option must meet
the requirements of Section 422 of the Code.
Stock Appreciation Rights
- --------------------------
The Committee is authorized under the Plan to grant stock appreciation
rights ("SARs"), which may be granted either in connection with a previously
or contemporaneously granted stock option or independently of a stock option.
SARs entitle the grantee to receive upon exercise thereof all or a portion of
the excess of (i) the fair market value at the time of exercise, as determined
by the Committee, of a specified number of Shares with respect to which the SAR
is exercised, over (ii) a specified price, which shall not be less than 100
percent of the fair market value of the Shares at the time the SAR is granted,
or, if the SAR is granted in connection with a previously or contemporaneously
issued stock option, not less than the exercise price of the Shares subject to
the option.
Each SAR shall have such other terms and conditions as the Committee shall
determine, subject to the provisions of the Plan. The Committee may provide in
an Award circumstances under which an SAR shall become immediately exercisable,
in whole or in part, and may accelerate the exercisability of any SAR, in whole
or in part, at any time. Upon exercise of an SAR, payment may be made in cash,
Shares at fair market value on the date of exercise, other Awards, other
property or any combination thereof, as the Committee may determine.
-10-
Restricted Stock Awards
- -----------------------
The Committee is authorized under the Plan to grant restricted stock
awards, which consist of Shares free of any purchase price or for such purchase
price as may be established by the Committee, subject to forfeiture and subject
to such other terms and conditions (including attainment of performance
objectives) as may be determined by the Committee. Restricted stock awards
will be subject to such restrictions on transferability and other restrictions
as the Committee may impose. The Committee, in its discretion, may provide in
an Award circumstances under which restricted stock shall become immediately
transferable and nonforfeitable, or under which restricted stock shall be
forfeited, and, notwithstanding the foregoing, may accelerate the expiration of
the restriction period imposed on any restricted stock at any time.
Performance Units
- -----------------
The Committee is authorized under the Plan to grant performance unit
awards which entitle grantees to future payments based upon the achievement of
pre-established performance objectives. The Committee is authorized under the
Plan to determine the terms and conditions applicable to each performance unit
award. Performance targets established by the Committee may relate to financial
and nonfinancial performance goals, may relate to corporate, division, unit,
individual or other performance and may be established in terms of growth in
gross revenue, earnings per share, ratios of earnings to equity or assets, or
such other measures or standards as may be determined by the Committee in its
discretion. The Committee is authorized, at any time prior to payment of a
performance unit award, to adjust previously established performance targets or
other terms and conditions to reflect unforeseen events, including without
limitation, changes in laws, regulations or accounting practices, mergers,
acquisitions or divestitures or other extraordinary, unusual or nonrecurring
items or events. Payment on performance unit awards may be made in cash,
Shares, other Awards, other property or any combination thereof, as the
Committee may determine.
Other Stock-Based Awards
- ------------------------
The Committee is authorized under the Plan to grant other awards which are
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to Shares (including, without limitation,
securities or other instruments convertible into Shares). Subject to the terms
of the Plan, the Committee shall determine the terms and conditions of such
Awards. Such Awards may be paid in Shares, cash, other Awards, other property
or any combination thereof, as the Committee may determine. Such Awards may be
issued for no cash consideration, for such minimum consideration as may be
required by applicable law or for such other consideration as the Committee may
determine.
Loans and Supplemental Cash Payments
- ------------------------------------
The Committee is authorized under the Plan to provide for cash payments to
participants in addition to an Award, or loans to participants in connection
with all or any part of an Award. The Committee is authorized to determine the
-11-
terms and conditions of such loans and supplemental cash payments, provided
that with respect to supplemental cash payments, in no event may the amount of
payment exceed: (a) in the case of an option, the excess of the fair market
value of a Share on the date of exercise over the option price multiplied by
the number of Shares for which such option is exercised, or (b) in the case of
an SAR, performance unit award or restricted stock award, the value of the
Shares and other consideration issued in payment of such Award.
Performance-Based Awards
- ------------------------
Section 162(m) generally disallows a federal income tax deduction to any
publicly-held corporation for compensation paid in excess of $1,000,000 in any
taxable year to certain executive officers of the corporation, unless such
compensation qualifies as "qualified performance-based compensation." The Plan
authorizes the Committee to grant Awards in the form of "Performance-Based
Awards," which are designed to qualify as "qualified performance-based
compensation" under Section 162(m). Stock options and SARs granted with an
exercise price equal to the fair market value on the date of grant should
qualify as "Performance-Based Awards" under the Plan, provided that the other
requirements of Section 162(m) are satisfied. For other Awards under the Plan
to qualify as "Performance-Based Awards," such Awards must be conditioned upon
the achievement of one or more performance goals as provided in the Plan.
The Plan requires that the performance goals be one or more of the
"Stockholder-Approved Performance Goals," which consist of approximately
twenty measurable performance objectives listed in Section 15(k) of the
Plan.
The Plan provides with respect to Performance-Based Awards that, to the
extent required under Section 162(m), the Committee shall (i) establish in the
applicable agreement evidencing an Award ("Award Agreement") the specific
performance targets relative to the Stockholder-Approved Performance Goals
which must be attained before compensation under the Performance-Based Award
becomes payable, (ii) provide in the applicable Award Agreement the method for
computing the amount of compensation payable to the participant if the target
or targets are attained, and (iii) at the end of the relevant performance
period and prior to any payment of compensation, certify whether the applicable
target or targets were achieved and whether any other material terms were in
fact satisfied. In accordance with Section 162(m), the Plan limits the
authority of the Board of Directors and the Committee to exercise discretion
with respect to any Performance-Based Award or with respect to amendment or
modification of certain provisions of the Plan without stockholder approval.
Adjustment Upon Certain Events
- -------------------------------
The Plan provides that if the Committee determines that any dividend or
distribution (whether in the form of cash, Shares, other securities or other
property), recapitalization, merger, consolidation, reorganization, spin-off or
split-up, reverse stock split, combination or exchange of Shares or other
transaction affects the Shares such that an adjustment is determined by the
Committee to be appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan,
then the Committee may, in such manner as it may deem equitable and without the
consent of any affected participant, adjust the number and kind of securities
which may be issued under the Plan, the number and kind of securities subject
-12-
to outstanding Awards and the exercise price of each outstanding stock option
granted under the Plan, and may make such other changes in outstanding Awards
as it deems equitable in its absolute discretion. No such adjustment or action
is authorized to the extent that such adjustment or action would cause the Plan
or any outstanding Incentive Stock Option to violate Section 422 of the Code or
would cause any Performance-Based Award to fail to qualify as "qualified
performance-based compensation" under Section 162(m) of the Code and the
regulations promulgated thereunder.
Amendment of Awards
- --------------------
Subject to the terms and conditions of the Plan, the Committee has the
authority under the Plan to amend or modify the terms of any outstanding Award
(including the applicable Award Agreement) in any manner, including, without
limitation, the authority to accept the surrender of any outstanding Award and
grant a new Award in substitution for such surrendered Award; provided,
however, that the amended or modified terms of any Award or Award Agreement are
permitted by the Plan as then in effect and provided, further, that if the
Committee determines that such amendment or modification, taking into account
any related action, materially and adversely affects a participant, the
participant must consent to the amendment or modification.
Termination of Employment or Consulting Arrangement
- ----------------------------------------------------
The Committee is authorized under the Plan to determine the effect, if
any, on an Award of the disability, death, retirement or other termination of
employment or services of a participant and the extent to which, and the period
during which, the participant or the participant's legal representative,
guardian or Beneficiary may receive payment of an Award or exercise rights
thereunder.
Change of Control
- -----------------
Subject to the terms and conditions of the Plan, the Committee is
authorized to take such actions with respect to a change of control (as defined
by the Committee) of LabOne or any subsidiary as the Committee determines in
its discretion.
Transferability of Awards
- -------------------------
The Committee is permitted under the Plan to make any Award transferable
upon such terms and conditions and to such extent as the Committee determines
and to waive any restriction on transferability, provided that Incentive Stock
Options may be transferable only to the extent permitted by the Code.
-13-
Effective Date and Duration of Plan
- -----------------------------------
The Plan became effective upon its adoption by the Board of Directors on
August 21, 1997, provided that the Plan is approved by the stockholders of
LabOne in accordance with Delaware law before the first anniversary of such
date, and provided that no payment on any Award may be made unless and until
such stockholder approval is obtained. Unless it is sooner terminated in
accordance with its terms, the Plan shall remain in effect until all Awards
under the Plan have been satisfied or have expired or otherwise terminated,
provided that no Incentive Stock Option may be granted more than ten years
after the date the Plan was adopted by the Board of Directors.
Amendment and Termination of Plan
- ---------------------------------
The Board may terminate, amend, modify or suspend the Plan at any time,
subject to such stockholder approval as the Board determines to be necessary
or desirable to comply with any tax, regulatory or other requirement, provided
that if the Committee determines that any termination, modification, amendment
or suspension of the Plan materially and adversely affects the rights of any
grantee under an Award previously granted, the consent of such grantee is
required. In addition, the Board is not authorized to amend any provision of
the Plan to the extent that such authorization would cause any Performance-
Based Award to fail to qualify as "qualified performance-based compensation"
under Section 162(m).
Possible Anti-Takeover Effect
- -----------------------------
The Plan is designed to provide long-term incentives to participants while
aligning the interests of such participants with those of the stockholders of
LabOne. The Plan, however, could have an "anti-takeover" effect, especially
the provisions of the Plan which authorize the Committee to take certain
actions with respect to any change of control of LabOne or any subsidiary and
which authorize the Committee to accelerate the vesting of certain Awards at
any time. Although the implementation and operation of the Plan may have an
"anti-takeover" effect, the Plan was not adopted by the Board of Directors for
that purpose.
FEDERAL INCOME TAX CONSEQUENCES
Discussed below are certain federal income tax consequences relating to
Awards under the Plan, in the normal operation thereof, based on existing
Federal income tax laws and regulations. The description is not intended as a
complete summary of such laws or as a legal interpretation, and does not
describe state, local or foreign income or other tax consequences. Holders of
Awards under the Plan should consult their own tax advisers regarding the tax
consequences applicable to Awards under the Plan.
The Plan is not qualified under Section 401 of the Code and is not subject
to the provisions of the Employee Retirement Income Security Act of 1974.
-14-
Non-Qualified Stock Options
- ---------------------------
In general, no income will be recognized by the grantee at the time a Non-
Qualified Stock Option is granted. Upon exercise of a Non-Qualified Stock
Option for cash, the grantee will generally recognize ordinary income equal to
the excess of the fair market value of the Shares purchased as of the time of
exercise over the exercise price. LabOne will be entitled to a federal income
tax deduction at such time in the same amount as is recognized as ordinary
income by the grantee, subject to satisfying applicable withholding
requirements. If a grantee disposes of Shares acquired upon the exercise of a
Non-Qualified Stock Option, the grantee will recognize capital gain (or, under
certain conditions, loss) in the year of such disposition equal to the
difference between any amount realized on the disposition and the fair market
value of the Shares on the date of exercise, provided that the Shares were a
capital asset in the hands of the grantee.
Incentive Stock Options
- -----------------------
In general, the grantee does not recognize income at the time an Incentive
Stock Option is granted or at the time it is exercised. When Shares purchased
for cash pursuant to the exercise of an Incentive Stock Option are sold, and
the grantee has held the Shares for more than one year from the date of the
transfer of the Shares to the grantee and two years from the date on which the
Incentive Stock Option was granted, the grantee ordinarily will recognize
capital gain (or loss) equal to the difference between the sale price received
on the disposition of the Shares and the exercise price, as long as the Shares
are capital assets in the hands of the grantee. In the event of such an
exercise of an Incentive Stock Option, the amount by which the fair market
value of the Shares on the exercise date exceeds the option price will be an
item of adjustment for purposes of the "alternative minimum tax" imposed by the
Code. In the event of such an exercise, LabOne will not be entitled to any
federal income tax deduction in connection with the grant or exercise of the
Incentive Stock Option or the sale of such Shares by the grantee.
If the grantee sells any of the Shares before the end of the one-year and
two-year periods described above, the Grantee will have made a "disqualifying
disposition" with respect to those Shares. In the event of a "disqualifying
disposition," the grantee generally will recognize ordinary income in the year
of the "disqualifying disposition" equal to the amount by which the lesser of
the fair market value of the Shares on the date of exercise or the amount
realized in the disqualifying disposition exceeds the exercise price. If the
amount realized in the "disqualifying disposition" exceeds the fair market
value of the Shares on the date of exercise, the excess will be taxable as
capital gain, if the Shares are capital assets in the hands of the grantee. At
the time of the disqualifying disposition, LabOne will be entitled to a federal
income tax deduction in an amount equal to the amount taxable to the grantee as
ordinary income.
-15-
Stock Appreciation Rights
- -------------------------
In general, a grantee will not recognize income at the time a stock
appreciation right is granted. Upon the exercise of a stock appreciation
right, the grantee generally will recognize ordinary income in an amount equal
to the amount of any cash (or the fair market value of any Shares or property)
received by the grantee. LabOne will be entitled to a federal income tax
deduction in an amount equal to the amount taxable to the grantee as ordinary
income, subject to satisfying applicable withholding requirements.
Restricted Stock
- ----------------
In general, a grantee will not recognize taxable income upon the grant of
a restricted stock award. The grantee will generally not recognize ordinary
income until such time as the Shares become transferable or are otherwise no
longer subject to a substantial risk of forfeiture (as defined in the Code).
At such time, the grantee will recognize ordinary income equal to the fair
market value of such Shares minus the price, if any, paid by the grantee to
purchase such Shares. However, a grantee may elect not later than 30 days
after the issue date of the restricted stock to recognize ordinary income as of
the issue date. If such an election is made, the grantee will recognize
ordinary income in an amount equal to the fair market value of the Shares on
such date minus the price, if any, paid by the grantee to purchase such Shares.
If such an election is made, no additional taxable income will be recognized by
the grantee at the time the restrictions lapse. If Shares in respect of which
such an election was made are later forfeited, such forfeiture shall be treated
as a sale or exchange of the Shares, and the grantee will recognize capital
gain or loss in the year of such forfeiture equal to the difference between any
amount realized upon the disposition and the amount previously recognized as
ordinary income in connection with the election, provided that the Shares are a
capital asset in the hands of the grantee.
LabOne will be entitled to a deduction at the time when, and in the amount
that, the grantee recognizes ordinary income. If the grantee makes an election
as described above and Shares in respect of which such election was made are
later forfeited, LabOne will be deemed to recognize ordinary income at such
time equal to the amount of the deduction allowed to LabOne at the time of the
election.
Performance Units
- ------------------
In general, a grantee will not recognize any taxable income upon the grant
of a performance unit award. At the time the grantee receives payment in
respect of the performance units, the grantee generally will recognize ordinary
income in an amount equal to the amount of any cash (or the fair market value
of any Shares or property) received by the grantee. LabOne will be entitled to
a federal income tax deduction at the time when, and in the amount that, the
grantee recognizes ordinary income, subject to satisfying applicable
withholding requirements.
-16-
Other Stock-Based Awards
- ------------------------
Depending upon the form of a stock-based award, the grantee generally will
recognize ordinary income at the time of the payment of the Award, in an amount
equal to the amount of any cash (or the fair market value of any Shares or
property) received by the grantee. However, if any such Shares or property
received are subject to certain restrictions on transfer or subject to a
substantial risk of forfeiture (as defined in the Code), the tax treatment of
such Shares or property shall generally be the same as that applicable to
restricted stock awards. LabOne will be entitled to a deduction at the time
when, and in the amount that, the grantee recognizes ordinary income.
Section 162(m)
- --------------
Section 162(m) of the Code generally limits to $1,000,000 per person the
amount LabOne may deduct for compensation paid to certain executive officers of
LabOne, unless such compensation qualifies as "qualified performance-based
compensation." LabOne has attempted to structure the Plan to permit the
Committee in its discretion to grant Awards which qualify as "qualified
performance-based compensation" under Section 162(m), provided the Plan is
approved by the stockholders. The Committee is not required to grant Awards
which qualify under Section 162(m), and in its sole discretion may grant Awards
which do not qualify. In addition, because of uncertainty regarding the
application of Section 162(m) in certain circumstances, there can be no
assurance that compensation intended by LabOne to satisfy the requirements for
deductibility under Section 162(m) will in fact satisfy such requirements.
Section 280G of the Code
- ------------------------
Under certain circumstances, the accelerated vesting or exercise of
options or stock appreciation rights, or the accelerated lapse of restrictions
with respect to other Awards in connection with a change of control of LabOne
may be deemed an "excess parachute payment" for purposes of the golden
parachute tax provisions of Section 280G of the Code. To the extent it is so
considered, the grantee may be subject to a 20% excise tax and LabOne may be
denied a tax deduction.
OTHER PLANS
LabOne also administers the LabOne, Inc. Long-Term Incentive Plan adopted
in 1987 ("1987 Plan"). The 1987 Plan authorized the grant of stock options for
up to 2,150,000 Shares to directors, officers and key employees. As of March
27, 1998, 535,740 Shares had been purchased upon exercise of outstanding stock
options and 1,469,552 Shares were subject to outstanding stock options under
the 1987 Plan. With respect to outstanding stock options, the per Share
exercise prices range from $9.875 to $23.875 per Share and the average per
Share exercise price is $14.20 per Share. No additional stock options may be
granted under the 1987 Plan.
-17-
NEW PLAN BENEFITS
As of March 27, 1998, stock options have been granted under the Plan as
shown in the table set forth below, subject to stockholder approval of the Plan
at the Annual Meeting. Any future Awards will be made in the discretion of the
Committee. Consequently, it is not possible to predict the additional benefits
or amounts that will be received by or allocated to particular individuals or
groups of individuals in the future pursuant to the Plan.
1997 Long-Term Incentive Plan
-----------------------------
Number of Shares
Name and Position Dollar Value Subject to Options
- ----------------- ------------ ------------------
Directors as a Group 0 0
Executive Officers as a Group 0 0
Employees who are non- (1) 142,316
Executive Officers as a Group
- ---------
(1) The options to purchase 142,316 shares have an average exercise price of
$16.40 per Share. The dollar value of these stock options is dependent upon
the difference between the exercise price and the fair market value of the
underlying Shares on the date of exercise.
VOTE REQUIRED
Approval of the 1997 Long-Term Incentive Plan requires the affirmative
vote of the holders of a majority of the shares of Common Stock present in
person or represented by proxy at the Annual Meeting and entitled to vote
thereon.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF THE
1997 LONG-TERM INCENTIVE PLAN.
PROPOSAL 3
----------
SELECTION OF AUDITORS
The Board of Directors has selected KPMG Peat Marwick LLP to examine the
accounts of LabOne and its subsidiary for the fiscal year ending December 31,
1998.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE RATIFICATION
OF THE APPOINTMENT OF THE INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
Representatives of KPMG Peat Marwick LLP are expected to be present at the
Annual Meeting to make any statement they may desire and to respond to
appropriate questions concerning the audit report.
-18-
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table provides certain summary information concerning
compensation paid or accrued by LabOne to or on behalf of (i) the person who
served as its chief executive officer during 1997 and (ii) the four most highly
compensated executive officers other than the chief executive officer serving
as of December 31, 1997, for services rendered in all capacities to LabOne and
its subsidiaries for each of the last three completed fiscal years.
* * Long-Term *
* Annual Compensation * Compensation* All
* ------------------- * ------------* Other
* *Stock Option *Compensation
Name and Fiscal* * Shares * ($) (1)
Principal Position Year * Salary ($) Bonus ($)* Granted (#)*
------------------ ------* ---------- ---------*-------------*------------
W. Thomas Grant II 1997 86,019 131,173 75,000 9,922
Chairman of the 1996 0 0 0 0
Board of Direc- 1995 0 0 0 0
tors, President
and Chief Execu-
tive Officer
Robert D. Thompson 1997 209,900 131,173 0 16,856
Executive Vice 1996 209,277 75,000 0 17,086
President, Chief 1995 157,173 50,000 70,000 19,330
Operating Officer
and Chief Financial
Officer
Carl W. Ludvigsen, 1997 230,900 131,173 0 21,470
Jr. 1996 230,277 25,000 0 20,634
Executive Vice 1995 227,539 0 20,000 20,507
President-
Corporate
Development and
Chief Medical
Officer
Thomas J. Hespe 1997 159,900 131,173 0 21,470
Executive Vice 1996 159,277 50,000 0 20,490
President-Sales 1995 40,125 0 100,000 34,053(2)
and Marketing
Gregg R. Sadler 1997 156,900 131,173 0 21,865
Executive Vice 1996 150,277 50,000 0 20,923
President-Admin- 1995 146,308 0 24,000 20,038
istration and
Secretary and
President-
Insurance
Laboratory
Division
-19-
(1) The amounts shown in this column consist of contributions by LabOne
to the accounts of the named executive officers under LabOne's defined
contribution pension plan, 50% matching contributions by LabOne to
the accounts of such persons under LabOne's profit-sharing 401(k)
plan and insurance premium payments by LabOne with respect to group
term life insurance for the benefit of such persons.
(2) Payment of relocation expenses in connection with Mr. Hespe's move
to Stilwell, Kansas.
<TABLE>
Option Grants in 1997
<CAPTION>
Potential Realizable
Number of % of Total Value at Assumed
Securities Options Annual Rates of Stock
Underlying Granted to Exercise Price Appreciation
Options Employees in Price Expiration for Option Term
Name Granted (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ---- ---------- ------------ -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
W. Thomas Grant II 75,000 42% $17.8125 5/9/2007 $840,163 $2,129,140
</TABLE>
Aggregate Option Exercises and December 31, 1997 Option Value Table
The following table provides certain information concerning the exercise
of stock options during 1997 by each of the named executive officers and the
number and value of unexercised options held by such persons on December 31,
1997.
-20-
<TABLE>
<CAPTION> Number of Unexercised Value of Unexercised
Options at In-the-Money Options
December 31, 1997(#) at December 31, 1997($)
Shares
Acquired on Value Options Options Options Options
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- -------------- ----------- -------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
W. Thomas Grant II 0 0 27,431 75,000 210,875 0
Robert D. Thompson 0 0 108,000 42,000 401,250 219,375
Carl W. Ludvigsen, Jr. 0 0 76,000 13,000 364,372 74,062
Thomas J. Hespe 0 0 40,000 60,000 237,500 356,250
Gregg R. Sadler 0 0 84,400 15,600 514,268 52,875
</TABLE>
Compensation of Directors
Directors who are not employees of LabOne or Lab Holdings receive an
annual retainer fee of $5,000 in cash and a grant of a number of shares of
common stock of LabOne having a value equal to $10,000, plus $500 for each
Board and Committee meeting attended and reimbursement for reasonable expenses
in attending meetings.
Richard S. Schweiker, a Director of LabOne, has agreed to attend national
meetings of insurance underwriters on LabOne's behalf and to make selected
contacts in furtherance of LabOne's business, for which services LabOne will
pay Mr. Schweiker additional fees of $30,000 annually.
Employment Agreements
LabOne has Employment Agreements with Robert D. Thompson, Carl W.
Ludvigsen Jr., Gregg R. Sadler and Thomas J. Hespe. Dr. Ludvigsen's Agreement
provides for his employment for a two-year term ending in November 1998 and
renewable annually thereafter for successive one-year terms unless LabOne
elects not to extend the Agreement. Messrs. Thompson's and Sadler's Agreements
are renewable annually for one-year terms unless LabOne elects not to extend
them and Mr. Hespe's Agreement is terminable by LabOne on thirty days' notice.
The annual base salaries provided under the Agreements are $200,900 to Mr.
Thompson, $230,900 to Dr. Ludvigsen, $150,900 to Mr. Sadler and $150,900 to Mr.
Hespe. In the event that LabOne terminates Messrs. Thompson, Ludvigsen or
Sadler without cause (as defined in the Agreements), LabOne will pay the
terminated officer a lump sum severance payment equal to his base salary for
-21-
the balance of the term of the Agreement, plus 50% of one year's annual base
salary. If LabOne terminates Mr. Hespe without cause, LabOne will pay Mr.
Hespe a severance payment equal to one year's base salary. If a change of
control of LabOne (as defined in the Agreements) occurs at any time during
which the executive officer is in LabOne's full-time employment, and within one
year after such a change in control the executive officer's employment is
terminated for any reason other than permanent disability, death or normal
retirement, LabOne will pay the officer as termination compensation a lump sum
amount equal to three times the officer's average annual compensation for the
most recent five taxable years (subject to certain limitations prescribed in
the Internal Revenue Code) and any remaining term of the officer's Agreement
shall be cancelled. Under each Agreement, the executive officer agrees not to
compete with LabOne for a period of two years after the termination of his
employment with LabOne.
Compensation Committee Interlocks and Insider Participation
Mr. W. Thomas Grant II was a member of the Compensation Committee of the
Board of Directors of LabOne during 1997. Mr. Grant is Chairman of the Board
of Directors, President and Chief Executive Officer of LabOne.
Board Compensation Committee Report on Executive Compensation
LabOne's executive compensation program is administered by the
Compensation Committee, a Committee of the Board of Directors composed of the
Directors listed at the end of this report. As noted earlier in this Proxy
Statement, all issues pertaining to executive compensation are reviewed by the
Compensation Committee and recommendations are submitted by the Committee to
the full Board of Directors for approval.
Compensation Philosophy
The philosophy governing executive compensation is based on a belief that
management and stockholders have a common goal of increasing the value of
LabOne. The business strategy for achieving this goal is expressed in LabOne's
mission statement: "LabOne is dedicated to maximizing the return on investment
for our stockholders . . . to providing the lowest-cost, highest-quality
laboratory testing services for our clients . . . to providing a working
environment that emphasizes accountability for results and rewards employees
based on their contribution to the Company's success."
Three principal elements of executive compensation -- base salary, annual
incentive plan, and stock options -- are used to motivate and reward the
accomplishment of annual corporate objectives, reinforce a strong orientation
toward operating excellence, provide variability in individual awards based on
contributions to business results, and maintain a competitive compensation
package to attract, retain and motivate individuals of the highest
professional quality.
-22-
Base Salary
Salary ranges were developed based on a survey initially conducted in 1986
by an independent consultant and updated in 1989. Base salaries were targeted
at the 60th to 65th percentile of pay for comparable positions in "All
Industrial Base Salaries" surveyed by the consultant. Salary ranges have been
adjusted annually to reflect inflationary increases shown in industry surveys.
Salary ranges have also been adjusted to reflect changes in job
responsibilities. These salary ranges are reviewed annually by a consultant.
In determining base salary levels, the Committee considers both the salary
ranges and individual performance evaluations for each executive officer.
Measurements related to LabOne's performance are not a significant factor in
base salary decisions since they are the sole factors in determining incentive
awards and the value of stock options.
Annual Incentive Plan
The Annual Incentive Plan is designed to motivate and reward the
accomplishment of targeted operating results. Prior to the beginning of each
fiscal year, the Committee establishes an earnings per share goal under the
Plan based upon the Committee's judgment of reasonable earnings per share
growth over the previous fiscal year. No incentive bonuses are payable under
the Plan if the minimum net earnings threshold is not met. The size of the
incentive pool increases pursuant to a formula established by the Committee as
net earnings increase over the minimum threshold. The incentive pool is
distributed in cash to designated officers and managers at year end according
to a pre-established weighting. The weighting is based upon senior
management's subjective evaluations of each individual's potential contribution
to the Company's financial and strategic goals for the year, and is reviewed
and approved by the Committee. Bonuses aggregating $1,747,431 were paid under
the Plan in 1997.
Stock Options
The Compensation Committee, as well as the Board of Directors, believes
that significant stock ownership through stock options by key employees and
directors is a major incentive in aligning the interests of employees and
stockholders, because value is only provided if the stock price increases and
because stock options have an effective long-term reward and retention
function.
LabOne administers the Long-Term Incentive Plan, adopted in 1987, and has
adopted the 1997 Long-Term Incentive Plan, subject to stockholder approval at
the 1998 annual meeting. Under the Plans, ten-year nonqualified stock options
are granted to executive officers and other key employees when they are hired
or promoted into eligible positions, with vesting generally occurring over five
years. In addition to executive officers and employees, each nonemployee
Director of the Company has also received a ten-year nonqualified stock option
grant to vest over four years.
-23-
LabOne also has a Stock Plan for Nonemployee Directors under which each
nonemployee Director receives annual retainer fees of $5,000 in cash and a
grant of a number of shares of LabOne stock having a value equal to $10,000.
The purpose of the plan is to provide nonemployee Directors with an additional
proprietary interest in LabOne's success and progress.
Chief Executive Officer's Compensation
Mr. W. Thomas Grant II, Chairman of the Board of Directors, President and
Chief Executive Officer of LabOne, receives a salary of $150,000 per annum and
a car allowance of $9,000 per annum. Mr. Grant's salary was established at a
level below that of LabOne's other senior management at Mr. Grant's request.
Mr. Grant also participates in the Annual Incentive Plan and, based on 1997
Plan results, received an incentive bonus of $131,173 in 1997, which was equal
to the bonuses paid under the Plan to other members of senior management.
Deductibility Cap on Compensation Exceeding $1,000,000
The Committee does not believe that Internal Revenue Service regulations
regarding nondeductibility of annual compensation in excess of $1,000,000 will
have any material impact upon LabOne, given the current salary and bonus levels
of officers of the corporation and the treatment in the regulations of
compensation under the corporation's long-term incentive plans.
Submitted by the Compensation Committee
Richard S. Schweiker, Chairman
Joseph H. Brewer
Richard A. Rifkind
-24-
Comparison of Five Year Cumulative Total Return Among LabOne,
Nasdaq Composite Index and Peer group
THE GRAPHICAL FORM OF THE "PERFORMANCE CHART" IS REPRESENTED BY THE TABLE
BELOW. THE DATA POINTS IN THE TABLE ACCURATELY PRESENT THE INFORMATION FROM
THE PERFORMANCE CHART.
1992 1993 1994 1995 1996 1997
-----------------------------------------------------
LabOne, Inc. 100.00 141.11 122.76 123.27 161.68 159.90
Nasdaq US CRSP Index 100.00 114.80 112.21 158.70 195.20 239.53
Peer Group 100.00 81.01 71.93 54.20 21.11 19.03
The table assumes the investment at the close of business on December
31, 1992, of $100 in LabOne's common stock and in the portfolio represented
in each index, and assumes that all dividends were reinvested.
LabOne has selected an index of seven testing laboratories as its
peer group: Bio-Reference Labs, Laboratory Corporation of America,
Oncormed, Pharmchem, Psychemedics, Unilab and Universal Standard Medical.
The Company feels that the peer group index provides an appropriate
comparison.
-25-
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table shows as of March 16, 1998, the total number of shares
of common stock of LabOne beneficially owned by persons known to be beneficial
owners of more than 5% of the outstanding stock.
Percentage of
Shares of LabOne Outstanding Shares
Beneficially Owned of LabOne Beneficially
Beneficial Owner March 16, 1998(1) Owned March 16, 1998
---------------- ----------------- --------------------
Lab Holdings, Inc. 10,712,200 81.6%
5000 West 95th Street
Shawnee Mission, KS 66207
(1) Lab Holdings has sole voting and investment power with respect to the
shares listed.
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows as of March 16, 1998, for each director, each of
the executive officers named in the Summary Compensation Table on page 19
hereof, and all directors and executive officers of LabOne as a group, the
total number of shares of common stock of LabOne and of Lab Holdings
beneficially owned by such persons.
Percentage of Percentage of
Outstanding Outstanding
Shares of Shares Shares of Shares of
LabOne Bene- of LabOne Lab Holdings Lab Holdings
ficially Beneficially Beneficially Beneficially
Beneficial Owner Owned(1)(2) Owned(3) Owned(1) Owned
- ---------------- --------- ----------- ----------- ----------
Joseph H. Brewer, M.D. 26,639 * 0 *
William D. Grant 38,139 * 1,086,647(4) 16.7%
W. Thomas Grant II 44,718 * 146,472(5) 2.3%
Thomas J. Hespe 40,567(6) * 0 *
Carl W. Ludvigsen 78,998(6) * 0 *
Jr., M.D.
Richard A. Rifkind, 26,542 * 0 *
M.D.
Gregg R. Sadler 97,610(6) * 266 *
Richard S. Schweiker 15,022 * 0 *
James R. Seward 17,200 * 0 *
Robert D. Thompson 113,883(6) * 0 *
John E. Walker 26,639(7) * 6,099(7) *
R. Dennis Wright, 23,822 * 0 *
Esq.
All directors and 753,189(7) 5.7% 1,239,484 19.1%
executive officers
of LabOne as a group
(18 persons)
-26-
* Less than 1% of outstanding shares
- ----------------
(1) Unless otherwise indicated, each person has sole voting and investment
power with respect to the shares listed.
(2) Includes the following numbers of shares which such persons have the right
to acquire within 60 days pursuant to options granted under the LabOne Long-
Term Incentive Plan: Joseph H. Brewer, 22,000 shares; William D. Grant, 22,000
shares; W. Thomas Grant II, 42,431 shares; Thomas J. Hespe, 40,000 shares;
Carl W. Ludvigsen, Jr., 77,000 shares; Richard A. Rifkind, 22,000 shares;
Gregg R. Sadler, 90,400 shares; Richard S. Schweiker, 13,200 shares; James R.
Seward, 13,200 shares; Robert D. Thompson, 112,000 shares; John E. Walker,
22,000 shares; R. Dennis Wright, 22,000 shares; and all directors and executive
officers as a group, 678,431 shares.
(3) For purposes of determining this percentage, the outstanding shares of
LabOne include shares which such persons have the right to acquire within 60
days pursuant to options granted under LabOne's Long-Term Incentive Plan.
(4) Includes 237,960 shares held by a family trust for which William D. Grant
serves as a co-trustee with UMB Bank, N.A., and in that capacity shares voting
and investment power and 28,916 shares owned by the wife of William D. Grant,
as to which he disclaims beneficial ownership.
(5) Includes 31,745 shares held by W. Thomas Grant II as custodian for his
children, 45,000 shares held in a family trust for which W. Thomas Grant II
serves as a co-trustee with Laura Gamble and in that capacity shares voting and
investment power, 12,020 shares owned by the wife of W. Thomas Grant II, as to
which he disclaims beneficial ownership.
(6) Includes the following numbers of shares held in individually directed
accounts of the named persons under LabOne's 401(k) profit-sharing plan, as to
which each of such persons has sole investment power only: Thomas J. Hespe, 567
shares; Carl W. Ludvigsen, Jr., 1,998 shares; Gregg R. Sadler, 5,210 shares;
Robert D. Thompson, 1,883 shares; and all directors and executive officers as a
group, 30,668 shares.
(7) All of Mr. Walker's shares are owned by a revocable trust for Mr. Walker's
wife, as to which he disclaims beneficial ownership.
-27-
RELATIONSHIP WITH LAB HOLDINGS
As of March 16, 1998, Lab Holdings beneficially owned 10,712,200 shares,
or 81.6%, of the outstanding common stock of LabOne. Lab Holdings, by virtue
of its ownership of a majority of LabOne's common stock, has control of LabOne
and is able to elect all of the members of LabOne's Board of Directors. Lab
Holdings has permitted LabOne to operate independently of Lab Holdings in the
past and intends to do so in the future. The officers of LabOne have direct
responsibility for LabOne's management and operations. W. Thomas Grant II
serves as Chairman of the Board of Directors, President and Chief Executive
Officer of LabOne and as Chairman of the Board of Directors and Chief Executive
Officer of Lab Holdings.
During 1997 Lab Holdings charged LabOne for certain services, including
advice and assistance provided by senior Lab Holdings officers, pursuant to a
Services Agreement (the Services Agreement). For the year ended December 31,
1997, the total charges to LabOne by Lab Holdings for these services were
$89,098. Under the Services Agreement, LabOne retained the services of certain
of Lab Holdings' senior management to provide policy advice to LabOne and to
attend on behalf of LabOne various marketing and client development functions
in order to promote LabOne's laboratory testing services. In consideration for
these services, LabOne paid Lab Holdings a percentage of LabOne's annual sales
equal to 0.20% of sales up to $50 million, plus 0.125% of sales of $50 million
up to $100 million, plus 0.0625% of sales of $100 million or more. LabOne also
reimbursed Lab Holdings for all direct travel expenses reasonably incurred by
its employees in providing these services. The Services Agreement with Lab
Holdings was terminated on May 31, 1997.
Lab Holdings and LabOne are also parties to a Transition Agreement
(Transition Agreement) pursuant to which they have agreed to an allocation of
certain corporate opportunities and to mutual indemnification for certain
liabilities and expenses. Under the Transition Agreement, so long as Lab
Holdings, directly or indirectly, owns at least 20% of the outstanding voting
shares of LabOne, Lab Holdings agrees to refer to LabOne any product, service,
idea or other corporate opportunity that is within the scope of LabOne's
business. For purposes of this Agreement, LabOne's business is defined as
providing laboratory testing services for the insurance and health care
industry and the development and implementation of data processing and
communications facilities for receiving test-related instructions from clients,
for conducting laboratory operations and for the collection, use, storage,
retrieval and transmission of test results data by both LabOne and its clients.
In the event that a majority of the independent, disinterested Directors
of LabOne informs Lab Holdings that LabOne does not intend to pursue, or LabOne
within a reasonable time fails to pursue, the consideration and development of
any product, service, idea or other business opportunity referred to it by Lab
Holdings, Lab Holdings is entitled under the Transition Agreement to consider
and develop the product, service, idea or business opportunity for its own
benefit. Under the Agreement, LabOne also agrees to indemnify and hold
harmless Lab Holdings, and any controlling person of Lab Holdings, with respect
to certain civil liabilities, including any and all claims, losses, damages,
liabilities, costs and expenses that arise from or are based on operations of
LabOne. Similarly, Lab Holdings agrees to indemnify and hold harmless LabOne
and any controlling person of LabOne (other than Lab Holdings), with respect
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to certain civil liabilities, including any and all claims, losses, damages,
liabilities, costs and expenses that arise from or are based on the operations
of Lab Holdings (other than the business of LabOne).
STOCKHOLDER PROPOSALS
Any proper stockholder proposal intended to be presented for action at the
1999 annual stockholders' meeting must be received by LabOne by December 13,
1998, for inclusion in the proxy material relating to such meeting.
GENERAL
The Board of Directors knows of no other matters which will be presented
for consideration at the Annual Meeting other than those stated in the Notice
of Annual Meeting which is part of this Proxy Statement. If any other matter
does properly come before the meeting, it is intended that the persons named in
the accompanying proxy will vote thereon in accordance with their judgment.
In addition to the solicitation of proxies from stockholders by mail,
proxies may be solicited by LabOne's Directors, officers and other employees,
by personal interview, telephone or telegram. Such persons will receive no
additional compensation for such services. LabOne requests that brokerage
houses and other custodians, nominees and fiduciaries forward the soliciting
material to the beneficial owners of the shares of LabOne common stock held of
record by such persons and will pay such brokers and other fiduciaries their
reasonable out-of-pocket expenses incurred in connection therewith. All costs
of solicitation, including the costs of preparing, assembling and mailing this
Proxy Statement and all papers which now accompany or may hereafter supplement
the same, will be borne by LabOne.
By Order of the Board of Directors
GREGG R. SADLER
Secretary
April 13, 1998
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Appendix A
Form of Proxy
LabOne, Inc.
10310 W. 84th Terrace, Lenexa, Kansas 66214
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS MAY 14, 1998
The undersigned hereby appoints W. Thomas Grant II and Gregg R. Sadler,
and each of them, as proxies for the undersigned at the Annual Meeting of
Stockholders of LabOne, Inc. at 10310 W. 84th Terrace, Lenexa, Kansas, on
May 14, 1998, at 3:00 p.m. C.D.T., and at any adjournment, to vote the shares
of common stock the undersigned would be entitled to vote, if personally
present, upon the election of Directors, the proposal stated on the reverse,
and any other matter brought before the meeting, all as set forth in the
April 13, 1998, Proxy Statement.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "GRANTED" FOR ELECTION OF DIRECTORS
AND "FOR" PROPOSAL 2.
1. The election of the following nominees
as Directors, as set forth in the Proxy Joseph H. Brewer, M.D.
Statement or a substitute nominee or William D. Grant
nominees designated by the Board of W. Thomas Grant II
Directors if any of them becomes Thomas J. Hespe
unavailable. Richard A. Rifkind, M.D.
Gregg R. Sadler
/ / Authority GRANTED to vote for all nominees Richard S. Schweiker
/ / Authority WITHHELD to vote for all nominees James R. Seward
Robert D. Thompson
(INSTRUCTIONS: To withhold authority to John E. Walker
vote for any individual nominee, line R. Dennis Wright
through that nominee's name in the
list at right.)
2. Approval of the 1997 Long-term Incentive Plan.
/ / FOR / / AGAINST / / ABSTAIN
3. Ratification of the appointment of KPMG Peat Marwick LLP, as
independent certified public accountants.
/ / FOR / / AGAINST / / ABSTAIN
Unless otherwise marked, the Proxy will be deemed marked "GRANTED" on
Proposal 1 and marked "FOR" on Proposal 2 and 3 and voted accordingly.
This Proxy is solicited by the Board of Directors.
(Please sign, date and return this Proxy in the enclosed envelope.)
SIGNATURE DATE: , 1998
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SIGNATURE DATE: , 1998
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(SIGNATURE IF JOINTLY HELD)
(Note: Please sign exactly as name appears hereon. Executors, administrators,
trustees, etc., should so indicate when signing, giving full title as such.
If a signer is a corporation, execute in full corporate name by authorized
officer. If shares are held in the name of two or more persons, all should
sign.)
Appendix B
LABONE, INC.
1997 LONG-TERM INCENTIVE PLAN
1. Purpose.
The purpose of the LabOne, Inc. 1997 Long-Term Incentive Plan (the "Plan")
is to further the earnings of LabOne, Inc. ("LabOne") and its subsidiaries
(collectively the "Company") by: (i) assisting the Company in attracting,
retaining and motivating officers, directors, employees and consultants of high
caliber and potential and (ii) providing for the award of long-term incentives
to such officers, directors, employees and consultants. The Plan is not
intended to be a Plan that is subject to the Employee Retirement Income
Security Act of 1974, as amended. Certain capitalized terms used herein are
defined in Section 15 below.
2. Administration.
(a) Committee. The Plan shall be administered by a committee
(the "Committee") consisting of two or more members of the Board of Directors
of LabOne (the "Board"). The members of the Committee shall be appointed by
and may be changed from time to time in the discretion of the Board. The Board
may, in its sole discretion, bifurcate the powers of the Committee among one
or more separate committees, or retain all powers and duties of the Committee
in a single committee; provided, however, that except as otherwise determined
by the Board, (i) if a Committee is authorized to grant Awards or make
determinations with respect to a Reporting Person, each member of such
Committee shall be a "non-employee director" within the meaning of Rule 16b-3
under the 1934 Act, or any successor rule of similar import, and (ii) if a
Committee is authorized to grant Awards or make determinations with respect to
a Covered Employee, each member of such Committee shall be an "outside
director" within the meaning of Section 162(m) of the Code and the regulations
promulgated thereunder.
(b) Authority. The Committee shall have full and final power and
authority to administer and interpret the Plan. In addition to such general
power and authority, and subject to the provisions of the Plan, the Committee
shall have full and final authority in its discretion to: (i) determine the
eligible persons to whom Awards shall be made under the Plan, (ii) determine
the type or types of Awards to be granted to each Participant hereunder, (iii)
determine the time or times when Awards shall be granted, (iv) determine the
terms and conditions of Awards and the terms and conditions of any agreement
evidencing an Award, (v) authorize the issuance of Shares pursuant to Awards
granted under the Plan, (vi) interpret, construe and administer the Plan and
any instrument or agreement relating to or evidencing an Award under the Plan,
(vii) establish, amend, suspend or waive rules and guidelines relating to the
Plan and Awards hereunder, (viii) correct any defect, supply any omission and
reconcile any inconsistency in the Plan and (ix) make any other determination
or take any other action that it deems necessary or desirable for
administration of the Plan or any Award hereunder. Decisions of the Committee
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shall be final, binding and conclusive on all persons, including the Company
and any Participant. The Committee may hold meetings and otherwise take action
in the manner permitted under the applicable provisions of the Certificate of
Incorporation and By-laws of the Company, resolutions of the Board and
applicable law. No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Award under
the Plan.
(c) Delegation of Authority. To the extent permitted by applicable
law, the Committee may delegate to one or more executive officers of the
Company the power to make Awards to Participants who are not Reporting Persons
or Covered Employees and to make all determinations under the Plan with respect
to such Participants, subject to such terms, conditions and limitations as the
Committee may establish in its sole discretion.
(d) Power and Authority of the Board of Directors.
Notwithstanding anything to the contrary contained herein, the Board of
Directors may at any time and from time to time, without any further action of
the Committee, exercise the powers and duties of the Committee under the Plan.
3. Stock Subject to the Plan.
(a) Amount. LabOne may grant Awards under the Plan with respect to
not more than a total of 1,000,000 Shares, subject, however, to adjustment as
provided in subparagraph (b) hereof. Such Shares may be authorized and
unissued Shares or treasury Shares. If for any reason any Award expires or
lapses or is terminated, surrendered, forfeited, cancelled, exercised or
settled in a manner that results in fewer shares outstanding than were awarded
pursuant to the Award, the Shares subject to such Award, to the extent of such
expiration, lapse, termination, surrender, forfeiture, cancellation or
decrease, shall again be available for award under the Plan. Notwithstanding
the provisions of this paragraph 3(a), no Shares shall again be subject to
Awards if such action would cause an Incentive Stock Option to fail to qualify
as an incentive stock option under Section 422 of the Code.
(b) Adjustment. In the event that the Committee determines that any
dividend or distribution (whether in the form of cash, Shares, other securities
or other property), recapitalization, merger, consolidation, reorganization,
spin-off or split-up, reverse stock split, combination or exchange of Shares or
other transaction affects the Shares such that an adjustment is determined by
the Committee to be appropriate in order to prevent dilution or enlargement of
the benefits or potential benefits intended to be made available under the
Plan, then the Committee may, in such manner as it may deem equitable and
without the consent of any affected Participant, adjust the number and kind of
securities which may be issued under the Plan, the number and kind of
securities subject to outstanding Awards and the exercise price of each
outstanding stock option granted under the Plan, and may make such other
changes in outstanding Awards as it deems equitable in its absolute discretion.
Fractional Shares resulting from any such adjustments shall be eliminated. No
adjustment or action described in this paragraph 3(b) shall be authorized to
the extent that such adjustment or action would cause the Plan or any
outstanding Incentive Stock Option to violate Section 422 of the Code or would
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cause any Performance-Based Award to fail to qualify as "qualified performance-
based compensation" under Section 162(m) of the Code and the regulations
promulgated thereunder.
(c) Limit on Individual Grants. The maximum number of Shares
subject to stock options and underlying stock appreciation rights which may be
granted in the aggregate under the Plan in any calendar year to any Participant
shall not exceed 150,000 Shares, subject to adjustment as provided in
subparagraph (b) hereof. The maximum number of Shares subject to restricted
stock awards which may be granted under the Plan in any calendar year to any
Participant shall not exceed 150,000 Shares, subject to adjustment as provided
in subparagraph (b) hereof. In addition, the maximum amount of compensation
payable in respect of performance unit awards, other stock-based awards under
paragraph 10 hereof, cash in addition to an Award under paragraph 12 hereof and
dividend equivalents under paragraph 14(c) hereof that may be paid in the
aggregate under the Plan in any calendar year to any Participant shall not
exceed $1,500,000. In all events, determinations under this subparagraph shall
be made in a manner that is consistent with Section 162(m) of the Code and the
regulations promulgated thereunder.
4. Eligibility to Receive Awards.
All officers, directors, key employees and consultants of the Company are
eligible to be Participants in the Plan. As used herein, key employees are
employees determined by the Committee to be capable of contributing
significantly to the profitability and success of the Company. Incentive Stock
Options (as defined below) may be granted only to persons eligible to receive
such options under the Code.
5. Form of Awards.
Subject to the provisions of the Plan, Awards may be made from time to
time by the Committee in the form of stock options to purchase Shares, stock
appreciation rights, performance units, restricted stock, other stock-based
awards as provided herein or any combination of the above. Stock options may
be options which are intended to qualify as incentive stock options within the
meaning of Section 422 of the Code or any successor provision ("Incentive Stock
Options") or options which are not intended to so qualify ("Nonqualified Stock
Options").
6. Stock Options.
(a) Award. Subject to the provisions of the Plan, the Committee
shall determine the terms and conditions of each stock option granted by the
Committee, which may include without limitation: (i) the type of option
(Incentive Stock Option or Nonqualified Stock Option), (ii) the number of
Shares subject to the option, (iii) the time or times at which and/or the
conditions upon which the option shall become exercisable in whole or in part,
(iv) the term of the option, and (v) the exercise price per Share, provided
that the exercise price per Share shall not be less than the par value of a
Share. In addition, the exercise price per Share for stock options which are
intended to be Performance-Based Awards (other than Performance-Based Awards
described in paragraph 11(b) hereof) shall not be less than the fair market
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value of a Share on the date of grant. The Committee, in its discretion, may
provide for circumstances under which the option shall become immediately
exercisable, in whole or in part, and, notwithstanding the foregoing, may
accelerate the exercisability of any option, in whole or in part, at any time.
A stock option granted under this Plan shall be an Incentive Stock Option only
if the relevant Award Agreement by its terms expressly states that it is
intended to qualify as an Incentive Stock Option and the stock option is
designated as an Incentive Stock Option in the Award Agreement.
(b) Payment for Shares. The Committee shall determine the form of
payment of the purchase price of the Shares with respect to which an option is
exercised, which may include without limitation (i) cash (which may include
personal checks, certified checks, cashier's checks or money orders), (ii)
Shares at fair market value, (iii) the optionee's written request to the
Company to reduce the number of Shares otherwise issuable to the optionee upon
the exercise of the option by a number of Shares having a fair market value
equal to such purchase price, (iv) a payment commitment of a financial
institution or brokerage firm in connection with the "cashless exercise" of an
option, (v) any other lawful consideration, including, without limitation, an
Award or a note or other commitment satisfactory to the Committee or (vi) a
combination of any of the foregoing.
(c) Incentive Stock Options. In the case of an Incentive Stock
Option, each Award shall contain such other terms, conditions and provisions as
the Committee determines to be necessary or desirable in order to qualify such
option as an Incentive Stock Option within the meaning of Section 422 of the
Code or any successor provision.
7. Stock Appreciation Rights.
(a) Award. Stock Appreciation Rights ("SARs") may be granted by the
Committee either in connection with a previously or contemporaneously granted
stock option or independently of a stock option. Subject to the provisions of
the Plan, the Committee shall determine the terms and conditions of each SAR.
SARs shall entitle the grantee, subject to such terms and conditions as may be
determined by the Committee, to receive upon exercise thereof all or a portion
of the excess of (i) the fair market value at the time of exercise, as
determined by the Committee, of a specified number of Shares with respect to
which the SAR is exercised, over (ii) a specified price which shall not be less
than 100 percent of the fair market value of the Shares at the time the SAR is
granted, or, if the SAR is granted in connection with a previously or
contemporaneously issued stock option, not less than the exercise price of the
Shares subject to the option, provided that the specified price for SARs which
are intended to be Performance-Based Awards (other than Performance-Based
Awards described in paragraph 11(b) hereof) shall in no event be less than the
fair market value of a Share on the date the SAR is granted.
(b) SARs Related to Stock Options. If an SAR is granted in relation
to a stock option, unless otherwise determined by the Committee, (i) the SAR
shall be exercisable only at such times, and by such persons, as the related
option is exercisable, (ii) the grantee's right to exercise the related option
shall be canceled if and to the extent that the Shares subject to the option
are used to calculate the amount to be received upon the exercise of the
related SAR and (iii) the grantee's right to exercise the related SAR shall be
canceled if and to the extent that the Shares subject to the SAR are purchased
upon the exercise of the related option, provided that an SAR granted with
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respect to less than the full number of Shares covered by a related option
shall not be reduced until the exercise or termination of the related option
exceeds the number of Shares not covered by the SAR.
(c) Other Terms. Each SAR shall have such other terms and
conditions as the Committee shall determine in its sole discretion. The
Committee may, in its discretion, provide in the Award circumstances under
which the SARs shall become immediately exercisable, in whole or in part, and
may, notwithstanding the foregoing, accelerate the exercisability of any SAR,
in whole or in part, at any time. Upon exercise of an SAR, payment shall be
made in cash, Shares at fair market value on the date of exercise, other
Awards, other property or any combination thereof, as the Committee may
determine.
8. Restricted Stock Awards.
(a) Award. Restricted stock awards under the Plan shall consist of
Shares free of any purchase price or for such purchase price as may be
established by the Committee, subject to forfeiture, and subject to such other
terms and conditions (including attainment of performance objectives) as may be
determined by the Committee.
(b) Restriction Period. Restrictions shall be imposed for such
period or periods as may be determined by the Committee. The Committee shall
determine the terms and conditions upon which any restrictions upon restricted
stock awarded under the Plan shall expire, lapse, or be removed. The
Committee, in its discretion, may provide in the Award circumstances under
which the restricted stock shall become immediately transferable and
nonforfeitable, or under which the restricted stock shall be forfeited, and,
notwithstanding the foregoing, may accelerate the expiration of the restriction
period imposed on any Shares at any time.
(c) Restrictions Upon Transfer. Restricted stock and the right to
vote such Shares and to receive dividends thereon, may not be sold, assigned,
transferred, exchanged, pledged, hypothecated, or otherwise encumbered during
the restriction period applicable to such Shares, except to the extent
determined by the Committee. Notwithstanding the foregoing, and except as
otherwise provided in the Plan or determined by the Committee, the grantee of
the restricted stock shall have all of the other rights of a stockholder,
including, but not limited to, the right to receive dividends and the right to
vote such Shares. The Committee, in its discretion, may provide that any
dividends or distributions paid with respect to Shares subject to the unvested
portion of a restricted stock award will be subject to the same restrictions as
the Shares to which such dividends or distributions relate.
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(d) Registration. Any restricted stock issued hereunder may be
evidenced in such manner as the Committee in its sole discretion may deem
appropriate, including without limitation, book-entry registration or issuance
of a stock certificate or certificates. In the event any certificate or
certificates are to be issued, the Committee, in its sole discretion, shall
determine when the certificate or certificates shall be delivered to the
grantee, may provide for the holding of such certificate or certificates in
escrow or in custody by the Company or its designee pending their delivery to
the grantee, and may provide for any appropriate legend to be borne by the
certificate or certificates.
9. Performance Units.
Performance unit awards under the Plan shall entitle grantees to future
payments based upon the achievement of pre-established performance objectives.
Subject to the provisions of the Plan, the Committee shall determine the terms
and conditions applicable to each performance unit award, which may include
without limitation the following: (a) one or more performance periods, (b) the
initial value of a performance unit, (c) performance targets to be achieved
during each applicable performance period and (d) the terms of payment of
performance unit awards. Performance targets established by the Committee may
relate to financial and nonfinancial performance goals, may relate to
corporate, division, unit, individual or other performance and may be
established in terms of growth in gross revenue, earnings per share, ratios of
earnings to equity or assets, or such other measures or standards as may be
determined by the Committee in its discretion. Multiple targets may be used
and may have the same or different weighting, and they may relate to absolute
performance or relative performance measured against other companies or
businesses. At any time prior to payment of a performance unit award, the
Committee may adjust previously established performance targets or other terms
and conditions, including the Company's or other entity's financial performance
for Plan purposes, to reflect unforeseen events, including without limitation,
changes in laws, regulations or accounting practices, mergers, acquisitions or
divestitures or other extraordinary, unusual or non-recurring items or events.
Payment on performance unit awards may be made in cash, Shares, other Awards,
other property or any combination thereof.
10. Other Stock-Based Awards.
The Committee may grant to Participants, either alone or in addition to
other Awards granted under the Plan, awards which are denominated or payable
in, valued in whole or in part by reference to, or otherwise based on or
related to Shares (including, without limitation, securities or other
instruments convertible into Shares). Subject to the terms of the Plan, the
Committee shall determine the terms and conditions of such Awards. Such Awards
may be paid in Shares, cash, other Awards, other property or any combination
thereof, as the Committee may determine. Such Awards may be issued for no cash
consideration, for such minimum consideration as may be required by applicable
law or for such other consideration as the Committee may determine. The form
or forms of consideration payable for Shares or other securities delivered
pursuant to a purchase right granted under this paragraph may include any form
of consideration specified in paragraph 6(b) hereof. The Committee may
establish certain performance criteria that may relate in whole or in part to
receipt of awards hereunder.
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11. Performance-Based Awards.
(a) Applicability. Awards granted and other compensation payable
under the Plan which are intended to qualify as Performance-Based Awards shall
be subject to the provisions of this paragraph 11. In the event of any
conflict between the provisions of this paragraph 11 and any other provisions
of this Plan, the provisions of this paragraph 11 shall prevail.
(b) Performance Goals. The specific performance goals for the
following Performance-Based Awards shall be one or more Stockholder-Approved
Performance Goals, as selected by the Committee in its sole discretion: (i)
Performance-Based Awards granted under paragraphs 8, 9, 10, 12 and 14(c) hereof
and (ii) Performance-Based Awards granted under paragraphs 6 and 7 hereof which
are made on account of, or the vesting or exercisability of which is contingent
upon, attainment of one or more performance goals. To the extent required
under Section 162(m) of the Code and the regulations promulgated thereunder,
the Committee shall (I) establish in the applicable Award Agreement the
specific performance targets relative to the Stockholder-Approved Performance
Goals which must be attained before compensation under the Performance-Based
Award becomes payable, (II) provide in the applicable Award Agreement the
method for computing the amount of compensation payable to the Participant if
the target or targets are attained, and (III) at the end of the relevant
performance period and prior to any payment of compensation, certify whether
the applicable target or targets were achieved and whether any other material
terms were in fact satisfied. The specific targets and the method for
computing compensation shall be established within the time period permitted
under Section 162(m) of the Code and the regulations promulgated thereunder.
The Committee may reserve the right in any Award Agreement covering a
Performance-Based Award to reduce the amount payable at a given level of
performance. The Committee shall be precluded from increasing the amount of
compensation payable that would otherwise be due upon attainment of a
performance goal contained in a Performance-Based Award, to the extent required
under Section 162(m) of the Code and the regulations promulgated thereunder for
Performance-Based Awards to qualify as "qualified performance-based
compensation" under Section 162(m) of the Code.
(c) Modification of Performance Goals. Except where a modification
would cause a Performance-Based Award to no longer qualify as "qualified
performance-based compensation" within the meaning of Section 162(m) of the
Code, the Committee may in its discretion modify any performance goal or target
relating to a Performance-Based Award, in whole or in part, as the Committee
deems appropriate and equitable, subject to the provisions of paragraph 14(i)
hereof.
(d) Discretion; Compliance. Notwithstanding any other provision of
this Plan to the contrary, neither the Board nor the Committee shall be
entitled to exercise any discretion otherwise authorized under this Plan with
respect to any Performance-Based Award or with respect to the amendment or
modification of any provision of this Plan without stockholder approval, if the
ability to exercise such discretion (as opposed to the exercise of such
discretion) would cause any Performance-Based Award to fail to qualify as
"qualified performance-based compensation" under Section 162(m) of the Code.
Notwithstanding any other provision of this Plan to the contrary, the Plan
shall be deemed to include such additional limitations or requirements set
forth in Section 162(m) of the Code and the regulations and rulings promulgated
thereunder which are required to be included in the Plan in order for
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Performance-Based Awards to qualify as "qualified performance-based
compensation" under Section 162(m) of the Code, and this Plan shall be deemed
amended to the extent necessary to conform to such limitations and requirements
from time to time.
12. Loans and Supplemental Cash Payments.
The Committee in its sole discretion to further the purpose of the Plan
may provide for cash payments to individuals in addition to an Award, or loans
to individuals in connection with all or any part of an Award. Supplemental
cash payments shall be subject to such terms and conditions as shall be
prescribed by the Committee, provided that in no event shall the amount of
payment exceed:
(a) In the case of an option, the excess of the fair market value of
a Share on the date of exercise over the option price multiplied by the number
of Shares for which such option is exercised, or
(b) In the case of an SAR, performance unit, or restricted stock
Award, the value of the Shares and other consideration issued in payment of
such Award.
Any loan shall be evidenced by a written loan agreement or other instrument in
such form and containing such terms and conditions (including, without
limitation, provisions for interest, payment schedules, collateral, forgiveness
or acceleration) as the Committee may prescribe from time to time.
13. General Restrictions.
Each Award under the Plan shall be subject to the requirement that if at
any time the Committee shall determine that (i) the listing, registration or
qualification of the Shares subject or related thereto upon any securities
exchange or under any state or federal law, or (ii) the consent or approval of
any regulatory body, or (iii) an agreement by the recipient of an Award with
respect to the disposition of Shares, or (iv) the satisfaction of withholding
tax or other withholding liabilities is necessary or desirable as a condition
of or in connection with the granting of such Award or the issuance or purchase
of Shares thereunder, such Award shall not be consummated in whole or in part
unless such listing, registration, qualification, consent, approval, agreement,
or withholding shall have been effected or obtained free of any conditions not
acceptable to the Committee. Any such restriction affecting an Award shall
not extend the time within which the Award may be exercised; and neither the
Company nor its directors or officers nor the Committee shall have any
obligation or liability to the grantee or to a Beneficiary with respect to any
Shares with respect to which an Award shall lapse or with respect to which the
grant, issuance or purchase of Shares shall not be effected, because of any
such restriction.
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14. General Provisions Applicable to Awards.
(a) Award Agreements. Each Award under the Plan shall be evidenced
by a written agreement entered into by and between LabOne and the Participant
("Award Agreement") containing such terms and conditions not inconsistent with
the provisions of the Plan as the Committee in its sole discretion deems
necessary or advisable. Each Participant to whom an Award has been granted
shall agree that such Award shall be subject to all of the terms and conditions
of the Plan and the terms and provisions of the applicable Award Agreement. A
Participant shall have no rights with respect to any Award unless the
Participant shall have executed and delivered to the Company a copy of the
Award Agreement with respect to such Award.
(b) Committee Discretion. Each type of Award may be made alone, in
addition to or in relation to any other Award. Multiple Awards, multiple forms
of Awards, or combinations thereof may be evidenced by a single Award
Agreement or multiple Award Agreements, as determined by the Committee.
Successive Awards may be granted to the same Participant whether or not any
Awards previously granted to such Participant remain outstanding. The
Committee's determinations under the Plan need not be uniform and may be made
selectively among persons who receive, or are eligible to receive, Awards under
the Plan, whether or not such persons are similarly situated. No person shall
have any claim or right to be granted an Award under the Plan.
(c) Dividends. In the discretion of the Committee, any Award under
the Plan may provide the Participant with dividends or dividend equivalents
payable in cash or property, currently or deferred, with or without interest.
Dividend equivalents granted with respect to a stock option which is a
Performance-Based Award may not be made contingent upon exercise of the stock
option, to the extent prohibited by Section 162(m) of the Code and the
regulations promulgated thereunder with respect to qualified performance-based
compensation.
(d) Termination of Employment or Consulting Arrangement. The
Committee shall determine the effect, if any, on an Award of the disability,
death, retirement or other termination of employment or services of a
Participant and the extent to which, and the period during which, the
Participant's legal representative, guardian or Beneficiary may receive payment
of an Award or exercise rights thereunder.
(e) Change in Control. In order to preserve a Participant's rights
under an Award in the event of a change in control of the Company (as defined
by the Committee), the Committee in its discretion may take one or more of the
following actions: (i) provide for the acceleration of any time period relating
to the exercise, realization or payment of the Award, (ii) provide for payment
to the Participant of cash or other property with a fair market value, as
determined by the Committee, equal to the amount that would have been received
upon the exercise or payment of the Award had the Award been exercised or paid
upon the change in control, (iii) adjust the terms of the Award in a manner
determined by the Committee to reflect the change in control, (iv) cause the
Award to be assumed, or new rights substituted therefor, by another entity, or
(v) make such other provisions as the Committee may consider equitable to the
Participant and in the best interests of the Company.
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(f) Transferability. In the discretion of the Committee, any Award
may be made transferable upon such terms and conditions and to such extent as
the Committee determines, provided that Incentive Stock Options may be
transferable only to the extent permitted by the Code. The Committee may in
its discretion waive any restriction on transferability. Unless the Committee
determines otherwise, a Participant's rights and interest under any Award or
any Award Agreement may not be assigned or transferred in whole or in part,
voluntarily or involuntarily, including by operation of law, except by will, by
the laws and descent and distribution or pursuant to an effective Beneficiary
designation.
(g) Withholding.
(i) Prior to the issuance or transfer of Shares or other
property under the Plan, the recipient shall remit to the Company an amount
sufficient to satisfy any Federal, state or local withholding tax requirements.
The recipient may satisfy the withholding requirement in whole or in part by
delivering Shares or electing to have the Company withhold Shares having a
value equal to the amount required to be withheld. The value of such Shares
shall be the fair market value, as determined by the Committee, of the stock on
the date that the amount of tax to be withheld is determined (the Tax Date).
Such Election must be made prior to the Tax Date, must comply with all
applicable securities law and other legal requirements, as interpreted by the
Committee, and may not be made unless approved by the Committee, in its
discretion.
(ii) Whenever payments to a Participant in respect of an Award
under the Plan are to be made in cash, such payments shall be net of the amount
necessary to satisfy any Federal, state or local withholding tax requirements.
(h) Deferred or Installment Payments. The Committee may provide
that the issuance of Shares or the payment or transfer of cash or property upon
the settlement of Awards may be made in a single payment or transfer or in
installments, and may authorize the deferral of, or permit a Participant to
elect to defer, any such issuance, payment or transfer, all in accordance with
such rules, requirements, conditions and procedures as may be established by
the Committee. The Committee may also provide that any such installment or any
such deferred issuance, payment or transfer shall include the payment or
crediting of dividend equivalents, interest or earnings on deferred amounts.
(i) Amendment of Awards. Subject to the terms and conditions of the
Plan, the Committee will have the authority under the Plan to amend or modify
the terms of any outstanding Award (including the applicable Award Agreement)
in any manner, prospectively or retroactively, including, without limitation,
the authority to modify the number of shares or other terms and conditions of
an Award, extend the term of an Award, accelerate the exercisability or vesting
or otherwise terminate any restrictions relating to an Award, convert an
Incentive Stock Option to a Nonqualified Stock Option, accept the surrender of
any outstanding Award and authorize the grant of new Awards in substitution for
surrendered Awards; provided, however, that the amended or modified terms are
permitted by the Plan as then in effect and provided, further, that if the
Committee determines that such amendment or modification, taking into account
any related action, materially and adversely affects a Participant, such
Participant shall have consented to such amendment or modification. Nothing in
this subsection shall be deemed to limit the Committee's authority to amend or
modify any outstanding Award pursuant to paragraph 3(b) of the Plan.
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15. Certain Definitions
(a) "1934 Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor law.
(b) "Award" means any award of stock options to purchase Shares,
stock appreciation rights, performance units, restricted stock, other
stock-based awards as provided herein or any combination of the above granted
under the Plan.
(c) "Beneficiary" means the person or persons designated in writing
by the grantee of an Award as the grantee's Beneficiary with respect to such
Award; or, in the absence of an effective designation or if the designated
person or persons predecease the grantee, the grantee's Beneficiary shall be
the grantee's estate or the person or persons who acquire by bequest or
inheritance the grantee's rights in respect of an Award. In order to be
effective, a grantee's designation of a Beneficiary must be on file with the
Committee before the grantee's death, but any such designation may be revoked
and a new designation substituted therefor at any time before the grantee's
death.
(d) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, or any successor law.
(e) "Covered Employee" means a "covered employee" for a particular
taxable year of the Company within the meaning of Section 162(m) of the Code
and the regulations promulgated thereunder or any Participant who the Committee
believes will be such a covered employee for a particular taxable year of the
Company, and who the Committee believes will have remuneration in excess of
$1,000,000 for such taxable year, as provided in Section 162(m) of the Code.
(f) "Participant" means any person selected to receive an Award
pursuant to the Plan.
(g) "Outside Director" means a member of the Board of Directors who
is not an employee of LabOne or any parent corporation or subsidiary
corporation of LabOne (as defined in Sections 424(e) and (f) of the Code).
(h) "Performance-Based Awards" means Awards and other compensation
payable under the Plan which the Committee from time to time determines are
intended to qualify as "qualified performance-based compensation" under Section
162(m) of the Code.
(i) "Reporting Person" means any person subject to Section 16 of the
1934 Act, or any successor rule.
(j) "Shares" means shares of Common Stock, $.01 par value per share,
of LabOne as constituted on the effective date of the Plan, and any other
shares into which such Common Stock shall thereafter be changed by reason of
any transaction described in paragraph 3(b) hereof.
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(k) "Stockholder-Approved Performance Goals" means the measurable
performance objective or objectives established pursuant to this Plan for
Participants who have received grants of Performance-Based Awards described in
paragraph 11(b) hereof. To the extent permitted under Section 162(m) of the
Code and the regulations promulgated thereunder, Stockholder-Approved
Performance Goals may be described in terms of objectives related to the
performance of the Participant, LabOne, any subsidiary, or any division, unit,
department, region or function within LabOne or any subsidiary in which the
Participant is employed. Stockholder-Approved Performance Goals may be made
relative to the performance of other companies. To the extent permitted under
Section 162(m) of the Code and the regulations promulgated thereunder,
Stockholder-Approved Performance Goals applicable to any Performance-Based
Award shall be based on specified levels of or changes in one or more of the
following criteria: (i) cash flow, which may include net cash flow from
operations, or net cash flow from operations, financing and investing
activities, (ii) earnings per share, (iii) pre-tax income, (iv) net income,
(v) return on sales, (vi) return on equity, (vii) return on assets,
(viii) return on capital, (ix) return on investment, (x) revenue growth,
(xi) market share, (xii) retained earnings, (xiii) improved gross margins,
(xiv) operating expense ratios, (xv) earnings before interest, taxes,
depreciation and amortization, (xvi) costs, (xvii) cost reductions or savings,
(xviii) debt reduction, (xix) selling, general and administrative expenses and
(xx) total return to shareholders (share appreciation plus dividends).
16. Miscellaneous.
(a) Rights of a Shareholder. Except as otherwise provided in
paragraph 8 hereof and subject to the provisions of the applicable Award
Agreement, the recipient of any Award under the Plan shall have no rights as a
shareholder with respect thereto unless and until certificates for Shares are
issued to him, and the issuance of Shares shall confer no retroactive right to
dividends.
(b) Rights to Terminate Employment. Nothing in the Plan or in any
Award Agreement shall confer upon any person the right to continue in the
employment of the Company or affect any right which the Company may have to
terminate the employment of such person.
(c) Amendment and Termination of Plan. The Board may terminate,
amend, modify or suspend the Plan at any time, subject to such stockholder
approval as the Board determines to be necessary or desirable to comply with
any tax, regulatory or other requirement. If the Committee determines that any
such termination, modification, amendment or suspension of the Plan shall
materially and adversely affect the rights of any grantee or Beneficiary under
an Award previously granted, the consent of such grantee or Beneficiary shall
be required, provided that it shall be conclusively presumed that any
adjustment pursuant to paragraph 3(b) hereof does not materially and adversely
affect any such right.
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(d) Effect on Other Plans; Nature of Payments. Nothing contained in
this Plan shall prevent the Company from adopting other or additional
compensation arrangements or other benefit or incentive plans or shall affect
any Participant's eligibility to participate in any other such arrangement or
plan. Each grant of an Award and each issuance of Shares thereunder shall be
in consideration of services performed for the Company by the Participant
receiving the Award. Each such grant and issuance shall constitute a special
incentive payment to the Participant receiving the Award and shall not be taken
into account in computing the amount of salary or compensation of the
Participant for the purposes of determining any pension, retirement, death or
other benefits under (i) any pension, retirement, profit-sharing, bonus, life
insurance or other benefit plan of the Company or (ii) any agreement between
the Company and the Participant, except as such plan or agreement shall
otherwise expressly provide.
(e) Effective Date and Duration of Plan. The Plan shall become
effective when adopted by the Board, provided that the Plan is approved by the
stockholders of LabOne in accordance with Delaware law before the first
anniversary of the date the Plan is adopted by the Board, and provided,
further, that no payment on any Award shall be made unless and until such
stockholder approval is obtained. Unless it is sooner terminated in accordance
with subparagraph (c) hereof, the Plan shall remain in effect until all Awards
under the Plan have been satisfied or have expired or otherwise terminated, but
no Incentive Stock Option shall be granted more than ten years after the
earlier of the date the Plan is adopted by the Board or is approved by the
Company's shareholders.
(f) Unfunded Plan. The Plan shall be unfunded, except to the extent
otherwise provided in accordance with Section 8 hereof. Neither the Company
nor any affiliate shall be required to segregate any assets that may be
represented by Awards, and neither the Company nor any affiliate shall be
deemed to be a trustee of any amounts to be paid under any Award. Any
liability of the Company or any affiliate to pay any grantee or Beneficiary
with respect to an Award shall be based solely upon any contractual obligations
created pursuant to the provisions of the Plan, and no such obligations will be
deemed to be secured by a pledge or encumbrance on any property of the Company
or an affiliate.
(g) Governing Law. The Plan shall be governed by, and shall be
construed, enforced and administered in accordance with, the laws of the State
of Delaware, except to the extent that such laws may be superseded by any
Federal law.
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