<PAGE>
As filed with the Securities and Exchange Commission on May 28, 1999
Registration No. 333-76131
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
AMENDMENT NO. 1
to
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
LAB HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
MISSOURI 8071 43-1039532
(State or other (Primary Standard Industrial (I.R.S. employer
jurisdiction of Classification Code Number) identification number)
incorporation or organization)
5000 West 95th Street, Suite 260
Shawnee Mission, Kansas 66207
(913) 648-3600
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
John H. Calvert, Esq.
Lathrop & Gage L.C.
2345 Grand Blvd., Suite 2800
Kansas City, MO 64108
(816) 460-5807
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
with copies to:
P. Anthony Jacobs Whitney F. Miller, Esq.
President and Chief Executive Officer Morrison & Hecker, LLP
Lab Holdings, Inc. 2600 Grand Avenue
5000 West 95th Street, Suite 260 Kansas City, MO 64108
Shawnee Mission, Kansas 66207 (816) 221-0355
(913) 648-3600
Approximate date of commencement of proposed sale to the public:
As Soon as Practicable after the Effective Date of this Registration Statement.
If the Securities registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. __
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. __.
<PAGE>
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. __
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
===============================================================================
<PAGE>
The information in this Joint Proxy Statement/Prospectus is not complete and may
be changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This Joint Proxy
Statement/Prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer or sale
is not permitted.
Preliminary Copies, subject to completion dated May 28, 1999
[labh logo] [labs logo]
MERGER PROPOSED --- YOUR VOTE IS IMPORTANT
TO THE STOCKHOLDERS OF LAB HOLDINGS AND LABONE:
The Boards of Directors of Lab Holdings, Inc. and LabOne, Inc. and a Special
Committee of independent LabOne directors have approved a merger of LabOne into
Holdings and recommend that you vote for approval of the merger. After the
merger, Holdings' name will be LabOne, Inc., its management will consist of
LabOne management and its Board will consist of nine of the current LabOne
directors as well as three new independent non-management directors.
Stockholders of Holdings will have each of their Holdings shares split
immediately before the merger into 1.5 shares of common stock. Stockholders of
LabOne, other than Holdings, may elect to have each of their existing LabOne
shares exchanged for one share of the common stock of the combined company,
$12.75 in cash or a combination of cash and shares. However, if the LabOne cash
election shares exceed a cash limit of $16.6 million (approximately 50% of
eligible shares), then the cash will be allocated on a pro rata basis among the
cash election shares.
On June __, 1999, the last reported sales price on the NASDAQ National Market of
LabOne common stock (LABS) was $___.__ per share and of Holdings common stock
(LABH) was $__.__ per share.
The merger requires the approval of the holders of two-thirds of the outstanding
shares of Holdings, a majority of the outstanding shares of LabOne and a
majority of the shares voted by LabOne Unaffiliated Stockholders. These matters
will be voted on at the annual meetings of both companies which have been
scheduled to be held on August _____, 1999.
Regardless of the number of shares you own or whether you plan to attend in
person, it is important that your shares be represented and voted at the
meetings. Voting instructions are inside.
This document provides you with detailed information about the proposed
merger. We encourage you to read this entire document carefully.
- -----------------------------------
P. Anthony Jacobs
President and Chief Executive Officer
Lab Holdings, Inc.
- ---------------------------------------
W.T. Grant II
Chairman, President and Chief Executive Officer
LabOne, Inc.
<PAGE>
For a discussion of certain risk factors which you should consider in evaluating
the merger, see "Risk Factors" beginning on page 11.
---------------------
Neither the Securities and Exchange Commission nor any state securities
regulator has approved the Holdings common stock to be issued in the merger or
determined whether this document is truthful or complete. Any representation to
the contrary is a criminal offense.
This Joint Proxy Statement/Prospectus is dated _____, 1999, and is first being
mailed to stockholders on ______, 1999.
<PAGE>
LAB HOLDINGS, INC.
5000 West 95th Street
Shawnee Mission, Kansas 66207
NOTICE OF 1999 ANNUAL MEETING OF STOCKHOLDERS
To be held August , 1999
NOTICE IS HEREBY GIVEN THAT the 1999 annual meeting of stockholders of
Lab Holdings, Inc., a Missouri corporation, will be held on Wednesday, August
__, 1999 at _:00 _.m. local time, at the LabOne offices at 10101 Renner
Boulevard, Lenexa, Kansas to consider and vote upon:
1. A proposal to adopt the Agreement and Plan of Merger, as amended and
restated, by and between Lab Holdings, Inc. and LabOne, Inc., dated as of
March 7, 1999, which is described in this Joint Proxy Statement/Prospectus,
and the transactions contemplated thereby. Pursuant to the merger
agreement, (a) shares of Lab Holdings, Inc. common stock will be split 1.5
for one immediately prior to the merger, (b) LabOne will merge with and
into Holdings, with Holdings being the surviving corporation, (c) each
outstanding share of LabOne Common Stock (other than shares owned by
Holdings) will be converted into either: (i) one share of surviving
corporation common stock, (ii) cash equal to $12.75, subject to an
aggregate $16.6 million cash limit, or (iii) a combination of cash and
shares; (d) Holdings' name will be changed to "LabOne, Inc.," (e) the
officers of Holdings will be replaced by the current officers of LabOne,
(f) Holdings directors will be replaced by nine of the current LabOne
directors and three additional non-management directors, and (g) the
Articles of Incorporation and Bylaws of Holdings will be amended to read as
set forth in Appendix B and Appendix C to the merger agreement and to
effect a reduction in stated capital by reducing the par value of shares
from $1.00 per share to $0.01 per share.
2. A proposal to amend Paragraph B.4 of Article X of the Articles of
Incorporation to change the definition of the term "Continuing Director
Quorum" from nine Continuing Directors to two-thirds of the Continuing
Directors;
3. A proposal to elect two Class B directors, to serve until the earlier of
the 2002 Annual Meeting of Stockholders or the effective time of the
merger.
4. A proposal to ratify the selection of KPMG LLP as independent public
accountants for Holdings for 1999.
5. Such other business as may properly come before the annual meeting or any
adjournment or postponement thereof.
These proposals and related matters are described more fully in the Joint
Proxy Statement/Prospectus that accompanies this notice. A copy of the merger
agreement, together with copies of the proposed Amended and Restated Articles of
Incorporation and Bylaws and provisions relating to the rights of dissenting
stockholders are attached to the Joint Proxy Statement/Prospectus.
Holdings has established the close of business on June _, 1999 as the
record date to determine the stockholders entitled to vote at the Holdings
annual meeting or any postponement or adjournment thereof.
<PAGE>
The Board of Directors of Holdings unanimously recommends that you vote FOR
adoption of the merger agreement and FOR approval of the proposed amendment to
the Articles of Incorporation. It also recommends that you vote FOR the election
of each nominee to the Board of Directors and FOR the approval and ratification
of Holdings' independent public accountants for the 1999 fiscal year.
YOUR VOTE IS IMPORTANT AND WE URGE YOU TO COMPLETE, SIGN, DATE AND RETURN
YOUR PROXY CARD AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU EXPECT TO ATTEND THE
HOLDINGS MEETING. If you are unable to attend in person, your shares will be
voted at the meeting if you return your proxy card. A return envelope is
enclosed for your convenience. If your shares are held in "street name" by your
broker or other nominee, only that holder can vote your shares. You should
follow the directions provided by them regarding how to instruct them to vote
your shares.
You may revoke your proxy at any time by following the procedures set forth
in the accompanying Joint Proxy Statement/Prospectus.
By Order of the Board of Directors
------------------------------
Steven K. Fitzwater
Secretary
Shawnee Mission, Kansas
, 1999
<PAGE>
LABONE, INC.
10101 Renner Boulevard, Lenexa, Kansas 66219
(913) 888-1770
NOTICE OF THE 1999 ANNUAL MEETING OF STOCKHOLDERS
To be held August , 1999
To the Stockholders of LabOne, Inc.:
The Annual Meeting of Stockholders (the "Meeting") of LabOne, Inc., a
Delaware corporation ("LabOne"), will be held at the offices of LabOne at 10101
Renner Boulevard, Lenexa, Kansas 66219 on August __, 1999, at ______ _.m., local
time, to consider and vote upon:
1. A proposal to adopt the Agreement and Plan of Merger, as amended and
restated, by and between Lab Holdings, Inc. and LabOne, Inc., dated as of
March 7, 1999 (the "merger agreement"), which is described in this Joint
Proxy Statement/Prospectus, and the transactions contemplated thereby.
Pursuant to the merger agreement, (a) shares of Lab Holdings, Inc. common
stock will be split 1.5 for one immediately prior to the merger, (b) LabOne
will merge with and into Holdings, with Holdings being the surviving
corporation, (c) each outstanding share of LabOne Common Stock (other than
shares owned by Holdings) will be converted into either: (i) one share of
surviving corporation common stock, (ii) cash equal to $12.75, subject to
an aggregate $16.6 million cash limit, or (iii) a combination of cash and
shares; (d) Holdings' name will be changed to "LabOne, Inc.," (e) the
officers of Holdings will be replaced by the current officers of LabOne,
(f) Holdings directors will be replaced by nine of the current LabOne
directors and three additional non- management directors, and (g) the
Articles of Incorporation and Bylaws of Holdings will be amended to read as
set forth in Appendix B and Appendix C to the merger agreement and to
effect a reduction in stated capital by reducing the par value of shares
from $1.00 per share to $0.01 per share.
2. A proposal to elect twelve directors of LabOne as set forth in the
accompanying Joint Proxy Statement/Prospectus, to serve until the effective
time of the merger, or if the merger is not consummated, until the 2000
Annual Meeting of Stockholders.
3. A proposal to ratify the selection of KPMG LLP as independent public
accountants for LabOne and its subsidiaries for the 1999 fiscal year.
4. Such other business as may properly come before the Meeting.
These proposals and other related matters are more fully described in the
accompanying Joint Proxy Statement/Prospectus. A copy of the merger agreement is
attached to the Joint Proxy Statement/Prospectus as Appendix A.
Only holders of record of common stock of LabOne at the close of business
on June _, 1999 are entitled to notice of and to vote at the Meeting.
The Board of Directors of LabOne and a Special Committee of independent
LabOne directors have approved the merger agreement, declared its advisability
and recommend that you vote FOR adoption of the merger agreement. It also
recommends that you vote FOR the election of each nominee to the Board of
Directors and FOR the approval and ratification of LabOne's independent public
accountants for the 1999 fiscal year.
<PAGE>
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. If your shares are held in "street name" by your broker or other
nominee, only that holder can vote your shares. You should follow the directions
provided by them regarding how to instruct them to vote your shares.
LabOne stockholders who wish to receive cash for any of their LabOne
shares should complete and return the Form of Election attached to the Proxy
Statement/Prospectus, together with stock certificates or a completed guaranty
of delivery. Elections must be made prior to 10:00 a.m. Kansas City time on the
day of the Meeting and may be revoked only by giving written notice to the
Disbursing Agent prior to that time.
You may revoke your proxy with respect to any proposal at any time prior to
the completion of the voting on such proposal at the Meeting, by following the
procedures set forth in the accompanying Joint Proxy Statement/Prospectus.
By Order of the Board of Directors
Gregg R. Sadler, Secretary
Lenexa, Kansas, __________________, 1999
<PAGE>
TABLE OF CONTENTS
Page
QUESTIONS AND ANSWERS ABOUT
THE MERGER.................................... 1
WHO CAN HELP ANSWER QUESTIONS................. 2
SUMMARY....................................... 3
The Companies........................... 3
The Merger.............................. 3
SUMMARY FINANCIAL INFORMATION................. 6
Holdings' Historical Consolidated
Financial Information................ 6
LabOne Historical Consolidated
Financial Information................ 7
Summary Unaudited Pro Forma
Financial Information................ 8
COMPARATIVE PER SHARE
INFORMATION............................ 9
Comparative Per Share Data.............. 9
Comparative Market Price and Dividend
Information.......................... 9
RISK FACTORS.................................. 11
Risk Factors............................ 11
Forward Looking Statements.............. 14
LABONE GROWTH STRATEGY........................ 15
THE PROPOSED MERGER........................... 19
General................................. 19
Holdings Annual Meeting.............. 19
LabOne Annual Meeting................ 19
The Holdings Stock Split ............... 19
Exchange of LabOne Shares and Cash
Elections............................ 20
Stock Options and Warrants.............. 20
Background of the Merger................ 21
Holdings' Reasons for the Merger and
Recommendation of its Board.......... 26
LabOne's Reasons for the Merger and
Recommendation of its Board.......... 28
Opinion of Holdings' Financial Advisor.. 32
Opinion of Financial Advisor to the
LabOne Special Committee............. 37
Accounting Treatment.................... 42
Federal Income Tax Consequences......... 43
General.............................. 43
Holdings Stockholders................ 43
LabOne Stockholders (Other than
Holdings)....................... 44
Holdings............................. 45
LabOne............................... 46
Interests of Certain Persons in the Merger 46
Dissenter's Rights...................... 47
Amendments to Holdings' Articles
of Incorporation and Bylaws.......... 49
Articles of Incorporation............ 49
Bylaws............................... 50
<PAGE>
Page
Certain Possible Anti-takeover Effects
of the Amendments to the Articles
of Incorporation and Bylaws of the
Combined Company................ 51
Resales of Common Stock................. 52
THE MERGER AGREEMENT.......................... 53
General .............................. 53
Pre-Merger Stock Split.................. 53
Closing of the Merger; Effective Time
of the Merger........................ 53
Effect of Merger........................ 53
Conversion of LabOne Common Stock
into Shares of the Combined
Company or Cash...................... 54
Effect of Merger on Holdings Common
Stock .............................. 56
Effect of Merger on Options and Warrants 56
Dissenters' Rights...................... 57
Conditions to the Merger................ 57
Representations and Warranties.......... 59
Certain Covenants; Conduct of Business.. 59
Amendment of Articles of Incorporation.. 61
Additional Agreements................... 61
Expenses .............................. 61
Indemnification......................... 62
Amendment, Waiver and Termination....... 62
MEETINGS OF STOCKHOLDERS...................... 64
Holdings Annual Meeting................. 64
LabOne Annual Meeting................... 65
UNAUDITED PRO FORMA CONDENSED
FINANCIAL STATEMENTS................... 70
INFORMATION REGARDING LABONE.................. 76
Business .............................. 76
General.............................. 76
Insurance Services................... 76
Clinical Services.................... 77
Substance Abuse Testing Services..... 78
Segment Information.................. 78
Operations........................... 78
Regulatory Affairs................... 79
Sales and Marketing.................. 79
Competition.......................... 80
Foreign Markets...................... 81
Technology Development............... 81
Employees............................ 81
Properties.............................. 81
Litigation.............................. 82
LABONE MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS.............................. 82
MANAGEMENT OF LABONE.......................... 89
i
<PAGE>
Page
LabOne Executive Compensation........... 92
MANAGEMENT OF COMBINED
COMPANY AFTER THE MERGER.......... 98
SECURITY OWNERSHIP OF LABONE
BEFORE AND AFTER THE MERGER............ 99
LABONE'S ANNUAL MEETING
PROPOSALS............................... 101
Election of Directors
Of LabOne............................ 101
Ratification of Selection of
Independent Public
Accountants of LabOne................ 103
DESCRIPTION OF COMBINED COMPANY
CAPITAL STOCK .......................... 103
Certain Provisions of Articles of
Incorporation and Bylaws of Combined
Company that May Have an
Anti-takeover Effect................. 104
COMPARATIVE RIGHTS OF
LABONE STOCKHOLDERS..................... 106
Certain Differences between LabOne's
and the Combined Company's
Charter and Bylaws................... 107
Certain Differences Between Missouri
and Delaware Corporation Statutes.... 109
COMPARATIVE RIGHTS OF
HOLDINGS STOCKHOLDERS................... 111
MANAGEMENT OF HOLDINGS........................ 112
Directors and Officers.................. 112
Committees of the Holdings' Board of
Directors............................ 113
Compensation of Directors............... 113
Compensation of Executive Officers...... 115
Report of the Compensation
Committee on Executive
Compensation......................... 116
Performance of Holdings' Common
Stock................................ 117
Security Ownership of Holdings
Management........................... 119
Security Ownership of Certain Other
Beneficial Owners of Holdings
Common Stock......................... 120
Certain Relationships and
Related Transactions................. 121
HOLDINGS' ANNUAL MEETING
PROPOSALS............................... 122
Proposal to Amend Articles
Of Incorporation..................... 122
Proposal to Elect Two
<PAGE>
Page
Holdings Directors................... 123
Proposal to Approve and Ratify
Holdings' Appointment of
Independent Public
Accountants.......................... 125
EXPERTS .............................. 125
LEGAL MATTERS................................. 125
FUTURE STOCKHOLDER PROPOSALS.................. 125
WHERE YOU CAN FIND MORE
INFORMATION............................. 126
INDEX TO LABONE FINANCIAL
STATEMENTS ............................ F-1
LIST OF APPENDICES
Appendix A Merger Agreement
Exhibit B Form of Amended and Restated
Articles of Incorporation
Exhibit C Form of Amended and Restated
Bylaws
Appendix B Opinion of Salomon Smith
Barney Inc.
Appendix C Opinion of U.S. Bancorp
Piper Jaffray Inc.
Appendix D Section 351.455, RSMo Concerning
Dissenters' Rights
ii
<PAGE>
QUESTIONS AND ANSWERS
ABOUT THE MERGER
Q: When and Where are the Annual Meetings?
A: Both the LabOne and Holdings annual meetings are scheduled to take place on
August __, 1999, at the new LabOne laboratory and offices at 10101 Renner
Blvd., Lenexa, Kansas 66219. The LabOne meeting will take place at __:__
_m, local time, and be followed by the Holdings meeting which will take
place at __:__ _m, local time.
Q: When do you expect the merger to be completed?
A: We expect to complete the merger promptly after receiving stockholder
approvals at the annual meetings.
Q: What do I need to do now?
A: You should carefully read and consider the information contained in this
document. Then, please fill out, sign and mail your proxy card in the
enclosed return envelope as soon as possible so that your shares may be
represented at the annual meeting. If the card does not specify a choice it
will be voted "FOR" the merger and all other proposals.
If you are a LabOne stockholder and you wish to exchange any of your LabOne
stock for cash, you should properly complete and return to the Disbursing
Agent the attached Election Form with your stock certificates or a guaranty
of delivery so that it is received before the LabOne meeting on August __,
1999.
Q: What if I don't Vote or I Abstain From Voting
A: If you are a Holdings stockholder and you do not vote or you abstain, the
effect will be a vote against the merger .
If you are a LabOne Unaffiliated Stockholder: only votes "for" or "against"
the merger will affect the result. Q: If my shares are held by my broker in
"street name," will my broker vote my shares for me?
A: Your broker will vote your shares only if you provide instructions on how
to vote. You should follow the directions provided by your broker to vote
your shares.
Q: How will I be able to elect to receive cash for all or a portion of my
LabOne shares?
A: We are delivering with this document the election forms and instructions
you will need for making a cash election.
Q: May I change my vote after I have mailed my signed proxy card?
<PAGE>
A: Yes. You may change your vote at any time before your proxy is voted at the
annual meeting. You can do this in one of three ways. First, you can send a
written notice stating that you would like to revoke your proxy. Second,
you can complete and submit a new proxy card. If you choose either of these
two methods, you must submit your notice of revocation or your new proxy
card to Holdings at 5000 West 95th Street, Suite 260, P.O. Box 7568,
Shawnee Mission, Kansas 66207, if you are a Holdings stockholder, or to
LabOne at 10101 Renner Blvd., Lenexa, Kansas 66219, Attention: Secretary,
if you are a LabOne stockholder. Third, you can attend the Holdings annual
meeting or the LabOne annual meeting and vote in person. Simply attending
the meeting, however, will not revoke your proxy; you must request a ballot
and vote the ballot at the meeting. If you have instructed a broker to vote
your shares, you must follow directions received from your broker to change
your vote.
1
Q: Can I revoke a cash election?
A: Yes, at any time before the start of the LabOne meeting. You may do this by
sending a written notice of revocation to American Stock Transfer and Trust
Company at 40 Wall Street, 46th Floor, New York, N.Y. 10005 so that it is
received before the meeting. Their telephone number is (800) 937-5449.
Q: Should I send in my stock certificate now?
A: If you are a LabOne stockholder and wish to receive cash for some or all of
your shares, you should follow the instructions in the Form of Election
included with this document. You will need to submit a properly completed
Form of Election together with certificates for your shares (or a guaranty
of delivery) to the disbursing agent referred to therein. If you do not
want to receive any cash for your shares, you may keep your existing
certificates. They will be deemed to represent shares of the combined
company after the merger. We will send instructions after the merger
explaining how you may exchange your old LabOne certificates for new
certificates evidencing shares of the combined company.
If you are a Holdings stockholder, you may keep your existing
certificates, but you will also receive instructions on how you
may exchange them for new certificates bearing the name "LabOne,
Inc." and the new par value of $0.01 per share. You will also be
sent a new certificate for the additional shares that will result
from the split of each of your existing shares into 1.5 shares.
WHO CAN HELP ANSWER MY QUESTIONS?
If you have more questions about the merger, you should call:
Lab Holdings Stockholders:
Georgeson & Company Inc.
Wall Street Plaza
New York, NY 10005
(800) 223-2064
or
<PAGE>
Steven K. Fitzwater
Executive Vice President,
Chief Operating and Financial
Officer and Secretary
Lab Holdings, Inc.
5000 West 95th Street, Suite 260
Shawnee Mission, Kansas 66207
LabOne Stockholders:
Georgeson & Company Inc.
Wall Street Plaza
New York, NY 10005
(800) 223-2064
or
Robert D. Thompson
Executive Vice President and
Chief Operating and Financial
Officer
LabOne, Inc.
10101 Renner Blvd.
Lenexa, Kansas 66219
2
<PAGE>
SUMMARY
We believe this summary highlights key aspects of the merger information in
this document. However, for a more complete understanding of the terms of the
merger and related transactions, the business and financial affairs of LabOne
and Holdings, and their securities, you should read carefully this entire
document and the documents we have referred you to. See "Where You Can Find More
Information" on page 126. Also, we use the term "LabOne Unaffiliated
Stockholders" throughout this document. That means all LabOne stockholders other
than Holdings, officers and directors of Holdings and beneficial owners of 10%
or more of the outstanding shares of Holdings common stock. .
The Companies
Lab Holdings, Inc.
5000 West 95th Street
Suite 260, P.O. Box 7568
Shawnee Mission, Kansas 66207
(913) 648-3600
Holdings is presently engaged in the business of managing its 80.5% interest in
LabOne. Previously, Holdings owned interests in a number of other enterprises
that have since been disposed of in a variety of transactions.
LabOne, Inc.
10101 Renner Blvd.
Lenexa, Kansas 66219
(913) 888-1770
Internet address: www.LabOne.com
LabOne is the largest provider of risk assessment laboratory testing services to
the life insurance industry in the United States and Canada. It is a growing
provider of clinical testing services for the healthcare industry and substance
abuse testing services for employers. These services were recently expanded as a
part of the LabOne diversification strategy in late 1998 to include insurance
claims investigation services through the acquisition of Systematic Business
Services, Inc. Services are primarily delivered from a newly constructed,
centrally located, state-of-the art 268,000 square foot laboratory and office
complex in the Kansas City metro area. The facility and site have been
configured to accommodate LabOne's growth strategy. See pages 15 through 18.
The Merger
Reasons for the Merger (See pages 26 through 31)
We believe the merger will position the LabOne business to grow:
o through acquisitions,
o the continued development of strategic
relationships, and
o internally.
LabOne cannot effectively pursue this growth strategy under the current holding
company structure. This is because the need of Holdings to own more than 80% of
LabOne for tax purposes, inhibits LabOne's ability to use its common stock for
acquisitions and the building of other strategic relationships.
<PAGE>
The merger will allow Holdings stockholders to enjoy the benefits of a direct
investment in the business of LabOne and its management while eliminating
duplicate holding company management and administrative costs. The merger should
also result in higher trading volumes, greater liquidity, a more efficient
market and increased investor interest in the common stock of the combined
company.
Although we believe the merger is in your best interests, it will subject you to
risks that are discussed under Risk Factors. In particular, the merger is
expected to result in additional goodwill that will negatively impact net
earnings following the merger. Present dividend policies may also be adversely
affected by implementation of the Company's growth strategy and any debt
incurred to finance the merger. See pages 16 through 18.
What Holdings Stockholders will retain in the Merger
(See pages 22 and 25)
If you are a Holdings stockholder, you will receive in a stock split immediately
before the merger one additional share of Holdings common stock for each two
Holdings shares that you own at that time. The shares received by you in the
stock split as well as the shares held by you at the time of the stock split
will represent the same number of shares of the combined company after the
merger. All shares held by you and all other Holdings stockholders after the
merger will constitute about 78.9% of the combined company if all LabOne
Stockholders other than Holdings elect to receive only stock in the merger. If
all those stockholders elect to exchange at least half of their shares for cash,
then all Holdings stockholders will own about 88.2% of the combined company
after the merger.
What LabOne Stockholders will receive in the Merger
(See pages 23 and 56)
If you are a LabOne stockholder other than Holdings, you will receive one
share of the common stock of the
3
combined company for each share of LabOne common stock held at the time of the
merger. However, you may instead elect to receive $12.75 in cash per share for
all or a portion of your LabOne shares so long as the aggregate cash elections
of all LabOne stockholders do not exceed $16.6 million (approximately 50% of
eligible shares). If the cash elections exceed $16.6 million, then the cash will
be allocated on a pro rata basis among the cash election shares. After the
merger the LabOne stockholders will own about 21.1% of the combined company if
none elect cash and about 11.8% if cash elections equal or exceed the $16.6
million cash limit.
Federal Income Tax Consequences (See pages
43 through 46)
LabOne Stockholders. If you are a LabOne stockholder, you should not recognize
gain or loss for federal income tax purposes if you do not elect to receive cash
in the merger. If you receive cash and stock in exchange for your LabOne shares
you will recognize gain, but not loss, equal to the lesser of (x) the total gain
realized by you on the exchange after taking into account the value of all the
merger consideration received by you or (y) the amount of cash received. If you
receive solely cash for your LabOne shares, you may also recognize gain. The
gain that you recognize for your LabOne shares in the exchange may be capital
gain or ordinary income, depending on your individual circumstances. Generally,
the gain will be capital gain if the percentage of combined company common stock
<PAGE>
owned directly or constructively by you after the merger is at least 20% less
than the percentage that would have been owned directly or constructively by you
if all LabOne shares had been exchanged for combined company common stock.
Otherwise, the gain recognized likely will be treated as ordinary income. You
are urged to consult with your tax advisor regarding your election rights in the
merger.
Holdings Stockholders. If you are a Holdings stockholder, you should not
recognize gain or loss for federal income tax purposes in connection with the
stock split or the merger, except to the extent of cash you receive in payment
of any fractional share that may result from the stock split or from the
exercise of dissenters' rights.
Dissenters' Rights (See page 47)
If you are a Holdings stockholder, you have the right under Missouri law to
dissent and obtain payment in cash of the fair value of your Holdings shares as
of the day prior to the Holdings annual meeting. To exercise dissenters' rights,
you must, among other things:
o deliver a written objection to Holdings prior to or at
the Annual Meeting;
o not vote in favor of the merger agreement; and
o deliver to the combined company within twenty (20) days after the merger a
written demand for payment of the fair value of your Holdings shares.
If you are a LabOne stockholder, you have no dissenters' rights with respect to
the merger.
Directors and Management Following the Merger
(See Pages 98 through 99)
Upon completion of the merger, the board of the combined company will
consist of nine present LabOne directors and three additional independent
non-management directors nominated by the LabOne Special Committee and approved
by Holdings. None of the present Holdings directors will continue in office.
W.T Grant II, the current Chairman, President and Chief Executive Officer
of LabOne, will be the Chairman, President and Chief Executive Officer of the
combined company. The other present officers of LabOne will also continue to be
officers of the combined company. None of the present Holdings officers and
employees will continue in office following the merger.
Amendments to Holdings Articles of Incorporation and Bylaws (See Pages 49
through 51 and Exhibit B and C to the merger agreement which are marked to show
proposed changes from Holdings existing documents)
In the merger the following principal changes will be made to Holdings'
Articles and Bylaws:
o Holdings' name will be changed to "LabOne,
Inc."
o The authorized shares of common stock will be increased to reflect the
number currently authorized by the LabOne Certificate of Incorporation.
<PAGE>
o The par value of capital stock will be reduced to $0.01 per share to
reflect the current par value of LabOne shares.
o An 80% vote of stockholders will be required for certain amendments to
the Articles of Incorporation and Bylaws.
o Advance notice will be required for stockholder
proposals or nominations for director.
o A provision authorizing four-fifths (4/5) of
4
outstanding shares to call a special meeting of
stockholders will be eliminated.
Opinion of Financial Advisor to Holdings (See
pages 32 through 37)
In connection with the merger, the Holdings Board received an opinion of
Salomon Smith Barney Inc. as to the fairness, from a financial point of view, of
the merger consideration to Holdings. The full text of the written opinion of
Salomon Smith Barney Inc. dated March 7, 1999 is attached to this document as
Appendix B and should be read carefully in its entirety. The opinion of Salomon
Smith Barney Inc. is directed to the Holdings Board and does not constitute a
recommendation to any stockholder with respect to any matter relating to the
proposed merger.
Opinion of Financial Advisor to the Special
Committee (See pages 37 through 42)
In connection with the merger, the LabOne Special Committee received a
written opinion of U.S. Bancorp Piper Jaffray as to the fairness, from a
financial point of view, of the merger consideration to the LabOne Unaffiliated
Stockholders. The full text of that opinion is attached to this document as
Appendix C and should be read carefully in its entirety. The opinion of U.S.
Bancorp Piper Jaffray, Inc. is directed to the Special Committee and does not
constitute a recommendation to any stockholder with respect to any matter
relating to the proposed merger.
Conditions to the Merger (See pages 57 through
59 and the merger agreement attached as
Appendix A)
The completion of the merger depends upon the satisfaction of a number of
conditions, including the following:
o approval of the proposed amendment to Article X of the Holdings
Articles of Incorporation to change the definition of "Continuing
Director Quorum" from nine Continuing Directors to two-thirds of the
Continuing Directors;
o approval by the Holdings stockholders, the
LabOne stockholders, and a majority of the votes
cast by the LabOne Unaffiliated Stockholders;
o the continued accuracy of each company's representations and warranties
and compliance by each company with its agreements contained in the
merger agreement;
<PAGE>
o receipt of a legal opinion from Holdings' counsel
as to the tax consequences of the merger;
o the holders of not more than 5% of the Holdings
common stock exercise dissenters' rights;
o the stock split of Holdings shares shall have
become effective;
o the opinions of the financial advisors to the Holdings Board or the
Special Committee shall not have been materially modified in an adverse
manner or withdrawn prior to the date of mailing of the proxy statement
or related supplement; and
o the merger will not trigger the vesting of outstanding LabOne stock
options or warrants.
Termination of the Merger Agreement (See pages
61 through 64)
Holdings and LabOne can agree to terminate the merger agreement without
completing the merger, and either company can terminate the merger agreement on
its own without completing the merger under various circumstances, including if
any of the following occurs:
o the merger is not completed by October 31,
1999, other than due to a breach of the merger
agreement by the terminating party;
o the stockholders of either company or the
LabOne Unaffiliated Stockholders do not approve
the merger agreement;
o the stockholders of Holdings do not approve the
amendment to Article X of the Holdings Articles
of Incorporation;
o the Board of either company determines that termination is required due
to the terms of an acquisition proposal made by some other person;
o the financial advisor of the party withdraws or materially modifies in
an adverse manner its fairness opinion prior to the date of mailing of
this proxy statement or related supplement;
o the Board of Directors of the other party to the merger agreement
withdraws, modifies or changes its recommendation of the merger in a
manner adverse to the other party;
o a court or other governmental authority
permanently prohibits the merger, or
o a material inaccuracy in any representation or breach of certain
covenants in the merger agreement not cured within 30 days after notice.
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
We are providing the following financial information to aid you in your
analysis of the financial aspects of the merger. This information is only a
summary and you should read it in conjunction with the historical financial
statements of Holdings and LabOne and the related notes and Management's
Discussion and Analysis of Financial Condition and Results of Operations. These
items for LabOne are contained in the LabOne financial statements beginning on
page 6 and on page 70, and for Holdings are contained in its annual, quarterly
and other reports that Holdings has filed with the Securities and Exchange
Commission that are incorporated herein by reference. See "Where You Can find
More Information" on page 126.
Holdings Historical Consolidated Financial Information
The historical consolidated financial information for Holdings reflects
the following items which you should consider in making period-to-period
comparisons.
o All per share information has been adjusted to reflect the 1.5 for one
stock split which will occur immediately prior to the merger.
o In 1997, Holdings distributed, as a dividend to its stockholders, all
shares owned by Holdings of its subsidiary, Response Oncology, Inc.
o In 1997, Holdings distributed, as a dividend to its stockholders, all of
the outstanding shares of common stock of its wholly-owned subsidiary, SLH
Corporation. In connection with this distribution, Holdings transferred its
real estate and energy businesses and certain miscellaneous assets to SLH.
o LabOne constructed a new facility in 1998 to house its laboratory,
administrative and warehouse functions. Construction of the facility was
financed through $20 million in industrial revenue bonds and cash.
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------- --------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
----- ---- ---- ---- ---- ---- ----
(in thousands, except for per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Sales............................ $ 27,328 23,333 102,227 78,926 61,878 75,246 86,027
Cost of sales.................... 15,651 12,959 56,720 42,017 35,488 46,059 51,489
Selling, general and
administrative expenses.... 9,050 7,859 33,550 34,765 29,767 36,702 36,199
Earnings (loss) from continuing
operations.................... 1,075 1,208 5,148 (7,855) (4,226) (1,826) (276)
Basic earnings (loss) per share
from continuing operations.... .11 .13 .53 (.81) (.43) (.19) (.02)
Diluted earnings (loss) per share
from continuing operations.... .11 .12 .52 (.81) (.43) (.19) (.02)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
As of March 31, As of December 31,
--------------- ----------------------------------------------------
1999 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
(in thousands, except for per share data)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets..................... $ 97,982 98,643 74,786 196,783 198,018 234,196
Long-term debt.......... 18,094 18,097 -- -- -- 8
Stockholders' equity...... 54,199 55,058 56,687 174,024 187,084 200,933
Cash dividends declared
per common share............. .20 .80 .80 .80 .80 .80
</TABLE>
6
<PAGE>
LabOne Historical Consolidated Financial Information
The historical consolidated financial information for LabOne reflects
the following items which you should consider in making period-to-period
comparisons:
o LabOne constructed a new facility in 1998 to house its laboratory,
administrative and warehouse functions. Construction of the facility
was financed through $20 million in industrial revenue bonds and
cash.
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
----------------------- ------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
(in thousands, except for per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Sales...........................$ 27,328 23,333 102,227 78,926 59,432 57,029 60,726
Cost of sales.................. 15,651 12,959 56,720 42,017 32,717 29,934 29,073
Selling, general and
administrative expenses..... 8,426 7,311 31,028 27,707 23,623 24,908 24,821
Net earnings.................... 1,947 2,000 9,219 2,202 2,868 2,797 5,687
Basic earnings per share........ .15 .15 .70 .17 .22 .21 .43
Diluted earnings per share...... .15 .15 .69 .17 .22 .21 .43
</TABLE>
<TABLE>
<CAPTION>
As of March 31, As of December 31,
--------------- ------------------------------------------------------------
1999 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
(in thousands, except for per share data)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets.................. $ 86,115 86,781 59,973 64,743 70,048 76,758
Long-term debt................. 18,094 18,097 -- -- -- --
Stockholders' equity........... 52,747 53,181 51,499 58,449 64,864 71,237
Cash dividends declared
per common share........... .18 .72 .72 .72 .72 .72
</TABLE>
7
<PAGE>
Summary Unaudited Pro Forma Financial Information
The following summary unaudited pro forma financial information
presents (i) summary unaudited pro forma balance sheet data at March 31, 1999,
giving effect to the merger as if the merger had been consummated on that date
and (ii) summary unaudited pro forma operating data for the three months ended
March 31, 1999 and for the year ended December 31, 1998, giving effect to the
acquisition of minority interests as if the merger had been consummated on
January 1, 1998. The merger will be accounted for as an acquisition of minority
interests using the purchase method of accounting. The following summary
unaudited pro forma financial information is provided for informational purposes
only and should be read in conjunction with the separate audited consolidated
financial statements and related notes of Holdings (which are incorporated
herein by reference) and LabOne (which are included elsewhere in this Joint
Proxy Statement/Prospectus). The following summary information is based on
certain assumptions and does not purport to be indicative of the results which
actually would have occurred if the merger had been consummated on the dates
indicated or which may be obtained in the future. See "Unaudited Pro Forma
Condensed Financial Statements" on page 70 and "Accounting Treatment" on page
42.
<TABLE>
<CAPTION>
Three Months ended
March 31, 1999 Year ended December 31, 1998
--------------------- ---------------------------------------
Assumes All Assumes Stock and Assumes All Assumes Stock and
Stock Elections Maximum Cash Elections Stock Elections Maximum Cash Elections
--------------- ---------------------- --------------- ----------------------
(in thousands except for per share data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Sales ..................... $ 27,328 27,328 102,227 102,227
Cost of sales................ 15,651 15,651 56,720 56,720
Selling, general and
administrative expenses... 9,079 9,112 33,661 33,793
Net earnings................. 1,341 1,173 6,416 5,745
Basic earnings per share..... .11 .11 .52 .52
Diluted earnings per share... .11 .11 .51 .51
</TABLE>
<TABLE>
<CAPTION>
As of March 31, 1999
---------------------------------------------
(in thousands)
Assumes All Assumes Stock and
Stock Elections Maximum Cash Elections
--------------- ----------------------
<S> <C> <C>
Balance Sheet Data:
Working capital.................................... $ 23,546 20,546
Cash and short-term investments.................... 9,995 6,995
Total assets....................................... 118,534 118,185
Current liabilities................................ 15,542 15,542
Long-term debt..................................... 18,094 31,694
Stockholders' equity............................... 84,527 70,578
</TABLE>
8
<PAGE>
COMPARATIVE PER SHARE INFORMATION
Comparative Per Share Data
The following table presents comparative per share information
for Holdings and LabOne on a historical basis and on a pro forma and
equivalent pro forma basis, assuming that the merger had occurred at
the beginning of the period presented for earnings per common share,
book value per common share and dividends per share. The Holdings
historical per share information has been adjusted to reflect the 1.5
to one stock split which will occur immediately prior to the merger.
Both Holdings and LabOne paid dividends during 1998 and the first
quarter of 1999. The tables should be read in conjunction with the
financial statements and notes thereto of Holdings that are
incorporated by reference in this Joint Proxy Statement/Prospectus, the
financial statements and notes thereto of LabOne included elsewhere in
this Joint Proxy Statement/Prospectus and the unaudited pro forma
financial statements and related notes thereto included elsewhere
herein. See "Unaudited Pro Forma Condensed Financial Statements."
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, 1999 December 31, 1998
---------------------- -----------------
<S> <C> <C>
Holdings - Historical
Book value per common share............... $ 5.57 5.65
Basic earnings per common share........... .11 .53
Diluted earnings per common share......... .11 .52
Cash dividends declared per share......... .20 .80
Holdings - Pro Forma (unaudited)
(All Stock Elections)
Book value per common share............... 6.89 6.97
Basic earnings per common share........... .11 .52
Diluted earnings per common share......... .11 .51
Cash dividends declared per share......... .20 .78
Holdings - Pro Forma (unaudited)
(Stock and Maximum Cash Elections)
Book value per common share............... 6.44 6.52
Basic earnings per common share........... .11 .52
Diluted earnings per common share......... .11 .51
Cash dividends declared per share......... .22 .87
LabOne - Historical
Book value per common share............... 3.96 4.00
Basic earnings per common share........... .15 .70
Diluted earnings per common share......... .15 .69
Cash dividends declared per share......... .18 .72
LabOne - Equivalent Pro Forma (unaudited)
(All Stock Elections)
Book value per common share............... 6.89 6.97
Basic earnings per common share........... .11 .52
Diluted earnings per common share......... .11 .51
Cash dividends declared per share......... .20 .78
LabOne - Equivalent Pro Forma (unaudited)
(Stock and Maximum Cash Elections)
Book value per common share............... 6.44 6.52
Basic earnings per common share........... .11 .52
Diluted earnings per common share......... .11 .51
Cash dividends declared per share......... .22 .87
</TABLE>
The LabOne equivalent pro forma per share amounts were calculated by
multiplying the Holdings pro forma per share amounts by the exchange ratio
of one share to one share.
9
<PAGE>
Comparative Market Price and Dividend Information
Holdings. The shares of Holdings common stock are listed for trading under
the symbol "LABH" as a NASDAQ National Market issue on The NASDAQ Stock Market.
The following table sets forth the quarterly high and low sales prices of
Holdings common stock as reported by NASDAQ and cash dividends declared, in each
case based on published financial sources. All per share information has been
adjusted to reflect the 1.5 for one stock split which will occur immediately
prior to the merger. The Holdings cash dividends do not reflect the dividend
distributions in 1997 of SLH and Response which amounted to $10.20 per share.
<TABLE>
<CAPTION>
Holdings Common Stock
(as adjusted for proposed stock split)
-----------------------------------------------
Cash Dividends
Declared
High Low per Share
---- --- ---------
<S> <C> <C> <C>
1997
First quarter........................ $ 28.08 21.67 .20
Second quarter....................... 23.83 21.16 .20
Third quarter........................ 23.83 15.33 .20
Fourth quarter....................... 17.67 13.33 .20
1998
First quarter...................... 16.33 14.42 .20
Second quarter..................... 16.17 13.58 .20
Third quarter...................... 15.67 10.17 .20
Fourth quarter..................... 12.42 9.33 .20
1999
First quarter...................... 12.75 10.08 .20
Second quarter through May 26, 1999 11.17 7.92 .20
</TABLE>
On March 5, 1999, the last full trading day prior to the public
announcement of the merger, the reported closing price of Holdings common
stock on the NASDAQ Stock Market, Inc. was $10.71 per share, after
adjustment for the proposed 1.5 for one stock split. On May 26, 1999, the
reported closing price was $9.33 after adjustment for the proposed 1.5 for
one stock split.
LabOne. The shares of LabOne common stock are listed for trading under the
symbol "LABS" as a NASDAQ National Market issue on The NASDAQ Stock Market. The
following table sets forth the quarterly high and low sales prices of LabOne
common stock as reported by NASDAQ and dividends declared, in each case based on
published financial sources.
<PAGE>
<TABLE>
<CAPTION>
LabOne Common Stock
---------------------------------------------
Cash Dividends
Declared
High Low per Share
---- --- ---------
<S> <C> <C> <C>
1997
First quarter .... $ 20.00 16.25 .18
Second quarter................. 18.50 15.25 .18
Third quarter.................. 18.75 15.38 .18
Fourth quarter................. 18.50 15.13 .18
1998
First quarter.................. 18.25 15.75 .18
Second quarter................. 18.50 16.63 .18
Third quarter.................. 17.13 11.50 .18
Fourth quarter................. 16.75 9.25 .18
1999
First quarter.................. 13.50 9.75 .18
Second quarter through May 26, 1999 12.63 10.38 .18
</TABLE>
On March 5, 1999, the last full trading day prior to the public
announcement of the merger, the reported closing price of LabOne common
stock on the NASDAQ Stock Market, Inc. was $10.88 per share. On May 26,
1999, the reported closing price was $12.13.
10
<PAGE>
RISK FACTORS
In addition to the matters addressed in "Cautionary Statement Concerning
Forward-Looking Statements" on page 14 and the other information included in
this document, the Holdings and LabOne stockholders should consider the
following risk factors carefully in determining whether to approve the merger.
Following the merger, the earnings of the combined company will be reduced by
the amortization of goodwill arising from the merger and Holdings historical
goodwill.
For accounting purposes, we estimate that the merger will add from $22.2
million to $24.9 million of goodwill to our post merger balance sheet. The
amortization of this transaction goodwill will reduce our future earnings. This
transaction goodwill arises due to the difference between the cost of acquiring
the LabOne shares in the merger and the fair value of the LabOne net assets
allocated to those shares. We expect to amortize the transaction goodwill over
twenty years at an annual rate ranging from about $1.1 million (assuming no cash
elections) to $1.3 million (assuming maximum cash elections). Our post merger
balance sheet will also reflect existing or "historical" goodwill that is
currently a Holdings asset that has resulted from Holdings prior acquisitions of
LabOne common stock. The historical goodwill at March 31, 1999 was $6 million
and is being amortized at the rate of about $1.5 million per year until April
2003.
The earnings of your LabOne common stock have not previously been affected
by the transaction goodwill or Holdings historical goodwill. However, following
the merger this goodwill will reduce earnings of the combined company at the
annual rate of $2.6 million (assuming no cash elections) to $2.8 million
(assuming maximum cash elections) until April 2003, and thereafter at $1.1 to
$1.3 million per year until the 20th anniversary of the merger. Although these
future charges against earnings would not reduce cash generated from operations,
they could depress the market price of combined company common stock following
the merger. This could be the case if our post merger stock prices are
influenced by investors that focus primarily on the issuer's net earnings rather
than earnings before interest, taxes, depreciation and amortization ("EBITDA").
The impact of this goodwill will be different if you are a Holdings
stockholder. The earnings of Holdings are already being affected by the Holdings
historical goodwill. The impact on Holdings' stockholders of the annual $1.1 to
$1.3 million of transaction goodwill will be lessened by the elimination of
Holdings' management and administrative expenses of approximately $1 million per
year.
The amounts reflected in this discussion are on a pro forma or hypothetical
basis as if the merger had occurred as shown in the pro forma financial
statements included in this document on pages 71 through 75. The actual amount
of goodwill that will be incurred in the merger will depend on the number of
combined company shares issued in the merger, the actual amount of transaction
costs and the fair value of the LabOne net assets at the time of the merger.
Because the merger consideration was fixed on the date of the merger agreement,
LabOne stockholders may receive Holdings stock that is higher or lower in market
value than the market value of the shares on the date of the merger agreement.
<PAGE>
Because the merger consideration was fixed on the date of the merger
agreement, you will receive a fixed number of shares of combined company common
stock for your LabOne shares that are not exchanged for cash, rather than a
number of shares of combined company common stock with a particular fixed market
value. The market values of Holdings and LabOne common stock at the time of the
merger could vary significantly from their prices on the date of the merger
agreement. Because the merger consideration will not be adjusted to reflect any
changes in the market value of Holdings or LabOne common stock, the market value
of the combined company common stock that you receive for your LabOne common
stock may be higher or lower than the market value of those shares on the date
of the merger agreement.
11
The LabOne diversification and growth strategies may not produce desired
results.
A principal purpose of the merger is to make it easier for LabOne to pursue
its growth strategy, which includes acquiring ongoing businesses and entering
into strategic alliances. We cannot guarantee that we will be able to continue
growing, through this growth strategy or otherwise. Our strategy to acquire
ongoing businesses involves significant risks. We may not be able to acquire
attractive businesses on reasonable terms. If we acquire a business, we may have
difficulty in integrating that business with our existing operations. In
addition, the key personnel of the acquired business may decide not to work for
us. These difficulties could disrupt our ongoing operations, distract our
management and employees and increase our expenses. Furthermore, we may incur
debt or issue equity securities to pay for any future acquisitions. The issuance
of equity securities could be dilutive to our existing stockholders. These
risks, together with the inability to use pooling of interests accounting for
future acquisitions as described below, could result in negative rather than
positive results.
The expected elimination of pooling of interests accounting could have an
adverse effect on our ability to make acquisitions.
On April 21, 1999, the Financial Accounting Standards Board publicly
announced that it plans to eliminate pooling of interests accounting for
acquisitions initiated after it issues a final standard on this subject, which
it expects to do in late 2000. Pooling of interests accounting now applies to
certain acquisitions funded with stock, while purchase accounting applies to
most other types of acquisitions. As a result, acquisitions through the issuance
of additional shares of our stock that would otherwise qualify for pooling
accounting and that are initiated after issuance of the final standard by the
FASB would have to be accounted for using the purchase method of accounting. Use
of the purchase method of accounting for such acquisitions creates an intangible
goodwill asset to the extent that the cost of the acquisition exceeds the fair
value of the assets acquired. The goodwill must be amortized over periods of up
to 40 years, thereby reducing earnings by the amount of the periodic charge. The
FASB has indicated that it may issue standards shortening the permitted time
period over which goodwill created through acquisitions may be amortized. This
would further increase the amount of the periodic charge against earnings. We
expect that the anticipated requirement to use purchase accounting for all
acquisitions or the shortening of the amortization period for acquisition
goodwill will make fewer acquisition opportunities feasible for us due to their
possible dilutive effect on future earnings. If the merger is consummated our
growth strategy is likely to include efforts to initiate an acquisition that
would qualify for pooling accounting before the issuance of any final FASB
standard. However, we cannot give any assurance that we can do this or that we
will be able to satisfy the otherwise strict technical requirements that must be
met to qualify for pooling accounting under the present standards.
<PAGE>
The combined company will have increased debt service obligations that may
prevent us from pursuing future acquisitions.
We expect to borrow up to $ 13.6 million to satisfy cash elections by
LabOne stockholders in the merger in excess of $3 million. Additional cash could
be needed to the extent that any Holdings' stockholders perfect dissenters'
rights. Although we don't expect the additional borrowings to negatively impact
earnings per share due to a reduction in shares outstanding, they will increase
our annual interest expense and subject us to the normal risks associated with
debt financing. The additional debt could also impair our ability to pursue
acquisition and growth strategies that would otherwise be available and could
impact our future operating results if we borrow additional funds to complete
acquisitions in the future.
There is no assurance that regular quarterly dividends will continue at pre
merger levels.
The current Board of Directors of LabOne has no plans to cause the
combined company to discontinue or reduce Holdings' current $0.30 per share
quarterly dividend ($0.20 after the proposed stock split). However, after the
merger, that decision will be made by the new board of directors of the combined
company, a majority of whom will be independent non-management directors.
Although nine of the twelve current LabOne directors are expected to continue as
directors of the combined company, we cannot predict what decisions may be made
by that board in the future. Any decision by that board will be based upon the
financial condition, operating results, and liquidity of the combined company
and numerous other factors. In addition, our pursuit of the LabOne growth and
diversification
12
strategy, the increased debt that is expected to result from the merger, any
changes in the market for our products and services, negative developments
caused by other risks described in this document or other factors could
influence the board of the combined company to reduce or eliminate the quarterly
dividend.
LabOne's clinical testing business may not become profitable unless we increase
the number of clinical tests we perform.
LabOne is incurring substantial costs in expanding its business to
provide clinical testing services to the healthcare industry. These costs
resulted in an operating loss for our clinical testing business of $6.2 million
in 1998, after including the business' share of allocated corporate overhead.
The expenses associated with this business, particularly labor costs for our
testing work force, are relatively fixed over the short term. The primary means
of increasing our profit margin is to increase the volume of tests we perform.
Although we have been successful to date in marketing our clinical testing
services, we cannot guarantee that the revenues in this business will continue
to grow at historical rates. If revenues do not continue to grow, our clinical
testing business will not become profitable.
Any adverse change in the number and types of tests ordered by life insurance
companies could reduce LabOne's profits.
A major part of LabOne's business is providing risk-appraisal
laboratory testing services to the life insurance industry. The life insurance
testing business is our only currently profitable business. The level of demand
for testing services from the insurance industry is determined by a number of
factors, including
<PAGE>
o the number of life insurance applications written,
o the policy amount thresholds at which insurance companies
order testing,
o the type and costs of tests requested,
o testing innovations approved by the FDA,
o the extent to which insurance companies may create in-house
testing facilities, and
o the development in the future of suitable on-site rapid assay
testing products that eliminate the need for centralized testing.
Many of these factors are beyond our control. Any adverse changes in life
insurance industry demand for testing services could significantly reduce our
profits.
Increasing price competition in the life insurance testing business could reduce
LabOne's profits.
LabOne has competed in the life insurance testing business by offering
more complete and higher quality services than our competitors at competitive
prices. Many of our competitors are attempting to charge lower prices than us.
If they continue to lower prices and our customers refuse to pay higher prices
for better service, our profits will be reduced. See "Competition" on page 80.
LabOne's laboratory testing services create a risk of legal liability.
LabOne clients rely on the accuracy of our testing to make significant
insurance, treatment and hiring and firing decisions. We could be required to
pay substantial damages if the number of reports containing false positive or
false negative results increased. In addition, federal and state laws regulate
disclosure of specimen testing results. If we do not adequately protect the
confidentiality of test subjects, we could incur significant liability. LabOne
has insurance to cover these types of claims, but we cannot guarantee that this
coverage is adequate. Any uninsured claims could adversely affect our profits
and financial condition. See "Information Regarding LabOne" on page 76.
Any disruption in express delivery service could harm LabOne's business.
LabOne generally relies on express couriers to transport specimens to
its laboratory quickly and safely. A disruption in these couriers' business
resulting from a labor dispute or other event could harm our business.
13
<PAGE>
Any failure by LabOne or its customers or suppliers to be year 2000 compliant
could severely disrupt LabOne's business and adversely affect LabOne's results
of operations.
LabOne uses a significant number of computer systems and software
programs in its operations. LabOne has established an oversight committee to
review both internal compliance and the Year 2000 preparation and contingency
plans of its clients and vendors. See "Year 2000" on page 87. We expect to
complete the Year 2000 compliance program by the end of the second quarter of
1999. However, we cannot guarantee that the adjustments to our computer systems
will completely eliminate all Year 2000 problems. Nor, can we guarantee that the
systems of our clients and vendors will be Year 2000 compliant or that their
Year 2000 conversions will be compatible with our computer systems. Year 2000
problems that are not corrected could severely disrupt our business and
adversely affect our results of operations.
The development and approval of competitive on-site rapid assay tests could
hinder LabOne's continued growth.
LabOne serves its customers through laboratory based testing
facilities. Although there are some on-site rapid assay testing products in the
marketplace, rapid assays have not achieved broad market acceptance due to the
high cost of such assays, difficulties in maintaining the confidentiality of
tests, liability concerns, less accurate testing results and the absence of a
broad testing menu. If more competitive assays become available, such products
could be substituted for laboratory-based testing and have an adverse impact on
our financial condition and results of operations.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Holdings and LabOne have made certain forward-looking statements in
this document, and in the other documents referred to herein. These statements
are subject to risks and uncertainties, as described below. Examples of
forward-looking statements include pro forma financial statements and
projections relating to revenues, income or loss, earnings or loss per share,
financial condition, capital expenditures, the payment or non-payment of
dividends, and other financial items; statements of plans and objectives;
statements of future economic performance; and statements of assumptions
underlying these statements. Forward-looking statements are statements that are
not historical in nature and can often be identified by the use of
forward-looking terminology, such as "believes," "expects," "may," "will,"
"should," "could," "intends," "plans," "estimates" or "anticipates," variations
thereof or similar expressions.
Forward-looking statements are not guarantees of future performance or
results. They involve risks, uncertainties and assumptions. Future results of
operations, financial condition, business and stock values of Holdings, LabOne
and the combined company may differ materially from those expressed in these
forward-looking statements. Many of the factors that will determine these
results and values are beyond the ability of Holdings or LabOne to control or
predict. Stockholders of Holdings and LabOne are cautioned not to put undue
reliance on any forward-looking statement.
<PAGE>
There are a number of factors that could cause or continue to cause
actual results of operations, financial condition, business or stock values to
differ materially from those discussed in the forward-looking statements,
including those described under "Risk Factors" and the factors described below.
Other factors not identified herein could also have such an effect. All forward
looking statements are expressly qualified in their entirety by the Risk Factors
described above and the factors described below. Among the factors that could
cause actual results to differ materially from those discussed in the
forward-looking statements are the following:
o materially adverse changes in general economic conditions or in the
markets served by LabOne;
o LabOne's ability to successfully market its services to new customers
in new markets;
o the volume, pricing and mix of laboratory tests performed by LabOne;
14
o the ability of LabOne to complete and integrate appropriate
acquisitions, strategic alliances and joint ventures;
o acquisition costs, restructuring and other charges associated with
acquisitions;
o changes in LabOne's management personnel;
o the ability of LabOne to obtain and maintain all certifications
required by its customers; and
o future changes in laws and regulations, including
regulations affecting government reimbursement
for clinical laboratory testing, and regulations governing
anti-fraud and abuse, drug testing, and environmental and
occupational safety.
Any forward-looking statement contained herein is made as of the date
of this document. Holdings and LabOne do not undertake to publicly update or
correct any of these forward-looking statements in the future.
15
<PAGE>
LABONE GROWTH STRATEGY
LabOne has developed an integrated strategy designed to significantly
increase its growth, which is described below. For the reasons set forth below
and elsewhere in this Joint Proxy Statement/'Prospectus, both LabOne and
Holdings believe that the merger is essential to the execution of several
important elements of this growth strategy. See "Background of the Merger,"
"Holdings' Reasons for the Merger and Recommendations of its Board" and
"LabOne's Reasons for the Merger and Recommendation of its Board" on pages 21 to
31.
Internal Growth
LabOne plans to continue to implement existing internal growth
strategies which have focused on (i) increasing efficiency and
cost-effectiveness in providing high quality laboratory testing services at very
competitive prices and (ii) gaining increased market share in the substance
abuse and clinical testing market segments which it entered in 1994. LabOne's
primary strategy for creating significant internal growth is through the
continued expansion of its benefit management program and LabCard(R). LabCard is
a vehicle for delivering outpatient laboratory services and is marketed to
healthcare payers (self-insured employers and other groups, health maintenance
organizations and insurance companies). The LabCard provides laboratory testing
at reduced rates, as compared to traditional laboratories, using a unique
benefits design that shares the cost savings with the patient. The patient
incurs no out-of-pocket expense when the LabCard is used and the healthcare
payer receives substantial savings on its laboratory charges.
Acquisitions
LabOne recently moved into a new 268,000 square foot, custom designed
facility located in Lenexa, Kansas that consolidates its laboratory,
administrative and warehouse facilities and functions into one building. This
new facility improves the efficiency of its operations and approximately doubles
its capacity. LabOne now has the capacity to acquire other laboratory testing
companies and achieve cost savings by consolidating their less efficient
operations and serving their customers from this single location. If LabOne is
successful in acquiring less efficient laboratory operations at reasonable
prices, the economies of scale arising from its expanded laboratory capacity
should enable LabOne to compete more effectively on price, service and quality.
Customers in each of the market segments which LabOne serves are
struggling with ways to increase their competitiveness by lowering their
overhead costs and increasing their efficiency. LabOne believes it can
successfully differentiate itself from its competitors by actively assisting its
customers in meeting these challenges through integrated services that collect,
warehouse and manage healthcare and insurance risk data.
LabOne supplies greater value to its customers in this regard by
offering complementary data collection and storage services that eliminate the
customer's need to maintain an in-house staff to collect certain kinds of data
that are essential to conducting the customer's business. A prime illustration
of this approach is LabOne's recent acquisition of Systematic Business Services,
Inc. ("SBSI"). SBSI provides telephone inspections, motor vehicle reports,
attending physician statements and claims investigation services which are
routinely required by life and health insurers nationwide. SBSI is
cost-effective in delivering this data because of its specialization, expertise
and economies of scale that are very difficult for LabOne's customers to
<PAGE>
duplicate with an in-house staff. LabOne believes that other acquisition
opportunities exist which would permit LabOne to offer complementary services
providing similar benefits to LabOne's customers. Broadening the array of such
services should provide LabOne with a unique advantage in its markets and
provide opportunities to increase the volume of its business and improve profit
margins.
LabOne also delivers greater value to its customers by reducing the
cost burden of managing the voluminous paper records that historically have been
necessary to conduct their businesses and satisfy regulatory requirements. The
data collected by LabOne and its testing results are each deliverable
electronically via reports and formats that are readily capable of being
customized to meet the needs of customers through an automated link between
LabOne's
16
custom-designed laboratory and business processing system and customers'
computer systems. As a result, LabOne's customers can significantly reduce their
data collection and storage costs, streamline their information processes and
improve their efficiency and reliability, which should serve to further
strengthen LabOne's position with each customer. This capability also may enable
LabOne's customers to comply more cost-effectively with the requirements of the
Health Insurance Portability and Accountability Act of 1996 ("HIPAA") and
regulations under HIPAA that may be required as early as the fall of 2001. HIPAA
will require many customers to convert healthcare information to electronic form
that state law had previously required to be maintained in paper form. The
competitive advantage derived from customers' reliance on LabOne's capabilities
as a collector, warehouse and manager of healthcare and risk management data
should increase as LabOne augments the scope of its service offerings through
acquisitions of complementary businesses.
LabOne believes that its acquisition strategy will be enhanced
significantly by the ability to offer its common stock as part or all of the
consideration for the acquisition of other laboratory testing companies and
companies with complementary service offerings. Many of these candidates do not
have substantial tangible assets and the acquisition of such companies for cash
would create significant goodwill because the purchase price is likely to be
determined as a multiple of the acquired company's earnings or cash flow. If the
merger with Holdings is completed, LabOne would be able to account for certain
acquisitions using its common stock on a pooling-of-interests basis prior to the
elimination of that method of accounting by the FASB, which is expected to occur
in late 2000. Accounting for an acquisition using pooling, rather than the
purchase accounting method currently required to be used by LabOne and which
will be required after pooling is eliminated, avoids the creation of goodwill
and the resulting dilution of LabOne's future earnings. the creation of goodwill
and the resulting dilution of LabOne's future earnings. Completion of the merger
would also eliminate the present adverse effect on Holdings that would result
from acquisitions using LabOne common stock due to the potential loss of
Holdings' eligibility to file consolidated income tax returns. Without the
ability to use its common stock to effect acquisitions, and to use
pooling-of-interests accounting to account for them prior to its expected
elimination in late 2000, LabOne believes it will be at a significant
disadvantage in competing for acquisition candidates in order to participate in
the consolidation of the clinical and substance abuse laboratory testing markets
which it believes will occur in the next few years. LabOne currently has no
plans, understandings, agreements or arrangements for any such acquisition.
Strategic Alliances
<PAGE>
LabOne believes that strategic alliances offer important opportunities
to facilitate its growth. The purpose of such alliances is to align the
incentives of LabOne and its strategic partners in order to expand business
opportunities for their mutual benefit. LabOne believes that an important means
of aligning the interests of LabOne and its strategic partners is the issuance
to them of LabOne common stock or warrants to purchase common stock.
LabOne has entered into strategic alliances with companies engaged in
claims processing and marketing that are focused on serving numerous customers
that are too small for LabOne to market directly. LabOne has issued medium term
performance warrants to purchase LabOne common stock to these types of
companies, quarterly installments of which do not become exercisable unless
specified performance standards are met. These performance standards are
designed to ensure that sufficient profitability is achieved for LabOne to avoid
dilution of its earnings per share when the warrants are exercised. LabOne
believes that the performance incentive inherent in these warrants should enable
LabOne to generate significant additional revenues and differentiates it from
its competitors who typically offer only cash-based fees for services. In 1998,
LabOne issued performance warrants to purchase an aggregate of 1,000,000 shares
of common stock in connection with two marketing agreements. On May 14, 1999,
LabOne issued an additional performance warrant to purchase 500,000 shares of
its common stock in connection with a new multi-year marketing agreement with
HealthPlan Services Corporation.
Warrants may also be used by LabOne to obtain technology in order to
provide competitive advantage to LabOne's business. Businesses possessing such
technology frequently want to participate in its economic benefits as its value
is proven over time. The issuance of warrants or other contractual rights to
receive common stock of LabOne would enable LabOne and such businesses to share
the upside potential of such technology while reducing the substantial financial
pressure that might otherwise be caused if cash were used to acquire such
technology.
A recent illustration of this strategy is LabOne's issuance on May 14,
1999, of a 50,000 share non
17
performance based warrant to STC Technologies, Inc.,in connection with a
Distribution Agreement entered into between LabOne and STC Technologies. Under
the Distribution Agreement, STC Technologies appointed LabOne as its exclusive
distributor in the North American workplace testing market for its new product
line that is designed to identify illicit drug abuse through oral fluids rather
than urine or blood samples.
LabOne believes that there are many other opportunities to create
strategic alliances that would improve marketing capabilities, capture leading
technology or provide other types of competitive advantage. LabOne's ability to
pursue those opportunities is currently constrained by Holdings' need to
maintain its ownership in excess of 80 % of LabOne's outstanding common stock so
that it can file consolidated income tax returns for itself and LabOne. The
merger would permit this constraint to be eliminated and should result in higher
trading volumes, greater liquidity, a more efficient market and increased
investor interest in the common stock of the combined company. LabOne believes
that the resulting enhanced efficiency of the market for its common stock should
increase the relative attractiveness of the stock as an inducement for potential
strategic partners to enter into alliances with LabOne and should improve the
incentive for enhanced performance inherent in such alliances.
<PAGE>
By providing LabOne management with the opportunity to effect
acquisitions and strategic alliances with common stock, the enhanced growth
potential of the common stock is also expected to increase the performance
incentive inherent in stock options and other equity-based management incentive
programs. LabOne believes that the ability to offer common stock with enhanced
growth characteristics should increase the likelihood of LabOne retaining the
management of acquired companies and attracting new management talent in order
to improve LabOne's operating performance.
18
<PAGE>
THE PROPOSED MERGER
General
Holdings and LabOne are furnishing this document to their stockholders
in connection with the solicitation of proxies by their Boards of Directors for
use at their annual meetings of their stockholders and at any adjournments or
postponements thereof.
Holdings Annual Meeting.
At the Holdings annual meeting, Holdings stockholders will be asked to
vote upon a proposal to adopt the Agreement and Plan of Merger, as amended and
restated, dated as of March 7, 1999, pursuant to which the merger of LabOne into
Holdings will be effected. In the merger, among other things, the Articles of
Incorporation and Bylaws of Holdings will be amended and restated as described
below under "Amendments to Holdings' Articles of Incorporation and Bylaws" on
page 49. Holdings stockholders will also be asked to vote separately on an
amendment to change the definition of "Continuing Director Quorum" in Article X
of the Articles of Incorporation. The amendment to Article X is discussed in
more detail under "Holdings Annual Meeting Proposals" on page 122 and the
amendment to the Articles of Incorporation and Bylaws contemplated by the merger
agreement are also discussed in more detail under "Proposed Merger - Amendments
to Holdings' Articles of Incorporation and Bylaws" on page 49 and "Comparative
Rights of Holdings Stockholders" on page 111. Holdings stockholders will also be
asked to ratify the Board's appointment of independent public accountants for
1999 and to elect directors to serve in the event that the merger is not
effected. The affirmative vote of the holders of two-thirds of the shares of
Holdings common stock outstanding on the record date is required to adopt the
merger agreement, the affirmative vote of a majority of those outstanding shares
is required to adopt the amendment to Article X of the Articles of
Incorporation, the affirmative vote of the holders of a majority of the shares
present and voting at the meeting is required to ratify the appointment of
independent public accountants and a plurality of votes cast with shares being
voted cumulatively is required to elect directors. See "Holdings Annual Meeting"
on page 64 and "Holdings Annual Meeting Proposals" on page 122.
LabOne Annual Meeting.
At the LabOne meeting, LabOne stockholders will be asked to vote upon
(a) a proposal to adopt the Agreement and Plan of Merger, as amended and
restated, dated as of March 7, 1999, pursuant to which LabOne will merge with
and into Holdings, (b) a proposal to elect twelve directors of LabOne to serve
until the effective time of the merger, or if the merger is not consummated,
until the 2000 annual meeting of stockholders and (c) a proposal to ratify the
selection of KPMG LLP as independent public accountants for LabOne and its
subsidiaries for 1999. Under Delaware law, the merger agreement must be adopted
by the affirmative vote of a majority of the outstanding shares of LabOne Common
Stock entitled to vote on the merger agreement at the LabOne meeting. In
addition, the merger agreement provides that the merger must be approved by the
affirmative vote of the holders of a majority of the outstanding shares of
LabOne Common Stock that are owned by the LabOne Unaffiliated Stockholders and
that are voted on the proposal. The directors will be elected by a plurality of
the votes of the shares present in person or represented by proxy at the
meeting. The ratification of the selection of independent public accountants
must be approved by the affirmative vote of a majority of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
proposal. See "LabOne Annual Meeting of Stockholders" at page 65 and "LabOne
Annual Meeting Proposals" at page 101.
<PAGE>
The Holdings Stock Split
The merger agreement provides that, prior to the effective time of the
merger, the Holdings Board will declare a stock split payable as a dividend so
that, immediately prior to the effective time, each issued and outstanding share
of Holdings common stock shall be automatically converted into 1.5 shares of
Holdings common stock. The dividend will be conditioned upon satisfaction of all
conditions to the merger and will be payable after the merger in common stock of
the combined company to holders of record of Holdings common stock immediately
19
prior to the merger.
Exchange of LabOne Shares and Cash Elections
Merger Consideration for LabOne Common Stock. Subject to the maximum
cash payment amount limitation described below, if you are a record holder of
LabOne common stock immediately prior to the effective time you may elect to
receive either:
o a cash price per share equal to $12.75;
o one (1) share of combined company common stock; or
o a combination of cash and shares.
If you fail to make a timely election to receive cash for your shares,
you will receive combined company common stock for all of your LabOne common
stock.
If you elect to receive cash for some or all of your LabOne shares,
your right to receive cash in the merger is subject to the limitation that the
maximum amount payable in cash with respect to all shares of LabOne common stock
may not exceed $16,600,000 in the aggregate. If the amount payable in cash with
respect to shares of all holders who make cash elections exceeds the maximum
cash payment amount, then your cash election shares will be converted into the
right to receive a combination of combined company common stock and cash in
proportion to $16.6 million divided by the aggregate amount of all valid cash
elections. See "The Merger Agreement - Conversion of LabOne Common Stock Into
Shares of the Combined Company or Cash" on page 54.
For Example - if all cash elections amount to $20,000,000 and you
elected all cash for 100 of your shares, you would receive cash for 83 LabOne
shares and combined company stock for 17 of your LabOne shares as follows:
$16,600,000/$20,000,000 = .83 x 100 shares =83 shares x $12.75 = $1,058 in cash
and .17 x 100 shares = 17 shares of combined company common stock
A form for making your election accompanies the delivery of this
document. The form includes instructions for completing the form and returning
it with your LabOne stock certificate if you are making a cash election.
PROPERLY COMPLETED CASH ELECTIONS MUST BE RECEIVED BY AMERICAN STOCK
TRANSFER & TRUST COMPANY BEFORE 10:00 A.M. KANSAS CITY TIME ON ______________,
1999, TO BE EFFECTIVE. LABONE SHARES WHICH ARE NOT SUBJECT TO AN EFFECTIVE CASH
ELECTION WILL BE CONVERTED INTO SHARES OF THE COMBINED COMPANY ONLY.
<PAGE>
Stock Options and Warrants
LabOne Options and Warrants. As the surviving corporation, Holdings will
assume each outstanding option or warrant to purchase LabOne common stock that
is outstanding at the effective time, whether or not then exercisable. Those
options and warrants will become options and warrants to purchase the same
number of shares of common stock of the combined company, at the same price and
on the same terms as are provided in the existing option agreements for the
purchase of LabOne common stock. In addition, the merger agreement contemplates
that no option or warrant will vest or become exercisable as a result of the
merger.
Holdings Stock Options. At the effective time, stock options issued under
the Holdings 1997 Directors' Stock Option Plan will be adjusted to reflect the
1.5 for 1 stock split. Approval of the merger agreement will also
20
effect a ratification of action taken by the Holdings Board on August __, 1998,
that amended the Plan and outstanding options so that they could be exercised by
the optionee at any time until the end of the term of the option following the
termination of director status due to a merger such as the merger, contemplated
by the merger agreement. See "Interests of Certain Persons in the Merger" on
page 46.
Background of the Merger
Following the sale of its insurance operations in 1990, Holdings was a
diversified holding company whose assets consisted primarily of a majority
interest in LabOne, a substantial ownership position in Response Oncology, Inc.,
a publicly traded oncology management business, and several investments in
healthcare and insurance services businesses, as well as real estate and energy
ventures. In early 1995, Holdings announced that it would begin to explore
strategic alternatives to maximize stockholder value. One of the strategies that
was discussed was a possible merger of Holdings into LabOne.
Following Holdings' announcement that it would explore strategic
alternatives to maximize stockholder value, including a possible merger of
Holdings into LabOne, on February 10, 1995, the Board of Directors of LabOne
established a special committee (the "Special Committee") consisting of
independent non-management members of the LabOne Board of Directors to consider
and act upon any merger or reorganization proposal presented to LabOne by
Holdings. The LabOne Board also authorized the Special Committee to engage
independent legal and financial advisers. The Special Committee engaged Stinson,
Mag & Fizzell in May 1995 as its independent legal adviser and U.S. Bancorp
Piper Jaffray in April 1997 as its independent financial adviser.
At the request of the Special Committee's legal adviser, the LabOne
Board of Directors expanded the authority of the Special Committee on August 4,
1995 to exercise all lawfully delegable powers of the Board for the purposes of
representing solely the interests of LabOne and the LabOne Unaffiliated
Stockholders in all respects in connection with any potential transaction
whereby, directly or through one or more affiliates, (i) Holdings would make any
proposal or offer for a merger, consolidation or other business combination or
reorganization involving LabOne, or (ii) a third party would make any other
proposal or offer (whether by tender or exchange offer or otherwise) to acquire
the LabOne common stock or all or substantially all of the assets of LabOne or
its subsidiaries. The expanded authority also authorized the Special Committee
to (i) investigate, evaluate and analyze transaction proposals, (ii) negotiate
<PAGE>
the terms and conditions of such proposals for the benefit of the LabOne
Unaffiliated Stockholders, (iii) determine after such negotiation whether such
proposal would be in the best interest of LabOne and the LabOne Unaffiliated
Stockholders, (iv) approve or reject such proposal, and (v) make a
recommendation to the LabOne Board or the LabOne Unaffiliated Stockholders that
they should or should not vote in favor of such proposal.
By the end of March 1997, Holdings had disposed of or had made
arrangements for the disposition of all of its assets other than its interest in
LabOne and about $7 million of cash and cash equivalents. On April 10, 1997,
Holdings proposed to the Special Committee that Holdings be merged downstream
into LabOne to enhance LabOne's opportunities for growth and to provide Holdings
stockholders with a direct investment in LabOne. The proposal contemplated that
each share of Holdings common stock would be converted into 1.65 shares of
LabOne common stock after first distributing all of its cash and other assets to
Holdings' stockholders.
On July 1, 1997, Holdings terminated those merger discussions following
a determination that a merger with either entity surviving would have to be
accounted for as a purchase transaction rather than as a pooling of interests as
had been originally contemplated. Accordingly, either an upstream or a
downstream merger of the two companies would reduce earnings of the combined
company due to the addition of a significant amount of amortizable goodwill to
the balance sheet of the combined company. The goodwill would arise from the
transaction itself - "transaction goodwill" - and from existing or "historical
goodwill" accrued by Holdings from its prior purchases of LabOne common stock.
At that time, Holdings believed that the stockholders of both companies would be
better served by continuing the existing holding company structure under a
strategy designed to reduce Holdings' management and administrative expenses.
21
Consistent with this strategy, Holdings restructured its Board and
management in September 1997. The Board was reduced from eleven to the four
present directors, none of whom hold any office or position with LabOne. Mr.
Jacobs was also elected to replace Mr. Grant as the Chief Executive Officer of
Holdings, while Mr. Grant continued in office as the Chairman, President and
Chief Executive Officer of LabOne. The reduction in the number of directors and
officers and a contract with a former Holdings subsidiary (then known as SLH
Corporation) to provide Holdings with administrative services for $75,000 per
annum enabled Holdings to reduce management and administrative expenses from
prior levels.
On August 6, 1998, Mr. Grant, advised Mr. Jacobs that he believed that
LabOne would be interested in resuming merger discussions. Mr. Grant stated that
it would be desirable for LabOne to pursue a growth strategy that could involve
the use of LabOne stock for acquisitions in view of the need for critical mass
and economies of scale and the anticipated consolidation of the industry. He
further noted that, as a subsidiary, acquisitions by LabOne could not be
accounted for under the pooling of interests method of accounting and that,
without such accounting treatment, many acquisition opportunities would be
unrealistic. Management of LabOne had therefore concluded that the advantages of
combining Holdings and LabOne could potentially justify the effect that
amortization of transaction and historical goodwill would have on the earnings
of the combined company.
<PAGE>
On August 13, 1998, Holdings management and Lathrop & Gage L.C.,
Holdings' legal counsel, met with LabOne management and Morrison & Hecker, LLP,
outside general counsel to LabOne. The meeting, followed regularly scheduled
meetings of the Boards of Directors of both companies at LabOne's offices.
During the meeting, LabOne management discussed a variety of growth
opportunities that would be consistent with LabOne's diversification strategy.
LabOne management explained that the current structure, under which LabOne is a
subsidiary of Holdings, was a significant impediment to the pursuit of this
diversification strategy because the existing structure made it impossible for
LabOne to utilize pooling of interests accounting with respect to potential
acquisitions. It was recognized that the combination would also eliminate the
need of Holdings to continue its strategy of owning a minimum of 80% of LabOne
common stock for tax reasons. That strategy was inconsistent with the strategy
of LabOne to use its stock for acquisitions and the building of other strategic
relationships.
Following the meeting, the Holdings Board concluded that resuming
merger discussions would be advisable. The August 6, 1998 merger of SLH
Corporation and Syntroleum Corporation resulted in the termination of the
contract under which SLH Corporation was providing management and administrative
services to Holdings for $75,000 per annum. As a consequence, Holdings was
required to engage a staff of full time employees and to bear all other expenses
related to the operation of a public company. A merger followed by the
discontinuation of all operations at the Holdings level would eliminate this
expense and its negative impact on Holdings' per share earnings. The financial
and strategic benefits expected to be obtained by enabling LabOne to pursue a
growth strategy based in significant part on acquisitions also appeared to
outweigh the negative accounting impact of the transaction goodwill that would
result from the combination.
On September 2, 1998, Mr. Jacobs, with the authorization of the
Holdings Board, made arrangements to engage Salomon Smith Barney Inc. to advise
Holdings with respect to the financial aspects of a possible merger with LabOne.
After conducting due diligence during September 1998, Salomon Smith Barney met
on October 5, 1998 with the Holdings Board and Lathrop & Gage to discuss the
terms of a possible merger. Although it was recognized that the transaction
would generate significant amortizable goodwill that would negatively impact
earnings, the Holdings Board concluded that the long term interests of both
companies would be promoted by a merger.
Prior to the October 5, 1998 Holdings Board meeting, Lathrop & Gage
contacted Morrison & Hecker, outside general counsel to LabOne, to arrange a
meeting on the afternoon of October 5 with the LabOne Special Committee.
At the request of the legal adviser to the Special Committee, the
Special Committee of LabOne that was originally established in February 1995 was
reconvened with the powers granted to it in 1995. Due to two changes on the
LabOne Board of Directors, two of the original members of the Special Committee,
including the original
22
Chairman of the Special Committee, no longer served on the LabOne Board of
Directors. The remaining members, Richard S. Schweiker, Richard A. Rifkind,
M.D., and Joseph H. Brewer, M.D., convened a meeting of the Special Committee on
October 16, 1998 at which Mr. Schweiker was elected Chairman of the Special
Committee and John E. Walker was made a new member of the Special Committee.
Also at that meeting, the Special Committee reaffirmed its decision to retain
Stinson, Mag & Fizzell as its independent legal adviser and U.S. Bancorp Piper
Jaffray as its independent financial adviser.
<PAGE>
Following the October 5 Holdings Board meeting, Holdings management,
Lathrop & Gage and Salomon Smith Barney met with representatives of the Special
Committee, Stinson, Mag & Fizzell, P.C. and U.S. Bancorp Piper Jaffray During
the meeting, Mr. Jacobs proposed a merger of LabOne into Holdings. The merger
would be immediately preceded by a split of each outstanding share of Holdings
common stock into 1.73 shares. Holders of LabOne other than Holdings would
receive one share of the combined company for each LabOne share. The combined
company would have the name and management of LabOne, the board of directors
would be as recommended by LabOne, subject to the approval of the Holdings
Board, the transaction would not trigger early vesting of LabOne options or
warrants and the transaction would require the approval of a majority of all
LabOne stockholders voting on the merger. Holdings also requested assurance that
its current dividend policy be continued following the merger.
The 1.73 split ratio proposed by Holdings reflected ownership by
Holdings stockholders as a group after the merger equal to the same number of
shares of LabOne common stock presently held by Holdings (10,712,200) plus
additional shares having a market value equal to Holdings cash and cash
equivalents then on hand.
The LabOne Special Committee indicated that it would consider the
proposal and respond following a period of due diligence.
On November 6, 1998, the Special Committee, through its financial
adviser, made a counter proposal that provided for a split of each share of
Holdings common stock into 1.38 shares prior to the merger. The proposed 1.38
split factor was calculated based upon an analysis of the relative market value
of the shares of Holdings and LabOne stock and the possible effect on market
values that anticipated pro forma adjustments for additional amortizable
goodwill would have upon earnings per share, assuming the price-earnings ratio
remained the same. This proposal did not provide additional consideration to
Holdings stockholders for the Holdings cash and cash equivalents because the
Special Committee and its advisers believed that such cash was already factored
into the market price of Holdings stock.
On November 13, 1998, at the direction of Holdings, Salomon Smith
Barney responded to the counter proposal with a proposed split ratio of 1.60. On
November 20, 1998, the Special Committee responded through U.S. Bancorp Piper
Jaffray with a proposed split ratio of 1.50. The next day, at the direction of
Holdings, Salomon Smith Barney countered with a proposed split of 1.56.
Principal areas of negotiation during the preceding discussions centered on the
uncertain impact of the estimated pro forma effects of the merger, especially
amortization of historical and transaction goodwill on share value and the
resulting market prices of the shares of the combined company following the
merger, and on the value of the cash and cash equivalents on Holdings' balance
sheet with respect to the split ratio.
On November 30, 1998, the Special Committee and Holdings tentatively
agreed on a 1.56 split ratio. Other terms proposed by the Special Committee
included a proposal that the board of directors of the combined company consist
of a majority of independent directors, a dividend policy to be set by the board
of the combined company, the exclusion of votes cast by Holdings and its
affiliates in determining the approval of the merger by a majority of the LabOne
Unaffiliated Stockholders and a provision that Holdings would reimburse LabOne
for transaction related expenses if the merger is not consummated. U.S. Bancorp
Piper Jaffray was requested by the Special Committee to prepare an opinion
confirming the fairness of the proposed merger consideration, from a financial
point of view, to the LabOne Unaffiliated Stockholders. Holdings and the Special
<PAGE>
Committee then continued through their legal advisers to negotiate other terms
for a definitive merger agreement.
23
On December 4, 1998, Lathrop & Gage forwarded a draft of a merger
agreement to Stinson Mag, with a view to resolving any open issues in the
process of finalizing the merger agreement.
By December 18, 1998, the parties had concluded negotiations on the
substantive provisions of the merger agreement except for provisions in the
proposed articles of incorporation and bylaws of the combined company. Meetings
of the Boards of both companies and of the Special Committee to act on the
merger agreement had been scheduled to be held on December 21. On December 18,
1998, U.S. Bancorp Piper Jaffray, based on its continued analysis of the
proposed merger consideration in connection with the preparation of its fairness
opinion, advised the Special Committee of its view that the proposed split
factor of 1.56 was inadequate from a financial point of view.
On December 22, 1998, U.S. Bancorp Piper Jaffray, at the direction of
the Special Committee, discussed with Salomon Smith Barney a preliminary
alternative proposal. This proposal contemplated a fixed split factor of
unspecified amount for Holdings shares and a floating exchange ratio including a
collar mechanism limiting the market trading range within which the exchange
ratio would be determined. It was the Special Committee's belief that this
alternative structure was a means of better assuring that the LabOne
Unaffiliated Stockholders would receive consideration substantially equivalent
to the value of the shares they held prior to the merger.
Holdings concluded that the alternative structure was unsatisfactory
due to its focus on the market value of Holdings stock and because it failed to
propose a specific split ratio or objective criteria for determining the merger
consideration. On December 22, 1998, Holdings common stock was trading at
$11.22, assuming a 1.56 split, in relation to a LabOne market price of $14.50.
Holdings believed that its stock price was being negatively affected by factors
arising from the existing structure that would disappear and not affect the
combined company following the merger. These factors included Holdings'
management and administrative expenses and its low tax basis in its LabOne
shares. Holdings believed that the proposal did not give proper consideration to
the elimination of these negative factors.
On January 14, 1999, Lathrop & Gage met with Stinson, Mag to discuss
the concerns of both parties, the impasse between their clients and possible
approaches to a resolution of the matter. During the meeting, the legal advisers
discussed possible alternative approaches to valuation and structure and the
common interests of LabOne and Holdings in renewing negotiations after Holdings
was provided with a more definitive response from the Special Committee. Stinson
Mag indicated that it would try to provide a response by the end of January. In
the following weeks the Special Committee and its advisers reviewed alternative
structures and analyzed the changes in the pricing environment for LabOne's
services, the resulting changes in LabOne's financial forecast, and their impact
on share value and the trading price of LabOne's common stock with a view to
developing a new proposal.
On February 12, 1999, the Holdings Board held its regularly scheduled
quarterly board meeting. Although previous requests had been made to the Special
Committee to provide the further response to enable the Board to consider it at
that meeting, none had been transmitted. After deliberation, the Board
instructed Lathrop & Gage to advise Stinson Mag that Holdings would consider
<PAGE>
negotiations terminated with respect to the proposed combination unless a
further response was received on or before Wednesday, February 17. The lead
attorney at Lathrop & Gage was not able to contact the lead attorney at Stinson
Mag to discuss the deadline until the afternoon of February 16. As a result of
the discussion on the 16th, Lathrop & Gage was advised that they could expect to
receive the further response the next morning, although no firm commitment was
made to meet that schedule. Based on that expectation, Lathrop & Gage believed
it to be unnecessary to then advise Stinson Mag of the deadline. When the
further response was not received the next morning, Lathrop & Gage then advised
Stinson Mag that the Holdings Board would consider negotiations terminated if
the further response was not received by midnight on that day, February 17.
During the discussion, Stinson Mag expressed concerns about the ability of the
Special Committee and its advisors to complete their analysis, conduct a meeting
and deliver a response within the time allotted. Stinson Mag indicated, however,
that an effort would be made to meet the deadline but requested that an
extension be granted to permit appropriate steps to be taken. The next morning,
February 18, 1999, the Holdings Board met again since the further response had
not been delivered. Due to the short notice of the deadline, Lathrop & Gage was
directed by the Holdings Board to deliver a letter to the Special Committee to
the effect that Holdings would resume negotiations
24
if it received the further response by noon on February 22, 1999. Lathrop & Gage
delivered that notice on the afternoon of February 18.
On the morning of February 22, 1999, the Special Committee, through
U.S. Bancorp Piper Jaffray, delivered to Holdings a new proposal. Under the new
proposal, the outstanding Holdings common stock would be split at the rate of
1.5 for one. After the split, the LabOne stockholders other than Holdings would
be entitled to elect to receive for each share of LabOne stock either one share
of stock of the combined company or $13.00 per share in cash, or a combination
of cash and stock. The Special Committee proposed this new structure in order to
achieve a number of objectives, including: to provide the LabOne Unaffiliated
Stockholders with the opportunity to continue their investment in the LabOne
operating entity through a tax-deferred exchange of their LabOne shares for
shares of the combined company; to provide an orderly liquidation opportunity
for those LabOne Unaffiliated Stockholders that prefer to sell their interests
in LabOne; and to modulate the unpredictable impact of the merger on the trading
market and market price of the shares of the combined company resulting from,
among other things, the reduction in earnings of the combined company due to
amortization of historical and transaction goodwill.
Thereafter, Holdings, the Special Committee and their respective legal
and financial advisors continued to negotiate the terms of a potential merger,
after which Holdings and the Special Committee agreed that the Holdings common
stock would be split 1.5 for one and after the split the LabOne Stockholders
other than Holdings could elect to have each LabOne share exchanged for one
share of the combined company or $12.75 in cash or a combination of cash and
shares, subject however to a $16.6 million cash limit.
The February 22 Special Committee proposal also suggested a change in
the merger structure such that LabOne would be merged into an acquisition
subsidiary to be formed by Holdings rather than directly into Holdings. The
change in structure would eliminate statutory appraisal rights for Holdings
stockholders and the requirement for a two-thirds vote of the Holdings
stockholders to approve the merger. Morrison & Hecker also proposed on behalf of
LabOne changes in the Articles of Incorporation and Bylaws for the combined
company that would have eliminated cumulative voting for directors of the
<PAGE>
combined company and that would have required an 80% vote of stockholders to
amend any provision of the Bylaws. Holdings objected to all of these changes and
after discussions between Lathrop & Gage, Stinson Mag, and Morrison & Hecker
(with respect to the Articles of Incorporation and Bylaws only) the Holdings
position was agreed to.
On March 4, 1999, Lathrop & Gage circulated a draft of a revised merger
agreement. On the afternoon of March 5, 1999, the parties had reached consensus
on all issues and final copies of the merger agreement were circulated on March
6, 1999.
On March 7, 1999, special meetings of the Boards of Directors of
Holdings and LabOne and a meeting of the LabOne Special Committee were held.
At the March 7, 1999 Holdings Board meeting, Lathrop & Gage reported on
the course of discussions with the Special Committee and reviewed the terms of
the merger agreement, drafts of which had been circulated to directors prior to
the meeting. A representative of KPMG LLP, independent public accountants for
Holdings, reported on various accounting matters related to the transaction.
Salomon Smith Barney made a financial presentation to the Board and delivered
its oral opinion, which was subsequently confirmed in writing and is described
on page 32, to the effect that, as of March 7, 1999, and based upon and subject
to the matters stated in the opinion, and after taking into account the stock
split, the merger consideration was fair to Holdings from a financial point of
view. After further discussion and further considerations of the matters
presented by Holdings management, independent public accountants and legal and
financial advisors, the Holdings Board unanimously approved the merger
agreement.
At the March 7, 1999 LabOne Board meeting, the LabOne directors
reviewed the terms of the merger agreement, drafts of which had been circulated
to the directors prior to the meeting. Representatives of U.S. Bancorp Piper
Jaffray made a financial presentation to the Special Committee and the LabOne
Board with respect to
25
its opinion and the financial analysis supporting that opinion. U.S. Bancorp
Piper Jaffray expressed its oral opinion, which was subsequently confirmed in
writing and described on page 37, to the effect that, as of March 7, 1999, and
based upon and subject to matters stated in the opinion, and after taking into
account the stock split, the merger consideration was fair, from a financial
point of view, to the LabOne Unaffiliated Stockholders. The Special Committee
reported to the LabOne Board that, based in part on the advice and
recommendations of its advisers, the merger was unanimously approved by the
Special Committee and that it determined that the merger was fair to, and in the
best interest of, LabOne and the LabOne Unaffiliated Stockholders. Following
this discussion, the LabOne Board of Directors approved the merger and declared
its advisability.
Following the meetings the merger agreement was signed by Holdings and
LabOne.
On March 8, 1999, the merger was publicly announced.
On April 21, 1999 the Financial Accounting Standards Board issued a
news release stating that it would eliminate the pooling of interests method of
accounting for acquisitions initiated after it issues a final standard on that
subject, which is expected to occur in late 2000. Separate meetings of the
<PAGE>
Special Committee, the LabOne Board, and the Holdings Board were held in May
1999 to consider, among other things, the impact of the future elimination of
pooling of interests accounting on their recommendation of the proposed merger.
The Special Committee, the LabOne Board and the Holdings Board each separately
concluded that the other benefits of the merger more than outweighed the
countervailing considerations and that the future elimination of pooling of
interests accounting did not change their respective original conclusions or
recommendations with respect to the merger.
On May 14, 1999 the merger agreement was amended and restated to revise
the procedures for making cash elections. The original agreement provided that
cash elections would be made during a fifteen day period immediately following
the effective time of the merger. The amendments changed that procedure so that
cash elections will be made between the date of mailing of this Joint Proxy
Statement/Prospectus and the commencement of the LabOne meeting of stockholders.
The change was made primarily so that voting and election decisions would be
made at the same time.
Holdings Reasons for Merger; Recommendation of the Board of Directors of
Holdings
At a special meeting of the Holdings Board held on March 7, 1999, the
Holdings Board unanimously:
o determined that the merger agreement and the transactions
contemplated thereby (including the amendments to the Articles
of Incorporation and Bylaws provided for in the merger
agreement) are fair to and in the best interests of Holdings
and Holdings stockholders;
o approved the terms and provisions of the merger agreement;
o recommended that the merger agreement be adopted by Holdings
stockholders; and
o directed that the merger agreement and amendments to the
Articles of Incorporation of Holdings be submitted to the
stockholders at the 1999 annual meeting of stockholders.
The Holdings Board reached its decision and recommendation for the
following reasons:
o LabOne is Holdings' only remaining material asset other than
cash, and the merger will allow Holdings' stockholders to hold
their equity interests in LabOne directly rather than
indirectly through Holdings, thereby eliminating holding
company management and administrative costs;
o the merger will facilitate the use by LabOne of its stock as a
currency in creating strategic relationships with business
partners;
26
<PAGE>
o the merger will position LabOne to grow both internally and
through acquisitions, and will enable it to consider
transactions not feasible in the existing structure;
o the merger should enable LabOne to effect pooling-of-interests
transactions;
o by consolidating management, the merger will sharpen
management and investor focus;
o the merger should increase the float and liquidity of the
combined company's stock, thereby creating the opportunity for
increased Wall Street research coverage and investor interest;
and
o the merger also comes at the right time since LabOne had
recently moved into new and larger facilities that provide it
with the ability to grow and handle larger volumes of testing
services.
The Holdings Board made its determination after careful consideration
of, and based on, a number of factors, including, among other things,
discussions with Holdings' management, independent public accountants and legal
and financial advisors, the factors described above and the following additional
factors:
o the Holdings Board's understanding of the current economic and
market conditions and trends in the insurance, clinical and
substance abuse testing markets, the current value of Holdings
and LabOne and strategic options available to Holdings other
than a merger with LabOne;
o the current and historical market prices of the common stock
of each company;
o information concerning the financial performance and
conditions, business operations, debt and capital levels,
asset quality, personnel and prospects of LabOne and Holdings,
and each company's projected future financial performance as a
separate entity and on a combined basis, including the ability
of the combined company to service and repay the debt to be
incurred to satisfy cash elections;
o the judgment, advice and analyses of Holdings management,
including its favorable recommendation of the merger;
o presentations of Salomon Smith Barney, including its opinion
dated March 7, 1999 as described below to the effect that, as
of that date and based upon and subject to the matters stated
in the opinion, and after taking into account the stock split,
the merger consideration was fair from a financial point of
view to Holdings (See "Opinion of Holdings' Financial Advisor"
on page 32);
o the terms of the merger agreement, including the conditions to
closing of the merger, the ability of Holdings to consider
unsolicited alternative business combination proposals, and
the ability to terminate the agreement on certain conditions;
<PAGE>
o the fact that options and warrants of LabOne will not be
triggered as a result of the merger;
o the availability of financing necessary to satisfy cash
elections;
o that the merger will be accomplished on a tax-free basis to
the stockholders for United States federal income tax
purposes, except for cash received by stockholders in
connection with cash elections or in lieu of fractional
shares;
o the fact that the merger will be accomplished on a tax-free
basis to LabOne and Holdings so that the combined company's
tax basis in its assets will be the same as LabOne's tax basis
in such
27
assets; and
o the governance structure of the combined company.
In reaching its decisions the Holdings Board did not view any single factor
as determinative, and did not find it necessary or practicable to assign any
relative or specific weights to the various factors considered. Furthermore,
individual directors may have given differing weights to different factors.
The Holdings Board also considered other countervailing considerations,
including:
o the fact that the transaction goodwill created by the merger
will negatively impact future earnings of the combined
company;
o the fact that Holdings stockholders will in the aggregate own
up to 1.6% less equity in the combined company than currently
through Holdings 80.5% ownership of LabOne, assuming none of
the LabOne stockholders elect to receive cash;
o the fact that the dividend policy of the board of the combined
company could change following the merger in order to provide
funds for future growth strategies of the combined company;
o the increased leverage that may be created to fund cash
elections; and
o the risks associated with LabOne's business.
However, the Holdings Board determined that the foregoing
considerations were outweighed by the potential benefits of the merger that are
summarized above.
After the merger agreement was executed, the Financial Accounting
Standards Board ("FASB") publicly announced that it plans to eliminate pooling
of interests accounting for acquisitions initiated after it issues a final
standard on this subject, which is expected to occur in late 2000. At a meeting
held after the FASB's announcement, the Holdings Board determined that the
inability to use pooling of interests accounting for acquisitions initiated
after issuance of that final standard would not alter its conclusion that the
merger is in the best interests of Holdings and its stockholders. This
<PAGE>
conclusion was based on the other benefits of the merger, the opportunity to use
pooling accounting for a period of time after the merger and the ability of the
combined company to use its capital stock as a medium of exchange regardless of
the applicable accounting principles following the merger.
Accordingly, the Holdings Board unanimously recommends that the
stockholders of Holdings vote "FOR" the adoption of the merger agreement.
LabOne Reasons For the Merger ; Recommendations of the LabOne Special Committee
and Board of Directors
The LabOne Special Committee and the Board reached their decisions and
recommendations for the following reasons:
o Growth and Long-Term Value Creation. The Special Committee
believes that the merger is a necessary step to enable the
LabOne Unaffiliated Stockholders to enjoy the potential for
long-term growth in stockholder value, primarily through
acquisitions and strategic alliances. The need for greater
critical mass, economies of scale and resources to achieve the
financial and strategic benefits of growth and enhanced
competitiveness were important considerations in this regard.
o Ability to Use Pooling of Interests Accounting for Future
Acquisitions. Holdings owns 80.5% of
28
the common stock of LabOne which makes it impossible under
current generally accepted accounting principles for LabOne to
account for acquisitions using pooling of interests
accounting. By merging LabOne into Holdings, eliminating this
parent-subsidiary corporate structure, the combined company is
expected to be able to engage in certain acquisitions applying
the pooling of interests method after July 1999. Pooling is
critical for certain acquisitions because it does not create
an intangible goodwill asset to reflect the difference between
the purchase price and the fair value of the net assets
acquired, which would reduce earnings in future periods
arising from the amortization of a goodwill asset. Many of the
companies that might be acquisition candidates do not have
substantial tangible assets and the purchase price might
therefore create extensive goodwill because it would be based
primarily on a multiple of earnings and/or cash flow.
Accordingly, because valuations in the public market are
heavily influenced by future expectations of earnings per
share, the ability to utilize pooling of interests accounting
would enable the combined company to accelerate growth by
effecting acquisitions without experiencing earnings or
valuation effects due to amortization expenses from goodwill
that would otherwise result.
However, as described above, after the merger agreement was
executed, the FASB publicly announced that it plans to
eliminate pooling of interests accounting for acquisitions
initiated after it issues a final standard on this subject,
which is expected to occur in late 2000. At separate meetings
of the Special Committee and the LabOne Board held after the
FASB's announcement, both the Special Committee and the LabOne
<PAGE>
Board determined that the inability to use pooling of
interests accounting for acquisitions initiated after issuance
of any final standard would not alter their respective
conclusions that the merger is in the best interests of the
LabOne Unaffiliated Stockholders, LabOne and all LabOne
stockholders. The Special Committee and the LabOne Board also
each took into account the possibility that, if the merger is
consummated, the combined company could seek to initiate one
or more acquisitions before the FASB issues its final standard
in an effort to use the pooling of interest method to account
for those acquisitions and the ability of the combined company
to use its capital stock as a medium of exchange regardless of
the applicable accounting principles following the merger.
There can be no assurance that any acquisitions could be
initiated by the combined company prior to that time or that
those acquisitions would be able to satisfy the strict
technical requirements that must be met to qualify for the use
of the pooling of interests method of accounting.
o Increased Liquidity of the Stock. LabOne currently has about
13.3 million shares outstanding, of which only approximately
1.8 million shares (or 13.9% of the total shares outstanding)
freely trade in the public market (of the remaining shares,
10.7 million shares are held by Holdings and 800,000 shares
are held by LabOne insiders). Following the merger and
assuming that none of the LabOne stockholders other than
Holdings elect to receive cash as all or part of their merger
consideration, the combined company will have approximately
12.3 million shares outstanding, with approximately 9.8
million shares (or 79.7% of the total shares outstanding)
freely trading and approximately 2.5 million shares held by
insiders. The greater liquidity in the public market for
the stock of the combined company may result in higher trading
volumes, greater liquidity and enhanced pricing of the stock
because investors will have greater assurance of their ability
to acquire or dispose of stock positions without substantially
impacting the market price of the stock. In addition, greater
liquidity and increased trading volume may result in more
securities analysts reporting on the stock as well as a more
efficient trading market for the stock.
o Corporate Governance. In connection with the merger, the
Special Committee negotiated for a majority of the board of
the combined company to be composed of independent directors
which it nominated. In addition, the merger also will
eliminate the 80.5% control position of Holdings as the parent
company and result in control residing in a fluid aggregation
of public stockholders. With no controlling stockholders, the
independent board will have greater discretion to pursue
strategies for growth that would, among other things, have
been inconsistent with Holdings'
29
<PAGE>
strategy to maintain ownership of more than 80% of LabOne's
common stock for tax reasons. In addition, by eliminating
Holdings' control position, potential acquisition targets and
merger partners will have a greater level of comfort regarding
the ability of the combined company's management and board to
enter into and effect strategic combinations and alliances
independently. The independent board will also have greater
freedom to consider a dividend policy that is consistent with
a growth strategy.
o Streamlined Corporate and Ownership Structure. The merger will
streamline the existing corporate structure by collapsing the
parent-subsidiary structure into a single publicly-held
corporate entity. This simplification generally will eliminate
confusion in the market arising from the existence of two
securities which essentially pertain to the same operating
entity. The merger will cause the consolidation of investor
interest currently divided between the two entities.
o Non-taxable Transaction for Stock Received. The merger will
be a non-taxable event to the holders of LabOne stock (except
to the extent they elect to receive cash).
o Attraction and Retention of Effective Management. Enhancing
opportunities for growth of the business is believed to be
highly significant to attracting and retaining effective
management that will possess the leadership and vision to
achieve sustained increases in long-term stockholder value.
o Structure of Transaction. Offering a cash election
opportunity in addition to equity consideration will provide
LabOne Unaffiliated Stockholders with the opportunity to
continue their investment in the LabOne operating entity
through a tax-deferred exchange of their LabOne shares for
shares of the combined company while providing an orderly
liquidation opportunity for those LabOne Unaffiliated
Stockholders that prefer to sell their interests in LabOne.
It will also modulate the unpredictable impact of the merger
on the trading market and market price of the shares of the
combined company resulting from, among other things, the
reduction in earnings of the combined company due to
amortization of historical and transaction goodwill. The cap
of $16.6 million on the amount of such elections is expected
to be sufficient to allow LabOne stockholders who are likely
to elect cash to have all of their shares purchased for
cash, particularly since the officers and directors of
Holdings and the Grant family have represented that they
will not elect cash.
o Market Check and Authority to Negotiate Superior
Alternative. The Special Committee negotiated for the
expansion of its authority to act on behalf of the LabOne
Board in considering and negotiating any other proposals for
an acquisition of, or combination with, LabOne with any
third parties as well as Holdings. The Special Committee
also negotiated for the inclusion of a fiduciary out in the
merger agreement which permits the Special Committee to
terminate the merger agreement if a financially superior
proposal reasonably capable of being financed is presented
<PAGE>
prior to consummation of the merger. If no such proposal is
forthcoming prior to consummation of the merger, it will
support the Special Committee's conclusion that the merger
is the best transaction reasonably available to LabOne and
to the LabOne Unaffiliated Stockholders.
o Fair Dealing and Fair Price. The terms of the merger were
negotiated at arms length on behalf of LabOne Unaffiliated
Stockholders by the Special Committee which is composed of
independent directors and is advised by independent legal
and financial advisers. The Special Committee also
negotiated to have the merger be subject to approval by the
holders of a majority of the shares owned by LabOne
Unaffiliated Stockholders that vote on the merger so that
they would have an independent opportunity to decide to
approve the merger without coercion and after receiving full
disclosure of all material facts. The merger consideration
was determined to be fair by the Special Committee in part
in reliance upon the opinion and supporting financial
analysis of U.S. Bancorp Piper Jaffray that, as of the date
of its opinion, such consideration was fair, from a
financial point of view, to the LabOne Unaffiliated
Stockholders. The Special Committee understood that it
30
should conduct its analysis, negotiations and actions with
respect to the merger with the degree of independence
equivalent to that of a wholly-independent board of directors
dealing at arms-length with a disinterested third-party entity
seeking to merge with LabOne. The Special Committee also
recognized that it had the power not to pursue the merger and
the authority to pursue instead any superior alternative
transaction that might arise prior to the consummation of the
merger. The Special Committee determined that it would approve
the merger only if it determined that (i) the merger is in the
best interests of LabOne and the LabOne Unaffiliated
Stockholders and is the best transaction reasonably available,
(ii) the terms and conditions of the merger are the best that
can possibly be obtained from Holdings after negotiating at
arms-length, (iii) and the terms of the merger are
procedurally and substantively fair to LabOne and the LabOne
Unaffiliated Stockholders. The Special Committee concluded
that these criteria had been satisfied as part of its
determination to approve the merger and recommend its approval
by the full LabOne Board and the LabOne Unaffiliated
Stockholders.
The LabOne Board and Special Committee made their determination after
careful consideration of, and based on, a number of factors, including, among
other things, discussions with LabOne's management, accountants and legal and
financial advisers and the factors described above. In reaching their
determinations, the LabOne Board and Special Committee did not view any single
factor as determinative, and did not find it necessary or practicable to assign
any relative or specific weights to the various factors considered. Furthermore,
individual directors and committee members may have given differing weights to
different factors.
<PAGE>
The LabOne Board and Special Committee also considered other
countervailing considerations, including:
o the fact that following the merger transaction goodwill and
historical Holdings goodwill will negatively impact earnings
of the combined company at the annual rate of $2.6 million
(assuming no cash elections) to $2.8 million (assuming maximum
cash elections) until April 2003, and thereafter at $1.1 to
$1.3 million per annum until the 20th anniversary of the
merger;
o the possibility that as a result of the merger the stock of
the combined company may trade at a discount due to, among
other things, the reduction in earnings resulting from
amortization of the historical and transaction goodwill, which
was modulated by the cash election feature of the transaction
structure;
o the increased leverage that may be created to fund cash
elections;
o the risks and contingent liabilities associated with Holdings'
prior operations, but which were considered to be remote in
view of due diligence investigation completed prior to
execution of the merger agreement; and
o the strict technical requirements that must be satisfied by
the acquiror and the target to utilize pooling-of-interests
accounting and the risk that pooling-of-interests accounting
is expected to be eliminated by the FASB for acquisitions
initiated before a final standard is issued on that subject,
which is currently anticipated to occur in late 2000.
However, the LabOne Board and Special Committee each determined that
the foregoing considerations were outweighed by the potential benefits of the
merger that are summarized above.
Accordingly, the LabOne Board and Special Committee unanimously
recommend, with W. D. Grant abstaining, that the stockholders of LabOne vote
"FOR" the adoption of the merger agreement. Mr. Grant abstained upon the advice
of his personal counsel due to the appearance of a conflict of interest caused
by his beneficial ownership of approximately 16.7% of the outstanding shares of
common stock of Holdings.
31
<PAGE>
Opinion of Holdings' Financial Advisor
Salomon Smith Barney was retained by Holdings to act as its financial
advisor in connection with the proposed merger. In connection with this
engagement, Holdings requested that Salomon Smith Barney evaluate the fairness,
from a financial point of view, to Holdings of the consideration to be paid by
Holdings in the merger. On March 7, 1999, at a meeting of the Holdings Board
held to evaluate the proposed merger, Salomon Smith Barney delivered to the
Holdings Board an oral opinion, which opinion was subsequently confirmed by
delivery of a written opinion dated March 7, 1999, to the effect that, as of
that date and based upon and subject to the matters stated in the opinion, and
after taking into account the stock split, the merger consideration was fair,
from a financial point of view, to Holdings.
In arriving at its opinion, Salomon Smith Barney:
o reviewed the merger agreement;
o held discussions with senior officers, directors and other
representatives and advisors of Holdings and senior officers, other
representatives and advisors of LabOne concerning the businesses,
operations and prospects of Holdings and LabOne;
o examined publicly available business and financial information relating
to Holdings and LabOne as well as financial forecasts and other
information and data for Holdings and LabOne which were provided to or
otherwise discussed with Salomon Smith Barney by the managements of
Holdings and LabOne, including information relating to strategic
implications and operational benefits anticipated to result from the
merger;
o reviewed the financial terms of the merger as set forth in the merger
agreement in relation to, among other things, current and historical
market prices and trading volumes of Holdings common stock and LabOne
common stock, the historical and projected earnings and other operating
data of Holdings and LabOne, and the capitalization and financial
condition of Holdings and LabOne;
o considered, to the extent publicly available, the financial terms of
other similar transactions recently effected which Salomon Smith Barney
considered relevant in evaluating the merger;
o analyzed financial, stock market and other publicly available
information relating to the businesses of other companies whose
operations Salomon Smith Barney considered relevant in evaluating those
of Holdings and LabOne;
o evaluated the potential pro forma financial impact of the merger on
Holdings; and
o conducted other analyses and examinations and considered other
financial, economic and market criteria as Salomon Smith Barney deemed
appropriate in arriving at its opinion.
In rendering its opinion, Salomon Smith Barney assumed and relied,
without independent verification, upon the accuracy and completeness of all
financial and other information and data publicly available or furnished to or
otherwise reviewed by or discussed with Salomon Smith Barney. With respect to
financial forecasts and other information and data provided to or otherwise
<PAGE>
reviewed by or discussed with Salomon Smith Barney, the managements of Holdings
and LabOne advised Salomon Smith Barney that the forecasts and other information
and data were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the managements of Holdings and LabOne as
to the future financial performance of Holdings and LabOne and the strategic
implications and operational benefits anticipated to result from the merger.
Salomon Smith Barney assumed, with the consent of Holdings, that the merger will
be treated as a tax-free reorganization for federal income tax purposes.
32
Salomon Smith Barney did not express any opinion as to what the value
of the surviving corporation common stock will be when issued to LabOne
stockholders pursuant to the merger or the price at which the surviving
corporation common stock will trade subsequent to the merger. Salomon Smith
Barney did not make and was not provided with an independent evaluation or
appraisal of the assets or liabilities, contingent or otherwise, of Holdings or
LabOne nor did Salomon Smith Barney make any physical inspection of the
properties or assets of Holdings or LabOne. Salomon Smith Barney did not express
any view as to, and Salomon Smith Barney's opinion does not address, the
relative merits of the merger as compared to any alternative business strategies
that might exist for Holdings or the effect of any other transaction in which
Holdings might engage. Salomon Smith Barney noted that its opinion was
necessarily based upon information available, and financial, stock market and
other conditions and circumstances existing and disclosed, to Salomon Smith
Barney as of the date of its opinion. Although Salomon Smith Barney evaluated
the merger consideration from a financial point of view, Salomon Smith Barney
was not asked to and did not recommend the specific consideration payable in the
merger, which was determined through negotiation between Holdings and the
Special Committee. No other instructions or limitations were imposed by Holdings
on Salomon Smith Barney with respect to the investigations made or procedures
followed by Salomon Smith Barney in rendering its opinion.
The full text of Salomon Smith Barney's written opinion dated March 7,
1999, which describes the assumptions made, matters considered and limitations
on the review undertaken, is attached to this document as Appendix B and should
be read carefully in its entirety. Salomon Smith Barney's opinion is directed to
the Holdings Board and relates only to the fairness of the merger consideration
from a financial point of view to Holdings, does not address any other aspect of
the merger and does not constitute a recommendation to any stockholder with
respect to any matter relating to the proposed merger. The summary of Salomon
Smith Barney's opinion included in this document is qualified in its entirety by
reference to the full text of the opinion.
In preparing its opinion, Salomon Smith Barney performed a variety of
financial and comparative analyses, including those described below. The summary
of these analyses does not purport to be a complete description of the analyses
underlying Salomon Smith Barney's opinion. The preparation of a fairness opinion
is a complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analyses and the application of
those methods to the particular circumstances and, therefore, a fairness opinion
is not readily susceptible to summary description. Salomon Smith Barney's
opinion was not based on any single factor or analysis, but rather on the
totality of the factors considered and analyses performed. Accordingly, Salomon
Smith Barney believes that its analyses must be considered as a whole and that
selecting portions of its analyses and factors or focusing on information
presented in tabular format, without considering all analyses and factors or the
narrative description of the analyses, could create a misleading or incomplete
view of the processes underlying its analyses and opinion.
<PAGE>
In its analyses, Salomon Smith Barney considered industry performance,
general business, economic, market and financial conditions and other matters
existing as of the date of its opinion, many of which are beyond the control of
Holdings and LabOne. The estimates contained in Salomon Smith Barney's analyses
and the valuation ranges resulting from any particular analysis are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than those suggested
by its analyses. In addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, Salomon Smith
Barney's analyses and estimates are inherently subject to substantial
uncertainty.
Salomon Smith Barney's opinion and analyses were only one of many
factors considered by the Holdings Board in its evaluation of the merger and
should not be viewed as determinative of the views of the Holdings Board or
management with respect to the merger consideration or the proposed merger.
The following is a summary of the material analyses performed by
Salomon Smith Barney in connection with its opinion to the Holdings Board dated
March 7, 1999. The financial analyses summarized below include information
presented in tabular format. In order to fully understand Salomon Smith Barney's
financial analyses, the tabular presentation must be read together with the text
of the accompanying summary. The tabular presentation alone does not constitute
a complete description of the financial analysis. Considering the
33
data set forth below without considering the full narrative description of the
financial analysis, including the methodologies and assumptions underlying the
analysis, could create a misleading or incomplete view of Salomon Smith Barney's
financial analyses.
Selected Companies Analysis.
Using publicly available information, Salomon Smith Barney analyzed the
market values and trading multiples of LabOne, Holdings and the following three
selected publicly held companies in the laboratory testing services industry:
o Laboratory Corporation of America Holdings
o Quest Diagnostics Incorporated
o Unilab Corporation
Salomon Smith Barney compared market values as a multiple of estimated
net income for calendar years 1999 and 2000, and adjusted market values,
calculated as fully diluted market value, plus debt outstanding, less cash, as
multiples of calendar year 1998 earnings before interest, taxes, depreciation
and amortization and earnings before interest and taxes. All multiples were
based on closing stock prices on March 5, 1999. Estimated net income data for
the selected companies were based on research analysts' estimates and estimated
net income data for LabOne and Holdings were based on internal estimates of the
managements of LabOne and Holdings.
Applying a range of multiples of estimated net income for calendar
years 1999 and 2000, and calendar year 1998 earnings before interest, taxes,
depreciation and amortization and earnings before interest and taxes, for the
selected companies to corresponding financial data of LabOne indicated the
following implied average per share reference range for LabOne, as compared to
the blended per share value of the merger consideration based on the closing
<PAGE>
stock price of Holdings common stock on March 5, 1999 and assuming maximum cash
elections are made in the merger:
Implied Average Blended Per Share Value of Merger Consideration
Per Share Reference Based On Closing Stock Price of Holdings Common
Range for LabOne Stock on March 5, 1999 and Assuming Maximum
Cash Elections
------------------- --------------------------------------------------
$9.09 - $13.18 $11.73
Applying a range of multiples of estimated net income for calendar
years 1999 and 2000, and calendar year 1998 earnings before interest, taxes,
depreciation and amortization and earnings before interest and taxes, for the
selected companies to corresponding financial data of Holdings indicated the
following implied average per share reference range for Holdings, as compared to
the per share closing stock price of Holdings common stock on March 5, 1999:
Implied Average Per Share Closing Stock Price
Per Share Reference of Holdings Common Stock on
Range for Holdings March 5, 1999
------------------- -------------
$11.82 - $18.10 $16.06
Selected Transactions Analysis.
Using publicly available information, Salomon Smith Barney reviewed the
purchase prices and implied transaction value multiples paid or proposed to be
paid in the following seven selected transactions in the laboratory testing
services industry:
Acquiror Target
o Quest Diagnostics Incorporated SmithKline Beecham Clinical Laboratories
o Kroll-o'Gara Company Laboratory Specialists of America, Inc.
o Unilab Corporation Medical Laboratory Network, Inc.
o Genzyme Corporation IG Laboratories, Inc.
o National Health Laboratories
Incorporated Roche Biomedical Laboratories
o Corning Inc. Nichols Institute
o National Health Laboratories
Incorporated Allied Clinical Laboratories, Inc.
34
Salomon Smith Barney compared the purchase prices paid or proposed to be paid in
the selected transactions as a multiple of latest 12 months and one-year forward
earnings per share, and transaction values as a multiple of, among other things,
latest 12 months earnings before interest, taxes, depreciation and amortization
and earnings before interest and taxes. All multiples were based on financial
information available at the time of the relevant transaction.
Applying a range of multiples for the selected transactions of latest
12 months and one-year forward earnings per share and latest 12 months earnings
before interest, taxes, depreciation and amortization and earnings before
interest and taxes to corresponding financial data of LabOne indicated the
following implied average per share reference range for LabOne, as compared to
the blended per share value of the merger consideration based on the closing
stock price of Holdings common stock on March 5, 1999 and assuming maximum cash
elections are made in the merger:
<PAGE>
Implied Average Blended Per Share Value of Merger Consideration
Per Share Reference Based On Closing Stock Price of Holdings Common
Range for LabOne Stock on March 5, 1999 and Assuming Maximum
Cash Elections
------------------- --------------------------------------------------
$11.67 - $16.13 $11.73
Discounted Cash Flow Analysis.
Salomon Smith Barney performed separate discounted cash flow analyses
for each of LabOne and Holdings to estimate the projected free cash flows that
LabOne and Holdings could each generate over the fiscal years 1999 through 2002,
based on internal estimates of the managements of LabOne and Holdings. The range
of estimated terminal values for LabOne and Holdings was calculated by applying
terminal value multiples of 6.0x to 8.0x to the projected 2002 earnings before
interest, taxes, depreciation and amortization. The cash flows and terminal
values were discounted to present value using discount rates ranging from 9% to
11%.
Based on the terminal multiples and discount rates described above,
this analysis indicated the following implied per share reference range for
LabOne, as compared to the blended per share value of the merger consideration
based on the closing stock price of Holdings common stock on March 5, 1999 and
assuming maximum cash elections are made in the merger:
Implied Average Blended Per Share Value of Merger Consideration
Per Share Reference Based On Closing Stock Price of Holdings Common
Range for LabOne Stock on March 5, 1999 and Assuming Maximum
Cash Elections
------------------- --------------------------------------------------
$10.25 - $14.04 $11.73
Based on the terminal multiples and discount rates described above,
this analysis indicated the following implied per share reference range for
Holdings, as compared to the per share closing stock price of Holdings common
stock on March 5, 1999:
Implied Average Per Share Closing Stock Price
Per Share Reference of Holdings Common Stock on
Range for Holdings March 5, 1999
------------------- ------------------------------
$15.92 - $21.55 $16.06
Pro Forma Merger Analysis.
Salomon Smith Barney analyzed the pro forma effects resulting from the
merger for calendar years 1999 through 2001, based on internal estimates of the
managements of Holdings and LabOne. The results of the pro forma merger analysis
suggested that the merger could be dilutive to Holdings in calendar years 1999
through 2001. The actual results achieved by the combined company may vary from
projected results and the variations may be material.
35
<PAGE>
Exchange Ratio Analysis.
Salomon Smith Barney performed an exchange ratio analysis comparing the
implied effective exchange ratio in the merger with implied historical exchange
ratios for Holdings common stock and LabOne common stock. The implied historical
exchange ratios were calculated by dividing the per share price of LabOne common
stock by the per share price of Holdings common stock over specified periods.
Since the implied historical exchange ratios did not reflect the stock split
contemplated in the merger, Salomon Smith Barney calculated an implied effective
exchange ratio, without giving effect to the stock split, based upon the pro
forma equity ownership of the stockholders of Holdings and LabOne in the
combined company upon consummation of the merger. The resulting implied
effective exchange ratio of 0.667 was then compared against implied historical
exchange ratios for Holdings common stock and LabOne common stock over the
one-day, 60-day, three-month, six-month and twelve-month periods ending March 5,
1999. This analysis indicated the following implied historical exchange ratios
for these periods:
Period Ending March 5, 1999 Implied Exchange Ratio
one-day 0.677
60-day 0.735
three-month 0.736
six-month 0.771
12-month 0.750
Other Factors.
In rendering its opinion, Salomon Smith Barney considered other
factors, including:
o historical and projected financial results of Holdings and LabOne;
o the history of trading prices and volume for Holdings common stock and
LabOne common stock and the relationship between movements in Holdings
common stock and LabOne common stock and movements in the common stock
of the S&P 400 Index;
o the implied premiums payable in minority stock purchase transactions;
o selected published analysts' reports on LabOne; and
o the pro forma ownership of the combined company.
Pursuant to the terms of Salomon Smith Barney's engagement, Holdings
has agreed to pay Salomon Smith Barney upon completion of the merger an
aggregate fee of $900,000. Holdings has also agreed to reimburse Salomon Smith
Barney for travel and other out-of-pocket expenses incurred by Salomon Smith
Barney in performing its services, including the fees and expenses of its legal
counsel, and to indemnify Salomon Smith Barney and related persons against
liabilities, including liabilities under the federal securities laws, arising
out of Salomon Smith Barney's engagement.
Salomon Smith Barney has advised Holdings that, in the ordinary course
of business, Salomon Smith Barney and its affiliates may actively trade or hold
the securities of Holdings and LabOne for their own account or for the account
of customers and, accordingly, may at any time hold a long or short position in
those securities. In addition, Salomon Smith Barney and its affiliates,
<PAGE>
including Citigroup Inc. and its affiliates, may maintain relationships with
Holdings, LabOne and their respective affiliates.
Salomon Smith Barney is an internationally recognized investment
banking firm and was selected by
36
Holdings based on its experience and expertise. Salomon Smith Barney regularly
engages in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
Opinion of Financial Advisor to the LabOne Special Committee
The Special Committee retained U.S. Bancorp Piper Jaffray on April 18,
1997 to provide financial advisory services in connection with a proposed merger
of LabOne with Holdings and, if requested by the Special Committee, to render
its opinion to the Special Committee regarding the fairness, from a financial
point of view, of the consideration to be received by the LabOne Unaffiliated
Stockholders.
U.S. Bancorp Piper Jaffray delivered to the Special Committee on March
7, 1999 its oral opinion, subsequently confirmed in writing, that, as of that
date and based upon and subject to the assumptions, factors and limitations set
forth in the written opinion and described below, the consideration proposed to
be received by the LabOne Unaffiliated Stockholders in the proposed merger with
Holdings was fair, from a financial point of view, to those stockholders. A copy
of U.S. Bancorp Piper Jaffray's written opinion is attached to this Joint Proxy
Statement/Prospectus as Appendix C and is incorporated into this Joint Proxy
Statement/Prospectus by reference.
While U.S. Bancorp Piper Jaffray rendered its opinion and provided
certain analyses to the Special Committee, U.S. Bancorp Piper Jaffray was not
requested to and did not make any recommendation to the Special Committee as to
the specific form or amount of the consideration to be received by the LabOne
Unaffiliated Stockholders in the proposed merger with Holdings, which was
determined through negotiations between Holdings and the Special Committee. U.S.
Bancorp Piper Jaffray's written opinion, which was delivered for use and
considered by the Special Committee, is directed only to the fairness, from a
financial point of view, of the proposed consideration to be received by the
LabOne Unaffiliated Stockholders in the proposed merger, does not address the
value of a share of LabOne common stock or Holdings common stock, does not
address LabOne's underlying business decision to participate in the merger and
does not constitute a recommendation to any LabOne stockholder as to how a
stockholder should vote with respect to the merger or any election such
stockholder should make with respect to the consideration offered.
In arriving at its opinion, U.S. Bancorp Piper Jaffray reviewed,
analyzed and relied upon material relating to the financial and operating
condition and prospects of LabOne and Holdings and material prepared in
connection with the proposed merger. These materials included, among other
things:
<PAGE>
o a draft of the merger agreement dated March 7, 1999;
o publicly available financial, operating and business
information related to LabOne;
o publicly available financial and securities data related to
LabOne;
o internal financial information of LabOne on a stand-alone
basis prepared for financial planning purposes and furnished
by LabOne management;
o publicly available financial, operating and business
information related to Holdings;
o publicly available financial and securities data related to
Holdings; and
o to the extent publicly available, financial terms of certain
acquisition transactions involving acquisitions of remaining
interests in publicly traded companies by the entities
holding their controlling interests.
In addition, U.S. Bancorp Piper Jaffray had discussions with members of
Holdings' management concerning the financial condition, current operating
results and business outlook for Holdings and LabOne both on
37
a stand-alone basis and as combined, Holdings' plans relating to the proposed
combined company, as well as the amount and timing of the cost savings and
related expenses expected to result from the merger. U.S. Bancorp Piper Jaffray
also had discussions with members of LabOne's management regarding the financial
condition, current operating results and business outlook for LabOne and the
proposed combined company.
In delivering its opinion to the Special Committee on March 7, 1999,
U.S. Bancorp Piper Jaffray prepared and delivered to the Special Committee
written materials containing various analyses and other information material to
the opinion. Here is a summary of the analyses contained in the materials.
Selected Market Information
U.S. Bancorp Piper Jaffray reviewed certain stock trading
characteristics of LabOne common stock and Holdings common stock, including
stock price and volume comparisons for periods ended March 4, 1999. The closing
stock price of LabOne common stock on March 4, 1999 was $11.00 and the closing
stock price of Holdings common stock on that date was $16.00.
LabOne Stand-Alone Discounted Cash Flow Analysis
U.S. Bancorp Piper Jaffray performed a discounted cash flow analysis
for LabOne on a stand-alone basis, in which it estimated the present value of
the projected future cash flows of LabOne using internal financial planning data
prepared by LabOne management. U.S. Bancorp Piper Jaffray estimated a range of
theoretical values for LabOne based on the net present value of its implied
annual cash flows and a terminal value for LabOne in 2002 calculated based upon
a multiple of earnings before interest, taxes, depreciation and amortization ("
EBITDA"). U.S. Bancorp Piper Jaffray applied a range of terminal value multiples
of forecasted 2002 earnings before interest, taxes, depreciation and
<PAGE>
amortization of 5.5x to 7.5x and a range of discount rates of 12.5% to 17.5%.
This analysis yielded a per share equity value of LabOne ranging from $8.09 to
$12.21 with a midpoint of $10.00 and an aggregate equity value of LabOne ranging
from $107.7 million to $162.6 million with a midpoint of $133.2 million.
Combined Company Discounted Cash Flow Analysis
U.S. Bancorp Piper Jaffray also performed a discounted cash flow
analysis to calculate a range of theoretical values for the combined entity that
would result from the proposed merger. U.S. Bancorp Piper Jaffray estimated a
range of theoretical values for the combined company using internal financial
planning data prepared by LabOne management. These values were based on the net
present value of the combined company's projected annual cash flows and a
terminal value for the combined company in 2002 based on a multiple of EBITDA.
For purposes of this analysis, U.S. Bancorp Piper Jaffray applied LabOne's
management's assumptions that the administrative overhead costs associated with
Holdings would cease to exist and that, accordingly, the future cash flows of
the combined company would remain essentially unchanged from LabOne's estimated
future cash flows. U.S. Bancorp Piper Jaffray was advised by Holdings management
that, to the extent that the LabOne Stockholders other than Holdings elect to
receive cash consideration in the merger, the combined company would borrow the
funds necessary to complete the transaction. U.S. Bancorp Piper Jaffray
presented this analysis assuming a merger consideration consisting of 50% equity
and 50% cash and also assuming a merger consideration consisting of 100% equity.
These two assumptions represent the endpoints of the range of possibilities of
the cash and equity components of the consideration under the terms of the
merger agreement. U.S. Bancorp Piper Jaffray applied multiples of forecasted
2002 EBITDA of 5.5x to 7.5x and a range of discount rates of 12.5% to 17.5%.
38
<TABLE>
<CAPTION>
50% stock/
Per Share Equity Value of Combined Company 50% cash 100% stock
- ------------------------------------------ ---------- ----------
<S> <C> <C>
Low .................................................. $ 7.88 $ 8.70
Mid................................................... 10.00 10.69
High.................................................. 12.47 13.01
</TABLE>
<TABLE>
<CAPTION>
50% stock/
Aggregate Equity Value of Combined Company 50% cash 100% stock
- ------------------------------------------ ---------- ----------
(in thousands)
<S> <C> <C>
Low................................................... $ 94,413 $ 110,826
Mid................................................... 119,800 136,204
High.................................................. 149,378 165,771
</TABLE>
Pro Forma Analysis
U.S. Bancorp Piper Jaffray estimated the net income of the
combined company after the merger by using LabOne management's estimates of 1999
LabOne net income, less estimated goodwill expenses and transaction financing
costs resulting from the combination of LabOne and Holdings and estimated by
<PAGE>
LabOne management. U.S. Bancorp Piper Jaffray calculated an implied value per
share for stock of the combined company by applying a multiple of net income
equal to 13.3, the share price to net earnings multiple for LabOne common stock
as of March 4, 1999. U.S. Bancorp Piper Jaffray assumed that the share price to
earnings multiple for the operating company before the merger would also be
applied to the combined company after the merger. U.S. Bancorp Piper Jaffray
performed this analysis assuming a merger consideration of 50% equity and 50%
cash and also assuming a merger consideration consisting of 100% equity.
50% stock/
50% cash 100% stock
---------- ----------
Implied combined company
equity value (in thousands)(1). . . . . . . . . . .$118,526 $126,481
Implied combined company
value per share (1) . . . . . . . . . . . . . . $ .10.74 $ 10.26
Percentage ownership of combined
company by LabOne stockholders
other than Holdings . . . . . . . . . . . . . . . . . 11.8% 21.1%
Total stock consideration (in thousands) . . . . $ 13,961 $ 26,657
- ----------------------
(1) Implied values are calculated solely for purposes of analysis integral to
consideration of fairness from a financial point of view, and are not intended
to be, and should not be, relied upon as an estimate of the stock trading value
of shares of the combined company after the merger.
U.S. Bancorp Piper Jaffray compared the implied pro forma market
capitalization of the combined company after the merger to the market
capitalization of LabOne as of March 4, 1999 and as of the date 30 days prior to
March 4, 1999.
50% stock/
Market capitalization premium (discount) 50% cash 100% stock
- ---------------------------------------- ---------- ----------
Current................................. 6.8% (6.8)%
30 days prior........................... 0.6% (12.1)%
Dilution Analysis
U.S. Bancorp Piper Jaffray analyzed the hypothetical pro forma
effect of the merger on LabOne's
39
estimated earnings per share for the fiscal years ending December 31, 1999
through 2002 assuming a merger consideration consisting of 50% equity and 50%
cash and also assuming a merger consideration consisting of 100% equity. In each
case the analyses were based on the internal financial planning data used for
purposes of the discounted cash flow analyses. In both cases, U.S. Bancorp Piper
Jaffray observed that the merger was expected to be dilutive to LabOne
stockholders in 1999, with slightly increased dilution in 2000.
Comparable Company Analysis
U.S. Bancorp Piper Jaffray compared financial information and
valuation ratios of LabOne relative to the corresponding data and ratios of five
publicly traded companies deemed comparable to LabOne (Bio Reference
<PAGE>
Laboratories, Laboratory Corporation of America, PharmChem Laboratories, Quest
Diagnostics, Inc. and Unilab Corp.). This group was selected from companies
that:
o are assigned the Standard Industrial Classification Code for
medical laboratories;
o focus on providing laboratory services;
o are publicly traded companies with market capitalizations between
$9 million and $1 billion; and o have latest twelve month revenue
greater than $15 million.
For purposes of its analysis, U.S. Bancorp Piper Jaffray calculated the LabOne
company value of $156.1 million (which consists of market capitalization plus
debt less cash).
The analysis produced multiples of selected valuation data as follows:
<TABLE>
<CAPTION>
LabOne Comparable Companies
------ --------------------------------------------
Mean Median High Low
---- ------ ---- ---
<S> <C> <C> <C> <C> <C>
Company value/latest twelve months revenue 1.5x 0.7x 0.6x 1.0x 0.3x
Company value/latest 12 months EBITDA........... 8.4x 6.6x 6.5x 7.4x 5.7x
Market capitalization/book value................ 3.3x 2.0x 2.0x 2.7x 1.2x
Market capitalization/latest twelve months
earnings . . . . . . . . . . . . . . . . . . . . .15.9x 19.6x 19.6x 35.0x 8.8x
Market capitalization/net earnings for
calendar year 1999 (1)..................... 13.3x 21.6 21.6 25.0 18.1
</TABLE>
- ------------------
(1) Calendar year 1999 net earnings data was not available for Bio
Reference Laboratories, PharmChem Laboratories or Unilab Corp.
Comparable Merger and Acquisition Analysis
U.S. Bancorp Piper Jaffray reviewed merger and acquisition
transactions involving acquisitions of remaining interests in publicly traded
subsidiaries by the companies holding the controlling interest. The transactions
reviewed were completed between January 1, 1994 and February 28, 1998 and had a
transaction value of more than $25 million. U.S. Bancorp Piper Jaffray included
merger and acquisition transactions involving companies outside the industry
group in which LabOne operates in order to permit comparison with transactions
involving characteristics, such as parent-subsidiary relationship and stock
consideration, which U.S. Bancorp Piper Jaffray deemed more significant for
purposes of this analysis than industry comparability. The purpose of this
analysis was to compare the price paid to public stockholders for the
acquisition of the remaining interest in those companies to the proposed
consideration to be paid to the LabOne Stockholders other than Holdings. U.S.
Bancorp Piper Jaffray again performed this analysis assuming that a merger
consideration consisting of 50% equity and 50% cash and also assuming a merger
consideration consisting of 100% equity. The analysis was based on information
obtained from SEC filings, public company disclosures, press releases, industry
and popular press reports, databases and other sources. U.S. Bancorp Piper
Jaffray advised that publicly disclosed information regarding such
40
<PAGE>
transactions is often incomplete, especially for transactions involving
acquisitions of or by privately held companies. The companies involved in the
comparable transactions are shown in the following table:
Acquiror Target
-------- ------
The E.W. Scripps Company Scripps Howard Broadcasting Company
Ogden Corporation Ogden Projects, Inc
Mobile Telecommunication Corporation Destineer Corporation
Uniholding Corporation Unilabs Group Ltd.
Conseco Inc. Bankers Life Holding
National Patent Development General Physics Corporation
Corporation
Sears, Roebuck & Co. Maxserv Inc.
Enron Corporation Enron Global Power & Pipelines LLC
Newmont Mining Corporation Newmont Gold Company
This analysis produced multiples of selected valuation as follows:
<TABLE>
<CAPTION>
LabOne LabOne Comparable Companies
------ ------ --------------------
50%/50% 100% Mean Median Max. Min.
------- ------ ---- ------ ---- ----
<S> <C> <C> C> <C> <C> <C>
Percent owned prior to transaction . . . . . 80.5% 80.5 % 73.6% 80.0% 93.8% 52.0%
Transaction value (in millions) . . . . . . . . $ 30.5 $26.7 $131.7 $94.0 $421.9 $25.7
Premium (discount) one day prior to
announcement . . . . . . . . . . . . . . . .6.8% (6.8)% 4.4% 1.4% 33.3% (9.6)%
Premium (discount) four weeks prior to
announcement . . . . . . . . . . . . . . . . 0.6% (12.1)% 11.8% 12.9% 54.2% (24.5)%
</TABLE>
In reaching its conclusion as to the fairness of the merger
consideration and in its presentation to the Special Committee, U.S. Bancorp
Piper Jaffray did not rely on any single analysis or factor described above,
assign relative weights to the analyses or factors considered by it, or make any
conclusion as to how the results of any given analysis, taken alone, supported
its opinion. The preparation of a fairness opinion is a complex process and not
necessarily susceptible to partial analysis or summary description. U.S. Bancorp
Piper Jaffray believes that its analyses must be considered as a whole and that
selection of portions of its analyses and of the factors considered by it,
without considering all of the factors and analyses, would create a misleading
view of the processes underlying the opinion.
The analyses of U.S. Bancorp Piper Jaffray are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than suggested by the analyses. Analyses relating to the value
of companies do not purport to be appraisals or valuations or necessarily
reflect the price at which companies may actually be sold. No company or
transaction used in any analysis for purposes of comparison is identical to
LabOne, Holdings or the merger. Accordingly, an analysis of the results of the
comparisons is not mathematical; rather, it involves complex considerations and
judgments about differences in the companies to which LabOne and Holdings were
compared and other factors that could affect the public trading value of the
companies.
<PAGE>
For purposes of its opinion, U.S. Bancorp Piper Jaffray relied upon and
assumed the accuracy, completeness and fairness of the financial statements and
other information provided to it by LabOne and Holdings and did not assume
responsibility for the independent verification of such information. Information
prepared for financial planning purposes was not prepared with the expectation
of public disclosure. U.S. Bancorp Piper Jaffray relied upon the assurances of
the management of LabOne and Holdings that (1) the information provided to it by
41
LabOne and Holdings was prepared on a reasonable basis, (2) the financial
planning data and other business outlook information reflects the best currently
available estimates of management, and (3) management was not aware of any
information or facts that would make the information provided to U.S. Bancorp
Piper Jaffray incomplete or misleading. U.S. Bancorp Piper Jaffray also relied
upon memoranda and discussions with the Special Committee and the Special
Committee's legal counsel concerning the elements of fairness of price under
applicable law in the context of a merger such as the merger of LabOne and
Holdings.
For purposes of its opinion, U.S. Bancorp Piper Jaffray assumed that
the final form of the merger agreement would be substantially similar to the
last draft it reviewed, without modification or waiver of material terms or
conditions by Holdings or LabOne. In addition, U.S. Bancorp Piper Jaffray
assumed that, in the course of obtaining the necessary regulatory approvals for
the merger transaction, no restrictions, including any divestiture requirements,
will be imposed that would have a material adverse effect on the contemplated
benefits of the transaction.
In arriving at its opinion, U.S. Bancorp Piper Jaffray did not perform
any appraisals or valuations of any specific assets or liabilities of Holdings
or LabOne, and were not furnished with any such appraisals or valuations. U.S.
Bancorp Piper Jaffray analyzed LabOne as a going concern and accordingly
expressed no opinion as to the liquidation value of any entity. U.S. Bancorp
Piper Jaffray expressed no opinion as to the price at which shares of Holdings
common stock have traded or at which the shares of the combined company may
trade at any future time. The opinion is based on information available to U.S.
Bancorp Piper Jaffray and the facts and circumstances as they existed and were
subject to evaluation on the date of the opinion. Events occurring after that
date could materially affect the assumptions used in preparing the opinion.
U.S. Bancorp Piper Jaffray was not engaged or authorized to solicit,
and it did not solicit, any other business combination transaction or
strategic alternative transaction to the merger.
U.S. Bancorp Piper Jaffray, as a customary part of its investment
banking business, evaluates businesses and their securities in connection with
mergers and acquisitions, underwritings and secondary distributions of
securities, private placements and valuations for estate, corporate and other
purposes. The Special Committee selected U.S. Bancorp Piper Jaffray because of
its expertise, reputation and familiarity with the healthcare services industry
in general. In the ordinary course of its business, U.S. Bancorp Piper Jaffray
and its affiliates may actively trade securities of LabOne or Holdings for their
own accounts or the accounts of their customers and, accordingly, may at any
time hold a long or short position in those securities.
<PAGE>
Under the terms of the engagement letter dated April 18, 1997, LabOne
paid U.S. Bancorp Piper Jaffray a non-refundable retainer of $25,000 for its
financial advisory services rendered in connection with the merger transaction
and agreed to pay an additional $125,000 upon rendering its opinion. Whether or
not the merger is consummated, LabOne has agreed to pay the reasonable
out-of-pocket expenses of U.S. Bancorp Piper Jaffray and to indemnify U.S.
Bancorp Piper Jaffray against liabilities incurred. These liabilities include
liabilities under the federal securities laws in connection with the engagement
of U.S. Bancorp Piper Jaffray by the Special Committee.
Accounting Treatment
The merger will be accounted for as an acquisition of minority interest
using the purchase method of accounting. For the purposes of preparing its
consolidated financial statements, Holdings will determine fair values of
LabOne's assets and liabilities, and will record as goodwill the excess of
consideration paid, plus costs of the merger, over the fair value of the net
assets acquired. A final determination of required purchase accounting
adjustments, including the allocation of the purchase price to the assets
acquired and liabilities assumed based on their respective fair values has not
yet been made, however, management does not believe the adjustments to LabOne's
assets or liabilities will be material. The transaction goodwill created by the
merger will be expensed over a 20 year period. The purchase accounting
adjustments made in connection with the development of the pro forma financial
statements appearing elsewhere in the Joint Proxy Statement/Prospectus
42
are preliminary and have been made solely for purposes of developing such pro
forma financial statements. For financial reporting purposes, the results of
operations relating to the acquisition of the minority interest in LabOne will
be included in the combined company's consolidated financial statements
following the effective date of the merger. See "Unaudited Pro Forma Condensed
Financial Statements" on page 70.
Federal Income Tax Consequences
General. The following is a summary of material United States federal
income tax consequences of the merger to Holdings, LabOne, Holdings
stockholders, and LabOne stockholders. However, the discussion does not purport
to be a complete analysis or listing of all of the tax considerations that might
be relevant to any particular Holdings stockholder or LabOne stockholder in
making a decision to vote for or against the merger. The discussion does not
deal with the tax consequences of the merger to persons who are subject to
special rules such as, for example, financial institutions, dealers in
securities, persons who hold stock as part of a straddle or conversion
transaction, regulated investment companies, insurance companies, tax-exempt
organizations, and foreign persons. The discussion also does not address the tax
consequences of the merger to any stockholder of Holdings or LabOne who does not
hold that stock as a capital asset or who acquires the stock as compensation.
Moreover, the application to the merger of any applicable state, local, or
foreign tax laws, or any estate or gift tax laws, is not discussed.
This discussion is based on the Internal Revenue Code of 1986 (the
"Code"), its legislative history, applicable final, temporary, and proposed
Treasury Regulations, judicial authority, and administrative rulings and
practice, all as currently existing and in effect. There can be no assurance
that the Internal Revenue Service (the "IRS") and the courts will not take a
contrary view with respect to these tax consequences, and no ruling from the IRS
<PAGE>
respecting these tax consequences has been or will be sought. Legislative,
judicial, or administrative changes or interpretations may be forthcoming that
could alter or modify the statements and conclusions set forth herein. Any such
changes or interpretations may be retroactive and could affect (possibly
adversely) the tax consequences of the merger to the constituent corporations
and their respective stockholders.
Holdings has obtained an opinion letter from its counsel, Lathrop &
Gage L.C., regarding the tax consequences of the merger under current law. The
remainder of this discussion summarizes the views of Lathrop & Gage L.C. as set
forth in that opinion letter.
Holdings Stockholders. For federal income tax purposes the merger will
have no effect on Holdings stockholders. However, and notwithstanding the
preceding sentence, Holdings stockholders who receive cash in lieu of fractional
shares in connection with the stock split that precedes the merger will be
treated for federal income tax purposes as if they had received the fractional
shares and such shares were then redeemed by Holdings. The specific tax
consequences of this treatment to each such stockholder will depend on such
stockholder's individual circumstances, although the IRS generally has ruled
that a stockholder who receives cash that is not separately bargained-for
consideration in lieu of a fractional share will recognize gain or loss on the
deemed redemption of such fractional share in an amount equal to the difference
between the amount of cash received and the stockholder's tax basis in such
fractional share.
Similarly, and also notwithstanding the first sentence of the preceding
paragraph, Holdings stockholders who receive cash as a result of their exercise
of statutory dissenters' rights will be treated for federal income tax purposes
as if their Holdings stock were redeemed by Holdings. This deemed redemption
will be treated as a sale or exchange of a dissenting stockholder's Holdings
stock, and thus will trigger capital gain or loss in an amount equal to the
difference between the amount of cash received and the stockholder's tax basis
in such stock, unless the stockholder is treated pursuant to certain
constructive ownership rules of the Code as being the owner of Holdings stock
that is actually owned by another related person. If a dissenting stockholder is
deemed to continue
43
to own Holdings stock after the merger by reason of these constructive ownership
rules, then the deemed redemption of such stockholder's Holdings stock will be
treated either as a sale or exchange of such stock (and thus will trigger
capital gain or loss) or as a dividend, in accordance with the deemed redemption
rules discussed below that are applicable to LabOne stockholders who receive
both combined company stock and cash in exchange for their LabOne stock pursuant
to the merger.
Because the specific tax consequences of the merger and the stock split
that precedes the merger to Holdings stockholders who exercise statutory
dissenters' rights or receive cash in lieu of fractional shares will depend on
their individual circumstances, they are urged to consult with their tax
advisors regarding the specific tax consequences to them of these events.
LabOne Stockholders (Other Than Holdings). With respect to LabOne
stockholders (other than Holdings) the merger will qualify for federal income
tax purposes as a tax-free reorganization and both Holdings and LabOne will be
parties to such reorganization. Accordingly, the principal federal income tax
consequences of the merger to such stockholders are as follows.
<PAGE>
No gain or loss will be recognized by LabOne stockholders who receive
only combined company stock in exchange for their LabOne stock pursuant to the
merger.
LabOne stockholders who receive some combined company stock and some
cash in exchange for their LabOne stock pursuant to the merger will recognize
gain, but not loss, on such exchange. The amount of the gain recognized by such
a stockholder will be equal to the lesser of: (1) the total gain realized by
such stockholder on the exchange (i.e., the value of the merger consideration
received by such stockholder, including both cash and combined company stock,
less such stockholder's tax basis in the LabOne stock that is given up in the
exchange); or (2) the amount of cash received. The gain that is realized by a
LabOne stockholder may be capital gain or ordinary income, depending on the
stockholder's individual circumstances.
For purposes of determining whether the gain realized by LabOne
stockholders who receive some combined company stock and some cash in exchange
for their LabOne stock pursuant to the merger is capital gain or ordinary
income, such stockholders will be treated as if they exchanged all of their
LabOne stock for combined company stock and Holdings immediately redeemed a
portion of such combined company stock for cash. This deemed redemption of a
LabOne stockholder will be treated as a sale or exchange of the stock that is
deemed to have been redeemed, and thus will trigger capital gain or loss, if the
deemed redemption is considered to be "not essentially equivalent to a dividend"
(within the meaning of the Code) or if it is considered to be "substantially
disproportionate" with respect to the stockholder (within the meaning of the
Code); otherwise the cash received will be treated as a dividend. In determining
whether the deemed redemption is not essentially equivalent to a dividend or is
substantially disproportionate, certain constructive ownership rules of the Code
generally apply pursuant to which a stockholder is treated as owning stock that
is actually owned by certain other related parties.
A deemed redemption of Holdings stock treated as held by a LabOne
stockholder who receives some combined company stock and some cash in exchange
for LabOne stock will be considered to be not essentially equivalent to a
dividend if the deemed redemption results in a meaningful reduction in the
stockholder's interest in Holdings. In this regard, the IRS has taken the
position that the "not essentially equivalent to a dividend" test may be
satisfied with respect to a redemption of a portion of a stockholder's stock in
a corporation if the stockholder's percentage stock ownership interest in the
corporation is minimal, the stockholder exercises no control over corporate
affairs, and there is a meaningful reduction in the stockholder's percentage
stock ownership.
A deemed redemption of Holdings stock treated as held by a LabOne
stockholder who receives some
44
combined company stock and some cash in exchange for LabOne stock will be
considered to be substantially disproportionate with respect to the stockholder
if the stockholder actually and constructively owns less than 50 percent of the
voting power of the outstanding Holdings stock after the deemed redemption and
if the percentage of Holdings stock actually and constructively owned by such
stockholder after the deemed redemption is less than 80 percent of the
percentage of Holdings stock actually and constructively owned by such
stockholder immediately before the deemed redemption.
<PAGE>
As indicated in the foregoing discussion, the character of the gain, if
any, recognized by LabOne stockholders who receives some combined company stock
and some cash in exchange for their LabOne stock pursuant to the merger depends
on the stockholders' individual circumstances. Therefore, such stockholders are
urged to consult with their tax advisors regarding the character of the gain, if
any, that is recognized by them as a result of such event.
LabOne stockholders who receive only cash in exchange for their LabOne
stock pursuant to the merger will likely be treated as if they had received
combined company stock in the merger and such stock was redeemed by Holdings
immediately thereafter, although the law in this regard is unclear and such
stockholders may be treated as if they had sold their LabOne stock to Holdings.
A deemed redemption may be treated as a sale or exchange of Holdings stock (with
the recognition of capital gain or loss) or it may be treated as a dividend,
depending on the stockholder's individual circumstances. A deemed sale would
cause the recognition of capital gain or loss.
A deemed redemption of Holdings stock held by a LabOne stockholder who
receives only cash in exchange for LabOne stock will be treated as a sale or
exchange of such stock, and thus will trigger capital gain or loss in an amount
equal to the difference between the amount of cash received and such
stockholder's tax basis in such stock, unless the stockholder is treated
pursuant to constructive ownership rules of the Code as being the owner of
Holdings stock that is actually owned by another related person. If such a
LabOne stockholder is deemed to continue to own Holdings stock after the merger
by reason of these constructive ownership rules, then the deemed redemption
either will be treated as a sale or exchange of such stock (and thus will
trigger capital gain or loss) under the "not essentially equivalent to a
dividend" and "disproportionate redemption" rules discussed above or it will be
treated as a dividend.
Because of the uncertainty in the law, and because of the LabOne
stockholders' varying circumstances, LabOne stockholders who receive only cash
in exchange for their LabOne stock pursuant to the merger are urged to consult
with their tax advisors regarding the tax consequences to them of such event.
The tax basis of the shares of combined company stock received by a
LabOne stockholder pursuant to the merger will equal the tax basis of such
stockholder's shares of LabOne stock exchanged in the merger, increased by the
amount of any gain recognized by such stockholder and decreased by the amount of
any cash received by such stockholder. The holding period for shares of combined
company stock received by a LabOne stockholder pursuant to the merger will
include the holding period for the shares of LabOne stock exchanged in the
merger.
Holdings. With respect to Holdings the merger will qualify as a
tax-free liquidation of LabOne. The principal federal income tax consequences
of such qualification are as follows.
No gain or loss will be recognized by Holdings upon the receipt by it
of all of LabOne's property and the cancellation of its LabOne stock pursuant to
the merger or as a result of the stock split that precedes the merger. However,
and notwithstanding the preceding sentence, Holdings will at the time of the
merger recognize any gain or loss that is realized by it upon its receipt of
property from LabOne in satisfaction of any debt that is then owed to it by
LabOne. Also, and again notwithstanding the first sentence of this paragraph,
Holdings may at the time of the merger recognize income from the discharge of
indebtedness if any indebtedness is then owed by it to LabOne.
45
<PAGE>
Holdings' initial tax basis in each of the properties received by it
from LabOne pursuant to the merger will be the same as LabOne's tax basis
therein immediately before the merger. Holdings' holding period for the property
received by it from LabOne pursuant to the merger will include the period for
which the property was held by LabOne.
LabOne. With respect to LabOne the merger will qualify as a tax-free
liquidation of LabOne. Accordingly, no gain or loss will be recognized by LabOne
for federal income tax purposes upon the distribution by it of all of its
property to Holdings pursuant to the merger.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION ONLY. ACCORDINGLY,
EACH HOLDINGS STOCKHOLDER WHO MAY WISH TO EXERCISE DISSENTERS' RIGHTS, AND EACH
LABONE STOCKHOLDER, IS URGED TO CONSULT WITH SUCH STOCKHOLDER'S TAX ADVISOR AS
TO THE PARTICULAR TAX CONSEQUENCES TO SUCH STOCKHOLDER OF THE MERGER, INCLUDING
THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR NON-UNITED STATES LAWS AND
ANY PROSPECTIVE CHANGES IN APPLICABLE TAX LAWS.
Interests of Certain Persons in the Merger
In considering the recommendations of the LabOne Board of Directors and
the Holdings Board of Directors with respect to the merger, stockholders should
be aware that certain members of the Board of Directors of LabOne, certain
executive officers of LabOne, certain members of the Board of Directors of
Holdings and certain executive officers of Holdings have the following interests
in the merger separate from and in addition to their interests as LabOne
stockholders and Holdings stockholders, respectively.
Composition of the Combined Company Board. In connection with the
merger, nine of the current directors of LabOne, will be elected as directors of
the combined company at the time of the merger. All of the current directors of
Holdings will concurrently resign their positions as directors and will cease to
have any continuing office with the combined company.
Director Compensation After the Merger. Directors who are not employees
of the combined company will receive the same compensation as non-employee
directors received from LabOne prior to the merger, subject to change from time
to time by the Board of Directors of the combined company. Directors who are not
employees of the combined company will receive an annual retainer fee of $5,000
in cash and a grant of a number of shares of common stock of the combined
company 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, who will serve as a Director of the combined
company, has agreed to attend national meetings of insurance underwriters on
behalf of the combined company and to make selected contacts in furtherance of
its business, for which services the combined company will pay Mr. Schweiker
additional fees of $30,000 annually.
Adjustments to Holdings Stock Options. Each of the four Holdings
directors who will cease to hold office at the effective time of the merger hold
options to purchase 15,000 shares of the Holdings common stock at a price of
$26.50 per share. The options were granted on September 17, 1997, for terms
expiring on the earlier of (i) September 17, 2007, (ii) 90 days after the
directors term as director terminates other than by death or (iii) one year
after death if the death occurs during or within 90 days after the term of the
<PAGE>
director terminates. The options become exercisable in three equal annual
installments commencing on each of the first three
46
anniversaries of the date of grant or in full upon certain change-in-control
events or in the event of a merger which contemplates that the directors term
will cease following the merger, as is the case in the proposed merger. During
August 1998, and based on the recommendation of the compensation committee of
the Holdings Board, the Board of Directors of Holdings amended the options so
that they would not automatically expire 90 days following a termination of
director status due to a merger. Adoption of the merger agreement will effect a
ratification of that Board action. In addition, the merger agreement provides
that at the effective time the options will be adjusted so that each option to
purchase 15,000 shares for $26.50 per share will become an option to purchase
22,500 shares at a per share price of $17.66 per share. See "Management of
Holdings -- Report of the Compensation Committee on Executive Compensation" on
page 116.
Payments Upon Termination of Employment Agreements. The merger agreement
also provides that the employment of all officers of Holdings will terminate at
the effective time of the merger. This will effect a termination of the
employment agreements without cause of each of those officers so as to trigger a
requirement of Holdings to pay Mr. Jacobs and Mr. Fitzwater their base salaries
for a period of two years, and Ms. McCoy her base salary for a period of one
year, following the date of termination. The annual base salary of each of
Messrs. Jacobs and Fitzwater is $100,000 and the base salary of Ms. McCoy is
$70,000.
Indemnification. The merger agreement obligates the combined company to
provide indemnification and to advance expenses to persons who were officers and
directors of LabOne or Holdings prior to the effective time. These obligations
will survive the merger and will remain in force for six years after the
effective time. Further, the merger agreement obligates the combined company to
provide directors and officers liability insurance for a period of six years to
persons who were directors or officers on March 7, 1999 and who cease to be so
prior to or at the effective time. The obligation of the combined company to
indemnify directors and officers includes the obligation to indemnify for
liabilities arising out of the merger or the merger agreement.
LabOne also has corporate reimbursement and directors and officers
liability insurance which indemnifies directors and officers against claims made
against them during the policy period for wrongful acts in their capacities as
directors and officers of LabOne. This insurance has been recently modified to
eliminate a previous exclusion of coverage for claims against such persons
brought by or on behalf of Holdings or its stockholders by reason of any
proposed or completed merger of LabOne and Holdings.
Dissenters' Rights.
Under The Delaware General Corporation Law, LabOne stockholders have no
dissenters' rights with respect to the Merger.
Under Section 351.455 of The General and Business Corporation Law of
Missouri, Holdings stockholders who do not vote in favor of adoption of the
merger agreement and who follow the procedures summarized below will have the
right to dissent from and obtain payment in cash of the fair value of their
shares of Holdings common stock (as of the day prior to the day of the Holding's
meeting) in the event of the consummation of the merger. However, Holdings may
<PAGE>
elect to terminate the merger agreement if holders of more than 5% of Holdings
outstanding shares exercise dissenters' rights. No holder of Holdings common
stock dissenting from the merger will be entitled to shares of combined company
common stock or any dividends or other distributions unless and until the holder
fails to perfect or effectively withdraws or loses such holder's right to
dissent from the merger agreement.
The following is a summary of the procedures which must be followed by
any stockholder who wishes to dissent and demand payment for his or her shares
in the event of consummation of the merger. The text of
47
Section 351.455, which contains the applicable procedures, is set forth in
Appendix D to this Joint Proxy Statement/Prospectus. Holders of Holdings common
stock receiving cash upon exercise of dissenters' rights may recognize gain for
federal income tax purposes. See "Federal Income Tax Consequences" on page 43.
A Holdings stockholder may assert dissenters' rights only if such
stockholder:
(i) delivers to Holdings prior to or at the Annual Meeting a
written objection to the merger agreement. Such objection
should be delivered or mailed in time to arrive before the
Annual Meeting to Lab Holdings, Inc., 5000 West 95th Street,
Suite 260, Shawnee Mission, Kansas 66207, Attention:
Corporate Secretary. Such a written objection must be made
in addition to, and separate from, any proxy or other vote
against adoption of the merger agreement. Neither a vote
against, a failure to vote for, or an abstention from voting
will satisfy the requirement that a written objection be
delivered to Holdings before the vote is taken. Unless a
stockholder files the written objection as provided above,
he or she will not have any dissenters' rights of appraisal;
and
(ii) does not vote in favor of adoption of the merger agreement;
and
(iii) delivers to the combined company within twenty days
after the effective time of the merger a written demand for
payment of the fair value of his or her shares of Holdings
common stock as of the day prior to the date on which the
vote for adoption of the merger agreement was taken and
which demand includes a statement of the number of shares of
Holdings common stock owned. Such demand must be mailed or
delivered to the combined company at 10101 Renner Boulevard,
Lenexa, Kansas 66219, Attn: W.T. Grant II, Chairman and
President. Any stockholder who fails to make a written
demand for payment within the twenty-day period after the
effective time will be conclusively presumed to have
consented to the merger agreement and will be bound by the
terms thereof. Neither a vote against the merger agreement
nor the written objection referred to in (i) satisfies the
written demand requirement referred to in this clause (iii).
A beneficial owner of shares of Holdings common stock who is not the
record owner may not assert dissenters' rights. If the shares of Holdings common
stock are owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, or by a nominee, the written demand asserting dissenters'
<PAGE>
rights must be executed by the fiduciary or nominee. If the shares of Holdings
common stock are owned of record by more than one person, as in a joint tenancy
or tenancy in common, the demand must be executed by all joint owners. An
authorized agent, including an agent for two or more joint owners, may execute
the demand for a stockholder of record; however, the agent must identify the
record owner and expressly disclose the fact that, in executing the demand, he
is acting as agent for the record owner.
If within thirty days of the effective time the value of a dissenting
stockholder's shares of Holdings common stock is agreed upon between the
stockholder and the combined company, the combined company will make payment to
the stockholder within ninety days of the effective time, upon the stockholder's
surrender of his or her certificates. Upon payment of the agreed value, the
dissenting stockholder will cease to have any interest in such shares or in the
combined company.
If the dissenting stockholder and the combined company do not agree on
the fair value of the shares within thirty days of the effective time, the
dissenting stockholder may, within sixty days thereafter, file a petition in any
court of competent jurisdiction within Cole County, Missouri asking for a
finding and a determination of the fair value of the shares. The dissenting
stockholder is entitled to judgment against the combined company for the amount
of such fair value as of the day prior to the date on which such vote was taken
adopting the merger agreement, together with interest thereon to the date of
judgment. The judgment is payable only upon and simultaneously with the
surrender to the combined company of the Holdings certificates representing said
shares.
48
Upon payment of the judgment, the dissenting stockholder shall cease to have any
interest in such shares or in the combined company. Unless the dissenting
stockholder will file such petition within the time herein limited, such
stockholder and all persons claiming under such stockholder will be conclusively
presumed to have adopted and ratified the merger agreement, and will be bound by
the terms thereof.
The right of a dissenting stockholder to be paid the fair value for his
or her shares will cease if the stockholder fails to comply with the procedures
of Section 351.455 or if the merger agreement is terminated for any reason.
The preceding is qualified in its entirety by the text of the appraisal
provisions of Section 351.455 which is attached hereto as Appendix D and is
incorporated herein by reference.
It is a condition to the merger than the holders of not more than 5% of
Holdings' outstanding common stock exercise their dissenters' rights.
Amendments to Holdings' Articles of Incorporation and Bylaws
Holdings is the combined company in the merger. The merger agreement
provides that Holdings' Articles of Incorporation and By-Laws will be amended
and restated in certain respects as of the effective time of the merger. These
changes are reflected in the Articles of Incorporation and Bylaws of the
combined company attached as Exhibits B and C to the Merger Agreement. The
principal changes are described below.
<PAGE>
Articles of Incorporation.
o The name of the corporation will be changed to LabOne, Inc.
o The authorized common stock will be increased from 24,000,000 to
40,000,000 shares to match the number of currently authorized common
stock of LabOne.
o The par value of the common stock and preferred stock of the
corporation will be reduced from $1.00 par value per share to $.01 par
value per share.
o A "fair price" provision which waives the requirement of 80%
stockholder approval on certain business combinations involving
certain related persons if the business combination is approved by a
two-thirds vote of continuing directors at a meeting at which (before
giving effect to the Articles Amendment described on page 49) a quorum
of at least nine continuing directors are present, is changed to
require a two-thirds vote of all continuing directors in order to
waive the 80% stockholder approval requirement. The fair price
provision is also changed to expand the universe of Bylaw provisions
which must be retained in a merger with a subsidiary in order for the
merger not to be considered a business combination.
o A provision requiring the affirmative vote of at least 80% of the
outstanding shares entitled to vote in order to amend, modify or
repeal certain provisions of the Articles of Incorporation or Bylaws,
unless the Board of Directors unanimously recommends any such
amendment, is changed (a) to expand the sections of the Bylaws which
may not be amended without 80% stockholder approval, (b) to require
80% stockholder approval to adopt provisions inconsistent therewith,
and (c) to eliminate such 80% stockholder approval requirement if any
such amendment is favorably recommended by only a majority of the
entire Board of Directors. The additional provisions of the Bylaws to
be subject to such 80% stockholder approval requirements for amendment
include:
49
o a provision specifying the officers who may preside over stockholders'
meetings and giving the presiding officer authority to adjourn
stockholders' meetings from time to time;
o a provision limiting the business to be conducted at stockholders'
meetings to matters stated in the notice of such meetings or otherwise
properly brought before the meetings;
o a provision stating that the property and business of the corporation
shall be controlled and managed by the Board of Directors;
o provisions providing for the indemnification and limitation of
liability of directors, officers and employees of the corporation, or
persons who are serving at the request of the corporation as
directors, officers or employees of other enterprises; and
o provisions establishing advance notice procedures for stockholders
wishing to nominate candidates for election as directors or to bring
other proposals before annual stockholders' meetings.
<PAGE>
Bylaws
o A new provision will be added to require advance notice of all
stockholders' nominations for election as directors and to bring other
proposals not sponsored by the Board of Directors before annual
stockholders' meetings. Stockholders will be required to deliver prior
written notice of any director nomination or other proposal to the
Secretary of the corporation no later than ninety days before the
meeting date or ten days after the meeting date is publicly announced,
whichever is later. Such notice must be accompanied by specific
information of the sort needed by the corporation for inclusion in any
proxy materials prepared in accordance with the Securities Exchange
Act of 1934. If the stockholder's nomination or proposal is deemed
incomplete by the Board of Directors or a designated committee
thereof, the stockholder will be notified and given five days, or such
shorter time as may reasonably be deemed appropriate by the Board or
committee, to cure the deficiency. If the Board or designated
committee does not act on the stockholder nomination or proposal
before the meeting, then the presiding officer of the meeting will
make the determination whether the request is in proper form for
consideration at the meeting.
o The right of the holders of four-fifths of the outstanding shares of
the corporation entitled to vote to call a special stockholders'
meeting will be eliminated.
o The right of a single director to call a special meeting of the board
will be eliminatedsuch a meeting may be called by specified officers
or a majority of the entire board.
o A provision that no person shall be eligible for election as an
outside director of the corporation after he has attained the age of
seventy-five will be eliminated.
o A provision allowing one or more directors to call a special meeting
of the Board of Directors will be changed to permit a majority of the
entire Board to call a special Board of Directors' meeting.
o A provision is added specifying the officers who may preside over
stockholders' meetings and giving the presiding officer authority to
adjourn stockholders' meetings from time to time.
o A provision is added limiting the business to be conducted at
stockholders' meetings to matters
50
stated in the notice of such meetings or otherwise properly brought
before the meetings.
o A provision is added empowering the Board of Directors to determine
which class of directors will have a number of directors different
from the other classes if the number of directors is not evenly
divisible by three.
<PAGE>
Certain Possible Anti-takeover Effects of the Amendments to the Articles of
Incorporation and Bylaws of the Combined Company.
The merger is not being proposed in order to prevent any known attempt
to acquire control of Holdings by means of a merger, tender offer, solicitation
in opposition to management or otherwise, or to obtain representation on the
Holdings or LabOne Boards of Directors. It is not the policy of LabOne or
Holdings to discourage legitimate offers to enhance stockholder value. However,
certain of the amendments to the Articles of Incorporation and Bylaws of the
combined company may have an anti-takeover effect as described below. The
proposed amendments to the Articles of Incorporation and Bylaws of the combined
company are not part of a plan to adopt a series of such amendments.
Increase in Authorized Shares. As described above, the authorized
shares of common stock of the combined company will be increased in the merger
from 24,000,000 shares to 40,000,000 shares. LabOne and Holdings agreed to
increase the authorized shares of common stock to 40,000,000 shares so that the
number of authorized shares of common stock of the combined company after the
merger would equal the number of authorized shares of common stock of LabOne
prior to the merger (although the ratio of authorized shares to outstanding
shares is expected to decline as a result of the merger and related
transactions). This increase in the number of authorized shares is not intended
as an anti -takeover device, and there are currently no plans, understandings,
agreements or arrangements concerning the issuance of additional shares of
capital stock of the combined company, other than shares to be issued in
connection with the merger and the stock split, pursuant to employee benefit
plans and upon the exercise of warrants issued by LabOne that are being assumed
by the combined company in the merger. However, the increase in the number of
authorized shares could enable the board of directors of the combined company to
render more difficult or discourage a hostile transaction to take control of the
combined company. In the course of exercising their fiduciary responsibilities
to stockholders, the board of directors could issue additional shares without
stockholder approval in order to increase the voting power of parties friendly
to the board of directors or to dilute the voting and other rights of the
proposed acquiror. The 3,000,000 authorized but unissued shares of combined
company preferred stock may be also issued by the board of directors for the
same purposes.
Advance Notice of Stockholder Nominations and Proposals. The combined
company's Bylaws will contain a new provision establishing an advance notice
procedure for stockholders wishing to nominate candidates for election as
directors or bring other business before an annual meeting of stockholders. By
requiring advance notice of nominations and stockholder proposals, the new Bylaw
provision will provide a more orderly procedure for conducting annual meetings
of stockholders and will provide the Board of Directors with the opportunity to
inform stockholders prior to such meetings, to the extent deemed necessary or
desirable by the Board of Directors, of the qualifications of such nominees and
of any business to be conducted at such meetings. Although the advance notice
provisions do not give the board of directors of the combined company any power
to approve or disapprove stockholder nominations or proposals, they may have the
effect of precluding or delaying a contest for the election of directors or the
consideration of stockholder proposals if the designated procedures are not
followed. Such provisions may have the effect of discouraging or deterring a
third party from conducting a solicitation of proxies to elect its own slate of
directors or to approve its own proposal, without regard to whether
consideration of such nominees or proposals might be harmful or beneficial to
the combined company or its stockholders.
<PAGE>
Special Stockholders' Meetings. The combined company's Bylaws will be
amended to eliminate the right of the holders of four-fifths (4/5) of
outstanding shares to call a special meeting of stockholders. Special
51
meetings may be called only by a majority of the entire board of directors. The
purpose of this amendment is to avoid the time, expense and disruption resulting
from holding special meetings of stockholders in addition to annual meetings,
unless the special meetings are approved by the Board of Directors. However,
this amendment may have the effect of delaying a change in control of the
combined company or delaying the presentation to the stockholders of a
stockholder proposal favored by the holders of four-fifths (4/5) of the
outstanding shares.
Existing Provisions of the Articles of Incorporation and Bylaws.
Certain existing provisions found in Holdings' articles of incorporation and
by-laws that also will be included in the combined company's Articles of
Incorporation and By-Laws might have the effect of discouraging a potential
acquiror from attempting a takeover of the combined company on terms which some
stockholders might favor, and might reduce the opportunity for the combined
company's stockholders to sell shares at a premium over then-prevailing market
prices. These include provisions relating to a classified board of directors,
removing and appointing directors, "blank-check preferred stock", business
combinations and charter and by-law amendments. See "Description Of Combined
Company Capital Stock - Certain Provisions of Combined Company Articles of
Incorporation and Bylaws That May Have an Anti-takeover Effect" on page 104.
Resales of Common Stock
The shares of Holdings common stock to be issued to the stockholders of
LabOne in the merger are being registered under the Securities Act pursuant to
the registration statement of which this Joint Proxy Statement/Prospectus is a
part. However, because some stockholders of LabOne are or may be affiliates of
LabOne, such persons will not be able to resell the common stock of the combined
company received in the merger with respect to their LabOne shares unless the
common stock of the combined company is registered for resale under the
Securities Act, is sold in compliance with an exemption from the registration
requirements of the Securities Act or is sold in compliance with Rule 145 under
the Securities Act.
Under Rule 145 the sale of common stock acquired by LabOne affiliates
with respect to their LabOne shares in the merger will be subject to certain
restrictions. Such persons may sell common stock of the combined company under
Rule 145 if (i) the combined company has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the preceding 12 months, (ii)
the common stock is sold in a "broker's transaction," or in transactions
directly with a market maker, and (iii) such sale and all other sales made by
such person within the preceding three months do not collectively exceed the
greater of (x) 1% of the outstanding shares of the common stock of the combined
company and (y) the average weekly trading volume of that common stock on the
Nasdaq Stock Market during the four-week period preceding the sale.
One year following the merger and if such person is not an affiliate of
the combined company, the person may sell the common stock of the combined
company under Rule 145 without complying with the requirements described above
if the combined company has filed all reports required to be filed by Section 13
or 15(d) of the Exchange Act during the preceding 12 months. Two years following
the merger, if such person is not an affiliate of the combined company and has
<PAGE>
not been an affiliate for at least three months, the person may sell the common
stock of the combined company without complying with any of the requirements
described above.
Persons who may be deemed to be affiliates of LabOne generally include
individuals or entities which control, are controlled by, or are under common
control with, LabOne and may include certain officers, directors and principal
stockholders of LabOne and Holdings. The merger agreement requires LabOne to use
its commercially reasonable efforts to cause each of its affiliates to execute a
written agreement pursuant to which each acknowledges that it is subject to the
provisions of Rule 145(d).
52
<PAGE>
THE MERGER AGREEMENT
General
The merger agreement provides for the merger of LabOne into Holdings,
with Holdings continuing as the surviving corporation. This section of the
document describes material provisions of the merger agreement that is appended
to this document as Appendix A. Because the description of the merger agreement
is a summary, it does not contain all the information that may be important to
you. You should read carefully the entire copy of the merger agreement before
you decide how to vote.
Pre-Merger Stock Split
The merger agreement provides that, prior to the effective time of the
merger, the Board of Directors of Holdings will declare a stock split payable as
a dividend so that, immediately prior to the effective time, each issued and
outstanding share of Holdings common stock shall be automatically converted into
1.50 shares of Holdings common stock. The dividend will be conditioned upon
satisfaction of all conditions to the merger and will be payable after the
merger in common stock of the combined company.
Closing of the Merger; Effective Time of the Merger
Closing of the Merger. Unless the parties agree otherwise, the closing
of the merger will take place on the business day on which there is satisfaction
(or waiver) of the latest to occur of all of the closing conditions. This is
expected to occur shortly after the approval of the stockholders of both
companies at the annual meetings.
Effective Time of the Merger. At the closing of the merger, Holdings
will file articles of merger with the Missouri Secretary of State and a
certificate of merger with the Secretary of State of Delaware. The effective
time of the merger will be when the Missouri Secretary of State issues a
certificate of merger attaching to it the articles of merger.
Effect of Merger
Surviving Corporation. Holdings will be the surviving corporation in
the merger. However, pursuant to the merger agreement, its name will be changed
to LabOne, Inc.
Articles and Bylaws. The Articles of Incorporation and Bylaws of
Holdings as in effect immediately prior to the effective time will be amended to
read as set forth in Exhibits B and C, respectively, to the merger agreement.
See "The Proposed Merger - Amendments to Holdings' Articles of Incorporation and
Bylaws" on page 49 and "Description of Combined Company Capital Stock" on page
103.
Directors and Officers. At the effective time, the directors and
officers of Holdings will resign, management of the combined company will
consist of the present LabOne management and the board of directors of the
combined company will consist of twelve persons, nine of whom are presently
members of the LabOne Board. See "Management of LabOne" on page 89 and
"Management of Combined Company After the Merger" on page 98.
53
<PAGE>
Conversion of LabOne Common Stock Into Shares of the Combined Company or Cash
Merger Consideration for LabOne Common Stock. Subject to the maximum
cash payment amount limitation described below, if you are a record holder of
LabOne common stock immediately prior to the effective time, you may elect to
receive:
(a) a cash price per share equal to $12.75 (a "Cash Election");
(b) one (1) share of combined company common stock (a "Stock Election");
or
(c) the cash price per share for a stated number of your shares (a
"Partial Cash Election") and combined company common stock for a
stated number of your shares (a "Partial Stock Election").
A Form of Election, which a record holder of LabOne common stock may
use for purposes of making a Cash Election or a Partial Cash Election, is
included with this Joint Proxy Statement/Prospectus. If you fail to properly
make a Cash Election or Partial Cash Election by submitting to American Stock
Transfer and Trust Company, which is acting as Disbursing Agent, a properly
completed and signed Form of Election on or before the meeting of the
stockholders of LabOne, you will be deemed to have made a Stock Election and
will receive stock of the combined company in exchange for your shares of LabOne
in the merger.
If you make a Stock Election or a Partial Stock Election, your shares
of LabOne common stock with respect to which your election is made
(collectively, the "Stock Election Shares") will be converted into the right to
receive combined company common stock. As noted above, if you fail to make a
Cash Election or Partial Cash Election, you will be deemed to have made a Stock
Election. Therefore, you do not need to do anything to make a Stock Election.
From and after the effective time, certificates evidencing shares of
LabOne common stock (other than shares held by Holdings, which will be cancelled
and Cash Election Shares) will be deemed to represent the number of shares of
combined company common stock into which they were converted. Accordingly,
holders who wish to make a Stock Election will not be required to surrender
their shares to the Disbursing Agent. However, such holders may obtain new
certificates at a later date by delivering the old certificates to the combined
company's Transfer Agent, American Stock Transfer & Trust Company, together with
appropriate transmittal documents that may be obtained from such agent upon
request.
If you make a Cash Election or a Partial Cash Election, your right to
receive cash in the merger is subject to the limitation that the maximum amount
payable in cash with respect to all shares of LabOne common stock may not exceed
$16,600,000 in the aggregate. If the amount payable in cash with respect to
shares of all holders who make a Cash Election or a Partial Cash Election
(collectively, the "Cash Election Shares") exceeds the maximum cash payment
amount, then your Cash Election Shares will be converted into the right to
receive a combination of combined company common stock and cash, so that each
Cash Election Share shall be converted into the right to receive:
(a) an amount in cash (rounded to the nearest cent and subject
to adjustment, as provided in clause (b) below), without interest,
equal to the product of (i) $12.75 and (ii) a fraction ("Cash
Fraction"), the numerator of which will be the $16,600,000 and the
denominator of which will be the aggregate amount of all valid cash
<PAGE>
elections with respect to all Cash Election Shares; and
(b) a number of shares of combined company common stock equal
to the product of (i) one (1) multiplied by ii) a fraction equal to one
(1) minus the Cash Fraction. If the product of clause (b)(i) and (ii)
in the preceding sentence results in a fractional share (taking into
account all Cash Election Shares that you hold), then the number of
shares that you will receive will be rounded up to the nearest whole
number of shares and the amount of cash payable under clause (a) will
be reduced by $12.75 less the value of such fraction.
54
For Example - if all cash elections amount to $20,000,000 and you
elected all cash for 100 of your shares, you would receive cash for 83 LabOne
shares and combined company stock for 17 of your LabOne shares as follows:
$16,600,000/$20,000,000 = .83 = Cash Fraction
.83 x 100 shares = 83 shares x $12.75= $1,058.25 in cash and
.17 x 100 shares = 17 shares of combined company common stock
Election Procedures. Holdings has appointed its transfer agent,
American Stock Transfer & Trust Company, to act as Disbursing Agent for the
payment of merger consideration to holders of LabOne common stock. At the
effective time, the combined company will deposit with the Disbursing Agent in
trust for the benefit of LabOne stockholders cash in an amount sufficient to
make cash payments to those who have made Cash Elections or Partial Cash
Elections together with shares of combined company common stock for those who
have made Partial Stock Elections.
Pursuant to the merger agreement, each person who was a LabOne
stockholder on the record date for the LabOne annual meeting is receiving with
this Joint Proxy Statement/Prospectus a Letter of Transmittal that includes a
Form of Election for use in making a Cash Election or a Partial Cash Election.
Holdings and LabOne have agreed to use their reasonable efforts to make the Form
of Election and related Letter of Transmittal and the Joint Proxy
Statement/Prospectus available to all persons who become record holders of
LabOne common stock during the period between such record date and the Election
Date referred to below. The Form of Election specifies that delivery shall be
effected, and risk of loss and title to the LabOne certificates shall pass, only
upon proper delivery of the LabOne certificates to the Disbursing Agent and
contains instructions for use in effecting the surrender of LabOne certificates
in exchange for payment of cash to stockholders who wish to make a Cash Election
or a Partial Cash Election
Under the merger agreement, any Cash Election or Partial Cash Election
will be properly made only if the Disbursing Agent receives at its designated
office, before or concurrent with the commencement of the LabOne Stockholders
Meeting on August __ , 1999 (the "Election Date"), a Form of Election and
related Letter of Transmittal, properly completed and signed, and accompanied by
certificates for the shares of LabOne Common Stock to which such Form of
Election relates, properly endorsed or otherwise in proper form for transfer (or
accompanied by an appropriate guarantee of delivery of such certificates as set
forth in such Letter of Transmittal from a firm which is a member of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc. or a commercial bank or trust company having an office
or correspondent in the United States, provided such Certificates are in fact
<PAGE>
delivered to the Disbursing Agent within three trading days after the date of
execution of such guarantee of delivery). Failure to deliver certificates
covered by a guarantee of delivery within three trading days after the date of
execution of such guarantee of delivery will invalidate any otherwise properly
made Cash Election or Partial Cash Election.
Any stockholder who submits a Form of Election to the Disbursing Agent
may revoke it by delivering written notice to the Disbursing Agent prior to 5:00
p.m., New York City time, on the Election Date. All Forms of Election shall
automatically be revoked if the Disbursing Agent is notified in writing by
Holdings and LabOne that the merger has been abandoned. If a Form of Election is
revoked, the certificate or certificates (or guarantees of delivery, as
appropriate) for the shares of LabOne common stock to which such Form of
Election relates will be promptly returned to the stockholder submitting the
same to the Disbursing Agent.
Promptly after the Effective Time, the combined company will cause the
Disbursing Agent to make payment to those who have timely and properly submitted
their LabOne certificates with a duly executed Letter of Transmittal and such
other documents as may be reasonably required by the Disbursing Agent. No
interest will
55
be paid or will accrue on amounts payable upon the surrender of the LabOne
certificates. If payment is to be made to a person other than the person in
whose name the LabOne certificate surrendered is registered, it shall be a
condition of payment that the LabOne certificate so surrendered be properly
endorsed or otherwise be in proper form for transfer and that the person
requesting such payment pay any transfer or other taxes required by reason of
the payment to a person other than the registered holder of the LabOne
certificate surrendered or establish to the satisfaction of the combined company
that such tax has been paid or is not applicable.
The combined company will have the discretion, which it may delegate in
whole or in part to the Disbursing Agent, to determine whether Forms of Election
have been properly completed, signed and submitted. The decision of the combined
company or the Disbursing Agent on such matters will be conclusive and binding.
Neither the combined company nor the Disbursing Agent are under any obligation
to notify any person of any defect in a Letter of Transmittal submitted to the
Disbursing Agent. If the combined company or Disbursing Agent determines that
any purported Cash Election, Partial Cash Election, or Partial Stock Election is
not properly made, such purported election will be deemed to be of no force and
effect and any stockholder making such purported Cash Election, Partial Cash
Election, or Partial Stock Election will for purposes hereof be deemed to have
made a Non-Election and will receive combined company common stock for his or
her shares of LabOne common stock.
The merger agreement provides that the Disbursing Agent shall make all
computations as to any proration required with respect to Cash Elections and
Partial Cash Elections and that any such computation will be conclusive and
binding on the holders of shares of LabOne Common Stock. The Disbursing Agent
may, with the mutual agreement of Holdings and LabOne, make such rules as are
consistent with the merger agreement for the implementation of the elections
provided for therein as shall be necessary or desirable fully to effect such
elections.
<PAGE>
Effect of Merger on Holdings Common Stock
Each share of Holdings $1.00 par common stock issued and outstanding
immediately prior to the effective time and each treasury share, assuming the
prior effectiveness of the stock split, will remain outstanding after the
effective time as a share of $0.01 par value common stock of the combined
company; provided, that shares as to which dissenters' rights have been properly
exercised under Missouri law will be treated as discussed under "Dissenters'
Rights" on page 47.
Although the merger will effect a change in the name of Holdings to
"LabOne, Inc.", certificates evidencing shares of Holdings common stock prior to
the effective time that bear the name "Lab Holdings, Inc." will continue to
evidence the same number of shares of combined company common stock after the
effective time. However, holders of such certificates may obtain new
certificates that bear the name "LabOne, Inc. " and that reflect Missouri as the
state of incorporation and a par value of $0.01 per share by delivering the old
certificates to the combined company's transfer agent, American Stock Transfer &
Trust Company, together with appropriate transmittal documents that may be
obtained from such agent upon request.
Effect of Merger on Options and Warrants
LabOne Options and Warrants. As the surviving corporation, Holdings
will assume each outstanding option or warrant to purchase LabOne common stock
that is outstanding at the effective time (a "LabOne Stock Option"), whether or
not then exercisable. As a consequence of the assumption and due to adjustment
provisions contained in the option and warrant agreements, the options and
warrants will become options and warrants to purchase the same number of shares
of common stock of the combined company, at the same price and on the same terms
as are provided in the existing option agreements for the purchase of LabOne
common stock. LabOne and its compensation committee have also taken such steps
as are necessary to insure that no option or warrant will vest or become
exercisable as a result of the merger, the absence of which is a condition to
the obligations of Holdings to close the merger.
56
Holdings Stock Options. At the effective time stock options issued
under the Holdings 1997 Directors' Stock Option Plan will be adjusted to reflect
the 1.5 for 1 stock split. Approval of the merger agreement will also effect a
ratification of action taken by the Holdings Board on August 27, 1998, that
amended the Plan and outstanding options so that they could be exercised by the
optionee at any time until the end of the term of the option following the
termination of director status due to a merger such as the merger contemplated
by the merger agreement. See "Interests of Certain Persons in the Merger" on
page 46.
Dissenters' Rights
Holders of Holdings common stock are entitled to dissenters' rights under
Section 351.455 of the Missouri General Business Corporation Law, if they comply
with the conditions of the statute. See "The Merger Agreement-Dissenters'
Rights" on page 57.
Conditions to the Merger
Conditions to Obligations of Each Party to Effect the Merger
<PAGE>
The respective obligations of each party to effect the merger are
subject to the satisfaction prior to the closing of the merger of the following
conditions:
LabOne Stockholder Approval. The merger agreement and the merger shall
have been approved and adopted by the affirmative vote of the holders of a
majority of the outstanding shares of LabOne common stock entitled to vote
thereon and by the holders of a majority of the outstanding shares of LabOne
common stock present and voting in favor of or against the merger agreement and
the merger, other than Holdings, officers and directors of Holdings and
beneficial owners of 10% or more of the outstanding shares of Holdings common
stock.
Holdings Stockholder Approval. The merger agreement and the merger
shall have been approved and adopted by the affirmative vote of the holders of
two-thirds of the outstanding shares of Holdings common stock entitled to vote
thereon. The amendment to the Holdings Articles of Incorporation referred to
under "Proposal to Amend Articles of Incorporation" on page 122, shall have been
approved and adopted by the affirmative vote of the holders of a majority of the
outstanding shares of Holdings common stock entitled to vote thereon.
Listing of Combined Company Common Stock. The shares of the combined
company common stock issuable to LabOne stockholders pursuant to the merger and
such other shares of combined company common stock required to be reserved for
issuance in connection with the merger and related transactions, if any, shall
have been authorized for trading on the National Market System of The NASDAQ
Stock Market upon official notice of issuance.
Governmental Approvals. All filings, consents, approvals, permits and
authorizations required to be obtained prior to the effective time from any
governmental entity in connection with the execution and delivery of the merger
agreement and the consummation of the transactions contemplated thereby by
LabOne and Holdings must have been made or obtained and the Registration
Statement must have become effective under the Securities Act and must not be
the subject of any stop order or proceeding seeking a stop order. Other than
matters relating to the continued effectiveness of the registration statement
with the Securities and Exchange Commission and filings of merger certificates
and articles of merger with state authorities, the parties are not aware of any
other governmental consents, approvals or authorizations that are required in
connection with the merger.
Other Approvals. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of the merger or imposing conditions the compliance with which would reasonably
be expected to have a material adverse effect may be in effect at the effective
time. In addition, Holdings and LabOne must have obtained all necessary consents
required under the merger agreement.
57
Dissenters. The total number of shares held by holders of Holdings
common stock who have exercised dissenters' rights under Section 351.455 of the
General and Business Corporation Law of Missouri must not exceed 5% of the
Holdings common stock outstanding.
Tax Opinion. LabOne and Holdings shall have received an opinion,
reasonably satisfactory to both LabOne and Holdings, of Lathrop & Gage L.C.,
counsel to Holdings, generally as described under "Federal Income Tax
Consequences" on page 43.
<PAGE>
Stock Split. The stock split shall have become effective.
Financing. Holdings will have obtained the financing necessary to
consummate the merger and other transactions contemplated by the merger
agreement.
Additional Conditions to Obligations of Holdings
The obligations of Holdings to effect the merger are subject to the
satisfaction of certain other conditions, including:
Accuracy of Representations and Warranties. The representations and
warranties of LabOne set forth in the merger agreement shall be accurate both as
of the date of the merger agreement and as of the time of closing on the closing
date of the merger (or if the representation or warranty speaks as of another
date, it shall be accurate as of that date), except for any inaccuracy that
would not have a material adverse effect.
Performance of Agreements. LabOne shall have performed in all material
respects all obligations required to be performed by it at or prior to the time
of closing on the closing date of the merger.
Opinion of Holdings' Financial Advisor. The opinion of Salomon Smith
Barney as to the fairness from a financial point of view of the merger
consideration to Holdings shall not have been withdrawn or materially modified
in an adverse manner prior to the date of mailing of the Joint Proxy
Statement/Prospectus or any related supplement. See "The Proposed Merger-Opinion
of Holdings' Financial Advisor" on page 32.
Letters from LabOne Affiliates. LabOne shall cause to be prepared and
delivered to Holdings a list identifying all persons who, at the time of the
LabOne Annual Meeting, may be deemed to be LabOne affiliates as that term is
used in paragraphs (c) and (d) of Rule 145 under the Securities Act. As a
condition to its obligations, Holdings shall have received signed copies of
agreements from all parties deemed to be LabOne affiliates pursuant to which
each such party acknowledges that it is subject to the provisions of Rule
145(d).
No Vesting of LabOne Stock Options. LabOne Stock Options shall not vest
as a result of the merger and will maintain the same vesting period as if the
merger had not occurred.
Additional Conditions to Obligations of LabOne
The obligations of LabOne to effect the merger are subject to the
satisfaction of certain other conditions, including:
Accuracy of Representations and Warranties. The representations and
warranties of Holdings set forth in the merger agreement shall be accurate both
as of the date of the merger agreement and as of the time of closing on the
closing date of the merger (or if the representation or warranty speaks as of
another date, it shall be accurate as of that date), except for any inaccuracy
that would not have a material adverse effect.
Performance of Agreements. Holdings shall have performed in all
material respects all obligations required to be performed by it at or prior to
the time of closing on the closing date of the merger.
58
<PAGE>
Opinion of LabOne's Financial Advisor. LabOne has received an opinion
of U.S. Bancorp Piper Jaffray Inc. to the effect that, as of the date of
execution of the merger agreement, the consideration to be received in the
merger by the LabOne Unaffiliated Stockholders is fair from a financial point of
view to the LabOne Unaffiliated Stockholders. As a condition to LabOne's
obligations, such opinion shall not have been withdrawn or materially modified
in an adverse manner prior to the date of mailing of the Joint Proxy
Statement/Prospectus or any supplement thereto. See "The Proposed Merger-Opinion
of Financial Advisor to the LabOne Special Committee" on page 37.
Board of Directors and Officers at the Effective Time. LabOne shall
have received irrevocable letters of resignation effective as of the effective
time of the merger from all of the current directors of Holdings and all current
officers of Holdings.
Representations and Warranties
The merger agreement contains various representations and warranties by
each of Holdings and LabOne relating to, among other things,
(a) the organization and similar corporate matters of it and its
subsidiaries, if any,
(b) its capital structure,
(c) the authorization, execution, delivery, performance and enforceability
of the merger agreement and related matters, and the absence of
conflicts, violations of or defaults under its governing documents or
any loan or credit agreement, note, bond, mortgage, indenture or other
agreement, instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to it, any of its respective subsidiaries or any of their
respective properties or assets as a result of the merger agreement,
(d) the absence of undisclosed material liabilities,
(e) the absence of defaults in any material agreements,
(f) compliance with certain laws,
(g) compliance with environmental laws, and
(h) title to real and personal property.
The merger agreement also contains representations and warranties of
LabOne and Holdings regarding the documents and reports that they have filed
with the Securities and Exchange Commission.
Certain Covenants; Conduct of Business
During the period from the date of the merger agreement and continuing
until the effective time, each of Holdings and LabOne has agreed as to itself
and its subsidiaries that it will:
(a) carry on its businesses in the usual, regular and ordinary course in
substantially the same manner as previously conducted,
<PAGE>
(b) not declare or pay any dividends on or make other distributions in
respect of any of its capital stock, except for cash dividends
consistent with past practices,
59
(c) not split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock
(other than the stock split, in the case of Holdings),
(d) not repurchase, redeem or otherwise acquire, or permit any of its
subsidiaries to purchase, redeem or otherwise acquire, any shares of
its capital stock, subject to limited exceptions,
(e) not deliver or sell, or authorize or propose to issue, deliver or
sell, any shares of its capital stock of any class, any indebtedness
having the right to vote or any securities convertible into, or any
rights, warrants or options to acquire, any such shares, voting debt
or convertible securities,
(f) not amend or propose to amend its charter documents except as
contemplated by the merger agreement,
(g) not acquire or agree to acquire any business or any corporation,
partnership, association or other business organization or division
thereof,
(h) not sell, lease, encumber or otherwise dispose of, or agree to sell,
lease (whether such lease is an operating or a capital lease),
encumber or otherwise dispose of, any of its material assets,
(i) not authorize, recommend, propose or announce an intention to adopt a
plan of complete or partial liquidation or dissolution,
(j) not grant any increases in the compensation of any of its directors,
officers or employees, except increases in the ordinary course of
business and in accordance with past practice,
(k) not pay or agree to pay any pension, retirement allowance or other
employee benefit not required or contemplated by any of the existing
Holdings or LabOne benefit programs or plans to any director, officer
or employee, whether past or present,
(l) not enter into any new, or amend any existing, employment or severance
or termination agreement with any director, officer or key employee,
(m) not become obligated under any new benefit program or plan, which was
not in existence or approved by the Holdings or LabOne Board of
Directors prior to or on the date of the merger agreement, or amend
any such plan or arrangement in existence on the date of the merger
agreement if such amendment would have the effect of materially
enhancing any benefits thereunder,
(n) except in the ordinary course of business, not incur any indebtedness
for borrowed money or guarantee any such indebtedness or issue or sell
any debt securities or warrants or rights to acquire any debt
securities of such party or any of its subsidiaries or guarantee any
debt securities of others,
<PAGE>
(o) not commit to aggregate capital expenditures in excess of $100,000
outside such party's capital budget,
(p) not, directly or indirectly, solicit or initiate any prospective buyer
or make any proposal that constitutes, or may reasonably be expected
to lead to, an Acquisition Proposal (as defined below) except for
certain unsolicited proposals which the directors of either party may
be required to respond to pursuant to their fiduciary duties, and
(q) not take any action that could reasonably be expected to prevent a
merger or other
60
acquisition by the combined company from being accounted for as a
pooling of interests.
An "Acquisition Proposal" means any proposal or offer, other than one
by Holdings, LabOne or their affiliates, as the case may be, for a tender or
exchange offer, a merger, consolidation or other business combination involving
Holdings, LabOne or any of their subsidiaries or any proposal to acquire in any
manner a substantial equity interest in, or substantially all of the assets of,
Holdings, LabOne or any of their subsidiaries, as the case may be.
Holdings also agrees to take action reasonably necessary to cause the
stock split to be effective prior to the effective time of the merger.
Amendment of Articles of Incorporation
Pursuant to the merger agreement and in connection with the merger, the
Articles of Incorporation of Holdings will be amended by the certificate of
merger. See "Amendments to Holdings' Articles of Incorporation and Bylaws" on
page 49.
Additional Agreements
Pursuant to the merger agreement, Holdings and LabOne have agreed among
other matters, that
(a) Holdings will take all corporate action necessary to
permit it to issue shares of Holdings common stock pursuant to the
merger and will use all reasonable efforts to have approved for listing
on the NASDAQ National Market System, subject to official notice of
issuance, the shares of Holdings common stock to be issued in the
merger and upon exercise of the LabOne stock options and warrants;
(b) the combined company will assume the LabOne stock options
and warrants (except under certain limited circumstances);
(c) the combined company will, subject to certain limitations,
maintain directors' and officers' liability insurance for officers and
directors of LabOne and its subsidiaries (see "Indemnification"); and
(d) neither will take or omit to take any action that would
affect the qualification of the merger as a reorganization described in
Section 332 and 368(a) of the Code.
<PAGE>
Expenses
Each party to the merger agreement will pay its own expenses incident
to preparing for, entering into and carrying out the merger agreement and the
consummation of the transactions contemplated thereby, provided that immediately
prior to the effective time Holdings will reimburse LabOne for its merger
expenses.
If the merger agreement is terminated by (A) Holdings because either
(i) LabOne fails to comply in any material respect with any of its covenants,
agreements or conditions or (ii) any representation or warranty of LabOne is not
true and correct in all material respects, or (B) LabOne, because of an
Acquisition Proposal, and if Holdings is not in material breach of the merger
agreement at the time of such termination, then LabOne will pay the reasonable
out-of-pocket expenses incurred by Holdings in connection with the merger
agreement. Likewise, if the merger agreement is terminated by (A) LabOne because
either (i) Holdings fails to comply in any material respect with any of its
covenants, agreements or conditions or (ii) any representation or warranty of
Holdings is not true and correct in all material respects, or (B) Holdings
because of an Acquisition Proposal, and if LabOne is not in material breach of
the merger agreement at the time of such termination, then Holdings will pay the
reasonable out-of-pocket expenses incurred by LabOne in connection with the
merger agreement.
61
Indemnification
The merger agreement obligates the combined company to provide
indemnification and to advance expenses to persons who were officers and
directors of LabOne or Holdings prior to the effective time. These obligations
are in addition to the indemnification obligations contained in the Bylaws and
separate indemnification agreements and will survive the merger and will remain
in force for six years after the effective time. Further, the merger agreement
obligates the combined company to provide directors and officers liability
insurance for a period of six years to persons who were directors or officers on
March 7, 1999 and who cease to be so prior to or at the effective time. The
obligation of the combined company to indemnify directors and officers includes
the obligation to indemnify for liabilities arising out of the merger or the
merger agreement,
More specifically, the merger agreement provides that the combined
company will
(a) indemnify, defend and hold harmless each person who is
now, or has been at any time prior to the date of the merger agreement
or who becomes prior to the effective time, an officer or director of
Holdings or LabOne or any of their subsidiaries or an employee of
Holdings or LabOne or any of their subsidiaries who acts as a fiduciary
under any of the Holdings benefit programs or plans or the LabOne
benefit programs or plans, against all
(i) losses, claims, damages, costs, expenses
(including attorneys' fees), liabilities,
judgments, penalties or fines (including
excise taxes assessed with respect to
employee benefit plans);
<PAGE>
(ii) amounts that are paid in settlement with the
approval of the indemnifying party, and
(iii) all related interest, assessments and other
charges,
of or in connection with any threatened or actual claim, action, suit,
proceeding or investigation that is based in whole or in part on, or
arising in whole or in part out of, the fact that such person is or was
a director, officer, or such employee of Holdings or LabOne or any of
their subsidiaries or as a fiduciary under any benefit program or
plans, whether pertaining to any matter existing or occurring at or
prior to the effective time and whether asserted or claimed prior to,
or at or after, the effective time, unless in any such case the conduct
of the indemnified person is finally adjudged to have been knowingly
fraudulent, deliberately dishonest or wilful misconduct;
(b) advance expenses on an unsecured basis upon receipt of an
undertaking from an indemnified party to repay the advance if it is
finally adjudged in the judicial proceeding in which liability is
imposed that the indemnified party is not entitled to indemnification;
and
(c) indemnify an indemnified person against expenses
reasonably incurred by such person in enforcing his or her rights to
indemnification and advances under the merger agreement or any other
agreement or bylaw of Holdings or LabOne or rights to recovery under
any insurance policy.
Under the merger agreement, the combined company will bear the burden of proof
in any proceeding in which it is contesting an indemnified party's right to
indemnification or advances.
Amendment, Waiver and Termination
Subject to certain limitations and upon the terms set forth in the
merger agreement, the merger agreement may be terminated and the merger may be
abandoned at any time prior to the effective time, whether before or
62
after approval of the matters presented in connection with the merger by the
stockholders of LabOne or Holdings:
(a) by mutual written consent of LabOne and Holdings, or by
mutual action of their respective Boards of Directors, which in the
case of LabOne requires that the LabOne Board act consistently with the
recommendations of the Special Committee;
(b) by either LabOne or Holdings if
(i) the merger shall not have been consummated by October 31, 1999;
(ii) any court of competent jurisdiction, or other governmental body
or regulatory authority shall have issued an order, decree or
ruling or taken any other action permanently restraining,
enjoining or otherwise prohibiting the merger and such order,
<PAGE>
decree, ruling or other action shall have become final and
nonappealable;
(iii) the stockholders of Holdings shall not have approved the merger
agreement or the amendment to Article X of Holdings' Articles of
Incorporation described under "Proposal to Amend Articles of
Incorporation" on page 122 ;
(iv) the stockholders of LabOne or the LabOne Unaffiliated
Stockholders of LabOne shall not have approved the merger
agreement and the merger;
(v) in the exercise of its good faith judgment as to its fiduciary
duties to its stockholders, as advised by outside counsel, the
Holdings Board of Directors determines that such termination is
required by reason of an Acquisition Proposal having been made;
or
(vi) in the exercise of its good faith judgment as to its fiduciary
duties to its stockholders, as advised by outside counsel, the
LabOne Board of Directors determines that such termination is
required by reason of an Acquisition Proposal having been made;
(c) by Holdings if
(i) LabOne shall have failed to comply in any
material respect with any of its covenants,
agreements or conditions contained in the
merger agreement to be complied with or
performed by LabOne at or prior to such date
of termination (subject to notice and an
opportunity to cure);
(ii) subject to limited exceptions, any
representation or warranty of LabOne
contained in the merger agreement shall not
be true in all material respects when made
(subject to notice and an opportunity to
cure) or on and as of the effective time as
if made on and as of the effective time
(except to the extent it relates to a
particular date);
(iii) Holdings' financial advisor withdraws or
materially modifies its fairness opinion in
an adverse manner; or
(iv) the LabOne Board of Directors ( in
accordance with a recommendation by the
Special Committee) withdraws, modifies or
changes its recommendation of the merger
agreement and the merger in a manner adverse
to Holdings or resolves
63
<PAGE>
to do any of the foregoing; or
(d) by LabOne if
(i) Holdings shall have failed to comply in any
material respect with any of its covenants,
agreements or conditions contained in the
merger agreement to be complied with or
performed by it at or prior to such date of
termination (subject to notice and an
opportunity to cure);
(ii) subject to limited exceptions, any
representation or warranty of Holdings
contained in the merger agreement shall not
be true in all material respects when made
(subject to notice and an opportunity to
cure) or on and as of the effective time as
if made on and as of the effective time
(except to the extent it relates to a
particular date);
(iii) LabOne's financial advisor withdraws or
materially modifies its fairness opinion in
an adverse manner; or
(iv) the Holdings Board of Directors withdraws,
modifies or changes its recommendation of
the merger agreement and the merger in a
manner adverse to LabOne or resolves to do
any of the foregoing.
THE MEETINGS OF STOCKHOLDERS
Holdings Annual Meeting
The Holdings annual meeting will be held on _____________, August___,
1999 at _:00 p.m. local time, at the offices of LabOne, 10101 Renner Boulevard,
Lenexa, Kansas 66219.
At the Holdings annual meeting, the stockholders of Holdings will be
asked to consider and vote upon:
1. A proposal to adopt the Agreement and Plan of Merger, as amended
and restated, by and between Lab Holdings, Inc. and LabOne, Inc.,
dated as of March 7, 1999, which is described in this Joint Proxy
Statement/Prospectus, and the transactions contemplated thereby.
Pursuant to the merger agreement, (a) shares of Lab Holdings,
Inc. common stock will be split 1.5 for one immediately prior to
the merger, (b) LabOne will merge with and into Holdings, with
Holdings being the surviving corporation, (c) each outstanding
share of LabOne Common Stock (other than shares owned by
Holdings) will be converted into either: (i) one share of
surviving corporation common stock, (ii) cash equal to $12.75,
subject to an aggregate $16.6 million cash limit or (iii) a
combination of cash and shares; (d) Holdings' name will be
changed to "LabOne, Inc." (e) the officers of Holdings will be
replaced by the current officers of LabOne, (f) Holdings
directors will be replaced by nine of the current LabOne
<PAGE>
directors and three additional non-management directors, and (g)
the Articles of Incorporation and Bylaws of Holdings will be
amended to read as set forth in Appendix B and Appendix C to the
merger agreement and to effect a reduction in stated capital by
reducing the par value of shares from $1.00 per share to $0.01
per share.
2. A proposal to amend Paragraph B.4 of Article X of the Articles of
Incorporation to change the definition of the term "Continuing
Director Quorum" from nine Continuing Directors to two-thirds of
the Continuing Directors;
64
3. A proposal to elect two B class directors, to serve until the
earlier of the 2002 Annual Meeting of Stockholders or the
effective time of the merger.
4. A proposal to ratify the selection of KPMG LLP as independent
public accountants for Holdings for 1999.
5. Such other business as may properly come before the annual
meeting or any adjournment or postponement thereof.
These proposals and related matters are described more fully in this
Joint Proxy Statement/Prospectus. A copy of the merger agreement is attached to
the Joint Proxy Statement/Prospectus as Appendix A. A copy of the Articles of
Incorporation and Bylaws of Holdings, as proposed to be amended by the merger
agreement, are attached to the Joint Proxy Statement/Prospectus as Appendix B
and C, respectively.
The Board of Directors of Holdings has unanimously approved the
proposed amendment to the Articles of Incorporation described in Proposal 1 and
recommends a vote FOR adoption and approval of that amendment and the merger
agreement. The Board of Directors of Holdings also recommends that you vote FOR
the election of each nominee to the Board of Directors and FOR the approval and
ratification of Holdings' independent public accountants for 1999.
LabOne Annual Meeting
The LabOne annual meeting will be held on___________, August ___, 1999,
at __p.m. local time at__________________________________________.
At the LabOne annual meeting stockholders of LabOne will be asked to
consider and vote upon:
1. A proposal to adopt the Agreement and Plan of Merger, as
amended and restated, by and between Lab Holdings, Inc. and
LabOne, Inc., dated as of March 7, 1999, which is described
in this Joint Proxy Statement/Prospectus, and the
transactions contemplated thereby. Pursuant to the merger
agreement, (a) shares of Lab Holdings, Inc. common stock
will be split 1.5 for one immediately prior to the merger,
(b) LabOne will merge with and into Holdings, with Holdings
being the surviving corporation, (c) each outstanding share
of LabOne Common Stock (other than shares owned by Holdings)
will be converted into either: (i) one share of surviving
corporation common stock, (ii) cash equal to $12.75, subject
to an aggregate $16.6 million cash limit or (iii) a
<PAGE>
combination of cash and shares; (d) Holdings' name will be
changed to "LabOne, Inc." (e) the officers of Holdings will
be replaced by the current officers of LabOne, (f) Holdings
directors will be replaced by nine of the current LabOne
directors and three additional non-management directors, and
(g) the Articles of Incorporation and Bylaws of Holdings
will be amended to read as set forth in Appendix B and
Appendix C to the merger agreement and to effect a reduction
in stated capital by reducing the par value of shares from
$1.00 per share to $0.01 per share.
2. A proposal to elect twelve directors of LabOne as set forth
in this Joint Proxy Statement/Prospectus, to serve until the
effective time of the Merger, or if the Merger is not
consummated, until the 2000 Annual Meeting of Stockholders.
3. A proposal to ratify the selection of KPMG LLP as
independent public accountants for LabOne and its
subsidiaries for the 1999 fiscal year.
65
4. Such other business as may properly come before the Meeting.
These proposals and related matters are described more fully in this
Joint Proxy Statement/Prospectus. A copy of the merger agreement is attached to
the Joint Proxy Statement/Prospectus as Appendix A. A copy of the Articles of
Incorporation and Bylaws of Holdings, as proposed to be amended by the merger
agreement, are attached to the Joint Proxy Statement/Prospectus as Appendix B
and C, respectively.
The Board of Directors of LabOne, upon the recommendation of the
Special Committee, has approved the merger agreement, declared its advisability
and recommends a vote FOR adoption of the merger agreement. The Board of
Directors of LabOne also recommends that you vote FOR the election of each
nominee to the Board of Directors and FOR the approval and ratification of
LabOne's independent public accountants for the 1999 fiscal year.
Quorum
The presence, in person or by proxy, of the holders of a majority of
the shares of Holdings common stock is necessary to constitute a quorum at the
Holdings annual meeting. Similarly, the presence, in person or by proxy, of the
holders of a majority of the outstanding shares of LabOne common stock is
necessary to constitute a quorum at the LabOne annual meeting.
Vote Required
Holdings Meeting of Stockholders. The affirmative vote of the holders
of two-thirds of the outstanding Holdings common stock is required to adopt the
merger agreement and the transactions contemplated thereby. Approval of the
merger agreement constitutes approval of the transactions contemplated by the
merger agreement.
The affirmative vote of the holders of a majority of the outstanding
Holdings common stock is required to adopt the amendment to Article X of the
Articles of Incorporation.
<PAGE>
In the election of directors, shares may be voted cumulatively and
directors are elected by a plurality vote. Accordingly, a stockholder is
entitled to two votes for each share owned, one for each director to be elected.
A stockholder's votes may be cast equally among all nominees or may be voted all
for one nominee.
The affirmative vote of the holders of a majority of the shares
present, in person or by proxy, at the Holdings annual meeting is necessary to
approve and ratify the appointment of Holdings' independent public accountants
for the 1999 fiscal year.
LabOne Meeting of Stockholders. The affirmative vote of the holders
of a majority of the outstanding LabOne common stock is required to adopt the
merger agreement and the transactions contemplated thereby. Adoption of the
merger agreement constitutes approval of the transactions contemplated by the
merger agreement.
The merger is also conditioned on approval by the holders of a majority of the
outstanding shares of LabOne common stock present and voting in favor of or
against the merger agreement and the merger, other than Holdings, officers and
directors of Holdings and beneficial owners of 10% or more of the outstanding
shares of Holdings common stock.
Each of the twelve directors to serve as members of the Board of
Directors will be elected by a plurality of the votes cast by the holders of
LabOne Common Stock. There will be no cumulative voting for directors.]
The affirmative vote of the holders of a majority of the shares
present, in person or by proxy, at the LabOne Annual Meeting and entitled to
vote thereon is necessary to approve and ratify the appointment of
66
LabOne's independent public accountants for the 1999 fiscal year.
Record Date; Stock Entitled to Vote
The Holdings Board of Directors has established June _, 1999 as the
date to determine those record holders of Holdings Common Stock entitled to
notice of and to vote at the Holdings Annual Meeting. On that date, there were
_________ shares of Holdings Common Stock outstanding and approximately_______
holders of record of such shares. Holders of Holdings Common Stock are entitled
to one vote for each share held, except in the election of directors, as to
which cumulative voting applies.
The LabOne Board of Directors has established the close of business
on June _, 1999 as the date to determine those record holders of LabOne Common
Stock entitled to notice of and to vote at the LabOne Annual Meeting. On that
date, there were __________ shares of LabOne Common Stock outstanding and
_______ holders of record of such shares. Holders of LabOne Common Stock are
entitled to one vote for each share held.
Voting of Proxies
Shares represented by all properly executed proxies received in time
for each of the respective Meetings will be voted at such meeting in the manner
specified by the holders thereof. Proxies of Holdings stockholders that do not
contain voting instructions will be voted FOR adoption and approval of the
Articles Amendment, FOR adoption and approval of the merger agreement, FOR the
election as a director of each nominee listed herein, and FOR adoption and
<PAGE>
ratification of the appointment of Holdings' independent public accountants for
1999. Proxies of LabOne stockholders that do not contain voting instructions
will be voted FOR adoption and approval of the merger agreement, FOR the
election as a director of each nominee listed herein, and FOR adoption and
ratification of the appointment of LabOne's independent public accountants for
the 1999 fiscal year. The proxies confer discretionary authority on the persons
named therein with respect to procedural matters and matters that properly come
before a meeting as to which the corporation holding the meeting did not receive
notice a reasonable time before the date this Joint Proxy Statement/Prospectus
was mailed. It is not expected that any proposal other than those referred to
herein will be brought before either of the Meetings. If, however, other matters
are properly presented, the persons named as proxies will vote in accordance
with their judgment with respect to such matters, except that proxies containing
instructions to vote AGAINST adoption of the merger agreement will not be voted
in favor of a motion to adjourn either Meeting to another time and/or place.
If a holder of Holdings Common Stock or LabOne Common Stock does not
return a signed proxy card, his or her shares will not be voted and this will
have the effect of a vote against the merger agreement at the respective
Meetings and a vote against the proposed amendment to Article X of the Holdings
Articles of Incorporation, provided that shares of LabOne Common Stock that are
not voted will not affect whether the merger agreement is approved by a majority
of the LabOne Unaffiliated Stockholders voting on the merger agreement.
Abstentions and broker non-votes (shares held by brokers and other nominees or
fiduciaries that are present at either meeting but not voted on a particular
matter) will have the effect of a vote against the merger agreement at the
respective meetings and a vote against the Articles Amendment at the Holdings
annual meeting. Broker non-votes will not be counted in determining whether the
merger agreement has been approved by a majority of the LabOne Unaffiliated
Stockholders voting on the merger agreement. For purposes of ratifying the
appointment of Holdings' and LabOne's independent public accountants for 1999,
an abstention shall be deemed a vote against such appointment and a broker
non-vote will not be counted either for or against ratification and will thus
have no effect.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS. A
SEPARATE ENVELOPE AND A LETTER OF TRANSMITTAL IS ENCLOSED FOR LABONE
STOCKHOLDERS WHO WISH TO RECEIVE CASH FOR THEIR SHARES OF LABONE COMMON
STOCK.
67
Revocation of Proxies
Any record holder of Holdings common stock has the unconditional
right to revoke his or her proxy at any time prior to the voting thereof at the
Holdings annual meeting by (i) filing a written revocation with the Secretary of
Holdings bearing a later date than the proxy prior to the voting of such proxy,
(ii) giving a duly executed proxy bearing a later date or (iii) attending the
Holdings annual meeting and voting in person. Attendance by a stockholder at the
Holdings annual meeting will not by itself revoke his or her proxy. Holdings
stockholders of record should address any revocation of such proxy to: Lab
Holdings, Inc., 5000 West 95th Street, Suite 260, Shawnee Mission, Kansas 66207,
Attention: Steven K. Fitzwater.
Any record holder of LabOne common stock has the unconditional right
to revoke his or her proxy at any time prior to the voting thereof at the LabOne
annual meeting by (i) filing a written revocation bearing a later date than the
proxy with the Secretary of LabOne prior to the voting of such proxy, (ii)
<PAGE>
giving a duly executed proxy bearing a later date or (iii) attending the LabOne
annual meeting and voting in person. Attendance by a stockholder at the LabOne
annual meeting will not by itself revoke his or her proxy. LabOne stockholders
of record should address any revocation of such proxy to: LabOne, Inc., 10101
Renner Boulevard, Lenexa, Kansas 66219 Attention: Gregg R. Sadler.
Revocation of Cash Elections
Any record holder of LabOne common stock who has elected to receive
cash for any of the holders' LabOne shares by delivering a properly executed and
documented Form of Election, may only revoke that election by a written notice
received by the Disbursing Agent prior to 10:00 a.m., Kansas City time, on the
date of the LabOne meeting. The Disbursing Agent's address for this purpose is:
American Stock Transfer and Trust Company at 40 Wall Street, 46th Floor, New
York, N.Y. 10005.
An election will also be automatically revoked if the Disbursing
Agent is notified in writing by Holdings and LabOne that the Merger has been
abandoned. If an election is revoked, the certificate or certificates (or
guarantees of delivery, as appropriate) for the shares of LabOne common stock
covered by the election will be promptly returned to the electing stockholder.
Solicitation of Proxies
Solicitation of proxies for use at the Holdings annual meeting and
the LabOne annual meeting may be made in person or by mail, telephone, telecopy
or telegram. Each of Holdings and LabOne will bear the cost of the solicitation
of proxies from its own stockholders. In addition to solicitation by mail, the
directors, officers and regular employees of each company and its subsidiaries
may solicit proxies from stockholders of such company by telephone, telecopy or
telegram or in person. Holdings and LabOne have requested banking institutions,
brokerage firms, custodians, trustees, nominees and fiduciaries to forward
solicitation materials to the beneficial owners of Holdings common stock and
LabOne common stock held of record by such entities, and Holdings and LabOne
will, upon the request of such record holders, reimburse reasonable forwarding
expenses. In addition, Holdings and LabOne may engage third parties to assist in
the solicitation of proxies, and in that event would incur additional costs.
In addition, Holdings and LabOne have each retained Georgeson &
Company Inc., to assist them in the solicitation of proxies from stockholders in
connection with their respective meetings of stockholders. Georgeson & Company
Inc. will receive a fee of $ from Holdings and LabOne as compensation for its
services and reimbursement of its out-of-pocket expenses in connection
therewith. Each of Holdings and LabOne has agreed to
68
indemnify Georgeson Company, Inc against certain liabilities arising out of or
in connection with these engagements.
Security Ownership of Certain Persons
As of the record date for the Holdings annual meeting, the directors
and executive officers of Holdings as a group beneficially owned (excluding
shares purchasable upon exercise of stock options)____% of the outstanding
shares of Holdings common stock. In addition, as of such date, directors and
certain officers and directors of LabOne who are not officers or directors of
<PAGE>
Holdings beneficially owned ____% of the outstanding shares of Holdings common
stock.
As of the LabOne record date, the directors and executive officers of
LabOne as a group beneficially owned (excluding shares purchasable upon exercise
of stock options)____% of the outstanding shares of LabOne common stock. As of
the LabOne record date, Holdings beneficially owned____% of the outstanding
shares of LabOne common stock. In addition, as of the LabOne record date,
certain officers and directors of Holdings who are not officers and directors of
LabOne beneficially owned____% of the outstanding shares of LabOne common stock.
All of such officers and directors of both Holdings and LabOne, and
Holdings have indicated that they intend to vote in favor of the proposal to
adopt the merger agreement.
69
<PAGE>
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma financial statements present (i)
unaudited pro forma balance sheet data at March 31, 1999, giving effect to the
merger as if the merger had been consummated on that date and (ii) unaudited pro
forma operating data for the three months ended March 31, 1999 and for the year
ended December 31, 1998, giving effect to the acquisition of minority interest
as if the merger had been consummated on January 1, 1998.
The consolidated financial statements of Holdings include the
accounts of Holdings and its majority-owned subsidiary, LabOne. Therefore, the
"Holdings Consolidated Historical" column in the following unaudited pro forma
financial statements includes LabOne's financial position at March 31, 1999 and
the results of its operations for the three months ended March 31, 1999 and for
the year ended December 31, 1998.
The merger will be accounted for as an acquisition of minority
interest using the purchase method of accounting. For the purpose of preparing
its consolidated financial statements, the combined company will determine fair
values of LabOne's net assets and with the excess of consideration paid, plus
costs of the merger, over the fair value of the net assets acquired, recorded as
goodwill. The goodwill created by the merger will be amortized over a 20 year
period. A final determination of required purchase accounting adjustments,
including the allocation of the purchase price to the assets acquired and
liabilities assumed based on their respective fair values, has not yet been
made; however, management does not believe the adjustments to LabOne's assets
and liabilities will be material. Accordingly, the purchase accounting
adjustments made in connection with the development of the following summary pro
forma combined financial statements are preliminary and have been made solely
for the purposes of developing such pro forma combined financial statements.
The following unaudited pro forma financial statements are provided
for informational purposes only and should be read in conjunction with the
separate audited consolidated financial statement and related notes of Holdings
(which are incorporated herein by reference) and LabOne's (which are included
elsewhere in this Joint Proxy Statement/Prospectus). The historical consolidated
information for Holdings has been adjusted to reflect the 1.5 to one stock split
and the change in par value from $1.00 to $.01 per share. The following
unaudited pro forma financial statements are based on certain assumptions and do
not purport to be indicative of the results which actually would have occurred
if the merger had been consummated on the dates indicated or which may be
obtained in the future.
70
<PAGE>
Lab Holdings, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Balance Sheets
March 31, 1999
<PAGE>
<TABLE>
<CAPTION>
Assumes Stock and
Holdings Assumes All Stock Elections Maximum Cash Elections
Consolidated ---------------------------- ---------------------------
Historical Adjustments Pro Forma Adjustments Pro Forma
---------- ----------- -------------- ----------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,745 (1,750) (a) 9,995 (4,750) (a) 6,995
Accounts receivable 19,692 19,692 19,692
Current income taxes 374 374 374
Other current assets 5,743 5,743 5,743
Deferred income taxes 3,284 3,284 ______ 3,284
---------- ------------- ---------- ----------
Total current assets 40,838 (1,750) 39,088 (4,750) 36,088
Property, plant and equipment, net 41,712 41,712 41,712
Other assets:
Intangible assets 14,283 22,302 (a) 36,585 24,953 (a) 39,236
Other 1,149 1,149 1,149
------------ ------------- ------------- -------- ----------
Total assets $ 97,982 20,552 118,534 20,203 118,185
======== ======== ============= ======== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,962 5,962 5,962
Retainage and construction payable 3,473 3,473 3,473
Current portion of long-term debt 1,863 1,863 1,863
Other current liabilities 3,994 250 (g) 4,244 250 (g) 4,244
---------- -------- -------- -------- ----------
Total current liabilities 15,292 250 15,542 250 15,542
Long-term debt 18,094 18,094 13,600 (a) 31,694
Other liabilities 250 (g) 250 250 (g) 250
Deferred income taxes 121 121 121
--------- -------------- ------------ -------------- -----------
Total liabilities 33,507 500 34,007 14,100 47,607
--------- ----------- ---------- -------- ---------
Minority interests 10,276 (10,276) (a) - (10,276) (a) -
--------- -------- - ------------ -------- --------------
Stockholders' equity:
Preferred stock - - -
Common stock 112 26 (b) 138 13 (b) 125
Additional paid in capital 10,309 30,991 (a) 41,274 17,042 (a) 27,338
(26) (b) (13) (b)
Accumulated other
comprehensive income (671) (163) (a) (834) (163) (a) (834)
Retained earnings 74,593 (500) (g) 74,093 (500) (g) 74,093
--------- ----------- --------- -------- ---------
84,343 30,328 114,671 16,379 100,722
Less treasury stock (30,144) (30,144) (30,144)
--------- -------------- -------- ----------- --------
Total Stockholders' equity 54,199 30,328 84,527 16,379 70,578
--------- --------- --------- ------ ---------
Total liabilities and equity $ 97,982 20,552 118,534 20,203 118,185
========= ========= ======== ====== ========
71
</TABLE>
<PAGE>
Lab Holdings, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Statements of Earnings
For the Three Months ended March 31, 1999
<TABLE>
<CAPTION>
Assumes Stock and
Holdings Assumes All Stock Elections Maximum Cash Elections
Consolidated --------------------------- --------------------------
Historical Adjustments Pro Forma Adjustments Pro Forma
----------- ------------ --------- ----------- ---------
(in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Sales $ 27,328 27,328 27,328
Cost of sales 15,651 15,651 15,651
----------- ---------- ---------
Gross profit 11,677 11,677 11,677
Selling, general and administrative 9,050 (250) (c) 9,079 (250) (c) 9,112
279 (d) 312 (d)
------------ ------- -------------- ------- ------------
Earnings (loss) from operations 2,627 (29) 2,598 (62) 2,565
Investment income-net 147 147 147
Interest expense (290) (290) (204) (f) (494)
Other income (expense) (6) (6) (6)
------------ ---------- ----------- ------------- ----------
Earnings (loss) before income taxes 2,478 (29) 2,449 ( 266) 2,212
Income taxes 1,023 85 (c) 1,108 85 (c) 1,039
( 69)(f)
Earnings (loss) before minority
interests 1,455 (114) 1,341 (282) 1,173
Minority interests 380 ( 380) (e) -- (380) (e) --
------------ ------ ---------- ------ -------------
Net earnings $ 1,075 266 1,341 98 1,173
============ ========== ======= ========= ==========
Basic earnings per share $ 0.11 0.11 0.11
Diluted earnings per share 0.11 0.11 0.11
Weighted average common
shares outstanding 9,733,655 2,599,250 12,332,905 1,299,625 11,033,280
Weighted average common shares
and common share equivalents
outstanding 9,733,655 2,734,424 12,468,079 1,434,799 11,168,454
</TABLE>
72
<PAGE>
Holdings, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Statements of Earnings
For the Year ended December 31, 1998
<TABLE>
<CAPTION>
Assumes Stock and
Holdings Assumes All Stock Elections Maximum Cash Elections
Consolidated --------------------------- ---------------------------
Historical Adjustments Pro Forma Adjustments Pro Forma
---------- ----------- --------- ----------- ---------
(in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Sales $ 102,227 102,227 102,227
Cost of sales 56,720 56,720 56,720
---------- ---------- ---------
Gross profit 45,507 45,507 45,507
Selling, general and administrative 33,550 (1,000)(c) 33,661 (1,000) (c) 33,793
1,111 (d) 1,243 (d)
----------- --------- -------------- --------- --------------
Earnings (loss) from operations 11,957 (111) 11,846 (243) 11,714
Investment income-net 861 861 861
Interest expense (70) (70) (816) (f) (886)
Other income (expense) (42) (42) (42)
------------- ---------- ------- ------------- -----------
Earnings (loss) before income taxes 12,706 (111) 12,595 (1,059) 11,647
Income taxes 5,839 340 (c) 6,179 340 (c) 5,902
(277) (f)
Earnings (loss) before minority
interests 6,867 (451) 6,416 (1,122) 5,745
Minority interests 1,719 (1,719)(e) -- (1,719) (e) --
------------ ------ ---------- -------- -------------
Net earnings $ 5,148 1,268 6,416 597 5,745
============ ========== ======= ========== ==========
Basic earnings per share $ 0.53 0.52 0.52
Diluted earnings per share 0.52 0.51 0.51
Weighted average common
shares outstanding 9,733,655 2,599,250 12,332,905 1,299,625 11,033,280
Weighted average common shares
and common share equivalents
outstanding 9,733,655 2,734,424 12,468,079 1,434,799 11,168,454
</TABLE>
73
<PAGE>
LAB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
(a) Reflects the merger transaction. The excess of acquisition cost over the
estimated fair value of net assets acquired is computed as follows:
<TABLE>
<CAPTION>
Stock and
All Stock Elections Maximum Cash Elections
------------------- ----------------------
<S> <C> <C>
Purchase price:
Common stock $ 27,838 13,919
Cash -- 16,570
Transaction costs 1,750 1,750
Fair value of stock options and warrants 3,000 3,000
------- -------
32,588 35,239
Estimated fair value of net assets acquired 10,286 10,286
------ ------
Excess of acquisition cost over the estimated
fair value of net assets acquired (goodwill) $ 22,302 24,953
====== ======
</TABLE>
The common stock portion of the purchase price was computed to be $10.71
using the average closing price for Holdings common stock for the fifteen
days prior to and the fifteen days after the announcement of the proposed
merger. The common stock purchase price was calculated by multiplying
$10.71 times the number of shares to be purchased: 2,599,250 shares for
"All Stock Elections" and 1,299,625 shares for "Stock and Maximum Cash
Elections".
The "Stock and Maximum Cash Elections" scenario assumes cash on hand of $3
million plus a note payable of $13.6 million are used to pay the maximum of
$16.6 million for one-half of the minority stockholders' shares.
For purposes of the purchase price allocations there are no significant
differences between the book value and the fair value of net assets
acquired due, in part, to the recently completed construction of the new
LabOne facility and related acquisition of equipment.
The fair value of the stock options is estimated based on a Black Scholes
model. No value has been assigned to the warrants for purchase price
allocation purposes because such warrants are performance based.
The adjustments to Additional Paid in Capital are computed as follows:
<PAGE>
<TABLE>
<CAPTION>
Stock and
All Stock Elections Maximum Cash Elections
------------------- ----------------------
<S> <C> <C>
Goodwill $ 22,302 $ 24,953
Minority interests 10,276 10,276
Accumulated other
comprehensive income 163 163
Note payable -- (13,600)
Cash (1,750) (4,750)
------- -------
$ 30,991 $ 17,042
======= =======
</TABLE>
The adjustment to Accumulated Other Comprehensive Income represents the
elimination of the minority interest share of this component of
stockholders' equity.
(b) Reflects the issuance of shares of the combined company to LabOne minority
stockholders. (All stock elections - 2,599,250 shares; stock and maximum
cash elections - 1,299,625 shares)
74
<PAGE>
(c) Reflects the elimination of Holdings redundant overhead expense and
corresponding tax benefit.
The components of the annual redundant overhead expenses are as follows:
Insurance premiums $ 200,000
Salaries and benefits 406,000
Legal and accounting fees 125,000
Directors' fees and expenses 59,000
Reporting to stockholders 95,000
Rent and miscellaneous 115,000
Total $ 1,000,000
=========
(d) Reflects amortization of the goodwill created by the merger on a
straight-line basis over 20 years.
(e) Reflects the elimination of the minority interests share of earnings.
(f) Reflects interest expense resulting from the issuance of debt to finance
the cash portion of the purchase price and corresponding tax benefit.
Interest on the new debt is assumed to be 6%.
(g) As a result of the merger, Holdings' officers will resign and, as provided
in their employment agreements, Holdings will incur expense of
approximately $500,000 in severance benefits. This adjustment is not
reflected in the pro forma statement of earnings because it will not have a
continuing impact. See "Certain Relationships and Related Transactions" at
page 121.
(h) In connection with the merger, the number of authorized shares of Holdings
will increase from 24,000,000 shares of common stock to 40,000,000 shares.
The par value of all authorized stock will also be changed from $1.00 per
share to $0.01 per share.
75
<PAGE>
INFORMATION REGARDING LABONE
BUSINESS
General
LabOne, a Delaware corporation, provides laboratory and investigative
services for the insurance industry, clinical testing services for the
healthcare industry and substance abuse testing services for employers. LabOne,
Inc., together with its wholly-owned subsidiaries Lab One Canada Inc. and
Systematic Business Services, Inc. (SBSI), hereinafter collectively referred to
as LabOne, is the largest provider of insurance laboratory testing services in
the United States and Canada. (See Note 8 of Notes to Consolidated Financial
Statements for financial information regarding foreign operations.)
LabOne provides risk-appraisal laboratory services to the insurance
industry. The tests performed by LabOne are specifically designed to assist an
insurance company in objectively evaluating the mortality and morbidity risks
posed by policy applicants. The majority of the testing is performed on
specimens of individual life insurance policy applicants. LabOne also provides
testing services on specimens of individuals applying for individual and group
medical and disability policies.
Effective October 30, 1998, LabOne acquired Systematic Business Services,
Inc., a Missouri corporation. SBSI provides telephone inspections, motor vehicle
reports, attending physician statements, and claims investigation services to
life and health insurers nationwide.
LabOne's clinical testing services are provided to the healthcare industry
as an aid in the diagnosis and treatment of patients. LabOne operates only one
highly automated and centralized laboratory, which LabOne believes has
significant economic advantages over other conventional laboratory competitors.
LabOne markets its clinical testing services to the payers of
healthcare-insurance companies and self-insured groups. LabOne does this through
exclusive arrangements with managed care organizations and through LabCard(R), a
Laboratory Benefits Management (LBM) program.
LabOne is certified by the Substance Abuse and Mental Health Services
Administration (SAMHSA) to perform substance abuse testing services for
federally regulated employers and is currently marketing these services
throughout the country to both regulated and nonregulated employers. LabOne's
rapid turnaround times and multiple testing options help clients reduce downtime
for affected employees and meet mandated drug screening guidelines.
Insurance Services
Insurance companies require an objective means of evaluating the insurance
risk posed by policy applicants in order to establish the appropriate level of
premium payments, or to determine whether to issue a policy. Because decisions
of this type are based on statistical probabilities of mortality and morbidity,
insurance companies generally require quantitative data reflecting the
applicant's general health. Standardized laboratory testing, tailored to the
needs of the insurance industry and reported in a uniform format, provides
insurance companies with an efficient means of evaluating the mortality and
morbidity risks posed by policy applicants. The use of standardized blood, urine
and oral fluid testing has proven a cost-effective alternative to individualized
physician examinations, which utilize varying testing procedures and reports.
<PAGE>
LabOne's insurance testing services consist of certain specimen profiles
that provide insurance companies with specific information that may indicate
liver or kidney disorders, diabetes, the risk of cardiovascular disease,
bacterial or viral infections and other health risks. LabOne also offers tests
to detect the presence of antibodies to human immunodeficiency virus (HIV).
Insurance companies generally offer a premium discount for nonsmokers and often
rely on testing to determine whether an applicant is a user of tobacco products.
Standardized laboratory
76
testing can be used to verify responses on a policy application to such
questions as whether the applicant is a user of tobacco products, certain
controlled substances or certain prescription drugs. Cocaine use has been
associated with increased risk of accidental death and cardiovascular disorders,
and as a result of increasing cocaine abuse in the United States and Canada,
insurance companies are testing a greater number of policy applicants to detect
its presence. Therapeutic drug testing also detects the presence of certain
prescription drugs that are being used by an applicant to treat a
life-threatening medical condition that may not be revealed by a physical
examination. Insurance specimens are normally collected from individual
insurance applicants by independent paramedical personnel using LabOne's
custom-designed collection kits and containers. These kits and containers are
delivered to LabOne's laboratory via overnight delivery services or mail, coded
for identification and processed according to each client's specifications.
Results are generally transmitted to the insurance company's underwriting
department that same evening. LabOne provides a one-day service guarantee on
oral fluid and urine HIV specimen results.
In association with Lincoln National Risk Management, LabOne provides
electronic data collection services and software to enable insurance companies
to receive data directly into their underwriting systems. LabOne offers LabOne
NET, a combination network/software product that provides a connection for
insurance underwriters for ordering and delivery of risk assessment information
such as laboratory results, telephone inspections, motor vehicle reports and
other applicant information. LabOne handles paramedical examination paperwork
and assists with administration of data for insurance underwriting.
Additionally, LabOne can obtain attending physician statements, telephone
inspections, motor vehicle reports, and perform claims investigation through its
subsidiary, SBSI.
Clinical Services
Clinical laboratory tests are generally requested by physicians and other
healthcare providers to diagnose and monitor diseases and other medical
conditions through the detection of substances in blood and other specimens.
Laboratory testing is generally categorized as either clinical testing, which is
performed on bodily fluids including blood and urine, or anatomical pathology
testing, which is performed on tissue. Clinical and anatomical pathology tests
are frequently performed as part of regular physical examinations and hospital
admissions in connection with the diagnosis and treatment of illnesses. The most
frequently requested tests include blood chemistry analyses, blood cholesterol
level tests, urinalyses, blood cell counts, PAP smears and AIDS-related tests.
Clinical specimens are collected at the physician's office or other
specified sites. LabOne's couriers pick up the specimens and deliver them to
local airports for express transport to the Kansas laboratory. Specimens are
coded for identification and processed. LabOne's testing menu includes the
<PAGE>
majority of tests requested by its clients. Tests not performed in-house are
sent to reference laboratories for testing, and results are transmitted into
LabOne's computer system along with all other completed results.
LabOne has established the LabCard(R) Program as a vehicle for delivering
outpatient laboratory services. The LabCard Program is marketed to healthcare
payers (self-insured groups and insurance companies), allowing them to avoid
price mark-ups and cost shifting. The LabCard Program provides laboratory
testing at reduced rates as compared to traditional laboratories. It uses a
unique benefit design that shares the cost savings with the patient, creating an
incentive for the patient to help direct laboratory work to LabOne. Under the
Program, the patient incurs no out-of-pocket expense when the LabCard is used,
and the insurance company or self-insured group receives substantial savings on
its laboratory charges.
LabOne has several exclusive arrangements with managed care organizations.
The two most significant are Principal Healthcare of Kansas City and Blue
Cross/Blue Shield of Tennessee. With these arrangements, LabOne contracts with
the managed care organization, and such organizations direct all testing for
their members through LabOne.
77
Substance Abuse Testing Services:
LabOne markets substance abuse testing to large companies, third party
administrators and occupational health providers. Certification by SAMHSA
enables LabOne to offer substance abuse testing services to federally regulated
industries.
Specimens for substance abuse testing are typically collected by
independent agencies who use LabOne's forms and collection supplies. Specimens
are sealed with bar-coded, tamper-evident seals and shipped overnight to LabOne.
Automated systems monitor the specimens throughout the screening and
confirmation process. Negative results are available immediately after testing
is completed. Initial positive specimens are verified by the gas
chromatography/mass spectrometry method, and results are generally available
within 24 hours. Results can be transmitted electronically to the client's
secured computer, printer or fax machine, or the client can use LabOne's LabLink
Dial-In software to retrieve, store, search and print its drug testing results.
<PAGE>
Segment Information
The following table summarizes LabOne's revenues from services provided to
the insurance, clinical and substance abuse testing markets (dollars in
thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31 Year ended December 31,
--------------------------- ------------------------------------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Insurance ....... $ 17,584 $ 16,822 $ 69,149 $ 61,988 $ 50,801
Clinical......... 5,958 3,654 18,600 7,512 3,942
Substance Abuse 3,786 2,857 14,478 9,416 4,689
----- ----- ------ ----- -----
$ 27,328 $ 23,333 $102,227 $ 78,926 $ 59,432
======== ======== ======== ======== ========
</TABLE>
(See Note 9 of Notes to Consolidated Financial
Statements for operating income and identifiable
assets by segment on page F-18)
Operations
LabOne's operations are designed to facilitate the testing of a large
number of specimens and to report the results to clients, generally within 24
hours of receipt of the specimens. LabOne has internally developed,
custom-designed laboratory and business processing systems. It is a centralized
network system that provides an automated link between LabOne's testing
equipment, data processing equipment and clients' computer systems. This system
offers LabOne's clients the ability to customize their testing and reflex
requirements by several parameters to best meet their needs.
As a result of the number of tests it has performed over the past several
years, LabOne has compiled and maintains a large statistical data base of test
results. These summary statistics are useful to the actuarial and underwriting
departments of an insurance client in comparing that client's test results to
the results obtained by LabOne's entire client base. Company-specific and
industry-wide reports are frequently distributed to clients on subjects such as
coronary risk analysis, cholesterol and drugs of abuse. Additionally, LabOne's
statistical engineering department is capable of creating customized reports to
aid managed care entities or employers in disease management and utilization
tracking to help manage healthcare costs.
LabOne considers the confidentiality of its test results to be of primary
importance and has established procedures to ensure that results of tests remain
confidential as they are communicated to the client that requested the tests.
78
<PAGE>
Substantially all of the reagents and materials used by LabOne in
conducting its testing are commercially purchased and are readily available from
multiple sources.
Regulatory Affairs
The objective of the regulatory affairs department is to ensure that
accurate and reliable test results are released to clients. This is accomplished
by incorporating both internal and external quality assurance programs in each
area of the laboratory. In addition, quality assurance specialists share the
responsibility with all LabOne employees of an ongoing commitment to quality and
safety in all laboratory operations. Internal quality and education programs are
designed to identify opportunities for improvement in laboratory services and to
meet all required safety training and education issues. These programs help
ensure the reliability and confidentiality of test results.
Procedure manuals in all areas of the laboratory help maintain uniformity
and accuracy and meet regulatory guidelines. Tests on control samples with known
results are performed frequently to maintain and verify accuracy in the testing
process. Complete documentation provides record keeping for employee reference
and meets regulatory requirements. All employees are thoroughly trained to meet
standards mandated by OSHA in order to maintain a safe work environment.
Superblind Testing Service(TM) controls are used to challenge every aspect of
service at LabOne from specimen arrival through final billing. Approximately 500
sample kits are prepared and submitted anonymously each month. These samples
have at least 15 different indicators each representing over 7,500 challenges to
the testing, handling and reporting procedures. Specimens requiring special
handling are evaluated and verified by control analysis personnel. A computer
edit program is used to review and verify clinically abnormal results and all
positive HIV antibody and drugs-of-abuse records. As an external quality
assurance program, LabOne participates in a number of proficiency programs
established by the College of American Pathologists (CAP), the American
Association of Bioanalysts and the Centers for Disease Control.
LabOne is accredited by CAP.
Even though only a small portion of LabOne's business encompasses
fee-for-service Medicare/Medicaid, LabOne has appointed a Chief Compliance
Officer and nine Co-Compliance Officers. Additionally, LabOne has developed the
LabOne Compliance Plan, based on the Model Compliance Plan recommended by the
Office of Inspector General (OIG) of the Department of Health and Human Services
to ensure compliance with anti-fraud and abuse laws and rules governing
federally-financed reimbursement for lab testing services.
LabOne is licensed under the Clinical Laboratory Improvement Amendments
(CLIA) of 1988. LabOne has additional licenses for substance abuse testing from
the state of Kansas and all other states where such licenses are required.
LabOne is certified by SAMHSA to perform testing to detect drugs of abuse in
federal employees and in workers governed by federal regulations.
Sales and Marketing
LabOne's client base consists primarily of insurance companies in the
United States and Canada. LabOne believes that its ability to provide prompt and
accurate results on a cost-effective basis, and its responsiveness to customer
needs have been important factors in servicing existing business.
<PAGE>
All of LabOne's sales representatives for the insurance market have
significant business experience in the insurance industry or clinical
laboratory-related fields. These representatives call on major clients several
times each year, usually meeting with a medical director or vice president of
underwriting. An important part of LabOne's marketing effort is directed toward
providing its existing clients and prospects with information pertaining to the
actuarial benefits of, and trends in, laboratory testing. LabOne's sales
representatives and its senior management also attend and sponsor insurance
industry underwriters' and medical directors' meetings.
The sales representatives for the clinical industry are experienced in the
healthcare benefit market or clinical
79
laboratory-related fields, and currently work in the geographic areas which they
represent. Marketing efforts are directed at insurance carriers, self-insured
employers and trusts, third party administrators and other organizations
nationwide.
Substance abuse marketing efforts are primarily directed at Fortune 1000
companies, occupational health clinics and third party administrators. LabOne's
strategy is to offer quality service at competitive prices. The sales force
focuses on LabOne's ability to offer multiple reporting methods, next-flight-out
options, dedicated client service representatives and rapid reporting of
results.
Competition
LabOne believes that the insurance laboratory testing market in the US and
Canada is approximately a $130 million industry. LabOne currently services more
than half the market. LabOne has maintained its market leadership through the
development of long term client relationships, its reputation for providing
quality products and services at competitive prices, and its battery of tests
which are tailored specifically to an insurance company's needs. LabOne has two
other main laboratory competitors, Osborn Laboratories, Inc. and Clinical
Reference Laboratory.
The insurance testing industry continues to be highly competitive. The
primary focus of the competition has been on pricing. This continued competition
has resulted in a decrease in LabOne's average price per test. It is anticipated
that prices may continue to decline in 1999. LabOne continues to develop
innovative data management services that differentiate its products from
competitors. These services enable LabOne's clients to expedite the underwriting
process, saving time and reducing underwriting costs.
The outpatient clinical laboratory testing market is a $20 billion industry
which is highly fragmented and very competitive. LabOne faces competition from
numerous independent clinical laboratories and hospital- or physician-owned
laboratories. Many of LabOne's competitors are significantly larger and have
substantially greater financial resources than LabOne. LabOne is working to
establish a solid client base through the use of LabCard and the establishment
of exclusive arrangements to provide laboratory services with large groups and
managed care entities.
LabOne's business plan is to be the low-cost provider of high-quality
laboratory services to self-insured employers and insurance companies in the
healthcare market. LabOne feels that its superior quality and centralized,
low-cost operating structure enable it to compete effectively in this market.
<PAGE>
LabOne competes in the substance abuse testing market nationwide. There are
presently 71 laboratories that are SAMHSA certified. LabOne's major competitors
are the three major clinical chains, Laboratory Corporation of America, Quest
Diagnostics and Smith Kline Beecham Laboratories, who collectively constitute
approximately two-thirds of the substance abuse testing market. LabOne's focus
is fast turnaround with high-quality, low-cost service.
80
Foreign Markets
Lab One Canada Inc. markets insurance testing services to Canadian clients,
with laboratory testing performed in the United States. The following table
summarizes the revenue, profit and assets applicable to LabOne's domestic
operations and its subsidiary, Lab One Canada Inc.
Year ended December 31,
(in millions)
---------------------------------------------
1998 1997* 1996
---- ---- ----
Sales:
United States $95.7 $72.4 $53.1
Canada 6.5 6.6 6.4
Operating Profit:
United States 14.2 2.0 2.4
Canada 0.3 0.6 0.7
Identifiable Assets:
United States 83.8 56.8 62.1
Canada 2.8 3.2 2.7
* 1997 operating profit includes a one-time write-off of $6.6 million. (See
Note 1 of Notes to Consolidated Financial Statements.)
Technology Development
The technology development department evaluates new commercially
available tests and technologies, or develops new assays, and compares them to
competing products in order to select the most accurate laboratory procedures.
Additionally, LabOne's scientists present findings to clients to aid them in
choosing the best tests available to meet their requirements. Total technology
development expenditures are not considered significant to LabOne as a whole.
Employees
As of March 1, 1999, LabOne had 895 employees, including 23 part-time
employees, representing an increase of 230 employees from the same time in 1998.
The addition of SBSI accounts for approximately 65% of the increase. None of
LabOne's employees are represented by a labor union. LabOne believes its
relations with employees are good.
<PAGE>
PROPERTIES
On December 26, 1998, LabOne started moving into its new 268,000 square
foot, custom-designed facility located in Lenexa, Kansas, approximately 15 miles
from Kansas City, Missouri. This facility consolidates LabOne's laboratory,
administrative and warehouse functions into one building. The facility is owned
by LabOne under a capital lease and financed through $20 million in industrial
revenue bonds issued by the City of Lenexa, Kansas in September, 1998. The
testing laboratory has certain enhancements that improve the efficiency of
operations. Conveyor systems transport inbound test kits from the receiving area
to the laboratory and remove waste after the opening process. All automated
testing equipment requiring purified water is linked directly to a
81
centralized water-purification system. Over 50,000 square feet of raised
flooring allows laboratory instruments and PCs to be arranged or moved quickly
and easily. The security system includes proximity card readers to control
access and a ceiling detector system to prevent foreign substances from being
thrown into the laboratory. In addition, three diesel generators and a UPS
battery system are on-line in the event of electrical power shortage. These
back-up power sources allow specimen testing and data processing to continue
until full power is restored, thus assuring LabOne's clients of continuous
laboratory operation.
SBSI utilizes two facilities in Independence, Missouri under five year
leases expiring in 2003. LabOne leases 10 locations in Northern California and 9
in the Midwest which serve as LabOne Service Centers (LSCs). These facilities
provide specimen collection services for patients and are typically located in
medical office buildings.
Lab One Canada Inc. leases office space in Ontario Canada, which is used
for sales and client services. This lease expires in 2000. Additionally, Lab One
Canada, Inc. leases space in Quebec Canada for assembly and distribution of
specimen collection kits for Canadian insurance testing. This lease expires in
2000.
LabOne also owns two buildings which are currently under contract to be
sold in the first and second quarter of 1999. Prior to moving to the new
facility, these buildings were used for laboratory operations, administrative
offices and data processing. LabOne's lease on its former warehouse facility
expired in February 1999.
LITIGATION
In the normal course of business, LabOne had certain lawsuits pending
at December 31, 1998.
The Comptroller of the State of Texas has conducted an audit of LabOne
for sales tax compliance and contends that LabOne's insurance laboratory testing
services are taxable under the Texas tax code and has issued an audit
assessment, including interest and penalties, of approximately $1.9 million.
LabOne has appealed this assessment arguing that its services do not fit within
the definition of insurance services under the Texas code.
The assessment is under review by the Texas State Hearing Attorney.
In the opinion of management, after consultation with legal counsel and
based upon currently available information, none of these lawsuits are expected
to have a material impact on the business, financial condition or results of
operations of LabOne. No provisions for loss related to litigation are included
in the accompanying consolidated financial statements.
<PAGE>
LABONE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
First Quarter 1999 Compared To First Quarter 1998
Net sales increased 17% in the first quarter 1999 to $27.3 million from
$23.3 million in the first quarter 1998. The increase of $4.0 million is due to
increases in clinical laboratory revenue of $2.3 million, substance abuse
testing (SAT) revenue of $0.9 million and insurance services revenue of $0.8
million.
Clinical diagnostic testing revenue increased from $3.7 million to $6.0
million for the quarter due to increased testing volumes partially offset by a
6% decrease in average revenue per patient. SAT revenue increased from $2.9
million in 1998 to $3.8 million in 1999 due to a 35% increase in testing volumes
as compared to last year.
82
The insurance services division revenue increased $0.8 million due to
the addition of SBSI revenue and growth in non laboratory services revenue,
partially offset by lower laboratory and kit revenue. SBSI contributed $1.9
million, and non laboratory services revenue increased $0.3 million over last
year. Insurance laboratory testing revenue decreased $0.8 million as a result of
reductions in price and volumes due to competitive pressures. The total number
of insurance applicants tested in the first quarter 1999 decreased by 4% as
compared to the same quarter last year. Average revenue per applicant decreased
2.5%. Kit and container revenue declined due to a decrease in the number of kits
sold.
Cost of sales increased $2.7 million or 21% in the first quarter 1999
as compared to the prior year, due to increases in payroll, outside services
such as paramed collections and state motor vehicle report fees, and postage
expense. A significant portion of these increases are related to the addition of
SBSI. Laboratory overtime and regular labor expense increased related to the
move to the new facility. These increases were partially offset by a decrease in
insurance kit expenses due to lower sales volumes. Clinical cost of sales
expenses were $3.9 million as compared to $3.4 million in the first quarter
1998. SAT cost of sales expenses were $2.8 million as compared to $2.1 million
in the first quarter 1998. Insurance cost of sales expenses increased from $7.5
million to $9.0 million primarily due to the addition of SBSI.
As a result of the above factors, gross profit for the quarter
increased $1.3 million or 13% from $10.4 million in 1998 to $11.7 million in
1999. Clinical gross profit increased $1.7 million on an increase in revenue of
$2.3 million. SAT gross profit increased $0.2 million on an increase in revenue
of $0.9 million. Insurance gross profit decreased $0.7 million or 7%.
Selling, general and administrative expenses increased $1.1 million or
15% in the first quarter 1999 as compared to the prior year due primarily to the
inclusion of SBSI and increases in bad debt, depreciation and moving expenses.
Insurance expenditures increased to $4.5 million for the quarter as compared to
$4.1 million in 1998 primarily due to the addition of SBSI. Total clinical
expenditures increased $0.8 million to $3.0 million in 1999 primarily due to an
increase in corporate overhead allocations to $0.9 million in 1999 from $0.6
million in 1998 and an increase in bad debt expense. SAT expenditures were $1.1
million as compared to $1.0 million last year. Closure on the sale of the former
<PAGE>
laboratory facility resulted in a gain of $0.3 million. Depreciation expense on
the new facility is expected to be less than $0.3 million per quarter.
Earnings from operations increased from $3.1 million in the first
quarter 1998 to $3.3 million in 1999. The clinical segment improved $1.0 million
to an operating loss of $1.0 million. The SAT segment improved $0.1 million from
an operating loss of $0.2 million in the first quarter 1998 to a loss of $0.1
million in 1999. The insurance segment declined $1.1 million to an operating
profit of $4.2 million.
Non operating expense increased $0.4 million primarily due to interest
expense on the industrial revenue bonds and a reduction in capital available for
investment. The effective income tax rate declined from 39% in 1998 to 36% in
1999 due to state income tax incentives.
The combined effect of the above factors resulted in net earnings of
$1.9 million or $0.15 per share in the first quarter 1999 as compared to $2.0
million or $0.15 per share in the same period last year.
1998 Compared to 1997
Revenue for the year ended December 31, 1998 was $102.2 million as
compared to $78.9 million in 1997. The increase of $23.3 million, or 30%, was
due to increases in clinical laboratory revenue of $11.1 million, insurance
services revenue of $7.2 million and SAT revenue of $5.1 million. Clinical
laboratory revenue increased from $7.5 million during 1997 to $18.6 million in
1998 primarily due to increased testing volumes. The insurance services segment
revenue increased from $62 million in 1997 to $69.1 million due to an increase
in the total number of insurance applicants tested and an increase in non
laboratory services, including SBSI, partially
83
offset by a 3% decrease in the average revenue per applicant. SAT revenue
increased from $9.4 million in 1997 to $14.5 million in 1998 primarily due to a
48% increase in testing volumes.
Cost of sales increased $14.7 million, or 35%, for the year as compared
to the prior year. This growth is primarily due to increases in inbound freight,
laboratory and kit supplies and payroll expenses due to the larger specimen
volume for all three business segments. Insurance segment cost of sales expenses
were $32.3 million as compared to $26.7 million during 1997. Clinical cost of
sales expenses were $14.5 million as compared to $8.3 million during 1997. SAT
cost of sales expenses were $9.9 million as compared to $7 million during 1997.
These increases are due to increased testing volumes.
As a result of the above factors, gross profit increased $8.6 million,
or 23%, from $36.9 million in 1997 to $45.5 million in 1998. Insurance gross
profit increased $1.5 million, or 4%, to $36.9 million in 1998. Clinical gross
profit improved $4.9 million from a loss of $0.8 million in 1997 to a gain of
$4.1 million in 1998.
SAT gross profit increased $2.2 million to $4.5 million in 1998.
<PAGE>
Selling, general and administrative expenses increased $3.3 million, or
12%, in 1998 as compared to 1997 primarily due to increases in payroll expenses
and bad debt accruals. Clinical overhead expenditures were $10.3 million as
compared to $7.5 million in 1997. SAT overhead increased from $3.3 million in
1997 to $4.3 million in 1998. These increases are due to the growth in each
segment. The allocation of corporate overhead to the clinical and SAT segments
increased to $5.3 million for the year, as compared to $3.3 million in 1997, due
to the increased share of total revenue for those segments. Insurance overhead
expenditures decreased to $16.3 million as compared to $16.8 million in 1997.
In 1997, LabOne recorded a one-time write-down of $6.6 million on the
value of the laboratory and administrative buildings in anticipation of their
sale. (See Note 1 of Notes to Consolidated Financial Statements.)
Operating income increased from $2.6 million in 1997 to $14.5 million
in 1998. The insurance services segment operating income increased $2.1 million
to $20.6 million in 1998. The clinical segment had an operating loss of $6.2
million for 1998 as compared to an operating loss of $8.3 million in 1997. The
SAT segment improved from an operating loss of $0.9 million in 1997 to a gain of
$0.2 million in 1998.
Other income decreased $0.4 million in 1998 as compared to 1997,
primarily due to lower investment income due to less funds being available to
invest. Average income tax expense was 39.3% of pretax income in 1998 as
compared to 41.6% in 1997. The reduction is primarily due to an increase in
LabOne's income from U.S. sources taxed at U.S. rates as compared to income
taxed at higher foreign rates.
The combined effect of the above factors resulted in net earnings of
$9.2 million, or $0.69 per share, in 1998 as compared to $2.2 million, or $0.17
per share, in 1997. Excluding the impact of the write-down in 1997, last year's
net earnings would have been $6.1 million, or $0.46 per share.
1997 Compared to 1996
Revenue for the year ended December 31, 1997 was $78.9 million as
compared to $59.4 million in 1996. The increase of $19.5 million, or 33%, is due
to increases in insurance segment revenue of $11.2 million, SAT revenue of $4.7
million and clinical laboratory revenue of $3.6 million. The insurance segment
increased 22% due to an increase in the total number of insurance applicants
tested and an increase in kit revenue, partially offset by a 1% decrease in the
average revenue per applicant. The increase in insurance segment revenue is
primarily due to an increase in market share and changes to testing thresholds.
Effective January 30, 1997, LabOne acquired certain assets, including customer
lists, of GIB Laboratories, Inc., a subsidiary of Prudential Insurance Company
of America. Concurrently, Prudential's Individual Insurance Group agreed to use
LabOne as its exclusive provider of risk assessment testing services for a three
year period. At the time of the purchase, GIB served approximately 5% of the
insurance laboratory testing market. Revenue in 1997 from former GIB
84
customers, including Prudential, was approximately $3.8 million. SAT revenue
increased from $4.7 million in 1996 to $9.4 million in 1997 due to a doubling in
testing volumes. Clinical laboratory revenue increased from $3.9 million in 1996
to $7.5 million in 1997 due to increased testing volumes and higher revenue per
patient.
<PAGE>
Cost of sales increased $9.3 million, or 28%, for the year as compared
to the prior year. This increase is due primarily to increases in payroll,
laboratory supplies and kit expenses due to the larger specimen volume for all
three business segments. Direct and allocated clinical cost of sales expenses
were $8.3 million as compared to $6.5 million during 1996. Direct and allocated
SAT cost of sales expenses were $7 million as compared to $3.7 million during
1996. These increases are due to increased testing volumes.
As a result of the above factors, gross profit increased $10.2 million,
or 38%, from $26.7 million in 1996 to $36.9 million in 1997. Insurance gross
profit increased $7 million, or 25% , in 1997 as compared to 1996. Clinical
gross profit improved $1.8 million from a loss of $2.6 million in 1996 to a loss
of $0.8 million in 1997. SAT gross profit increased from $1 million in 1996 to
$2.4 million in 1997.
Selling, general and administrative expenses increased $4.1 million, or
17%, in 1997 as compared to 1996 due primarily to increases in payroll expenses,
travel and amortization expenses. Clinical overhead expenditures were $7.5
million as compared to $5.4 million in 1996. SAT overhead increased from $2.2
million in 1996 to $3.3 million in 1997. These increases are due to the growth
in each segment.
In 1997, LabOne recorded a one-time write-down of $6.6 million on the
value of the laboratory and administrative buildings in anticipation of their
sale. (See Note 1 of Notes to Consolidated Financial Statements.)
Operating income decreased from $3.1 million in 1996 to $2.6 million in
1997, primarily due to the $6.6 million write down, partially offset by an
increase in the insurance segment operating income of $5.9 million. The clinical
segment had an operating loss of $8.3 million for 1997 as compared to a loss of
$8 million in 1996, due to a $0.6 million increase in corporate overhead
allocation over 1996. The SAT segment improved from an operating loss of $1.2
million in 1996 to a loss of $0.9 million in 1997, including a $0.9 million
increase in corporate overhead allocation over last year.
Other income decreased $0.7 million in 1997 as compared to 1996, due to
lower investment income. Average income tax expense was 41.6% of pretax income
in 1997 as compared to 41.2% in 1996.
The combined effect of the above factors resulted in net earnings of
$2.2 million, or $0.17 per share, in 1997 as compared to $2.9 million, or $0.22
per share, last year. Excluding the impact of the write-down, net income would
have been $6.1 million, or $0.46 per share, in 1997.
TRENDS
The following is management's analysis of certain existing trends that
have been identified as potentially affecting the future financial results of
LabOne. Due to the potential for a rapid rate of change in any number of factors
associated with the insurance and healthcare laboratory testing industries, it
is difficult to quantify with any degree of certainty LabOne's future volumes,
sales or net earnings.
The insurance laboratory testing industry continues to be highly
competitive. The primary focus of the competition has been on pricing. LabOne
continues to maintain its market leadership by providing quality products and
services at competitive prices. Management expects that prices may continue to
decline during 1999 due to competitive pressures. This trend may have a material
impact on earnings from operations.
<PAGE>
The total number of insurance applicants tested by LabOne increased 11%
in 1998 from the prior year. Approximately 80% of the increase represented oral
fluid HIV tested applicants. The number of oral fluid tested applicants are
expected to further increase in 1999.
85
Effective October 30, 1998, LabOne acquired Systematic Business
Services, Inc. (SBSI) which is operated as a wholly owned subsidiary of the
insurance services division of LabOne. SBSI is a provider of information
services to life and health insurers nationwide, and has annual revenues of
approximately $7 million. With 148 employees in the Kansas City area, SBSI
provides telephone inspections, motor vehicle reports, attending physician
statements, and claims investigation services to life insurance companies. This
addition allows LabOne to expand the services it offers to its insurance
industry clients.
In the clinical division, BlueCross BlueShield of Tennessee selected
LabOne to provide routine outpatient laboratory testing services for BlueCare
members throughout Tennessee effective February 1, 1998. BlueCare is BlueCross
BlueShield of Tennessee's plan for Tenncare participants. Approximately 400,000
BlueCare members are currently covered by the program. To date, the Laboratory
Benefit Management (LBM) programs, including BlueCare and the LabCard Program,
have more than 2.3 million lives enrolled. Revenue from LBM during the first
quarter 1999 was $3.5 million or approximately 59% of total clinical revenue.
LabOne's new facility was financed through the City of Lenexa, Kansas,
with industrial revenue bonds. In conjunction with the bonds, LabOne expects to
receive income tax credits through the State of Kansas High Performance
Incentive Plan to be applied against state income taxes for up to 10 years, or
until the credit is completely used. The amount of the credit is expected to be
approximately $4 million, and will lower LabOne's average income tax rate for
the duration of the credit.
On May 14, 1999, LabOne issued to STC Technologies, Inc., a warrant to
purchase 50,000 shares of LabOne common stock at a purchase price of $0.01 per
share, exercisable beginning one year after the date of issuance of the warrant.
The warrant was issued in connection with a Distribution Agreement entered into
between LabOne and STC Technologies. As a result of the issuance of the warrant,
LabOne will record a prepaid expense of $575,000, which will be amortized
over the forty month term of the Distribution Agreement.
Under the terms of the merger agreement, the issuance by LabOne of the
Warrant to STC Technologies required the prior approval of Lab Holdings. As a
condition to its approval, Lab Holdings required LabOne to agree to repurchase
shares of LabOne common stock to prevent any increase in the total number of
shares outstanding as a result of the exercise of any outstanding option or
warrant prior to the effective time of the merger. If LabOne issues any shares
of LabOne common stock prior to the effective time of the merger upon the
exercise of outstanding options or warrants, LabOne is required to repurchase an
equal number of shares of LabOne common stock, in the open market or otherwise.
If all exercisable, in-the-money options and warrants were exercised prior to
August __, 1999, the scheduled effective time of the merger, LabOne's net
repurchase obligation would be approximately $786,613, based upon the closing
price of LabOne common stock of $12.50 per share on May 25, 1999. LabOne also
agreed that if the merger agreement was terminated for any reason prior to the
consummation of the merger, LabOne would acquire 50,000 shares of LabOne common
stock, in the open market or otherwise, prior to the date on which the Warrant
issued to STC Technologies becomes exercisable.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
LabOne's working capital position declined from $35.4 million at December
31, 1997, to $25.9 million at December 31, 1998, to $21.1 million at March 31,
1999. These decreases are primarily due to dividends paid and capital additions,
including building payments, in excess of bond proceeds and cash provided by
operations. Net cash provided by operations increased from $8.1 million in 1997
to $9 million in 1998. Accounts receivable grew from $12.6 million at December
31, 1997 to $18.7 million at December 31, 1998 to $19.7 million at March 31,
1999, due primarily to an increase in revenue growth from all three segments.
Bad debt expense and allowances increased due to the increase in total revenue
and a shift in revenue toward clinical and SAT sources.
During 1998 and the first quarter of 1999, LabOne paid quarterly
dividends of $0.18 per common share. The Board of Directors reviews this policy
on a periodic basis. The total amount of dividends paid during 1998 was $0.72
per share, or $9.5 million, which was $0.5 million in excess of net cash
provided by operations. In February 1999, LabOne's Board of Directors declared a
dividend of $0.18 per common share. This dividend was
86
paid on March 2, 1999, to stockholders of record as of February 23, 1999, and
totaled approximately $2.4 million. There are no restrictions that would limit
LabOne's ability to make future dividend payments.
Additions to property, plant and equipment, net of the sale of the
former laboratory facility, were $3.9 million in the first quarter 1999,
primarily related to construction and fixtures for the new facility. Net
additions in the first quarter 1998 were $1.7 million. During 1998, LabOne
invested $28.5 million in additional property, plant, equipment and acquisitions
as compared to $11.5 million in 1997 and $3.2 million in 1996. Of the amount
spent in 1998, approximately $21.6 million was for construction LabOne's new
facility, and $3.0 net cash was used in the purchase of SBSI. The 1997 amount
included land purchased related to the new facility and the GIB Laboratories
acquisition. The new facility is now completely operational. Future capital
asset purchases are expected to be approximately $5 million annually.
LabOne had no short-term borrowings during 1998. Management expects to
be able to fund operations and future dividend payments, if any, from a
combination of cash flow from operations, cash reserves, building sales and
short-term borrowings. Interest on the industrial revenue bonds issued to
finance the construction of LabOne's new facility is based on a taxable seven
day variable rate which, including letter of credit and remarketing fees, is
approximately 5.7% as of May 15, 1999. The bonds mature over 11 years in
increments of $1.85 million per year plus interest. Total cash and investments
at March 31, 1999, were $6.9 million, as compared to $10.2 million at December
31, 1998.
On May 14, 1999, Holdings entered into a Line of Credit Loan Agreement
with Commerce Bank, N.A. of Kansas City, Missouri. The line of credit authorizes
Holdings and the combined company following the merger to make unsecured
borrowings of up to $15 million to finance day to day operations of LabOne and
to fund cash elections under the merger agreement. Borrowings will bear interest
at a variable rate equal to (a) the Commerce Bank prime rate or (b) 75 basis
points in excess of the LIBOR rate, with borrower being entitled to select the
applicable rate for each borrowing at the time of each borrowing. All borrowings
mature on October 31, 2000.
<PAGE>
YEAR 2000
LabOne is actively addressing Year 2000 computer concerns. LabOne has
established an oversight committee which includes management from all parts of
LabOne and meets periodically to review progress. LabOne's laboratory operating
systems and its business processing systems were completely rewritten as of 1991
and were brought into compliance with Year 2000 date standards at that time.
Non-IT systems, which include security systems, time clocks and heating and
cooling systems, have been replaced with certified compliant systems as part of
construction of the new facility. Ongoing remediation efforts include regularly
scheduled software upgrades and replacement of personal computers and associated
equipment. LabOne expects to complete all remaining internal Year 2000
objectives by the end of the second quarter, 1999.
LabOne is assessing the Year 2000 preparation and contingency plans of
LabOne's clients and vendors. LabOne has material relationships and dependencies
with its primary telecommunications provider, Sprint Corp., its inbound shipping
provider, Airborne Express, and municipal services providers. In the event of a
service interruption, LabOne has the ability to switch telecommunications
services to AT&T at any time, and maintains backup electrical generators capable
of meeting its electrical needs. LabOne currently tracks and controls routing of
its inbound specimens and can use USPS, airlines and other common carriers or
express delivery services in the event of delivery problems with Airborne
Express. LabOne currently maintains approximately eight weeks supply of most
laboratory supplies, and does not expect significant problems in obtaining
supplies. LabOne continues to review the Year 2000 plans of these providers, and
does not currently expect significant problems in these areas, however, there
can be no assurance that the systems of clients and vendors will be converted to
address Year 2000 problems in a timely and effective manner or that such
conversions will be compatible with LabOne's computer systems.
87
Resources dedicated to the remaining effort are expected to cost less
than $0.3 million and are not considered a material expense to LabOne. These
efforts have not caused delay to LabOne's other ongoing information systems
projects. LabOne has not hired any outside consultants or other independent
validation provider at this time, and does not expect to do so.
There can be no assurance that LabOne's adjustments to its computer
systems will completely eliminate all Year 2000 problems. Failure to properly
address the Year 2000 problem could have a material adverse effect on LabOne's
business, financial condition and results of operations.
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A foreign currency risk exposure exists due to billing Canadian
subsidiary revenue in Canadian dollars and the direct laboratory expenses
associated with this revenue being incurred in US dollars. This exposure is not
considered to be material. Any future material Canadian currency fluctuations
against the US dollar could result in a decision to hedge future foreign
currency cash flows, or to increase Canadian prices.
An interest rate risk exposure exists due to LabOne's liability of $20
million in industrial revenue bonds. The interest expense incurred on these
bonds is based on a taxable seven day variable rate, which including letter of
credit and remarketing fees, is approximately 5.8% as of March 1, 1999. This
exposure is not considered material. Any future increase in interest rates would
result in additional interest expense and could result in a decision to enter
into a long-term interest rate swap transaction.
88
<PAGE>
MANAGEMENT OF LABONE
LabOne Directors and Executive Officers
The directors and executive officers of LabOne are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
W. Thomas Grant II 48 Chairman of the Board of Directors, President,
Chief Executive Officer and Director
Gregg R. Sadler, FSA 48 Executive Vice President - Administration, President -
Insurance Laboratory Division, Secretary and Director
Robert D. Thompson 37 Executive Vice President, Chief Operating Officer,
Chief Financial Officer and Director
Roger K. Betts 56 Executive Vice President - Sales - Insurance Laboratory
Division
Thomas J. Hespe 42 Executive Vice President - Sales and Marketing, President -
Clinical Sales and Marketing and Director
Michael A. Peat, Ph.D. 51 Executive Vice President - Toxicology and President -
Substance Abuse Testing Division
Thomas H. Bienvenu II 49 Executive Vice President - Information Systems and
Technology
Judith A. VonFeldt 52 Executive Vice President - Human Resources
Kurt E. Gruenbacher, 39 Vice President - Finance, Chief Accounting Officer,
CPA, CMA, CFM Treasurer and Assistant Secretary
Joseph H. Brewer, M.D. 47 Director
William D. Grant 82 Director
Richard A. Rifkind, M.D. 68 Director
Richard S. Schweiker 72 Director
James R. Seward 46 Director
John E. Walker 60 Director
R. Dennis Wright, Esq. 56 Director
</TABLE>
The terms of office of the directors of LabOne will expire upon the
election of their successors at the LabOne annual meeting. Executive officers
serve at the pleasure of the Board of Directors.
Mr. W. Thomas Grant II has been a director of LabOne since 1983. Mr. Grant
was appointed Chairman of the Board of Directors, President and Chief Executive
Officer of LabOne in October 1995. He served as Chairman of the Board of
Holdings from May 1993 to September 1997. Mr. Grant is also a director of
Commerce Bancshares, Inc., Kansas City Power & Light Company, Response Oncology,
Inc. and AMC Entertainment, Inc. He is the son of W. D. Grant.
Mr. Sadler has been a director of LabOne since 1985. Mr. Sadler was
appointed President-Insurance Laboratory Division in 1994 and Executive Vice
President-Administration in 1993. Mr. Sadler has served as Secretary since 1988.
Mr. Thompson has been a director of LabOne since 1995. Mr. Thompson was
appointed Chief Operating Officer in May 1997 and Executive Vice President -
Finance and Chief Financial Officer in December 1993. He served as Treasurer
from December 1993 to November 1997, and served as Vice President-Business
Development Planning from August 1993 to December 1993.
89
<PAGE>
Mr. Betts was appointed Executive Vice President-Sales-Insurance Laboratory
Division in 1994. From 1993 to 1994, Mr. Betts served as Senior Vice
President-Sales of the Insurance Laboratory Division.
Mr. Hespe has been a director of LabOne since 1995. Mr. Hespe was appointed
President - Clinical Sales and Marketing and Executive Vice President - Sales
and Marketing in 1995. From 1990 to 1995, Mr. Hespe served as 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.
Dr. Peat was appointed President - Substance Abuse Testing Division and
Executive Vice President- Toxicology in May 1996. Dr. Peat served as Senior Vice
President-Toxicology from 1994 to 1996. Prior to joining LabOne in 1994, Dr.
Peat was Vice President of Toxicology of Roche Biomedical Laboratories, Inc.,
Research Triangle Park, North Carolina.
Mr. Bienvenu was appointed Executive Vice President- Information Systems
and Technology in May 1997. Mr. Bienvenu served as Senior Vice President-
Information Systems and Technology from 1994 to 1997. He served as Vice
President- Marketing Information Technology from October 1994 to December 1994.
Prior to October 1994, he served as Director of Marketing Information
Technology.
Ms. VonFeldt has served as Executive Vice President - Human Resources since
August 1998. She served as Senior Vice President - Human Resources from May 1997
to August 1998, and as Vice President Human Resources from September 1993 to May
1997.
Mr. Gruenbacher was appointed Assistant Secretary in May 1999 and Treasurer
in November 1997. He was appointed Vice President-Finance and Chief Accounting
Officer in May 1995. Mr. Gruenbacher served as Corporate Controller from 1994 to
1995, and Director, Financial Analysis and Budgets from 1993 to 1994.
Dr. Brewer has been a director of LabOne since 1988. During the past five
years, Dr. Brewer has been an Infectious Disease Specialist at St. Luke's
Hospital, Kansas City, Missouri and an Assistant Clinical Professor of Medicine
at the University of Missouri - Kansas City
Mr. William D. Grant has been a director of LabOne since 1989. Mr. Grant is
retired. From August 1990 to December 1997, he served as a consultant to
Holdings and served as Chairman of the Board of Holdings prior to May 1993. He
is the father of W. Thomas Grant II.
Dr. Rifkind has been a director of LabOne since 1987. Dr. Rifkind has been
Chairman of the Sloan- Kettering Institute, New York, New York, a medical
research institution, during the past five years.
Mr. Schweiker has been a director of LabOne since 1995. Mr. Schweiker has
been retired for the past five years. Prior to his retirement, Mr. Schweiker
served as President of the American Council of Life Insurance, Washington, D.C.,
a life insurance trade association. Mr. Schweiker is also a director of Tenet
Healthcare Corporation.
<PAGE>
Mr. Seward has been a director of LabOne since 1995. Mr. Seward has been
self-employed as an investment adviser and consultant since August 1998. From
December 1996 to August 1998, Mr. Seward served as President, Chief Executive
Officer and a director of SLH Corporation, Shawnee Mission, Kansas, an asset
management company. SLH Corporation was a wholly-owned subsidiary of Holdings
prior to its spin-off in March 1997. He was Executive Vice President of Holdings
from 1993-1997 and served as its Chief Financial Officer from 1990-1997. Mr.
Seward is also a director of Response Oncology, Inc., Syntroleum Corporation and
90
Concorde Career Colleges.
Mr. Walker has been a director of LabOne since 1984. 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.
Mr. Wright has been a director of LabOne since 1987. Mr. Wright has been a
partner in the law firm of Morrison & Hecker L.L.P., Kansas City, Missouri,
since September 1998. Mr. Wright was a member of Hillix, Brewer, Hoffhaus,
Whittaker & Wright, L.L.C., Kansas City, Missouri and Chairman of its Executive
Committee prior to its merger with Morrison & Hecker, L.L.P. in September 1998.
Morrison & Hecker, L.L.P. is general counsel to LabOne.
91
<PAGE>
LABONE
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 1998 and (ii) the four
most highly compensated executive officers other than the chief executive
officer serving as of December 31, 1998, for services rendered in all capacities
to LabOne and its subsidiaries for each of the last three completed fiscal
years.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation ------------
Name and Fiscal ------------------------- Stock Option Shares All Other
Principal Position Year Salary ($) Bonus ($) Granted (#) Compensation ($) (1)
- ------------------ ---- ---------- --------- ----------- --------------------
<S> <C> <C> <C> <C> <C>
W. Thomas Grant II 1998 164,769 107,261 -0- 21,670
Chairman of the 1997 86,019 131,173 75,000 9,922
Board of Directors, 1996 -0- -0- -0- -0-
President and Chief
Executive Officer
Robert D. Thompson 1998 217,627 157,261 -0- 16,696
Executive Vice President, 1997 209,900 131,173 -0- 16,856
Chief Operating and 1996 209,277 75,000 -0- 17,086
Financial Officer
Carl W. Ludvigsen, Jr. 1998 239,781 42,661 -0- 21,670
Executive Vice President - 1997 230,900 131,173 -0- 21,470
Corporate Development and 1996 230,277 25,000 -0- 20,634
Chief Medical Officer
Thomas J. Hespe 1998 165,704 107,261 -0- 21,371
Executive Vice 1997 159,900 131,173 -0- 21,470
President-Clinical 1996 159,277 50,000 -0- 20,490
Marketing & Sales Division
Gregg R. Sadler 1998 165,704 107,261 -0- 21,670
Executive Vice 1997 156,900 131,173 -0- 21,865
President-Administration 1996 150,277 50,000 -0- 20,923
and Secretary & President
Insurance Laboratory Division
</TABLE>
(1) The amounts shown in this column for 1998 consist of (a) contributions
by LabOne to the account of each of the named executive officers under
LabOne's defined contribution pension plan in the amount of $16,421;
(b) 50% matching contributions by LabOne under LabOne's profit-sharing
401(k) plan in the amount of $4,526 to the accounts of each of Messrs.
Grant, Ludvigsen, Hespe and Sadler, and (c) insurance premium payments
by LabOne with respect to group term life insurance in the amounts of
$723 for the benefit of each of Messrs. Grant, Ludvigsen and Sadler,
$274 for the benefit of Mr. Thompson and $424 for the benefit of Mr.
Hespe.
92
<PAGE>
Aggregate Option Exercises and December 31, 1998 Option Value Table
The following table provides certain information concerning the
exercise of stock options during 1998 by each of the named executive officers
and the number and value of unexercised options held by such persons on December
31, 1998.
<TABLE>
<CAPTION>
Number of
Shares Value of
Underlying Unexercised
Unexercised In-the-Money
Options on Options on
December 31, 1998 (#) December 31, 1998 ($)
---------------------- ---------------------
Shares Options Options Options Options
Acquired on Value Exercis- Unexer- Exercis- Unexer-
Name Exercise (#) Realized($) able cisable able cisable
- ---- ------------ ----------- ---- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C>
W. Thomas Grant II 0 0 42,431 60,000 $ 84,007 $0
Robert D. Thompson 0 0 122,000 28,000 $ 39,375 $26,250
Carl W. Ludvigsen, Jr. 0 0 81,000 8,000 $ 82,873 $10,500
Thomas J. Hespe 0 0 60,000 40,000 $ 78,750 $52,500
Gregg R. Sadler 0 0 90,400 9,600 $144,019 $0
</TABLE>
Compensation of Directors
Directors who are not employees of LabOne 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, Gregg R.
Sadler and Thomas J. Hespe. 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,
$150,900 to Mr. Sadler and $150,900 to Mr. Hespe. In the event that LabOne
terminates Messrs. Thompson 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 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
93
<PAGE>
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. The proposed merger of LabOne with
and into Holdings does not constitute a change of control of LabOne within the
meaning of the Agreements. 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 until his resignation from the Committee on
February 14, 1998. 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. 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 LabOne'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.
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. Base salary
decisions are not based upon any specific financial performance measure or
criterion with respect to LabOne.
<PAGE>
Annual Incentive Plan and Discretionary Bonuses
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 operating earnings goal under the Plan
based upon the Committee's judgment of reasonable operating earnings growth over
the previous fiscal year. No incentive bonuses are payable under the Plan if the
minimum operating earnings threshold is not met. The size of the incentive pool
increases pursuant to a formula established by the Committee as operating
earnings increase over the minimum threshold. The incentive pool is distributed
in cash to designated officers and managers at year end
94
according to a pre-established weighting. The weighting is based upon senior
management's subjective evaluations of each individual's potential contribution
to LabOne's financial and strategic goals for the year, and is reviewed and
approved by the Committee. Bonuses aggregating $874,336 were paid to executive
officers of LabOne under the Plan in 1998.
LabOne also pays discretionary annual bonuses to executive officers and
key employees of LabOne and its subsidiaries on an irregular basis upon the
recommendation of the Committee. In making determinations as to recommended
bonuses, the Committee considers the financial condition and the operating
results over the last fiscal year of LabOne, the level of salary, bonus, fringe
and other benefits currently provided to the executive by LabOne and the
individual performance of the executive. The Committee's recommendations are
based upon its subjective review of these factors, and is not based upon any
specific criteria or financial performance measure. The Committee recommended a
discretionary bonus of $50,000 to one executive officer in 1998, based
principally upon the executive officer's performance in 1998.
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 1987 Long-Term Incentive Plan and the 1997
Long-Term Incentive Plan. 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 LabOne has also received a ten-year nonqualified stock option grant
to vest over four years.
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.
<PAGE>
The Committee's determination whether to recommend the grant of options
to an executive officer is based upon its subjective and informal review of a
number of factors, including the number of options held by the executive, the
exercise prices of such options, the amount of the executive's total
compensation package, the amounts which the executive is eligible to earn under
the Annual Incentive Plan, the position held by the executive, the duties and
responsibilities of the executive, the past performance of the executive and the
Committee's desire to provide a long-term incentive component to the executive's
compensation. The decision to grant options is not based upon any specific
criteria or financial performance measure. The Committee recommended the grant
of stock options to purchase 25,000 shares to one officer promoted to an
executive officer position in 1998.
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's base salary and car allowance were not changed in 1998. Mr. Grant did
receive an additional $5,769 in salary in 1998 due to the occurrence of an
additional pay period in 1998 under LabOne's bi-weekly payroll system. Mr. Grant
also participates in the Annual Incentive Plan at the base participation level
for senior management. Mr. Grant participation level was established at the base
level at Mr. Grant's request. Based upon 1998 Plan results, Mr. Grant received
an incentive bonus of $107,261 in 1998.
Deductibility Cap on Compensation Exceeding $1,000,000
95
The Committee has considered the potential impact of Section 162(m) of
the Internal Revenue Code of 1986, as amended, regarding non-deductibility of
annual compensation in excess of $1,000,000. The Committee does not believe that
Section 162(m) will have any material impact upon LabOne, given the current
salary and bonus levels of executive officers of the corporation and the
treatment in the regulations of compensation under the corporation's long-term
incentive plans. The Committee believes that many of the options currently
outstanding are exempt from the deductibility limit under the transition
provisions set forth in the regulations under Section 162(m). It is the
Committee's current intention that options granted under the 1997 Long-Term
Incentive Plan will qualify as performance-based compensation and be exempt from
the deductibility limits of Section 162(m). The Committee will continue to
evaluate the advisability of qualifying executive compensation for deductibility
under Section 162(m).
Submitted by the Compensation Committee
Richard S. Schweiker, Chairman
Joseph H. Brewer
Richard A. Rifkind
<PAGE>
Comparison of Five Year Cumulative Total Return Among LabOne,
Nasdaq Composite Index and Peer Group
[Performance Graph which reflects the information in the table below
has been omitted]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LabOne, Inc. 100.00 86.99 87.36 114.58 113.31 87.91
NASDAQ Composite 100.00 97.75 138.26 170.01 208.58 293.21
Peer Group 100.00 89.51 67.97 26.49 22.13 20.38
</TABLE>
The table assumes the investment at the close of business on December
31, 1993, of $100 in LabOne's common stock and in the portfolio represented in
each index, and assumes that all dividends were reinvested.
The NASDAQ Composite is a NASDAQ Stock Market index consisting of U.S.
companies that is provided by the Center for Research in Security Prices of the
University of Chicago. 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. LabOne
believes that the peer group index provides an appropriate comparison.
96
<PAGE>
Certain Relationships and Related Transactions
Relationship with Holdings
As of March 26, 1999, Holdings beneficially owned 10,712,200 shares, or
80.5%, of the outstanding common stock of LabOne. 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. LabOne operates
independently of Holdings, with the officers of LabOne having direct
responsibility for all of LabOne's management and operations.
Holdings and LabOne are 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 Holdings, directly or
indirectly, owns at least 20% of the outstanding voting shares of LabOne,
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 healthcare 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 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 Holdings, 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 Holdings, and any controlling person of 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, Holdings agrees to indemnify and hold harmless LabOne and any
controlling person of LabOne (other than 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 the operations of Holdings
(other than the business of LabOne).
97
<PAGE>
MANAGEMENT OF COMBINED COMPANY
AFTER THE MERGER
Directors and Executive Officers of Combined Company After the Merger
Holdings and LabOne have agreed in the merger agreement to take all
necessary action so that as of the effective time the individuals identified
below shall be the directors and executive officers of the combined company. The
parties have also agreed in the merger agreement that prior to the effective
time one additional person with significant experience in the clinical
laboratory industry will be named as a Class A Director by mutual agreement of
Holdings and the Special Committee. If prior to the effective time any
individual selected to be a director or executive officer of the combined
company is unwilling or unable to serve in such capacity, any person proposed to
fill such vacancy shall be subject to the approval of Holdings and the Special
Committee.
The board of directors of the combined company is divided into three
classes, with staggered terms of office. The initial term of office of each
Class A Director will expire at the 2000 annual meeting of stockholders of the
combined company, the initial term of office of each Class B Director will
expire at the 2001 annual meeting of stockholders of the combined company and
the initial term of office of each Class C Director will expire at the 2002
annual meeting of stockholders of the combined company. Thereafter, the term of
each class will expire on the date of the third annual stockholders' meeting for
the election of directors following the most recent election of directors for
such class. Each director shall hold office until the next annual meeting of
stockholders for the election of directors of his or her class and until his or
her successor has been duly elected and shall have qualified. Executive officers
serve at the pleasure of the Board of Directors.
<PAGE>
<TABLE>
<CAPTION>
Name Age Position
- ----- --- --------
<S> <C> <C>
W. Thomas Grant II 48 Chairman of the Board of Directors, President,
Chief Executive Officer and Class C Director
Gregg R. Sadler, FSA 48 Executive Vice President - Administration, President - Insurance
Laboratory Division and Secretary
Robert D. Thompson 37 Executive Vice President, Chief Operating Officer,
Chief Financial Officer and Class B Director
Roger K. Betts 56 Executive Vice President - Sales, Insurance Laboratory
Division
Thomas J. Hespe 42 Executive Vice President - Sales and Marketing, President
- Clinical Sales and Marketing and Director
Michael A. Peat, Ph.D. 51 Executive Vice President - Toxicology and President - Substance
Abuse Testing Division
Thomas H. Bienvenu II 49 Executive Vice President - Information Systems and
Technology
Judith A. VonFeldt 52 Executive Vice President - Human Resources
Kurt E. Gruenbacher, 39 Vice President - Finance, Chief Accounting Officer,
CPA, CMA, CFM Treasurer and Assistant Secretary
Joseph H. Brewer, M.D. 47 Class B Director
Peter C. Brown 40 Class C Director
William D. Grant 82 Class B Director
Richard A. Rifkind, M.D. 68 Class A Director
Richard S. Schweiker 72 Class C Director
James R. Seward 46 Class A Director
_________________________ __ Class A Director
Chester B. Vanatta 63 Class B Director
John E. Walker 60 Class C Director
R. Dennis Wright, Esq. 56 Class A Director
</TABLE>
Certain biographical information with respect to the above persons, other
than Peter C. Brown, ___________
98
<PAGE>
and Chester B. Vanatta, is described herein under "Management of
LabOne" on page 89.
Peter C. Brown. Mr. Brown has served as Co-Chairman of the Board of AMC
Entertainment, Inc. ("AMCE") since May 1998, as President of AMCE since January
1997 and as Chief Financial Officer of AMCE since November 1991. Mr. Brown has
served as Executive Vice President of American Multi-Cinema, Inc. ("AMC"), a
wholly-owned subsidiary of AMCE, since August 1994 and as Chief Financial
Officer of AMC since November 1991. Mr. Brown served as Executive Vice President
of AMCE from August 1994 to January 1997, and as Senior Vice President of AMCE
and AMC from November 1991 to August 1994. AMCE and AMC are located in Kansas
City, Missouri and are engaged in the business of developing and operating
motion picture theaters. Mr. Brown also serves as Chairman of the Board of
Trustees of Entertainment Properties Trust, Kansas City, Missouri, a real estate
investment trust. Mr. Brown is a director of AMCE, AMC and Protection One, Inc.,
a security alarm monitoring company.
____________________. M_. ___________ has served since _____________ as
_________________________.
Chester B. Vanatta. Mr. Vanatta is a business consultant. From 1985 until
May 1990, he was an Executive in Residence and the Paul J. Adam Distinguished
Lecturer for the School of Business at the University of Kansas. Mr. Vanatta was
formerly Vice Chairman of Arthur Young & Company (now Ernst & Young), certified
public accountants. Mr. Vanatta is a director of Atlantis Plastics, Inc.
SECURITY OWNERSHIP OF LABONE BEFORE AND AFTER
THE MERGER
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF LABONE
The following table shows as of March 31, 1999, 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 of LabOne. All of the
shares of outstanding stock of LabOne that are owned by Holdings immediately
prior to the effective time of the merger will be cancelled in the merger.
<TABLE>
<CAPTION>
Percentage of
Shares of LabOne Outstanding Shares
Beneficially owned Of LabOne Owned
Beneficial Owner March 26, 1999 March 26, 1999
- ---------------- -------------- --------------
<S> <C> <C>
Lab Holdings, Inc. 10,712,200 80.5%
5000 West 95th Street
Shawnee Mission, KS 66207
</TABLE>
Holdings has sole voting and investment power with respect to the shares listed.
99
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
OF LABONE
The following table shows for each director of LabOne, each of the
executive officers of LabOne named in the Summary Compensation Table under
"Management of LabOne," and all directors and executive officers of LabOne as a
group, the total number of shares of common stock of LabOne and of Holdings
beneficially owned by such persons as of March 31, 1999 and the total number of
shares of common stock of the combined company owned after giving effect to the
merger.
<TABLE>
<CAPTION>
Amount of Shares Beneficially Owned
-----------------------------------
LabOne Holdings Combined Company
Before the Merger Before the Merger After the Merger
------------------------ ------------------------ -----------------------
Percentage Percentage Percentage
Beneficial Owner(1) Shares(3) of Class(2) Shares of Class(2) Shares(3) of Class(4)
------ -------- ------ -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Joseph H. Brewer, M.D. 27,195 * 0 * 27,195 *
William D. Grant 38,695 (5) * 1,086,647(6) 16.7% 1,668,665 13.5-15.1%
W. Thomas Grant II 81,596 (8) * 138,089(7) 2.1% 288,729 (8) 2.3-2.6%
Thomas J. Hespe 60,831 (8) * 0 * 60,831 (8) *
Carl W. Ludvigsen, Jr., M.D. 83,313 (8) * 0 * 83,313 (8) *
Richard A. Rifkind, M.D. 27,098 * 0 * 27,098 *
Gregg R. Sadler 102,993 (8) * 266 * 103,392 (8) *
Richard S. Schweiker 19,978 * 0 * 19,978 *
James R. Seward 22,156 * 0 * 22,156 *
Robert D. Thompson 127,949 (8) * 0 * 127,949 (8) 1.0-1.2%
John E. Walker 27,195 (9) * 6,099(9) * 36,343 (9) *
R. Dennis Wright, Esq. 24,378 * 0 * 24,378 *
All directors and executive
officers of LabOne as a group 817,198 (8) 5.8% 1,231,101 19.0% 2,489,471 20.2-22.6%
(17 persons)
</TABLE>
* 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) For purposes of determining the percentage ownership of each beneficial
owner, the outstanding shares of the respective corporation include shares
that the beneficial owner has the right to acquire within 60 days pursuant
to options granted to such beneficial owner. Percentages for LabOne are
based upon 13,311,450 shares of LabOne common stock outstanding as of March
31, 1999. Percentages for Holdings before the merger are based upon
6,489,103 shares of Holdings common stock outstanding as of March 31, 1999.
<PAGE>
(3) Assumes that none of the beneficial owners will elect to exchange LabOne
shares for cash. Includes the following numbers of shares of LabOne common
stock 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,
57,431 shares; Thomas J. Hespe, 60,000 shares; Carl W. Ludvigsen, Jr.,
81,000 shares; Richard A. Rifkind, 22,000 shares; Gregg R. Sadler, 95,200
shares; Richard S. Schweiker, 17,600 shares; James R. Seward, 17,600
shares; Robert D. Thompson, 126,000 shares; John E. Walker, 22,000 shares;
R. Dennis Wright, 22,000 shares;
100
and all directors and executive officers as a group, 719,831 shares. These
options will be assumed by the combined company in the merger.
(4) The two percentages for each beneficial owner of the combined company over
1% reflect beneficial ownership assuming that LabOne stockholders other
than Holdings elect all stock (the lower number) and maximum cash (the
higher number).
(5) Does not include 10,712,200 shares of LabOne common stock owned by Holdings
(see "Security Ownership of Certain Beneficial Owners of LabOne" above).
Mr. W.D. Grant disclaims beneficial ownership of the shares of LabOne
common stock owned by Holdings. These shares will be cancelled in the
merger.
(6) Includes 586,206 shares of Holdings common stock held by five family trusts
for which William D. Grant shares voting and investment power with UMB
Bank, N.A., and 28,916 shares owned by the wife of William D. Grant, as to
which he disclaims beneficial ownership.
(7) Includes 22,442 shares held by W. T. Grant II as custodian for his
children; includes 45,000 shares held in a family trust for which W. T.
Grant II serves as a co-trustee and in that capacity shares voting and
investment powers; also includes 12,480 shares owned by the wife of W. T.
Grant II, as to which he disclaims beneficial ownership.
(8) Includes the following numbers of shares of LabOne common stock 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: W. Thomas Grant II, 22,365 shares; Thomas J. Hespe, 831 shares;
Carl W. Ludvigsen, Jr., 2,313 shares; Gregg R. Sadler, 5,793 shares; Robert
D. Thompson, 1,949 shares; and all directors and executive officers as a
group, 50,872 shares. These shares will be converted into shares of common
stock of the combined company in the merger.
(9) All of Mr. Walker's shares are owned by a revocable trust for Mr. Walker's
wife, as to which he disclaims beneficial ownership.
<PAGE>
LABONE's ANNUAL MEETING PROPOSALS
ELECTION OF DIRECTORS
OF LABONE
General
The stockholders of LabOne will be asked to elect twelve directors of
LabOne at the LabOne annual meeting. The directors elected at the LabOne annual
meeting shall be elected to serve until the effective time of the merger or, if
the merger is not consummated, until the 2000 annual meeting of Stockholders of
LabOne.
If the merger is consummated, at the effective time of the merger
LabOne will be merged into Holdings and all director positions in LabOne will
cease to exist. The merger agreement specifies the persons who shall serve as
members of the board of directors of the combined company commencing at the
effective time of the merger. See "Management of Combined Company After the
Merger - Directors and Executive Officers of Combined Company After the Merger"
on page 98.
The Board of Directors of LabOne has nominated the following persons for
election to the Board of Directors of LabOne at the LabOne annual meeting:
Joseph H. Brewer, Peter C. Brown, William D. Grant, W. Thomas Grant II, Richard
A. Rifkind, Richard S. Schweiker, James R. Seward, Robert D. Thompson, Chester
B. Vanatta, John E. Walker and R. Dennis Wright. Certain biographical
information with respect to each of these
101
persons, other than Peter C. Brown, ____________________ and Chester B.
Vanatta, is set forth herein under "Management of LabOne". Certain biographical
information with respect to Peter C. Brown, ___________________ and Chester B.
Vanatta is set forth herein under "Management of the Combined Company After the
Merger". The terms of office of the present directors of LabOne will expire upon
the election of their successors at the LabOne annual meeting.
It is expected that each of such nominees will be available for
election at the LabOne annual meeting. If any nominee shall be unable to serve
or shall decline to serve, the persons named in the accompanying LabOne Proxy
have discretionary authority to vote for a substitute nominee or nominees
designated by the Board of Directors of LabOne.
Meetings of the Board of Directors and Committees
There were four meetings of the Board of Directors during 1998. The
Board of Directors has an Audit Committee, a Compensation Committee and an
Executive Committee. During 1998 the Audit Committee met four times, the
Compensation Committee met three times and the Executive Committee met two
times. All Directors attended 75 percent or more of the total number of all
meetings of the Board and of Committees of which they are members during 1998,
with the exception that Joseph Brewer missed two Board meetings and two
Compensation Committee meetings in 1998.
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 public accountants, determines the effectiveness
of the audit effort through meetings with the independent public accountants and
officers of LabOne, inquires into the effectiveness of LabOne's internal
<PAGE>
controls through discussions with the independent public accountants, reports to
the Board on its activities and recommendations, and recommends to the Board the
appointment of independent public accountants 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 non-officer 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 non-officer 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.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires directors, executive officers and beneficial owners of more than ten
percent of the common stock of LabOne to file reports of beneficial
102
ownership and reports of changes in beneficial ownership with the Securities and
Exchange Commission and to provide copies to LabOne. Based solely upon a review
of the copies of such reports provided to LabOne and written representations
from directors and executive officers, LabOne believes that all applicable
Section 16(a) filing requirements for 1998 have been met, except with respect to
one late Form 5 filing by W. D. Grant. Mr. Grant initially filed a Form 5 for
the 1998 fiscal year in a timely manner, but the Form 5 omitted a transaction
required to be reported therein. Upon discovery of the omission, Mr. Grant filed
a corrected Form 5 approximately eight days late.
Required Vote
Nominees for director of LabOne will be elected by the affirmative vote
of a plurality of shares of LabOne common stock present and entitled to vote, in
person or by proxy, at the LabOne annual meeting. The [eleven] nominees for
director receiving the greatest number of votes shall be elected as directors.
Stockholders may vote in favor of all nominees, withhold their votes as to all
nominees or withhold their votes as to specific nominees. Votes withheld and
broker non-votes as to the election of directors will not affect the outcome of
the election of directors. If the manner of voting shares of LabOne common stock
is not indicated on the LabOne Proxy, such shares will be voted for the election
of the twelve nominees named above as directors.
<PAGE>
THE BOARD OF DIRECTORS OF LABONE RECOMMENDS THAT THE STOCKHOLDERS OF
LABONE VOTE "FOR" EACH OF THE NOMINEES FOR DIRECTOR.
RATIFICATION OF SELECTION OF
INDEPENDENT PUBLIC ACCOUNTANTS OF LABONE
The Board of Directors of LabOne has selected KPMG LLP to examine the
accounts of LabOne and its subsidiary for the fiscal year ending December 31,
1998. Representatives of KPMG LLP are expected to be present at the LabOne
annual meeting to make any statement they may desire and to respond to
appropriate questions concerning the audit report. If the merger is consummated,
at the effective time of the merger LabOne will be merged into Holdings and the
separate existence of LabOne will cease. In such case, the accounts of the
combined company will be examined by KPMG LLP as the independent public
accountants for Holdings.
THE BOARD OF DIRECTORS OF LABONE RECOMMENDS THAT STOCKHOLDERS OF
LABONE VOTE "FOR" THE RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT
PUBLIC ACCOUNTANTS.
DESCRIPTION OF COMBINED COMPANY CAPITAL STOCK
Authorized Shares. Upon consummation of the merger, the combined
company's Articles of Incorporation will authorize the issuance of up to
43,000,000 shares of stock, consisting of 40,000,000 shares of combined company
common stock, $.01 par value per share, and 3,000,000 shares of preferred stock,
$.01 par value per share. Combined company common stock will be issued in the
merger to holders of shares of LabOne common stock who are to receive such stock
under the terms of the merger agreement. No shares of combined company preferred
stock will be issued in the merger. The combined company's board of directors
will be authorized to provide for the issuance of shares of combined company
preferred stock, in one or more series, to establish the number of shares in
each series and to fix the voting powers of the series and the designations,
powers, preferences, and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions of each series.
Dividends and Other Distributions; Preemptive Rights. Subject to any
superior rights which may be created in any series of combined company preferred
stock which may be issued from time to time in the future, the holders of
combined company common stock shall be entitled to receive dividends as declared
from time to
103
time by the board of directors from funds legally available therefor, and upon
liquidation of the combined company shall be entitled to share ratably in all
assets of the combined company available for distribution to such holders.
Shares of combined company common stock are not redeemable or convertible, have
no preemptive rights and, upon issuance in the merger, will be fully paid and
nonassessable.
Voting Rights. Shares of combined company common stock will have one
vote per share on each matter submitted to a vote of stockholders, other than
the election of directors. Holders of combined company common stock will have
cumulative voting rights with respect to the election of directors of the
combined company. Cumulative voting permits each stockholder to cast as many
votes as shall equal the number of shares held by such stockholder multiplied by
the number of directors to be elected, and such votes may all be cast for a
<PAGE>
single director or may be distributed among the directors to be elected as the
stockholder wishes. Depending upon the number of directors to be elected,
cumulative voting may permit a holder of fewer than 50% of outstanding shares to
cumulate such holder's votes and obtain representation on the board of
directors. The Articles of Incorporation of the combined company will contain
provisions requiring a super-majority vote for certain stockholder actions. See
"The Proposed Merger - Certain Possible Anti-Takeover Effects of the Amendments
to the Articles of Incorporation and Bylaws of the Combined Company" on page 51.
Classified Board. The Articles of Incorporation of the combined company
will provide that the board of directors of the combined company shall be
divided into three classes, as nearly equal in number as possible. One class of
directors will be elected each year to hold office for a three-year term and
until the successors of such class are duly elected and have qualified. The
impact of this classification of the board of directors on cumulative voting is
that a greater percentage of the voting shares are necessary in any election to
obtain representation on the board of directors, because only one-third of the
directors are elected each year. The classification of the board of directors
together with cumulative voting may also have the effect of delaying, deferring
or preventing a change of control of the combined company.
Certain Restrictions on Shares Held by Affiliates. Shares of combined
company common stock acquired in the merger will not be restricted securities
within the meaning of SEC Rule 144. However, holders of combined company common
stock who are affiliates of the combined company may resell their shares only if
they register the sale of shares under the Securities Act of 1933 or if they
comply with the requirements of SEC Rule 144 or Rule SEC 144A or another
available exemption, and comply with any applicable state securities laws.
Listing. Holdings common stock and LabOne common stock currently are
listed for trading on the NASDAQ national market system, and combined company
common stock is expected to be listed for trading on the NASDAQ national market
system following the merger.
Certain Provisions of Combined Company Articles of Incorporation and Bylaws
that May have an Anti- takeover Effect
Certain existing provisions of Holdings' articles of incorporation and
by-laws that also will be included in the combined company's Articles of
Incorporation and By-Laws might have the effect of discouraging a potential
acquiror from attempting a takeover of the combined company on terms which some
stockholders might favor, and might reduce the opportunity for the combined
company's stockholders to sell shares at a premium over then-prevailing market
prices. These include provisions relating to a classified board of directors,
removing and appointing directors, "blank-check preferred stock", business
combinations and charter and by-law amendments, which are described below. Other
new provisions that will be included in the combined company's Articles of
Incorporation and Bylaws which could have such an effect are described above
under "The Proposed Merger Certain Possible Anti-takeover Effects of the
Amendments to the Articles of Incorporation and Bylaws of the Combined Company"
on page 51.
Classified Board. Holdings presently has a classified board of directors,
and, as noted above, the combined company will have a classified board of
directors. The purpose of the classification of the board of
104
<PAGE>
directors is to help assure continuity and stability in the management of the
business and affairs of the combined company. However, the classification of
directors has the effect of making it more difficult for stockholders to change
the composition of the board of directors of the combined company. At least two
annual meetings of stockholders, instead of one meeting, will be required to
effect a change in a majority of the board of directors. The existence of
cumulative voting may further delay a change in a majority of the board of
directors, if the stockholders attempting to change the composition of the board
of directors do not own a sufficient number of shares to elect a full slate of
directors each year.
"Blank-Check" Preferred stock. The Articles of Incorporation of
Holdings authorizes the Holdings' the board of directors to issue 3,000,000
shares of preferred stock, in one or more series, to establish the number of
shares in each series and to fix the voting powers of the series and the
designations, powers, preferences, and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions of each
series. This provision will be included in the Articles of Incorporation of the
combined company. The ability to issue preferred stock will provide the board of
directors of the combined company with flexibility in structuring possible
future financings and acquisitions, and in meeting other corporate needs.
However, the board of directors could issue one or more series of combined
company preferred stock that might impede the completion of a future merger,
tender offer or other takeover attempt. There currently are no plans,
understandings, agreements or arrangements concerning the issuance of preferred
stock of the combined company.
Fair Price Provisions. The Articles of Incorporation of the combined
company will have a "fair price" provision similar to that found in Holdings'
articles of incorporation. This provision will require stockholder approval, by
affirmative vote of 80% of all shares entitled to vote thereon, voting as a
single class, of certain business combinations with related persons beneficially
owning 10% or more of combined company common stock, unless the business
combination is approved by two-thirds or more of the combined company's
continuing directors and certain minimum fair price and procedural provisions
are satisfied. This provision makes certain business combinations with related
persons more difficult when the requisite board approval has not been obtained
and may therefore have an anti-takeover effect.
Amendment of Certain Charter or By-Law Provisions. Certain of the
provisions of the Articles of Incorporation and Bylaws of the combined company
may be amended only by the affirmative vote of at least 80% of the outstanding
shares of stock entitled to vote thereon, unless the amendments are favorably
recommended by the affirmative vote of a majority of the entire board of
directors. These provisions include those sections of the Articles relating to
the number of directors, management of the combined company and amendments to
the Bylaws, the right of the combined company to amend the articles of
incorporation generally and the fair price provisions relating to business
combinations. They also include those sections of the Bylaws relating to
meetings of stockholders, the number and classification of directors and powers
of the board of directors, indemnification of directors and advance notice. The
purpose of these provisions generally is to prevent holders of less than a
substantial percentage of outstanding shares from amending provisions of the
articles of incorporation and Bylaws that are designed to promote, or to empower
the board of directors to promote, the interests of all stockholders. The
super-majority vote requirements will have the effect of making more difficult
any amendment by stockholders of any of such provisions of the Articles of
Incorporation or Bylaws that have not been approved by a majority of the board
<PAGE>
of directors, even if the holders of a majority of the outstanding shares of the
combined company believe that such amendment would be in their best interests.
Holdings' articles of incorporation contain similar provisions, with some
variations.
Number of Directors; Removing Directors and Filling Vacancies. The
Bylaws of the combined company will permit the Board of Directors to change the
number of directors, except that unless the Articles of Incorporation are
amended there may not be fewer than three nor more than 15. The Bylaws of the
combined company will provide that directors may be removed by stockholders only
for cause by a majority vote of the stockholders entitled to vote on the
election of directors, provided that, under The Missouri General and Business
Corporation Law ("MGBCL"), because cumulative voting applies, unless the entire
board is being removed a director may not be removed by a stockholder vote if
the votes cast against removal would be sufficient to elect
105
the director if then cumulatively voted at an election of the entire class of
which he is a part. The Bylaws of the combined company also will provide that
any vacancies will be filled by an affirmative vote of a majority of the
remaining directors, or, if they are unable to do so, by a vote of a majority of
the stockholders at an annual or special meeting. These provisions of the
combined company's Articles of Incorporation and Bylaws, which are the same as
those found in Holdings' articles of incorporation and bylaws, may be amended
only by the affirmative vote of at least 80% of the outstanding shares of stock
entitled to vote thereon, unless the amendments are approved or favorably
recommended by the affirmative vote of a majority of the entire board of
directors. They could have an anti-takeover effect by preventing or delaying a
stockholder from enlarging the board of directors or removing directors without
cause and filling the resulting vacancies or new directorships with such
stockholder's new nominees.
Other provisions. Certain other provisions of the combined company's
Articles of Incorporation and Bylaws may have an anti-takeover effect. These
include provisions requiring advance notice of stockholder nominations and
proposals and provisions for special meetings of stockholders. See "The Proposed
Merger Certain Possible Anti-Takeover Effects of the Amendments to the Articles
of Incorporation and Bylaws of the Combined Company" on page 51.
Stockholder Rights Plan. Holdings previously had a stockholder rights
plan, which expired June 1, 1998. The stockholder rights plan had certain
anti-takeover effects. The rights plan was designed to cause substantial
dilution to any person or group that attempted to acquire Holdings on terms not
approved by the Holdings Board of Directors. Upon consummation of the merger,
the combined company will not have a rights plan. However, the board of
directors of the combined company will from time to time after the merger
consider the adoption of a stockholder rights plan, and may adopt such a plan in
the future.
COMPARATIVE RIGHTS OF LABONE STOCKHOLDERS
The rights of holders of LabOne common stock are currently governed by
the Delaware General Corporation Law and LabOne's Certificate of Incorporation
and Bylaws adopted thereunder. The rights of those holders of LabOne common
stock who become stockholders of the combined company in the merger will
thereafter be governed by Missouri law and by the Articles of Incorporation and
Bylaws of the combined company, as amended in the merger.
<PAGE>
Because Holdings owns 80.5% of the outstanding stock of LabOne, a
potential acquirer desiring to acquire control of LabOne without the approval of
the Board of Directors of Holdings would be required to acquire control of
Holdings. Consequently, LabOne stockholders are currently indirectly subject to
the provisions of the articles of incorporation and by-laws of Holdings and
Missouri law that may have an anti-takeover effect. Certain existing provisions
of Holdings' articles of incorporation and bylaws that will be included in the
combined company's Articles of Incorporation and Bylaws and that may have an
anti-takeover effect are described in "Description of the Combined Company
Capital Stock - Certain Provisions of Combined Company Articles of Incorporation
and Bylaws That May Have an Anti-Takeover Effect." Certain amendments to the
combined company's Articles of Incorporation and By-Laws are to be effected in
the Merger that may have an anti-takeover effect. These are described in "The
Proposed Merger - Certain Possible Anti-takeover Effects of the Amendments to
the Articles of Incorporation and Bylaws of the Combined Company" on page 51.
The following discussion should be read in conjunction with the discussion
contained in these sections.
The following discussion summarizes certain important differences among
the rights of holders of LabOne common stock and the rights of holders of
combined company common stock upon consummation of the merger. The following
summary is not intended as a complete statement of all such differences, and is
qualified in its entirety by reference to the full text of the governing
documents of LabOne and the combined company and to Missouri and Delaware law.
106
Certain Differences between LabOne's and the Combined Company's
Charter and By-Laws.
Authorized Stock. LabOne's Certificate of Incorporation authorizes the
issuance of 40,000,000 shares of LabOne common stock and 1,000,000 shares of
preferred stock, $.01 par value per share, in one or more series. As of March
31, 1999, there were 13,311,450 shares of LabOne common stock issued and
outstanding, and 2,837,927 shares of LabOne common stock reserved for issuance
upon exercise of outstanding options and warrants. No shares of LabOne preferred
stock are outstanding. The combined company's Articles of Incorporation will
authorize the issuance of 40,000,000 shares of combined company common stock and
3,000,000 shares of combined company preferred stock. See "The Proposed Merger -
Certain Possible Antitakeover Effects of the Amendments to the Articles of
Incorporation and Bylaws of the Combined Company" on page 51.
Cumulative Voting. LabOne stockholders do not have cumulative voting
rights with respect to the election of directors. Holders of combined company
common stock will have cumulative voting rights. Cumulative voting permits each
stockholder to cast as many votes as shall equal the number of shares held by
such stockholder multiplied by the number of directors to be elected, and such
votes may all be cast for a single director or may be distributed among the
directors to be elected as the stockholder wishes.
Classified Board. LabOne's entire Board of Directors is elected
annually. The Articles of Incorporation of the combined company will provide
that the board of directors of the combined company will be divided into three
classes, as nearly equal in number as possible. One class of directors will be
elected each year to hold office for a three-year term and until the successors
of such class are duly elected and have qualified.
<PAGE>
Advance Notice of Stockholder Nominations and Proposals. The combined
company's Bylaws will contain a provision establishing an advance notice
procedure for stockholders wishing to nominate candidates for election as
directors or bring other business before an annual meeting of stockholders. The
Bylaws will require stockholders to deliver prior written notice of any
stockholder proposal or nomination to the Secretary of the combined company no
later than ninety days before the meeting date or ten days after the meeting
date is publicly announced, whichever is later. See " The Proposed Merger -
Amendments to Holdings' Articles of Incorporation and Bylaws" on page 49. LabOne
has no comparable requirement.
Fair Price Provision. A "fair price" provision in LabOne's Certificate
of Incorporation requires compliance with certain minimum fair price and
procedural requirements and stockholder approval, by the affirmative vote of
two-thirds of all shares entitled to vote thereon, voting as a single class, of
certain business combinations with related persons who beneficially own 10% or
more of LabOne's common stock, unless the business combination is approved by
two-thirds or more of LabOne's continuing directors. The Articles of
Incorporation of the combined company will have a "fair price" provision that
will require stockholder approval, by affirmative vote of 80% of all shares
entitled to vote thereon, voting as a single class, of certain business
combinations with related persons beneficially owning 10% or more of combined
company common stock, unless the business combination is approved by two-thirds
or more of the combined company's continuing directors and certain minimum fair
price and procedural provisions are satisfied.
Amendments to Charter and Bylaws. LabOne's Certificate of Incorporation
and By-Laws do not contain any super-majority approval requirements for
amendments by the stockholders to the Certificate of Incorporation or Bylaws,
and do not limit the power of the Board of Directors to amend the Bylaws.
Certain of the provisions of the Articles of Incorporation and Bylaws of the
combined company may be amended only by the affirmative vote of at least 80% of
the outstanding shares of stock entitled to vote thereon, unless the amendments
are favorably recommended by the affirmative vote of a majority of the entire
board of directors.
Right to Call Special Meetings of Stockholders. LabOne's By-Laws permit
stockholders holding a majority of the issued and outstanding shares of LabOne
common stock to call special meetings of stockholders.
Stockholders of the combined company may not call stockholders' meetings.
107
Number of Directors; Removing Directors and Filling Vacancies. LabOne's
Bylaws permit its Board of Directors to change the number of directors, subject
to the limitation that there may not be more than 22 nor less than three. The
Bylaws of the combined company will permit the Board of Directors to change the
number of directors, except that unless the Articles of Incorporation are
amended there may not be fewer than three nor more than 15.
LabOne's By-Laws and the Delaware General Corporation Law ("DGCL")
permit the removal of directors without cause by a majority vote of the
stockholders entitled to vote on the election of directors. The Bylaws of the
combined company will provide that directors may be removed by stockholders only
for cause by a majority vote of the stockholders entitled to vote on the
election of directors, provided that, under The Missouri General and Business
Corporation Law ("MGBCL"), because cumulative voting applies, unless the entire
board is being removed a director may not be removed by a stockholder vote if
<PAGE>
the votes cast against removal would be sufficient to elect the director if then
cumulatively voted at an election of the entire class of which he is a part. The
Bylaws of the combined company also will provide that any vacancies will be
filled by an affirmative vote of a majority of the remaining directors, or, if
they are unable to do so, by a vote of a majority of the stockholders at an
annual or special meeting.
Presiding Officer at Stockholders' Meetings. The By-Laws of the
combined company will require that the chairman of the board, the president or a
vice president preside at all stockholder meetings and give such presiding
officer the authority to adjourn the stockholder meeting from time to time on
such presiding officer's own motion. The By-Laws of LabOne designate a presiding
officer at stockholders meetings but do not authorize the presiding officer to
unilaterally adjourn the meeting.
Limitation of Directors' Liability. As permitted under Delaware law,
the Certificate of Incorporation of LabOne provides that a director shall not be
liable to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for (1) any breach of the director's duty
or loyalty to the corporation or its stockholders, (2) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (3) the unlawful payment of a dividend or the unlawful purchase or
redemption of stock or (4) any transaction from which the director derived an
improper personal benefit. Missouri law does not expressly authorize, and the
Articles of Incorporation of the combined company will not contain, such a
provision.
Indemnification of Directors and Officers. LabOne's Bylaws provide that
LabOne shall indemnify and advance expenses to the directors and officers of
LabOne to the fullest extent permitted under the DGCL. Generally, under the
DGCL, a corporation may indemnify any person made or threatened to be made a
party to any action, suit or proceeding, by reason of the fact that such person
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation in certain capacities with respect
to another enterprise, against expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such legal proceeding, if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal proceeding, had no reasonable
cause to believe such person's conduct was unlawful. With respect to any action
by or in the right of the corporation, such indemnification is limited to
expenses actually and reasonably incurred by such person and such
indemnification may be made in respect of any claim as to which such person is
adjudged to be liable to the corporation only to the extent that a court
determines that in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses that the court
deems proper. The DGCL provides that expenses, including attorneys' fees,
incurred by an officer or director in defending any such action, suit or
proceeding may be paid or reimbursed by the corporation in advance of the final
disposition of a proceeding promptly upon receipt by it of an undertaking of
such person to repay such expenses if it shall ultimately be determined that
such person is not entitled to be indemnified by the corporation.
The combined company's Bylaws provide that the combined company shall
indemnify and advance expenses to directors and officers of the combined company
to the fullest extent permitted under the MGBCL. The provisions of the MGCBL
governing indemnification and advancement of expenses are substantially similar
to
108
<PAGE>
those of the DGCL, except that the MGBCL permits a Missouri corporation, upon
approval of its stockholders, to provide indemnification for conduct that is not
finally adjudged to have been knowingly fraudulent, deliberately dishonest or
willful misconduct. The MGBCL provides that expenses may be paid or reimbursed
by the corporation in advance of the final disposition of a proceeding promptly
upon receipt by it of an undertaking by the indemnitee to repay such expenses
unless it shall ultimately be determined that such person is entitled to be
indemnified by the corporation. The provisions of the Bylaws of the combined
company governing indemnification and advancement of expenses were previously
approved by the stockholders of Holdings.
The SEC has stated its opinion that, insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers or persons controlling an issuer, such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
Certain Differences Between Missouri and Delaware Corporation Statutes.
Stockholder Approval of Certain Corporate Transactions. The Delaware
General Corporation Law ("DGCL") requires that a merger, consolidation,
disposition of all or substantially all the assets or voluntary dissolution of a
corporation be approved by the affirmative vote of a majority of the outstanding
shares entitled to vote thereon (except as indicated below). The Missouri
General and Business Corporation Law ("MGBCL") requires that such transactions
be approved by the affirmative vote of two-thirds (2/3) of the outstanding
shares entitled to vote thereon. Both the DGCL and the MGBCL require that
mergers be approved by the board of directors, but only the DGCL requires board
of director approval of dispositions of all or substantially all of the
corporation's assets. Under the DGCL, stockholder approval is not required for
mergers in which (a) the certificate of incorporation of the surviving
corporation is not amended, (b) shares of the surviving corporation outstanding
before the merger are unchanged and (c) new shares to be issued in the merger do
not exceed 20 percent of the shares outstanding before the merger.
Amendment of Charter. Under the MGBCL, proposed amendments to the
articles of incorporation may be submitted directly to the stockholders for
approval without the prior approval of the Board of Directors. Amendments to the
articles of incorporation must be approved by the affirmative vote of a majority
of the outstanding shares entitled to vote thereon. The Articles of
Incorporation of the combined company require that amendments to certain
provisions of the Articles of Incorporation or Bylaws be approved by the
affirmative vote of 80% of the outstanding shares entitled to vote thereon,
unless a majority of the entire Board of Directors has favorably recommended the
amendment.
The DGCL requires that an amendment to a Delaware corporation's
certificate of incorporation first be adopted by the board of directors before
the amendment is submitted to the stockholders for approval by the affirmative
vote of a majority of the outstanding shares entitled to vote thereon. LabOne's
Certificate of Incorporation contain no provisions requiring approval of greater
than a majority of the shares entitled to vote thereon, with the exception that
amendments to the "fair price" provisions described above are required to be
approved by the affirmative vote of (a) two-thirds of all the outstanding shares
entitled to vote thereon and (b) two-thirds of the outstanding shares of any
class of stock entitled to vote separately as a class on the matter.
Dissenters' Appraisal Rights. The MGBCL grants appraisal rights to
dissenting stockholders in connection with mergers, consolidations and
dispositions of all or substantially all of the assets of the corporation. The
<PAGE>
DGCL grants appraisal rights only in connection with mergers and consolidations,
and grants no appraisal rights with respect to mergers in which (a) dissenting
shares are (i) listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or (ii) held of record by more
than 2,000 stockholders or (b) the corporation is the surviving corporation in
the merger and no vote of its stockholders is required under the DGCL, with
certain exceptions.
109
Anti-takeover Statutes. The MGBCL contains a control share acquisition
statute and a business combination "moratorium" statute. Both statutes apply
only to Missouri corporations that meet certain tests with respect to their
presence in Missouri. Because the combined company will not meet these tests,
neither of these statutes will apply to the combined company at the Effective
Time of the merger. The DGCL contains a business combination "moratorium"
statute that generally prohibits a domestic corporation from engaging in mergers
or other business combinations with any person who is an "interested
stockholder" for a period of three years after the person becomes an "interested
stockholder," unless certain conditions are satisfied.
Other Constituency Statute. The MGBCL and the combined company's
Articles of Incorporation expressly authorize directors to consider
"non-monetary factors" when analyzing takeover bids. The Board of Directors is
authorized to consider a number of factors in exercising its business judgment
concerning an acquisition proposal, including without limitation the following:
(a) the adequacy of the consideration offered in relation to the board's
estimate of the current value of the corporation in a freely-negotiated sale,
the liquidation value of the corporation, and the future value of the
corporation over a period of years as an independent entity, discounted to
current value; (b) existing political, economic and other factors bearing on
security prices; (c) whether the acquisition proposal might violate federal,
state or local laws; (d) social, legal and economic effects on employees,
suppliers, customers and others having similar relationships with the
corporation, and on the communities in which the corporation conducts its
business; (e) the financial condition and earnings prospects of the bidder; and
(f) the competence, experience and integrity of the bidder. The DGCL does not
contain a similar provision.
Stockholder Action by Written Consent. The DGCL permits stockholders to
act without a meeting, without prior notice and without a vote, if consents in
writing setting forth the action so taken are signed by the holders of
outstanding stock having the minimum number of votes that would be necessary to
authorize such action at a meeting at which all shares entitled to vote with
respect to the subject matter thereof were present and voted. The MGBCL permits
such action without a meeting only if written consents setting forth the action
so taken are signed by all of the stockholders entitled to vote on the matter.
Amendment of Bylaws. Under the MGBCL, the power to make, alter, amend
or repeal the Bylaws of the corporation is vested in the stockholders, unless
and to the extent that such power is vested in the board of directors by the
articles of incorporation. The combined company's Articles of Incorporation
authorize the stockholders and the board of directors to amend the By-Laws,
subject to certain restrictions. Under the DGCL, the stockholders have the power
to adopt, amend or repeal Bylaws, provided that the corporation may in its
certificate of incorporation confer such authority on the directors as well.
Under the DGCL, the fact that such power has been conferred on the directors
<PAGE>
does not limit the power of the stockholders to adopt, amend or repeal Bylaws.
LabOne's Certificate of Incorporation authorizes the Board to amend or repeal
the By-Laws without stockholder approval.
Inspection of Books and Records. The MGBCL grants stockholders the
right to inspect the stockholders' list and books of the corporation under such
regulations as may be prescribed by the corporation's By-Laws. The DGCL allows
any stockowner to inspect the stockowners' list and books of the corporation for
a purpose reasonably related to such person's interest as a stockholder.
Payment of Dividends. Under the MGBCL, the Board of Directors of a
corporation may declare and the corporation may pay dividends so long as the net
assets of the corporation are not less than its stated capital and the payment
of the dividend would not reduce the net assets of the corporation below its
stated capital. Under the DGCL, a corporation generally may pay dividends out of
the corporation's surplus or, if the corporation has no available surplus, out
of net profits for the fiscal year in which the dividend is declared or the
preceding fiscal year.
110
COMPARATIVE RIGHTS OF HOLDINGS STOCKHOLDERS
Holdings is a Missouri corporation and will remain a Missouri
corporation when it becomes the combined company in the merger. The rights of
holders of Holdings common stock will continue to be governed by the MGBCL upon
consummation of the merger. However, the Articles of Incorporation and By-Laws
of Holdings will be amended in the following material respects when it becomes
the combined company in the merger:
Change of Name. Holdings' name will be changed to "LabOne, Inc."
Common Stock. The par value of the common stock will be reduced from
$1.00 per share to $.01 per share, and the number of shares of common stock
which the corporation shall have the authority to issue will be increased from
24,000,000 shares to 40,000,000 shares. There are currently issued and
outstanding 6,489,103 shares of Holdings common stock. 60,000 additional shares
are reserved for issuance upon exercise of outstanding stock options.
Required Vote For Certain Amendments to Articles and Bylaws. The
combined company's Articles of Incorporation will be amended to require that
amendments to certain additional provisions of the Bylaws be approved by the
affirmative vote of at least 80% of the outstanding shares of stock entitled to
vote thereon, unless the amendments are favorably recommended by the affirmative
vote of a majority of the entire board of directors. These provisions include
those relating to who presides at stockholder meetings and the business that may
be conducted at such meetings (including advance notice requirements), the
powers of the board of directors and indemnification of the board of directors.
The amendments also require an 80% vote to adopt provisions which are
inconsistent with specified provisions of the Articles of Incorporation or
Bylaws, unless favorably recommended by a majority of the entire board of
directors. Holdings' present Certificate of Incorporation waives the 80%
stockholder vote requirement only if amendments are favorably recommended by the
entire board of directors. See "The Proposed Merger - Amendments to Holdings'
Articles of Incorporation and Bylaws" on page 49.
<PAGE>
Fair Price Provisions. The fair price provisions of the Articles of
Incorporation of the combined company will be amended to eliminate the concept
of a "Continuing Director Quorum". This change together with other clarifying
changes relating to action by Continuing Directors, as defined, eliminates a
possible ambiguity in these provisions as to the requisite level of Continuing
Director approval for certain business combinations.
The fair price provisions are also amended to include among those
business combinations requiring extraordinary stockholder or Continuing Director
approval mergers with subsidiaries in which certain additional by-law provisions
do not appear in the by-laws of the surviving corporation or in which the
by-laws of the surviving corporation contain provisions inconsistent with such
provisions and other charter and by-law provisions. The additional by-law
provisions include those relating to who presides at stockholder meetings and
the business that may be conducted at such meetings (including advance notice
requirements), the powers of the board of directors and indemnification of the
board of directors.
Special Stockholders' Meetings. Under Holdings' current Bylaws, holders
of four-fifths (4/5) of the outstanding shares may call a special meeting of
stockholders. Under the amended By-Laws of the combined company, stockholders
may not call a special meeting.
Presiding Officer at Stockholders' Meetings. The amended By-Laws of the
combined company require that the chairman of the board, the president or a vice
president preside at all stockholder meetings and give such presiding officer
the authority to adjourn the stockholder meeting from time to time on such
presiding officer's own motion. Holdings' present By-Laws designate a presiding
officer at stockholders meetings but do not
111
authorize the presiding officer to unilaterally adjourn the meeting.
Advance Notice of Stockholder Nominations and Proposals. The combined
company's By-Laws will contain new provisions establishing an advance notice
procedure for stockholders wishing to nominate candidates for election as
directors or bring other business before an annual meeting of stockholders. The
Bylaws will require stockholders to deliver prior written notice of any
stockholder proposal or nomination to the Secretary of the combined company no
later than ninety days before the meeting date or ten days after the meeting
date is publicly announced, whichever is later. Holdings' Bylaws do not contain
such a provision.
Classified Board. Under the combined company's bylaws, where the number
of directors is not evenly divisible by three, the board of directors will be
empowered to determine which class of directors shall have a number differing
from the other classes. Holdings' Bylaws do not contain such a provision.
Director Qualifications. The age limitation on directors will be eliminated
in the combined company's bylaws.
Special Board Meetings. Under the combined company's Bylaws, a majority
of the board of directors may call a special meeting. Holdings' Bylaws permit a
single director to call a special meeting of the board.
For additional information respecting the changes that will be made to
Holdings Articles of Incorporation and Bylaws, See "The Proposed Merger -
<PAGE>
Amendments to Holdings' Articles of Incorporation and Bylaws" on page 49.
MANAGEMENT OF HOLDINGS
Directors and Officers
The directors and executive officers of Holdings are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
P. Anthony Jacobs, CFA 57 President, Chief Executive Officer and
Class C Director
Steven K. Fitzwater 52 Executive Vice President, Chief Operating
and Financial Officer, Treasurer,
Secretary and Class A Director
Linda K. McCoy 48 Vice President and Chief Accounting
Officer
John H. Robinson, Jr. 48 Chairman of the Board and Class B
Director
Lan C. Bentsen 51 Class B Director
W.T. Grant II 48 Chairman of the Board, President and Chief
Executive Officer of LabOne
</TABLE>
Mr. Jacobs has been a director of Holdings since 1987, President of
Holdings since May 1993 and Chief Executive Officer since September 1997. Mr.
Jacobs was Chief Operating Officer from 1990 to September 1997 and Executive
Vice President prior to May 1993. Mr. Jacobs also is a director of Trenwick
Group, Inc., Syntroleum Corporation and Response Oncology, Inc.
Mr. Fitzwater has been a director of Holdings since September 1997, and
Executive Vice President, Chief Operating and Financial Officer, Treasurer and
Secretary since May 1998. He was Vice President, Chief Financial and Accounting
Officer, Treasurer and Secretary from September 1997 to May 1998 and was Vice
President, Chief Accounting Officer and Secretary of Holdings from 1990 to
September 1997.
112
Ms. McCoy has been Vice President and Chief Accounting Officer since May
1998.
Mr . Robinson has been a director of Holdings since 1990 and Chairman of
the Board since September 1997. Mr. Robinson is Vice Chairman of Black & Veatch
(design and construction). Mr. Robinson also is a director of Commerce
Bancshares, Inc. and Coeur d'Alene Mines Corporation (gold and silver mining).
Mr. Bentsen has been a director of Holdings since 1986. He has been the
Executive Vice President of Frontera Resources since 1996 (oil and gas). From
1994 to 1996 he was Managing Partner of Remington Partners (investments) and was
previously Chairman and Chief Executive Officer of Sovereign National
Management, Inc. (property management).
<PAGE>
Mr. Grant has been Chairman, President and Chief Executive Officer of
LabOne since November 1995. He was a director of Holdings from 1980 to September
1997, Chairman and Chief Executive Officer of Holdings from May 1993 to
September 1997, and President of Holdings prior to May 1993. Mr. Grant also is a
director of AMC Entertainment Inc., Commerce Bancshares, Inc., Kansas City Power
& Light Company, and Response Oncology, Inc.
Committees of the Holdings' Board of Directors
The Holdings Board has established an Audit Committee consisting of Messrs.
Bentsen (Chairman) and Robinson and a Compensation Committee consisting of
Messrs. Robinson (Chairman) and Bentsen.
During the year ended December 31, 1998, the Board met seven times and the
Compensation Committee met four times. The Audit Committee held a normally
scheduled December meeting in January 1999. The attendance at Committee and
Board meetings by all Directors in the aggregate was 97% and each Director
attended at least 90% of the meetings of the Board and the Committees of which
the Director was a member.
The Audit Committee recommends to the Board of Directors the independent
public accountants to audit the books and records of Holdings and its
subsidiaries for the year. It also reviews, to the extent it deems appropriate,
the scope, plan and findings of the independent public accountants' annual
audit, recommendations of the accountants, the adequacy of internal accounting
controls and audit procedures, Holdings' audited financial statements, non-audit
services performed by the independent public accountants, and fees paid to the
independent public accountants for audit and non-audit services.
The Compensation Committee recommends to the Board of Directors the
compensation of all officers and administers Holdings' 1997 Directors' Stock
Option Plan . It also recommends to the Board of Directors the qualifications
for new Director nominees, candidates for nomination, and policies concerning
director compensation and length of service. During 1998 cash compensation for
non-employee outside directors was passed on by the full Board upon the
recommendation of the employee directors.
Compensation of Directors
Non-employee directors of Holdings receive compensation consisting of
annual cash retainers and meeting fees. Each director also receives a one-time
option to purchase 15,000 shares of Holdings' common stock.
Cash Compensation. Directors who are not employees of Holdings are
paid an annual retainer for Board service of $15,000 and a fee of $2,000 for
each meeting of the Board or a Board committee attended. Directors who are
employees of Holdings, which presently consist of Messrs Jacobs and Fitzwater,
are not paid any fee or additional remuneration for services as members of the
Holdings Board or any committee thereof.
Directors' Stock Options. Pursuant to Holdings' 1997 Directors' Stock
Option Plan, each director of
113
<PAGE>
Holdings received on adoption of the plan in September 1997, a one-time grant of
an option to purchase 15,000 shares of Holdings' common stock for a purchase
price equal to the $26.50 fair market value of the stock on the date of grant.
The options expire ten years from the date of grant and become exercisable at
the rate of 5,000 per year, commencing with the first anniversary of the date of
grant. Unvested options become exercisable immediately in the case of a
liquidation or dissolution, a merger or consolidation which contemplates that a
director will not continue in office following the transaction or in the case of
certain change-in-control events. Upon termination of the director's term of
office, options expire (i) on the earlier of twelve months following death or
the end of the option term in the case of termination in connection with a
merger, consolidation, liquidation, dissolution or certain change-in-control
events, (ii) after one year in the case of termination due to or followed within
90 days by death, and (iii) after 90 days in all other cases.
114
Compensation of Executive Officers
The following table sets forth compensation received by Holdings'
Chief Executive Officer and the only other executive officers holding office at
December 31, 1998 whose salary and bonus for 1998 aggregated $100,000 or more,
for services rendered in all capacities to Holdings and its subsidiaries for the
last three years.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
Securities
Underlying
Annual Compensation (1) Options/SARs
------------------------- All other Compensation
Name and Principal Position Year Salary ($) Bonus($) # ($)(2)
--------------------------- ---- ---------- -------- -------------- -----------------------
<S> <C> <C> <C> <C> <C>
P. Anthony Jacobs, President 1998 $ 39,583 -0- -0- $ -0-
and Chief Executive Officer 1997 112,423 -0- 18,000(3) 797,259
of Holdings 1996 249,590 -0- 4,000(4) 44,110
W. T. Grant II, Chairman of 1998 164,769 107,261(6) -0- 21,670
the Board, President and 1997 232,363(5) 131,173(6) 78,000(7) 900,255
Chief Executive Officer of 1996 331,000 -0- 4,000(4) 25,227
LabOne
</TABLE>
- ----------
(1) Compensation deferred at the election of an executive officer, pursuant
to Holdings' or its subsidiaries' 401(k) Plans, is included in the year
earned.
(2) Includes the following contributions paid or accrued to the named
executive's accounts in Holdings', or one of its subsidiaries', as the
case may be, 401(k) Plan ("401(k)") and Money Purchase Pension Plan
("MPP"), pursuant to a Supplemental Retirement Agreement ("SERP") with
said executive and for term life insurance for said executive:
<PAGE>
<TABLE>
<CAPTION>
Term Life Ins
401(k) MPP SERP Premiums
------------------- ------------------ ---------------------- --------------------
Executive 1998 1997 1986 1998 1997 1996 1998 1997 1996 1998 1997 1996
--------- ---- ---- ---- ---- ---- ----- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mr. Jacobs $ 0 $ 0 $4,750 $ 0 $ 0 $15,476 $ 0 $143,197 $22,309 $ 0 $ 656 $1,575
Mr. Grant 4,526 9,922 4,750 16,421 0 15,476 0 38,201 2,914 723 870 2,087
</TABLE>
Holdings' 401(k) Plan and Money Purchase Pension Plan were
terminated effective as of December 31, 1996. Mr. Grant received $9,922
pursuant to LabOne's 401(k) Plan in 1997 and $4,526 in 1998. Also
includes (i) severance payments to Messrs. Grant and Jacobs of $809,851
and $610,802, respectively and (ii) payment of accrued vacation amounts
upon termination of employment to Messrs. Grant and Jacobs of $39,851
and $37,360, respectively.
(3) Consists of options to purchase (i) 15,000 shares of Holdings common stock
and (ii) 3,000 shares of common stock of LabOne.
(4) Consists entirely of options to purchase shares of common stock of Response
Oncology, Inc. Numbers have been adjusted to reflect a 1 for 5 reverse
stock split effective November 1995.
(5) Since November 1995, Mr. Grant has served as President, Chairman of the
Board and Chief Executive Officer of LabOne, an 80.5% owned subsidiary of
Holdings; however, Mr. Grant had received cash
115
compensation only from Holdings until June 1, 1997. At such time his employment
with Holdings was terminated. Holdings paid Mr. Grant a base salary of
$146,344 from January 1, 1997 to May 31, 1997. LabOne paid Mr. Grant a base
salary of $86,019 from June 1, 1997 to December 31, 1997.
(6) Reflects cash bonuses paid to Mr. Grant by LabOne for services rendered to
LabOne.
(7) Consists of options to purchase (i) 75,000 shares of common stock of LabOne
and (ii) 3,000 shares of Response Oncology, Inc.
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
The table below provides information on option exercises in 1998 by the
named executive officers and the values of such officers' unexercised options at
December 31, 1998. No options were granted to any of those executive officers
during 1998.
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options
Shares at Year-End (#) at Year-End ($)
Acquired on Value ----------------------------- ----------------------------
Name Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
P. Anthony Jacobs -0- -0- 5,000(1) 10,000 $ -0- $ -0-
W.T. Grant II -0- -0- 42,431(2) 60,000(2) 84,007 -0-
</TABLE>
- ------------
(1) Consists entirely of shares of Holdings common stock.
(2) Consists entirely of options to purchase shares of common stock of
LabOne and the value (i.e. market value of underlying securities minus
option exercise price) at December 31, 1998 of such options.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Set forth below is the report of the compensation committee of the
Board of Directors of Holdings. The report covers all officers of Holdings other
than Mr. Grant, who is the Chairman, President and Chief Executive Officer of
LabOne. The compensation committee did not, and Holdings' Board of Directors
also does not, have responsibility for and in fact does not establish
compensation policy for officers and employees of LabOne. The Board of Directors
of LabOne has its own compensation committee, which establishes compensation
policies for the executive officers of LabOne.
Report of the Compensation Committee
Compensation Committee Interlocks and Insider Participation. The
compensation committee of the Board of Directors of Holdings consists John H.
Robinson, Jr. (Chairman) and Lan C. Bentsen . Mr. Robinson and Bentsen, who are
non-employee directors of Holdings, have not been employees or officers of
Holdings or any of its subsidiaries and have had no relationship or transaction
with Holdings requiring disclosure under Item 404 of Regulation S-K.
This report is provided by the committee to assist stockholders in
understanding the committee's philosophy in establishing the compensation of the
Chief Executive Officer and all other executive officers of Holdings for the
year ended December 31, 1998.
Overview and Compensation Philosophy. During 1996, Holdings initiated a
restructuring process that contemplated the distribution of most of its assets
other than LabOne and Response Oncology to Holdings' stockholders through the
SLH Distribution. That distribution was effected on March 3, 1997. In connection
with SLH's move to new facilities and the termination of a lease between SLH and
Holdings on June 1, 1997, Holdings and SLH entered into an agreement whereby SLH
hired all of Holdings' existing employees and agreed to provide
<PAGE>
116
to Holdings management and administrative services and certain office space for
an annual fee of $75,000. This arrangement was entered into at the time that
Holdings was effecting a second distribution to Holdings' stockholders of all of
the common stock of Response Oncology owned by Holdings. That distribution
occurred on July 25, 1997. As a consequence of the SLH and Response
Distributions and the Services Agreement, Holdings had no employees between June
1, 1997, and August 7, 1998. On August 7, 1998, the Services Agreement was
terminated due to the merger of SLH and Syntroleum Corporation, thereby
necessitating a restaffing of Holdings. In anticipation of the need to restaff,
the compensation committee engaged McDaniel & Associates, Inc., a compensation
consultant, in the spring of 1998 to assist the committee in developing a
compensation structure for Holdings' executive officers, who would become
Holdings employees.
In developing a new compensation structure the committee focused on
tying Holdings' business strategy to three basic elements of compensation: (a)
base compensation, (b) severance pay and (c ) existing stock option
arrangements. The principal business of Holdings is to manage its investment in
LabOne. Although negotiations for the merger of the two companies had been
terminated in 1997, the committee recognized that the long-term interests of
both companies and stockholder groups was to engage in a combination or some
other strategic transaction. Accordingly, the committee believed that
compensation should be structured to ensure the continuity of management
necessary to effectively pursue this strategy or to pursue other strategies that
might develop under the circumstances.
Consistent with these goals, Mr. Jacobs, the President and Chief
Executive Officer, Mr. Fitzwater, the Executive Vice President, Chief Operating
and Financial Officer, Treasurer and Secretary and Ms. McCoy, the Vice President
and Chief Accounting Officer, were offered employment agreements that provide
base compensation of $100,000, $100,000 and $70,000, respectively, and severance
pay of two years' base salary for Messrs. Jacobs and Fitzwater and one year's
base pay for Ms. McCoy.
The committee also concluded that an amendment to the stock option plan
was necessary to render it effective. Under the plan, options would expire 90
days following the termination of director status. Since the $26.50 exercise
price of all options granted under the plan was significantly above the market
price of Holdings' stock, it was concluded that benefits under the plan would
have no value should Holdings be successful in implementing its strategy.
Accordingly, the committee recommended an amendment, which was subsequently
adopted by the Board, that would permit an optionee that was terminated in
connection with a strategic transaction to exercise the option through the end
of the option term, all of which expire on September 17, 2007.
Compensation of the Chief Executive Officers for 1998. The components
of the 1998 compensation of P. Anthony Jacobs, the President and Chief Executive
Officer of Holdings, were also determined in accordance with the above
discussion. Mr. Jacobs base compensation was set at $100,000 under the terms of
an employment agreement as described above. Mr. Jacobs, as a director of
Holdings, is also the holder of options to purchase 15,000 shares of Holdings'
common stock at a price of $26.50 per share. As described above, that option was
amended in August 1998, to extend the option exercise period upon termination of
his status as a director in connection with a merger, consolidation, liquidation
or certain change in control transactions.
<PAGE>
This report is being made over the names of John H. Robinson, Jr. and Lan
C. Bentsen, who are the present members of the committee.
Performance of Holdings' Common Stock
The following performance graph compares the performance of Holdings'
common stock during the period beginning on January 1, 1994 and ending December
31, 1998, to a NASDAQ Stock Market index (the "NASDAQ Composite" consisting of
U.S. companies), and a peer group referred to as the "LabOne Peer Group." The
NASDAQ Composite index is one provided by the Center for Research in Security
Prices of the University of Chicago. The LabOne Peer Group is a group of seven
testing laboratories selected by LabOne (Bio-References Labs, Laboratory Corp.
Of America, Oncormed, Pharmchem, Psychemedics, Unilab and Universal Standard
117
Medical). The performance graph published by Holdings last year also included
the Russell 2000 Index. This is an index of companies, the mean of whose market
capitalizations approximated that of Holdings before its 1997 distributions of
SLH Corporation and Response Oncology, Inc. The Russell 2000 Index was deleted
from this year's graph due to the decline in Holdings' market capitalization as
a result of the SLH and Response distributions. Holdings' total return for 1998
decreased compared to the return reflected by the Russell 2000 Index.
The graph assumes a $100 investment in Holdings' common stock and in
each of the indexes at the beginning of the period and a reinvestment of
dividends paid on those investments throughout the period. Since dividends are
included, the graph reflects the 1997 SLH and Response distributions, the
equivalent cash value of which were $4.78 and $7.31 per share, respectively.
VALUE OF $100 INVESTMENTS
AT DECEMBER 31, 1993 AND AT EACH SUBSEQUENT DECEMBER 31, THROUGH
DECEMBER 31, 1998, ASSUMING REINVESTMENT OF DIVIDENDS
[Performance Graph which shows the information shown in the table below
is ommited]
<TABLE>
<CAPTION>
Year End Data 1993 1994 1995 1996 1997 1998
- ------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Lab Holdings, Inc. $100.00 $ 99.67 $102.30 $120.53 $108.45 $ 86.74
NASDAQ Composite Index 100.00 97.75 138.26 170.01 208.58 293.21
LabOne Peer Group 100.00 89.51 67.97 26.49 22.13 20.38
</TABLE>
118
<PAGE>
Security Ownership of Holdings Management
The following table and notes thereto indicate the shares of common
stock of Holdings and of LabOne, known to Holdings to be beneficially owned as
of March 31, 1999, respectively, by each director (including the nominees for
election as a directors) of Holdings, each of the executive officers named in
the Summary Compensation Table beginning on page 92, and by all directors and
executive officers of Holdings as a group. The table also reflects beneficial
ownership in the combined company as if the merger had occurred at March 31,
1999.
<TABLE>
<CAPTION>
Shares of
Shares of Combined
Common Company
Shares of Holdings Stock of LabOne Beneficially
Common Stock Percentage Beneficially owned After Percentage
Beneficially Owned (1)(3) of Class (2) Owned (1)(4)(5) Merger (8)
------------------------- ------------ --------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Lan C. Bentsen 6,000 -- -0- 9,000 --
Steven K. Fitzwater 6,932 -- 5 10,403 --
W. T. Grant II (6) 138,089 2.1% 81,596(7) 288,729 2.3 -2.6%
P. Anthony Jacobs 6,780 -- -0- 10,170 --
John H. Robinson, Jr 6,652 -- -0- 9,978 --
All directors, nominees
and executive officers
as a group of six 164,453 2.2% 81,601(7) 328,280 2.6-3.0%
</TABLE>
- -----------------
(1) A beneficial owner of a security includes a person who, directly or
indirectly, has or shares voting or investment power with respect to
such security. Voting power is the power to vote or direct the voting
of the security and investment power is the power to dispose or direct
the disposition of the security. Each person listed has stated that he,
either alone or with his spouse, has sole voting power and sole
investment power with respect to the shares shown as beneficially
owned, except as otherwise indicated.
2) The percentages represent the total number of shares of common stock
shown in the adjacent column divided by the number of issued and
outstanding shares of common stock as of December 31, 1998 (6,489,103
shares). Percentages of less than one percent are omitted.
3) Shares of Holdings common stock shown as beneficially owned include
shares issuable upon the exercise of stock options granted under the
Lab Holdings, Inc. 1997 Directors' Stock Option Plan that were
exercisable on December 31, 1998 or that become exercisable within 60
days thereafter, as follows: 5,000 shares for each of Messrs Bentsen,
Fitzwater, Jacobs and Robinson and 20,000 shares for all directors and
executive officers as a group.
4) Shares of LabOne stock shown as beneficially owned include shares
issuable upon the exercise of stock options granted under the LabOne
Long-Term Incentive Plan that were exercisable on December 31, 1998 or
<PAGE>
that become exercisable within 60 days thereafter, as follows: W. T.
Grant II, 57,431 shares; and all directors and executive officers as a
group, 57,431 shares.
5) Percentages of shares beneficially owned are less than 1% for all
directors and executive officers, individually and as a group; the
shares shown as beneficially owned do not include 10,712,200 shares of
LabOne owned by Holdings as to which each director of Holdings has
shared voting and investment power as a member of Holdings' Board of
Directors. Each Board member disclaims beneficial ownership of the
LabOne shares owned by Holdings.
(6) Includes 22,442 shares held by W. T. Grant II as custodian for his
children; includes 45,000 shares held in a family trust for which W.
T. Grant II serves as a co-trustee and in that capacity shares voting
and investment
119
powers; also includes 12,480 shares owned by the wife of W. T. Grant II, as
to which he disclaims beneficial ownership.
(7) Includes the 22,365 shares of LabOne common stock held in an individually
directed account of Mr. Grant under LabOne's 401(k) profit-sharing plan, as
to which Mr. Grant has sole investment power only.
(8) Assumes that none of the beneficial owners will elect to exchange LabOne
shares for cash. The two percentages for each beneficial owner of the
combined company reflect percentage of beneficial ownership over 1%
assuming that LabOne stockholders other than Holdings elect all stock (the
lower number) or maximum cash (the higher number).
<PAGE>
Security Ownership of Certain Other Beneficial Owners of Holdings Common Stock
The following table indicates the shares of Holdings common stock
beneficially owned by the only persons (other than persons set forth in the
preceding table) known to Holdings or its management as beneficially owning more
than five percent of Holdings' common stock as of March 31, 1999. The table also
reflects beneficial ownership in the combined company as if the merger had
occurred at March 31, 1999.
<TABLE>
<CAPTION>
Shares of
Combined
Company After
Beneficially Merger
Amount and Nature Percent of Owned After Percentage
Name and Address of Beneficial Owner of Beneficial Ownership Class (1) Merger (3) (3)
------------------------------------- -------------------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
American Century Companies, Inc. Total - 682,100(2) 10.5% 1,023,150 8.3-9.3%
4500 Main Street sole voting power - 682,100
P. O. Box 418210 shared voting power - -0-
Kansas City, Missouri 64141-9210 sole disposition power - 682,100
shared disposition power - -0-
Wallace R. Weitz & Company Total - 881,454(2) 13.58% 1,322,181 10.7-12.0%
9290 West Dodge Rd., Suite 405 sole voting power - 881,454
Omaha, Nebraska 68114 shared voting power - -0-
sole disposition power - 881,454
shared disposition power -0-
The Southern Fiduciary Group, Inc. Total - 467,192(2) 7.2%) 700,788 5.7-6.3%
2325 Crestmoor Road, Suite 202 sole voting power - 76,000
Nashville, Tennessee shared voting power - -0-
sole disposition power - 391,192
shared disposition power - -0-
William D. Grant Total - 1,086,647(4) 16.7% 1,668,665 13.5-15.1%
One Ward Parkway, Suite 130 sole voting power - 500,441
Kansas City, Missouri 64112 shared voting power - 586,206
sole disposition power - 500,441
shared disposition power - 586,206
</TABLE>
- -----------
(1) The percentage represents the total number of shares of common stock
shown in the adjacent column divided by the number of issued and
outstanding shares of common stock as of December 31, 1998.
120
<PAGE>
(2) As reported in a Schedule 13G filed by the owner as of December 31, 1998.
(3) Number of shares reflect total shares only from prior column and does
not take into account shares of LabOne common stock that may be
beneficially owned, other than 38,695 shares of LabOne common stock
beneficially owned by W.D. Grant. Mr. Grant has represented that he
does not intend to elect cash for any LabOne shares beneficially owned
by him. The two percentages for each beneficial owner of the combined
company reflect percentage of beneficial ownership assuming that LabOne
stockholders other than Holdings elect all stock (the lower number) or
maximum cash (the higher number).
(4) Based on information furnished by W.D.Grant as of March 31, 1999.
Certain Relationships and Related Transactions
Employment Agreements and Termination of Interim Services Agreement.
Effective August 7, 1998, Holdings entered into employment agreements with Mr.
Jacobs, Mr. Fitzwater and Ms. McCoy, all of whom are executive officers of
Holdings. Each employment agreement provides for employment of the executive
officer for a term commencing on August 7, 1998, and continuing until the third
anniversary of that date (the second anniversary in the case of Ms. McCoy's
agreement). The term is extended for successive one year periods on each
anniversary of the agreement unless notice of non-extension is given by either
party to the other prior to that anniversary.
The initial base compensation payable under the employment agreements
is $100,000 for each of Mr. Jacobs and Mr. Fitzwater and $70,000 for Ms. McCoy.
It is subject to adjustment annually by the Board of Directors, provided that
base salary may not be decreased by more than five percent year to year.
If the officer is terminated for cause or voluntarily terminates his
employment with Holdings, then, Holdings will not be obligated to pay the
officer any amounts of compensation or benefits following the date of
termination. A voluntary termination does not include a resignation tendered at
the request of the Board or following or in connection with a merger,
consolidation, liquidation, dissolution or certain change in control events. If
the officer is terminated without cause, Holdings will continue to pay the
officer amounts equal to his base compensation, as in effect at the time of the
termination without cause, for the remaining term of this employment agreement,
but in no event may the payments continue for a period of more than two years
following the termination in the case of Mr. Jacobs and Mr. Fitzwater and for
more than one year in the case of Ms. McCoy. In that case, Holdings will also
reimburse the officer for the cost of the officer's health insurance as in
effect at the date of termination. The merger agreement described elsewhere in
this report contemplates that each of the officers will tender their
resignations at the closing of the merger. Under the employment agreements,
those resignations will effect terminations of the employment agreements,
without cause so that each will be entitled to receive payments of their base
compensation and health insurance benefits as described above. Copies of the
employment agreements are appended to Holdings' Form 10-Q for the quarter ended
September 30, 1998.
121
<PAGE>
HOLDINGS ANNUAL MEETING PROPOSALS
PROPOSAL TO AMEND ARTICLES OF INCORPORATION
Proposal 1 on Holdings Proxy Card
General
The Holdings Board of Directors recommends to the Holdings stockholders
that they adopt an amendment to paragraph B.4 of Article X of Holdings' Articles
of Incorporation so that, as amended, such paragraph will provide as follows.
"Any action required to be taken by vote of the Continuing
Directors shall be effective only if taken at a meeting at
which a "Continuing Director Quorum" is present, which term
shall mean two-thirds of the Continuing Directors capable of
exercising the powers conferred upon them under the provisions
of the Articles of Incorporation or the Bylaws of the
Corporation or by law."
The purpose of this amendment is to change the definition of
"Continuing Director Quorum" from nine Continuing Directors, as defined in
Article X, to two-thirds of the Continuing Directors. The affirmative vote, in
person or by proxy, by the holders of a majority of the outstanding Holdings
common stock is required to adopt the Articles Amendment. If the Articles
Amendment is approved, the requisite affirmative vote of stockholders for the
merger will be 66 2/3% instead of 80%. Adoption of the Articles Amendment is a
condition to the effectiveness of the merger agreement and consummation of the
merger.
Background for the Articles Amendment.
Article X of Holdings' Articles of Incorporation is a "fair price"
provision which applies to certain "business combinations" involving "related
persons", as therein defined. One type of business combination to which Article
X applies is a merger of Holdings into a subsidiary that will have the effect,
directly or indirectly, of increasing the proportionate share of Holdings common
stock owned by any person beneficially owning 10% of Holdings' outstanding
common stock. William D. Grant, a director of LabOne, beneficially owns more
than 10% of Holdings' outstanding common stock and also owns ______ shares of
LabOne common stock. Mr. Grant has represented to LabOne that he will elect to
receive stock for his shares of LabOne common stock in the merger, and therefore
the merger may be deemed to have the effect of increasing his proportionate
interest in Holdings relative to other Holdings stockholders who do not own
LabOne common stock.
If the merger is a business combination under Article X, then it
generally can only be effected under one of the following conditions:
(a) if the merger is approved by the affirmative vote of the holders of 80% of
the outstanding Holdings common stock;
(b) if the per share fair market value of the Holdings shares retained by
Holdings stockholders in the merger equals or exceeds the greater of
<PAGE>
(i) the highest price per share offered or paid by Mr. Grant at any time
after March 8, 1994, which, based on Form 4s filed by him in August of
1994, appears to be $36.80,
(ii) a price that includes the same or greater premium over the market
price of Holdings common stock immediately prior to announcement of
the merger as the greatest premium (if any) paid over market price by
Mr. Grant at any time after March 8, 1994,
122
and
(iii)the value determined as fair to Holdings stockholders (other than Mr.
Grant) by an investment banking firm selected by a two-thirds vote of
the "Continuing Directors", as defined in Article X, or by the
Missouri Director of Insurance; or
(c) if the merger is approved by a two-thirds vote of the "Continuing
Directors", taking into consideration various matters, including the
current market price of Holdings common stock, the current value of
Holdings in a freely negotiated transaction and the Continuing Directors
estimate of Holdings future value as a independent going concern.
Holdings notes that because historical market prices exceed current
values, the value of the shares to be retained by Holdings stockholders in the
merger likely will not satisfy the condition described in clause (b) above.
Although the merger has been approved by a unanimous vote of Holdings'
Board of Directors, and although Holdings believes that each of its four
directors is a "Continuing Director" as defined in Article X, action taken by
such persons in approving a business combination is effective only when taken at
a meeting at which a "Continuing Director Quorum" is present. As defined in
Article X, this term means nine Continuing Directors, which is five more persons
than presently serve on the Holdings Board of Directors. Because of the manner
in which "Continuing Director Quorum" is defined, it is not possible to satisfy
the condition described in clause (c) above with the current Board complement.
Current management is not certain why two-thirds was not originally
used as a defining term for Continuing Director Quorum in Holdings' Articles of
Incorporation instead of the number nine, but believes the reason may have been
that initial plans for Holdings called for a 14 member board, and the number
nine was selected to avoid confusion over a resulting fraction. In any event,
over the years the size of Holdings' Board has been reduced so that the
Continuing Director Quorum provision of Article X does not work under current
conditions.
Article XI of Holdings Articles of Incorporation permit the amendment
of Article X by the affirmative vote of a majority of Holdings' outstanding
common stock when such amendment is recommended by a unanimous vote of the
entire Holdings Board. In light of the opinion of its financial advisor as to
the fairness of the terms of the merger to Holdings and its own deliberations
concerning the merger, the Holdings Board of Directors has unanimously approved
the Articles Amendment and directed that it be submitted to the stockholders for
their approval at the annual meeting. Holdings believes that if the Articles
Amendment is approved, the conditions of clause (c) above will have been
satisfied.
<PAGE>
The Board of Directors recommends that stockholders vote FOR the
Articles Amendment.
PROPOSAL TO ELECT TWO HOLDINGS DIRECTORS
The proposal to elect two directors is included only to satisfy legal
requirements in connection with the Holdings annual meeting and to provide
directors in the event the merger is not consummated. Upon completion of the
merger, the directors and executive officers of the combined company will be as
described under "Management of LabOne and Management After the Merger."
General
Two directors are to be elected at the annual meeting for terms
expiring on the earlier of the effective time of the merger or until the annual
meeting of stockholders in 2002. Absent written instructions to the
123
contrary, proxies representing shares of Holdings common stock will be voted FOR
the election of each of the persons listed below as directors of Holdings for a
term of three years and until their successors are duly elected and qualified.
However, if the merger is consummated, P. Anthony Jacobs, Steven K. Fitzwater,
Lan C. Bentsen, and John H. Robinson, Jr. will resign as members of the Holdings
Board of Directors and, pursuant to the merger Agreement, the persons listed as
holding director positions under "Management of Combined Company After the
Merger" on page 98 will become directors of the combined company to hold office
until their successors are duly elected and qualified at the applicable Annual
Meeting of Stockholders. See "Management of Combined Company After the
Merger-Directors and Executive Officers of Combined Company After the Merger" on
page 98.
If any nominee for director should be unable or decline to serve, the
authority provided in the proxy to vote for the election of directors will be
exercised to vote for a substitute or substitutes. As of the date of this Joint
Proxy Statement/Prospectus, Holdings has no knowledge that any of the nominees
will be unable or will decline to serve. None of the nominees has any family
relationship among themselves or with any executive officer of Holdings.
Information Concerning Nominees to the Holdings Board of Directors
Set forth below are the names and descriptions of the backgrounds of
the nominees for election as directors of Holdings. Each of Holdings' two
nominees for election to the Holdings Board of Directors is currently serving as
a director of Holdings and each has agreed to serve if elected.
Name Age Position
---- --- --------
John H. Robinson, Jr................. 48 Class B Director
Lan C. Bentsen....................... 50 Class B Director
Mr. Robinson has been a director since 1990 and has been Chairman of the
Board since September 1997. He is Managing Partner of Black & Veatch (design and
construction). Mr. Robinson also is a director of Commerce Bancshares, Inc. and
Coeur d'Alene Mines Corporation (gold and silver mining).
<PAGE>
Mr. Bentsen has been a director since 1986. He has been the Executive Vice
President of Frontera Resources since 1996 (oil and gas). From 1994 to 1996 he
was Managing Partner of Remington Partners (investments). Prior to its sale in
1994, Mr. Bentsen was Chairman and Chief Executive Officer of Sovereign National
Management, Inc. (property management).
There are no family relationships, of first cousin or closer, among
Holdings' directors or executive officers, by blood, marriage or adoption.
Vote
Directors will be elected by a favorable vote of a plurality of the
shares of voting stock present and entitled to vote, in person or by proxy, at
the annual meeting. Accordingly, abstentions or broker non-votes as to the
election of directors will not affect the election of the candidates receiving
the plurality of votes. Shares may be voted cumulatively and therefore each
Holdings stockholder may cast two votes for each share owned. Unless instructed
to the contrary, the shares represented by the proxies will be voted FOR the
election of the two nominees named above as directors.
124
PROPOSAL TO APPROVE AND RATIFY HOLDINGS'
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of Holdings has appointed the firm of KPMG LLP
as Holdings' independent public accountants for 1998. KPMG LLP has been the
Holdings' independent public accountants since inception. A representative of
KPMG LLP will be available at the annual meeting and will have the opportunity
to make a statement if he or she desires to do so and to respond to appropriate
questions. If the merger is approved, management of the combined company intends
to review the selection of its independent public accountants for 1999.
The Board of Directors recommends a vote FOR the approval and
ratification of the appointment of KPMG LLP as Holdings' independent public
accountants for the 1999 fiscal year.
EXPERTS
The financial statements and the related financial statement schedules
included in the Holdings Annual Report on Form 10-K for the year ended December
31, 1998, that are incorporated herein by reference, have been audited by KPMG
LLP, independent public accountants, as stated in their reports included in the
Form 10-K, and have been incorporated by reference herein in reliance upon such
reports given upon the authority of that firm as experts in accounting and
auditing.
The audited financial statements of LabOne included in this Joint Proxy
Statement/Prospectus and elsewhere in the registration statement have been
audited by KPMG LLP, independent public accountants, as indicated by their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
Representatives of KPMG LLP are expected to be present at the annual
meetings of Holdings and LabOne, where they will have the opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions.
<PAGE>
LEGAL MATTERS
The legality of the Holdings common stock to be issued pursuant to the
merger has been passed upon for Holdings by Lathrop & Gage L.C., Kansas City,
Missouri. Lathrop & Gage L. C. also will pass upon federal income tax matters in
connection with the Merger. See "The Proposed Merger -- Federal Income Tax
Consequences" on page 43.
FUTURE STOCKHOLDER PROPOSALS
If the merger is not consummated, it is currently anticipated that the
annual meeting of stockholders of Holdings will be held on or about May 11,
2000. Holdings stockholders who wish to present proposals for action at the
Holdings annual meeting should submit their proposals to Holdings at 5000 West
95th Street, Suite 260, Shawnee Mission, Kansas 66207. Proposals must be
received by Holdings no later than December 13, 2000 for consideration for
inclusion in next year's proxy statement and proxy. In addition, proxies
solicited by Holdings management may cover discretionary authority to vote on
matters which are not included in the proxy statement but which are raised at
the annual meeting by stockholders unless Holdings receives written notice of
the matters at that address on or before ___________, 2000.
If the merger is not consummated, it is currently anticipated that the
annual meeting of stockholders of LabOne will be held on or about _____________,
2000. LabOne stockholders who wish to present proposals for action at the LabOne
annual meeting should submit their proposals to LabOne at 10101 Renner
Boulevard,
125
Lenexa, Kansas 66219. Proposals must be received by LabOne no later than
________, 2000 for consideration for inclusion in next year's proxy statement
and proxy. In addition, proxies solicited by LabOne management may cover
discretionary authority to vote on matters which are not included in the proxy
statement but which are raised at the annual meeting by stockholders unless
LabOne receives written notice of the matters at that address on or before
___________, 2000.
If the merger is consummated, it is currently anticipated that the
annual meeting of stockholders of the combined company will be held on or about
_____________, 2000. Stockholders who wish to present proposals for action at
this annual meeting should submit their proposals to the combined company at
______________________________. Proposals must be received no later than
________, 2000 for consideration for inclusion in next year's proxy statement
and proxy. In addition, proxies solicited by the combined company's management
may cover discretionary authority to vote on matters which are not included in
the proxy statement but which are raised at the annual meeting by stockholders
unless the combined company receives written notice of the matters at that
address on or before ___________, 2000.
WHERE YOU CAN FIND MORE INFORMATION
Holdings and LabOne each file annual, quarterly and other reports,
proxy statements and other information with the Securities and Exchange
Commission. You may read and copy any reports, statements or other information
we file at the Securities and Exchange Commission's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the
Securities and Exchange Commission at 1- 900-SEC-0330 for further information on
<PAGE>
the public reference rooms. Our Securities and Exchange Commission filings are
also available to the public from commercial document retrieval services and at
the web site maintained by the Securities and Exchange Commission at
"http://www.sec.gov."
Holdings has filed a registration statement on Form S-4 to register
with the Securities and Exchange Commission the Holdings common stock to be
issued to LabOne stockholders in the merger. This document is a part of the
registration statement and constitutes a prospectus of Holdings in addition to
being a proxy statement of Holdings and LabOne for the Holdings meeting and the
LabOne meeting. As allowed by Securities and Exchange Commission rules, this
document does not contain all the information you can find in the Registration
Statement or the exhibits to the registration statement.
The Securities and Exchange Commission allows us to "incorporate by
reference" information into this document, which means that we can disclose
important information to you by referring you to another document filed
separately with the Securities and Exchange Commission. The information
incorporated by reference is deemed to be part of this document, except for any
information superseded by information in this document. This document
incorporates by reference the documents set forth below that we have previously
filed with the Securities and Exchange Commission. These documents contain
important information about Holdings and its finances.
<TABLE>
<CAPTION>
Holdings SEC Filings (File No.0-16946) Period or Date of Event
-------------------------------------- ----------------------------
<S> <C>
Annual Report on Form 10-K/A, filed May 27, 1999 Year ended December 31, 1998
Quarterly Report on Form 10-Q, filed May 13, 1999 Quarter ended March 31, 1999
Current Report on Form 8-K, filed March 8, 1999 March 7, 1999
</TABLE>
126
<TABLE>
<CAPTION>
LabOne SEC Filings (File No.0-15975) Period or Date of Event
------------------------------------- -----------------------------
<S> <C>
Annual Report on Form 10-K/A, filed May 27, 1999 Year ended December 31, 1998
Quarterly Report on Form 10-Q, filed May 13, 1999 Quarter ended March 31, 1999
Current Report on Form 8-K, filed March 8, 1999 March 8, 1999
</TABLE>
Holdings is also incorporating by reference additional documents that it
files with the Securities and Exchange Commission between the date of this
document and the date of the meetings.
Holdings has supplied all information contained or incorporated by
reference in this document relating to Holdings and LabOne has supplied all such
information relating to LabOne.
<PAGE>
If you are a stockholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us or the
Securities and Exchange Commission. Documents incorporated by referenced are
available from us without charge, excluding all exhibits unless we have
specifically incorporated by reference an exhibit in this document. Stockholders
may obtain documents incorporated by reference in this document by requesting
them in writing or by telephone from the appropriate party at the following
addresses:
Lab Holdings, Inc. LabOne, Inc.
5000 West 95th Street 10101 Renner Blvd
Suite 260 Lenexa, Kansas 66219
Shawnee Mission, Kansas 66207 (913) 888-1770
(913) 648-3600
If you would like to request documents from us, please do so by
___________________, 1999 in order to receive them before the meetings.
You should rely only on the information contained or incorporated by
reference in this document to vote on the Holdings proposal and the LabOne
proposal. We have not authorized anyone to provide you with information that is
different from what is contained in this document. This document is dated
__________________________, 1999. You should not assume that the information
contained in this document is accurate as of any date other than such date, and
neither the mailing of this document to stockholders of Holdings and LabOne nor
the issuance of Holdings common stock in the merger shall create any implication
to the contrary.
127
<PAGE>
INDEX TO LABONE FINANCIAL STATEMENTS
Page
----
Independent Public Accountants' Report F-2
Consolidated Financial Statements:
Consolidated Balance Sheets-March 31, 1999
(unaudited) and December 31, 1998 and 1997 F-3
Consolidated Statements of Earnings-Three months
ended March 31, 1999 and 1998 (unaudited) and
Years ended December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Changes in Stockholders'
Equity-Three months ended March 31, 1999 (unaudited)
and Years ended December 31, 1998, 1997 and 1996 F-6
Consolidated Statements of Cash Flows-Three months
ended March 31, 1999 and 1998 (unaudited) and Years
ended December 31, 1998, 1997 and 1996 F-7
Notes to Consolidated Financial Statements F-9
Schedule:
Schedule II - Valuation and Qualifying Accounts F-22
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors
LabOne, Inc.:
We have audited the accompanying consolidated balance sheets of LabOne, Inc. and
subsidiaries as of December 31, 1998 and 1997 and the related consolidated
statements of earnings, changes in stockholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1998. In connection
with our audits of the consolidated financial statements, we have also audited
the financial statement schedule. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of LabOne, Inc. and
subsidiaries as of December 31, 1998 and 1997 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
s/KPMG LLP
KPMG LLP
January 29, 1999, except as to
note 12, which is as of March 8, 1999
F-2
<PAGE>
LABONE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
<S> <C> <C> <C>
December 31,
March 31, -------------------------
Assets 1999 1998 1997
---------- ---------- ----------
CURRENT (unaudited)
Cash and cash equivalents $ 6,918,256 10,177,740 18,284,672
Short-term investments (note 1) - - 1,204,638
Accounts receivable, net of
allowance for doubtful
accounts of $2,863,670 in 1999,
$2,326,716 in 1998 and
$968,295 in 1997 19,696,648 18,735,984 12,604,687
Income taxes receivable 177,799 282,229 508,704
Inventories 1,360,762 1,798,481 2,203,471
Real estate available-for-sale
(note 1) 1,793,207 3,515,000 3,515,000
Prepaid expenses and other
current assets 2,488,127 2,504,768 2,279,619
Deferred income taxes (note 5) 3,284,203 3,972,575 3,299,387
---------- ---------- ----------
Total current assets 35,719,002 40,986,777 43,900,178
---------- ---------- ----------
Property, plant, and equipment:
Land 2,379,334 2,379,334 2,379,334
Buildings 28,144,419 -- --
Laboratory equipment 19,478,787 18,101,286 19,044,329
Data processing equipment
and software 18,518,331 18,878,942 17,130,254
Office and transportation
equipment 5,498,070 5,787,762 4,909,970
Leasehold improvements 235,002 700,842 492,684
Construction in progress 2,107,048 27,067,631 --
---------- ---------- ----------
76,360,991 72,915,797 43,956,571
Less accumulated depreciation 34,652,381 35,983,169 33,515,280
---------- ---------- ----------
Net property, plant, and equipment 41,708,610 36,932,628 10,441,291
---------- ---------- ----------
Other assets
Intangible assets, net of accumulated
amortization (note 2) 8,294,770 8,469,322 5,229,708
Bond issue costs, net of accumulated
amortization of $5,823 181,957 186,324 --
Deferred income taxes noncurrent
(note 5) -- -- 321,799
Deposits and miscellaneous 210.550 206,127 80,497
---------- ---------- ----------
Total assets $ 86,114,889 86,781,178 59,973,473
============= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
LABONE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
March 31, -----------------------------
Liabilities and Stockholders' Equity 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current liabilities: (unaudited)
Accounts payable $ 5,310,712 4,353,733 3,326,451
Retainage and construction accounts
payable 3,473,065 3,809,193 --
Accrued payroll and benefits 3,083,031 4,148,593 4,530,235
Other accrued expenses 566,871 610,315 423,396
Other current liabilities 344,044 274,198 194,148
Current portion of long-term debt (note 4) 1,862,602 1,860,168 --
---------- ---------- ---------
Total current liabilities 14,640,325 15,056,200 8,474,230
Deferred income taxes (note 5) 633,021 446,745 --
Long-term debt (note 4) 18,094,181 18,097,308 --
---------- ---------- ---------
Total liabilities 33,367,527 33,600,253 8,474,230
---------- ---------- ---------
Stockholders' equity:
Preferred stock, $0.01 par value per
share; 1,000,000 shares authorized,
none issued -- -- --
Common stock, $0.01 par value per share;
40,000,000 shares authorized, 15,000,000
shares issued (note 7) 150,000 150,000 150,000
Additional paid-in capital 14,099,066 14,099,066 13,723,250
Accumulated other comprehensive income (833,623) (849,098) (666,927)
Retained earnings 59,539,035 59,988,073 60,259,272
---------- ---------- ---------
72,954,478 73,388,041 73,465,595
Less treasury stock of 1,688,550 shares in
1999 and 1998 and 1,874,706 shares in 1997,
at cost 20,207,116 20,207,116 21,966,352
---------- ---------- ---------
Total stockholders' equity 52,747,362 53,180,925 51,499,243
---------- ---------- ---------
Total liabilities and stockholders'
equity $ 86,114,889 86,781,178 59,973,473
============ ========== ==========
</TABLE>
F-4
<PAGE>
LABONE, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
<TABLE>
<CAPTION>
Three Months
Ended March 31, Years ended December 31,
--------------- ------------------------
<S> <C> <C> <C> <C> <C>
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
(unaudited)
Sales $ 27,328,085 23,333,434 102,227,216 78,926,119 59,431,855
Cost of sales 15,651,339 12,958,948 56,719,603 42,017,179 32,716,833
---------- ---------- ---------- ---------- ----------
Gross profit 11,676,746 10,374,486 45,507,613 36,908,940 26,715,022
Selling, general, and
administrative expenses 8,426,476 7,310,802 31,028,323 27,706,822 23,622,545
Provision for loss on disposal
of assets -- -- -- 6,553,279 --
---------- ---------- ---------- ---------- ----------
Earnings from operations 3,250,270 3,063,684 14,479,290 2,648,839 3,092,477
---------- ---------- ---------- ---------- ----------
Other income (expenses):
Investment income 87,675 232,899 814,343 1,179,947 1,769,182
Other, net (289,673) -- (112,277) (58,245) 14,930
---------- ---------- ---------- ---------- ----------
Total other income, net (201,998) 232,899 702,066 1,121,702 1,784,112
---------- ---------- ---------- ---------- ----------
Earnings before income
taxes 3,048,272 3,296,583 15,181,356 3,770,541 4,876,589
---------- ---------- ---------- ---------- ----------
Income taxes (benefit) (note 5):
Current 225,765 1,271,335 6,057,345 4,392,742 2,485,473
Deferred 875,484 25,185 (95,356) (2,824,296) (476,783)
---------- ---------- ---------- ---------- ----------
Total income taxes 1,101,249 1,296,520 5,961,989 1,568,446 2,008,690
---------- ---------- ---------- ---------- ----------
Net earnings $ 1,947,023 2,000,063 9,219,367 2,202,095 2,867,899
=========== ========= ========= ========= =========
Basic earnings per share $ 0.15 0.05 0.70 0.17 0.22
=========== ========= ========= ========= =========
Diluted earnings per share $ 0.15 0.1 0.69 0.17 0.22
=========== ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
LABONE, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
<PAGE>
Accumulated other
comprehensive Total
income-foreign stock-
Common Additional currency Retained Comprehensive holders'
Stock paid-in capital translation earnings Treasury Stock income equity
----- --------------- ----------- -------- -------------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 150,000 13,377,728 (545,818) 74,040,870 (22,158,451) 64,864,329
Comprehensive income:
Net earnings -- -- -- 2,867,899 -- 2,867,899 2,867,899
Adjustment from foreign
currency translation -- -- 1,859 -- -- 1,859 1,859
----------
Comprehensive income: 2,869,758
=========
Cash dividends ($.72 per share) -- -- -- (9,414,332) -- (9,414,332)
Net issuance of 30,149 shares
of treasury stock -- 168,393 -- -- (38,855) -- 129,538
------- ---------- -------- ---------- ----------- ----------
Balance at December 31, 1996 150,000 13,546,121 (543,959) 67,494,437 (22,197,306) 58,449,293
Comprehensive income:
Net earnings -- -- -- 2,202,095 -- 2,202,095 2,202,095
Adjustment from foreign
currency translation -- -- (122,968) -- -- (122,968) (122,968)
---------
Comprehensive income 2,079,127
=========
Cash dividends ($.72 per share) -- -- -- (9,437,260) -- (9,437,260)
Net issuance of 41,129 shares
of treasury stock -- 177,129 -- -- 230,954 408,083
------- ---------- -------- ---------- ----------- ----------
Balance at December 31, 1997 150,000 13,723,250 (666,927) 60,259,272 (21,966,352) 51,499,243
Comprehensive income:
Net earnings -- -- -- 9,219,367 -- 9,219,367 9,219,367
Adjustment from foreign
currency translation -- -- (182,171) -- -- (182,171) (182,171)
---------
Comprehensive income 9,037,196
=========
Cash dividends ($.72 per share) -- -- -- (9,490,566) -- (9,490,566)
Issuance of 168,885 shares of
treasury stock related to
acquisition -- 275,050 -- -- 1,724,950 2,000,000
Net Issuance of 17,271 shares
of treasury stock -- 100,766 -- -- 34,286 135,052
------- ---------- -------- ---------- ----------- ----------
Balance at December 31, 1998 $ 150,000 14,099,066 (849,098) 59,988,073 (20,207,116) 53,180,925
Comprehensive income:
Net earnings -- -- -- 1,947,023 -- 1,947,023 1,947,023
Adjustment from foreign
currency translation -- -- 15,475 -- -- 15,475 15,475
---------
Comprehensive income 1,962,498
=========
Cash dividends ($0.18 per share) -- -- -- (2,396,061) -- (2,396,061)
------- ---------- -------- ---------- ----------- ----------
Balance at March 31, 1999 $150,000 14,099,066 (833,623) 59,539,035 (20,207,116) 52,747,362
======== ========== ======== ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
LABONE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months
Ended March 31, Years Ended December 31,
------------------- --------------------------------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash provided by (used for) operations:
Net earnings $ 1,947,023 2,000,063 9,219,367 2,202,095 2,867,899
Adjustments to reconcile net earnings
to net cash provided by operations,
net of acquisitions:
Depreciation and intangibles
amortization 1,269,072 1,086,293 4,168,638 4,770,415 4,014,304
Amortization of investment premiums -- (2,008) (36,767) (251,233) (103,146)
Provisions for loss on accounts
receivable 604,749 226,274 1,502,571 571,192 493,760
Deferred income taxes 875,484 25,187 (96,263) (2,832,976) (476,783)
(Gain) loss on disposal of equipment (287,107) 127 (18,606) (120,087) 155,587
Provision for loss on disposal of assets -- -- -- 6,553,279 --
Directors' stock compensation -- -- 62,619 66,834 62,096
Changes in:
Accounts receivable (1,565,413) (3,019,852) (6,777,322) (3,577,172) (2,365,181)
Income tax receivable 104,430 1,113,197 226,475 (271,331) --
Inventories 437,719 309,781 404,990 (755,422) 173,093
Prepaid expenses and other
current assets 16,641 (8,219) (201,551) (442,454) 808,589
Accounts payable (464,305) 1,002,187 886,932 355,075 863,000
Income taxes payable -- -- -- -- (50,560)
Accrued payroll and benefits (1,065,562) (1,551,064) (619,281) 1,727,669 830,091
Other accrued expenses 1,041,712 126,706 186,919 29,585 (508,486)
Other current liabilities 69,846 (8,364) 80,050 68,019 (23,668)
---------- ---------- ---------- ---------- ----------
Net cash provided by operations 2,984,289 1,300,308 8,988,771 8,093,488 6,740,595
---------- ---------- ---------- ---------- ----------
Cash provided by (used for) investment activities:
Purchase of investments held-to-maturity -- (4,467,421) (5,461,090) (15,893,902) (15,752,895)
Proceeds from maturities of investments
held-to-maturity -- 701,894 6,701,893 18,155,062 23,394,571
Property, plant, and equipment
additions, net (3,854,833) (1,724,596) (25,485,294) (6,676,615) (3,225,956)
Acquisition of businesses (note 2) -- -- (2,967,883) (4,815,889) --
Deposits and miscellaneous (4,423) 537 (5,147) (57,295) 17,559
---------- ---------- ---------- ---------- ----------
Net cash provided by (used for)
investment activities (3,859,256) (5,489,586) (27,217,521) (9,288,639) 4,433,279
---------- ---------- ---------- ---------- ----------
Cash provided by (used for) financing activities:
Issuance of treasury stock, net of
proceeds from exercise of stock options -- 69,090 72,433 341,249 67,442
Proceeds from bond issue -- -- 19,900,000 -- --
Bond issue costs -- -- (192,147) -- --
Payments on long-term debt (2,966) -- (1,937) -- --
Cash dividends (2,396,061) (2,364,400 (9,490,566) (9,437,260) (9,414,332)
---------- ---------- ---------- ---------- ----------
Net cash provided by (used for)
financing activities (2,399,027) (2,295,310) 10,287,783 (9,096,011) (9,346,890)
---------- ---------- ---------- ---------- ----------
<PAGE>
Effect of foreign currency translation
on cash 14,510 9,338 (165,965) (71,544) 11,976
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents (3,259,484) (6,475,250) (8,106,932) (10,362,706) 1,838,960
Cash and cash equivalents at beginning
of period 10,177,740 18,284,672 18,284,672 28,647,378 26,808,419
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents at end of period $ 6,918,256 11,809,422 10,177,740 18,284,672 28,647,379
</TABLE>
F-7
LABONE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
Three Months
Ended March 31, Years Ended December 31,
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes $ 162,464 109,155 6,458,641 4,586,078 2,251,320
Interest $ 326,590 240,586 -- --
========== ======== ========= ========== ==========
Supplemental schedule of noncash investing
and financing activities for the year
ended December 31, 1998:
Details of acquisition:
Fair value of assets acquired $ 6,223,162
Liabilities assumed (645,198)
Stock issued (2,000,000)
Cash paid 3,577,964
Less: cash acquired 610,081
-------
Net cash paid for acquisition $ 2,967,883
==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(Unaudited as to March 31, 1999 and 1998 information)
(1) Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements include the accounts of
LabOne, Inc. (LabOne or the Company), and its wholly-owned subsidiaries,
Lab One Canada Inc. and Systematic Business Services, Inc. All significant
intercompany transactions have been eliminated in consolidation. LabOne was
80.5%-owned by Lab Holdings, Inc. (Holdings) at December 31, 1998.
Unaudited Quarterly Information
Quarterly financial information provided herein as of March 31, 1999 and
1998 and for the periods ended March 31, 1999 and 1998 is unaudited;
however, in the opinion of management, it reflects all adjustments,
consisting of normal recurring adjustments, which are necessary to fairly
state the Company's financial position, the results of its operations and
cash flows. The financial statements have been prepared in conformity with
generally accepted accounting principles appropriate in the circumstances,
and included in the financial statements are certain amounts based on
management's estimates and judgments.
The quarterly financial information provided herein is not necessarily
representative of a full year's operations because levels of sales, capital
additions and other factors fluctuate throughout the year. These same
considerations apply to all year-to-year comparisons.
Cash and Cash Equivalents
Cash and cash equivalents include demand deposits in banks, marketable
securities with original maturities of three months or less, money market
investments and overnight investments that are stated at cost, which
approximates market value.
Investment Securities
LabOne determines the appropriate classification of debt and equity
securities at the time of purchase. Debt securities are classified as
held-to-maturity when LabOne has the intent and ability to hold the
securities to maturity. Held-to-maturity securities are stated at amortized
cost and investment income is included in earnings.
Inventories
Inventories consist of completed specimen collection kits and various
materials used in the assembly of specimen collection kits for sale to
clients. Inventory is valued at the lower of cost (first-in, first out) or
market.
<PAGE>
Property, Plant, and Equipment
Property, plant, and equipment additions are recorded at cost which
includes interest capitalized during construction, when material.
Facilities leased pursuant to revenue bond financing transactions are
accounted for as purchases with the cost of the leased property included in
property, plant, and equipment and the related obligation included in
long-term debt. Construction in progress is transferred and depreciation
expense recorded as portions of construction are completed and put into
use.
F-9
Depreciation and amortization are computed using the straight-line method
over the estimated useful lives of the assets as follows:
Buildings 30 years
Laboratory equipment 3 - 5 years
Data processing equipment 3 - 5 years
Office equipment 5 years
Cost of Borrowings
Expenses directly related to the issuance of debt are deferred and
amortized over the period the debt is expected to be outstanding using the
interest method.
Intangible Assets
Intangible assets are recorded at their acquisition cost, net of
amortization.The patent process utilized in coating the plates on which
blood and urine testing is performed was amortized on a straightline basis
over the estimated life of the patent (184 months at date of acquisition).
The excess of cost over fair value of net assets acquired is being
amortized on a straight line basis over periods of fifteen to twenty years.
Impairment of Long-lived Assets
When facts and circumstances indicate potential impairment, LabOne
evaluates the recoverability of carrying values of long-lived assets,
including intangibles, using estimates of undiscounted future cash flows
over remaining asset lives. When impairment is indicated, any impairment
loss is measured by the excess of carrying values over fair values. During
the fourth quarter of 1997, LabOne decided to dispose of its office
and headquarters building and lab facility, which, net of accumulated
depreciation, has been classified as real estate available-for-sale. An
impairment loss of $6,553,279 related to the anticipated sale was recorded
in 1997 which reduced the carrying value to $3,515,000. At December 31,
1998, the Company has entered into real estate sales contracts to sell
all real estate available-for-sale for $4,530,000.
<PAGE>
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
ssumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fair Value of Financial Instruments
Estimates of fair values are subjective in nature and involve uncertainties
and matters of significant judgment and, therefore, cannot be determined
with precision. Changes in assumptions could affect the estimates. The
fair market value of LabOne's financial instruments at December 31,
1998 and 1997 approximates their carrying values.
Income Taxes
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
F-10
<PAGE>
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Earnings Per Share
Basic earnings per share is computed using the weighted average number of common
shares and diluted earnings per share is computed using the weighted average
number of common shares and dilutive stock options.
The following table reconciles the weighted average common shares used in the
basic earnings per share calculation and the weighted average common shares and
common share equivalents used in the diluted per share calculation:
<TABLE>
<CAPTION>
Three months ended March 31, Years ended December 31,
---------------------------- --------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
Weighted average common
shares (basic) 13,311,450 13,134,883 13,168,394 13,106,383 13,076,103
Employee stock options 28,021 184,062 135,174 215,655 190,013
====== ======= ======= ======= =======
Weighted average common shares
and common shares equivalents
(diluted) 13,339,471 13,318,945 13,303,568 13,322,038 13,266,116
========== ========== ========== ========== ==========
</TABLE>
Financial Statement Presentation
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive
Income, which established standards for reporting and display of comprehensive
income and its components. SFAS No. 130 became effective for the year ended
December 31, 1998. The presentation of previous periods has been changed to
reflect the provisions of this statement.
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, which established standards for reporting
operating segments. SFAS No. 131 became effective for the year ended December
31, 1998. This statement did not affect the presentation of segment information.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, effective for LabOne's quarter ending
September 30, 1999. Retroactive application will not be required. The Company
does not expect this statement to have a significant impact on the Company's
financial position or results of operations.
F-11
<PAGE>
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Acquisitions and Intangible Assets
The cost and accumulated amortization of intangible assets at December 31,
1998 and 1997 are as follows:
1998 1997
---- ----
Patent $ 8,000,000 8,000,000
Accumulated amortization 8,000,000 7,782,574
----------- ---------
-- 217,426
----------- ---------
Excess of cost over fair value
of net assets acquired 12,587,993 8,598,959
Accumulated amortization 4,118,671 3,586,677
----------- ---------
8,469,322 5,012,282
----------- ---------
Intangible assets, net of
accumulated amortization $ 8,469,322 5,229,708
============== =========
Effective October 30, 1998, LabOne acquired Systematic Business Services,
Inc. (SBSI) for approximately $5.7 million. SBSI is a provider of
information support services to insurance underwriters. The purchase was
comprised of $3.7 million of cash and the issuance of 168,885 shares of
LabOne stock having a fair market value of $2 million. The acquisition was
accounted for using the purchase method of accounting. The excess of the
aggregate purchase price over the fair market value of net assets acquired
of approximately $4 million is being amortized over twenty years.
LabOne is obligated to pay to the prior owner of SBSI, 20% of SBSI's income
before taxes (as defined) greater than a target amount approximately equal
to 1998 pretax income for each of SBSI's fiscal years ending in 1999 and
2000. Any amounts paid under this obligation will result in additional
excess purchase price for reporting purposes.
The operating results of SBSI have been included in the consolidated
statements of earnings from the date of acquisition. The following unaudited
pro forma consolidated results of operations of the Company for the yeas
ended December 31, 1998 and 1997 assumes the SBSI acquisition occurred as of
January 1, 1997:
1998 1997
---- ----
Sales $108,239,000 85,032,000
Net earnings 9,869,000 2,434,000
Earnings per share:
Basic 0.74 0.18
Diluted 0.73 0.18
========== =========
Pro forma data does not purport to be indicative of the results that would
have been obtained had these events actually occurred at the beginning of
the periods presented, and it not intended to be a projection of future
results.
F-12
<PAGE>
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Effective January 30, 1997, LabOne acquired certain assets, including
customer lists, of GIB Laboratories, Inc., a subsidiary of Prudential
Insurance Company of America, for $4,815,889. Concurrently, Prudential's
Individual Insurance Group agreed to use LabOne as its exclusive provider of
risk assessment testing services for a period of three years. The excess
costs over fair value of GIB Laboratories, Inc. assets acquired was
$4,128,275 and is being amortized over fifteen years.
(3) Investment Securities
LabOne held no investment securities at December 31, 1998. A summary of
investment securities information relating to quoted market values and
unrealized holding gains and losses at December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Amount of
which
carried in Unrealized Unrealized
Amortized Approximate the balance holding holding
1997 cost market sheet gains losses
---- ---- ------ ----- ----- ------
<S> <C> <C> <C> <C> <C>
Held-to-maturity investments,
all with maturities less
than one year:
Canadian government notes $ 702,495 702,495 702,495 -- --
Obligations of states and
political subdivisions 502,143 501,541 502,143 -- 602
---------- ------- ------- ----- -----
Total short-term
investments $ 1,204,638 1,204,036 1,204,638 -- 602
=========== ========= ========= ======== =======
</TABLE>
(4) Long-term Debt
Long-term debt consists of the following as of December 31, 1998:
Taxable industrial revenue bonds, Series 1998A,
principal payable annually through
September 1, 2009, interest payable monthly
at a rate adjusted weekly based on short-term
United States treasury obligations (5.14% at
December 31, 1998), secured by the Company's
facility and an irrevocable bank letter of
credit $ 20,000,000 $20,000,000
Various capital leases, principal and interest
payable monthly through May 2003, interest
ranging from 7% to 12%, collateralized by
office equipment 54,446
---------
Total long-term debt $20,054,446
Less:
Current portion 1,860,168
Unamortized discount 96,970
---------
Long-term debt, net $18,097,308
============
F-13
<PAGE>
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Aggregate maturities of long-term debt as of December 31, 1998 are as
follows:
Bonds payable Capital leases Total
------------- -------------- -------
1999 $ 1,850,000 10,168 1,860,168
2000 1,850,000 13,551 1,863,551
2001 1,850,000 14,933 1,864,933
2002 1,850,000 11,188 1,861,188
2003 1,800,000 4,606 1,804,606
Thereafter 10,800,000 -- 10,800,000
---------- ------- ----------
$ 20,000,000 54,446 20,054,446
============= ====== ==========
Interest expense in 1998 amounted to approximately $70,000, net of interest
capitalized as a component of property, plant, and equipment of $314,638.
(5) Income Taxes
The components of income taxes and deferred taxes (benefit) applicable to
temporary differences are as follows (for the years ended December 31):
1998 1997 1996
---- ---- ----
Current:
Federal $ 4,853,744 3,452,979 1,878,022
State 1,086,479 633,839 347,809
Foreign 117,122 305,924 259,642
---------- --------- ---------
Total current 6,057,345 4,392,742 2,485,473
---------- --------- ---------
Deferred:
Federal (89,408) (2,339,175) (490,408)
State (31,125) (487,993) (118,293)
Foreign 25,177 2,872 131,918
---------- --------- ---------
Total deferred (95,356) (2,824,296) (476,783)
---------- --------- ---------
$ 5,961,989 1,568,446 2,008,690
========== ========= =========
F-14
<PAGE>
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Total income taxes differ from the amounts computed by applying the federal
statutory income tax rate of 34% to earnings before income taxes for the
following reasons (for the years ended December 31):
1998 1997 1996
---- ---- ----
Application of statutory
income tax rate $ 5,161,661 1,281,984 1,658,040
Foreign taxes, net 7,599 72,062 113,803
State income taxes, net 696,534 99,649 151,481
Tax-exempt interest (5,788) (18,730) (44,708)
Other, net 101,983 133,481 130,074
------- ------- -------
$ 5,961,989 1,568,446 2,008,690
========= ========= =========
The tax effects of temporary differences that create significant portions of the
deferred tax assets and deferred tax liabilities at December 31, 1998 and 1997
are presented below:
1998 1997
---- ----
Deferred current income tax assets
(liabilities):
Unrealized loss on real estate
available-for-sale $ 2,541,126 2,606,698
Accrued vacation 303,180 253,832
Accrued medical claims 63,644 79,554
Bad debts 925,635 384,600
Inventory adjustment 40,830 26,673
Other items 98,160 (51,970)
---------- ----------
Total deferred current income
tax assets, net $ 3,972,575 3,299,387
========== =========
Deferred noncurrent tax assets
(liabilities):
Depreciation and amortization $ 12,878 321,799
Acquired subsidiary cash to
accrual adjustment (196,438) --
Other items (263,185) --
---------- ----------
Total deferred noncurrent tax
assets (liabilities), net $ (446,745) 321,799
---------- ----------
A valuation allowance for deferred tax assets was not necessary at December 31,
1998 or 1997.
<PAGE>
In conjunction with building its new facility, LabOne has applied for the Kansas
High Performance Incentive Program (HPIP) credit. If LabOne qualifies for the
program as certified by the state of Kansas, LabOne will receive a credit
available to offset all or a portion of its 1999 Kansas income tax liability
related to operations of the new facility. Any unused portion of the credit can
be carried forward for a period of ten years, provided LabOne continues to meet
requirements of the program. HPIP credits which may be available to LabOne over
the next ten years are estimated to aggregate approximately $4,000,000.
F-15
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Benefit Plans
LabOne maintains a money purchase pension plan for all employees who have
completed one-half year of service and have attained age twenty and one-half
years. The plan is a defined contribution plan under which LabOne
contributes a percentage of a participant's annual compensation. LabOne's
contributions to the plan were $1,803,000, $1,422,000 and $1,187,000 for the
years ended December 31, 1998, 1997 and 1996, respectively.
LabOne has a profit sharing plan for all employees who have completed six
months of service and a minimum of 500 hours of service and have attained
the age of twenty and one-half years. LabOne contributes on behalf of each
participant an amount equal to 50% of the participant's annual
contributions, but not in excess of 5% of the participant's annual
compensation. LabOne contributions are invested in LabOne common stock.
LabOne's contributions to the plan for the years ended December 31, 1998,
1997 and 1996 were $663,000, $558,000 and $509,000, respectively.
(7) Stock Options and Warrants
LabOne has a long-term incentive plan which provides for granting awards,
including stock options, for not more than 3,150,000 shares of LabOne common
stock. LabOne has granted certain stock options which entitle the grantee to
purchase shares for a price equal to the fair market value at date of grant
with option periods up to ten years.
The Company accounts for stock options in accordance with the provisions of
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations (APB 25). As such, compensation
expense is recorded on the date of grant only if the current market price of
the underlying stock exceeds the exercise price. On December 31, 1995, the
Company adopted Statement of Financial Accounting Standards No. 123,
Accounting for Stock Based Compensation, (SFAS 123) which permits entities
to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternately, SFAS 123 allows
entities to continue to apply the provisions of APB 25 and provide pro forma
net earnings and pro forma earnings per share disclosures for employee stock
option grants made in 1995 and subsequent years as if the fair-value-based
method defined in SFAS 123 had been applied. The Company has elected to
continue to apply the provisions of APB 25 and provide the pro forma
disclosure provisions of SFAS 123.
F-16
<PAGE>
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A summary of the status of the Company's stock option plan as of December 31,
1998, 1997 and 1996 and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------- -------------------------- ------------------------
Weighted Weighted Weighted
average average average
Number exercise Number exercise Number exercise
Fixed Options of shares price of shares price of shares price
------------- --------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 1,614,068 $ 14.30 1,459,559 $ 13.63 1,572,167 $ 13.07
Granted 330,859 15.02 253,316 17.36 314,297 16.39
Exercised (40,300) 10.64 (71,907) 10.84 (120,305) 10.67
Forfeited (66,700) 17.87 (26,900) 15.95 (306,600) 14.74
--------- --------- ---------
Outstanding at end
of year 1,837,927 14.38 1,614,068 14.30 1,459,559 13.63
Options exercisable ========= ========= ==========
at year-end 968,683 13.44 820,609 12.94 718,705 12.21
========= ========= ==========
</TABLE>
The following table summarizes information about stock options at December 31,
1998.
Options outstanding Options exercisable
------------------------------------- ---------------------
Weighted
average Weighted Weighted
remaining average average
Range of Number contractual exercise Number exercise
exercise prices outstanding life(years) price exercisable price
--------------- ----------- ----------- ----- ----------- -----
$ 9.88- 9.88 188,583 2.0 $ 9.88 188,583 $ 9.88
11.13- 11.63 420,513 5.2 11.44 313,513 11.38
13.38- 14.13 154,397 6.3 13.93 85,618 13.95
14.38- 14.38 205,859 6.7 14.38 120,000 14.38
14.75- 15.22 241,000 9.3 15.04 24,000 14.75
15.50- 16.63 305,885 7.9 16.42 117,877 16.44
16.69- 23.88 321,690 7.4 18.65 119,092 19.96
--------- -------
$ 9.88- 23.88 1,837,927 6.5 14.38 968,683 13.44
============ ========= === ====== ======== ======
The weighted average per share fair value of stock options granted during
1998, 1997 and 1996 was $3.54, $5.08 and $4.77, respectively, on the date of
grant using the Black Scholes option-pricing model with the following
weighted average assumptions: 1998 expected dividend yield of 4.8%,
risk-free interest rate of 5.0%, expected volatility factor of 33.9% and an
expected life of six years; 1997 expected dividend yield of 4.2%, risk-free
interest rate of 6.3%, expected volatility factor of 35.4% and an expected
life of six years; 1996 expected dividend yield of 4.4%, risk-free interest
rate of 6.0%, expected volatility factor of 36.6% and an expected life of
six years.
F-17
<PAGE>
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Since the Company applies APB 25 in accounting for its plans, no
compensation cost has been recognized for its stock options in the financial
statements. Had the Company recorded compensation cost based on the fair
value of options at the grant date the Company's net earnings and earnings
per share would have been reduced by approximately the following: $515,000,
or $.04 per share, in 1998; $416,000, or $.03 per share, in 1997; and
$199,000, or $.02 per share, in 1996.
Pro forma net earnings reflect only options granted in 1998, 1997 and 1996.
Therefore, the full impact of calculating compensation cost for stock
options under SFAS 123 is not reflected in the pro forma net earnings
amounts presented above because compensation costs are reflected over the
options' vesting period of five years for the 1998, 1997, and 1996 options.
Compensation cost for options granted prior to January 1, 1995 is not
considered.
LabOne entered marketing agreements with two companies during 1998. In
conjunction with these agreements, LabOne granted warrants for the purchase
of 1,000,000 shares of common stock at an exercise price equal to the fair
value of the stock at the grant date (500,000 shares at $17.00 and 500,000
shares at $15.44). A portion of the warrants become exercisable each quarter
for five years provided certain conditions are met including achievement of
certain levels of revenues. The Company will recognize expense, measured as
the excess of fair value of the warrants over the exercise price, on the
date such warrants become exercisable. No warrants became exercisable in
1998. LabOne has reserved 1,000,000 shares of common stock for issuance of
shares upon exercise of the warrants.
(8) Foreign Operations
The following summarizes financial information for LabOne's wholly-owned
Canadian subsidiary, Lab One Canada Inc., for the years ended December 31:
1998 1997 1996
---- ---- ----
Revenues $6,462,814 6,564,786 6,379,505
Operating earnings 314,112 644,842 718,567
Total assets 2,841,854 3,192,854 2,668,434
========== ========= ==========
(9) Business Segment Information
The Company operates principally in three lines of business: insurance,
clinical testing, and substance abuse testing. The insurance line of
business involves risk-appraisal laboratory testing and information services
to the insurance industry. The tests performed and information provided by
the Company are specifically designed to assist an insurance company in
objectively evaluating the risks posed by policy applicants. Clinical
testing services are provided to the health care industry to aid in the
diagnosis and treatment of patients. Substance abuse testing services are
provided to both regulated and nonregulated employers who employ drug
screening guidelines.
<PAGE>
Operating income (loss) of each line of business is computed as sales less
identifiable and allocated expenses. All expenses that can be identified as
specific to a certain segment of business are charged to that segment. All
shared resources and expenses are totaled and allocated to each segment
based on the relative revenue of each segment each month. Allocated expenses
include administrative salaries, information systems support, accounting,
human resources and facilities. In computing operating income (loss) of
lines of business, none of the following items have been added or deducted:
general corporate expenses, investment income or other income (expenses).
Identifiable assets by line of business are those assets that are used in
the Company's operations in each line of business. General corporate assets
at December 31, 1997 and 1996 were primarily cash and investments. At
December 31, 1998, general corporate assets were primarily construction in
progress (the new facility) and cash.
F-18
<PAGE>
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Following is a summary of line of business information:
<TABLE>
<CAPTION>
Three Months Ended March 31, Years ended December 31,
---------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C>
1999 1998 1998 1997 1996
--------- --------- --------- --------- ---------
(Unaudited)
Sales:
Insurance services $ 17,584,247 16,822,452 69,149,050 61,997,817 50,800,650
Clinical services 5,957,526 3,654,043 18,599,583 7,511,889 3,941,704
Substance abuse testing 3,786,312 2,856,939 14,478,583 9,416,413 4,689,501
--------- --------- --------- --------- ---------
Total sales $ 27,328,085 23,333,434 102,227,216 78,926,119 59,431,855
============ ========== =========== ========== ==========
Operating income (loss):
Insurance services $ 4,151,834 5,212,264 20,630,337 18,507,849 12,610,224
Clinical services (958,778) (1,935,046) (6,187,744) (8,303,741) (7,967,348)
Substance abuse testing (118,940) (178,786) 203,828 (933,832) (1,235,982)
General corporate expenses 176,154 (34,748) (167,131) (188,245) (158,830)
Investment income, net 92,526 233,636 814,343 1,179,947 1,769,182
Other expense, net (294,524) (737) (112,277) (6,491,437) (140,657)
--------- --------- --------- --------- ---------
Earnings before income taxes 3,048,272 3,296,583 15,181,356 3,770,541 4,876,589
Income tax expense 1,101,249 1,296,520 5,961,989 1,568,446 2,008,690
--------- --------- --------- --------- ---------
Net earnings $ 1,947,023 2,000,063 9,219,367 2,202,095 2,867,899
============ ========== =========== ========== ==========
Identifiable assets:
Insurance services $ 29,295,799 25,020,052 24,327,970
Clinical services 5,492,624 3,512,587 4,022,258
Substance abuse testing 6,448,663 4,994,104 3,323,245
General corporate assets 45,544,092 26,446,730 33,069,702
----------- ---------- ----------
Total assets $ 86,781,178 59,973,473 64,743,175
=========== ========== ==========
Capital expenditures:
Insurance services $ 2,089,869 3,308,320 2,558,275
Clinical services 501,380 468,538 162,814
Substance abuse testing 423,664 946,268 504,867
General corporate 22,470,381 2,553,218 --
=========== ========== ==========
Depreciation and amortization:
Insurance services $ 2,560,962 3,185,661 2,504,472
Clinical services 797,385 940,223 1,141,210
Substance abuse testing 810,291 644,531 368,622
=========== ========== ==========
</TABLE>
F-19
<PAGE>
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10)Quarterly Financial Data (Unaudited)
A summary of unaudited quarterly results of operations for 1998 and 1997 is
as follows (in thousands except per share data):
Three months ended,
------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
1998:
Sales $23,333 25,762 25,834 27,298
Gross profit 10,374 11,931 11,305 11,898
Earnings before income taxes 3,297 4,234 3,630 4,020
Net earnings 2,000 2,516 2,227 2,476
Basic earnings per share .15 .19 .17 .19
Diluted earnings per share .15 .19 .17 .18
Dividends per share .18 .18 .18 .18
======== ======= ====== =======
1997:
Sales $17,740 20,307 19,728 21,151
Gross profit 8,290 9,671 9,064 9,884
Earnings (loss) before income
taxes 2,287 2,853 2,603 (3,972)
Net earnings (loss) 1,359 1,687 1,536 (2,380)
Basic earnings (loss) per share .10 .13 .12 (.18)
Diluted earnings (loss) per share .10 .13 .12 (.18)
Dividends per share .18 .18 .18 .18
======== ======= ====== =======
(11)Commitments and Contingencies
Tax Assessment
The Comptroller of the State of Texas has conducted an audit of LabOne for
sales and use tax compliance for the years 1991 through 1997 and contends
that LabOne's insurance laboratory services are taxable under the Texas tax
code. The Texas Comptroller has issued a tax audit assessment, including
interest and penalties, of approximately $1,900,000. The Company has
appealed this assessment arguing that its services do not fit within the
definition of insurance services under the Texas code. The assessment is
under review by the Texas State Hearing Attorney. At this time, the Company
is unable to estimate the possible liability, if any, that may be incurred
as a result of this assessment.
F-20
<PAGE>
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Leases
LabOne has several noncancelable operating leases, primarily for land and
buildings, and other commitments that expire through 2003, including a lease
for office space from an entity owned by an employee. Rental expense for
these operating leases during 1998, 1997, and 1996 amounted to $538,000,
$486,000, and $626,000, respectively.
Future minimum lease payments and other commitments under these agreements
as of December 31, 1998 are:
Year Amount
------ --------
1999 $ 519,880
2000 346,912
2001 228,510
2002 195,192
2003 162,660
=========
Construction and Equipment Costs
At December 31, 1998, management estimates additional cost to complete
construction of the new facility and to acquire related equipment
approximates $3.5 million, substantially all of which will be paid in the
first half of 1999. The move to the new facility was completed in April
1999.
(12)Subsequent Event - Merger Agreement
On March 8, 1999, LabOne and Holdings jointly announced that the Board of
Directors of both companies have approved an agreement to merge the two
companies. Under the merger agreement, LabOne is to be merged into Holdings
and the merged entity's name will be changed to LabOne, Inc. Stockholders of
Holdings will have their Holdings shares split immediately before the merger
into 1.5 shares of the merged entity. Stockholders of LabOne, other than
Holdings, will be entitled to elect to have each of their existing LabOne
shares exchanged for one share of the merged entity or $12.75 in cash or a
combination of cash and shares up to a limit of $16.6 million in cash
(approximately 50% of eligible shares). The combined company will use
Holdings' existing cash and additional borrowings, if necessary, to cover
the purchase of shares from stockholders that choose the cash election
option. The merger is subject to approval by the holders of two-thirds of
the outstanding Holdings shares and a majority of the shares voted by LabOne
stockholders, other than Holdings and its affiliates, and other closing
conditions.
F-21
<PAGE>
Schedule II
LABONE, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Additions
charged to
Balance selling,
at general, and Deductions-- Balance
Beginning administrative uncollectible at end
Description of year expenses accounts of year
----------- ------- -------- -------- -------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1998 $ 968,295 $1,502,572 $ 144,151 $2,326,716
========== ========== ========== ==========
Year ended December 31, 1998 $ 547,558 $ 521,193 $ 210,456 $ 968,295
========== ========== ========== ==========
Year ended December 31, 1996 $ 329,995 $ 493,760 $ 166,197 $ 657,558
========== ========== ========== ==========
</TABLE>
F-22
<PAGE>
Appendix A
AGREEMENT AND PLAN OF MERGER,
as amended and restated
BY AND BETWEEN
LAB HOLDINGS, INC.
AND
LabOne, INC.
DATED AS OF MARCH 7, 1999
<PAGE>
TABLE OF CONTENTS
Page
AGREEMENT AND PLAN OF MERGER.................................................1
CERTAIN DEFINITIONS..........................................................2
ARTICLE I....................................................................2
THE MERGER
...................................................................2
1.1 The Merger; Effective Time of the Merger..........2
1.2 Closing...........................................3
ARTICLE II
EFFECT OF THE MERGER
...................................................................3
2.1 Effects of the Merger.............................3
(a) Surviving Corporation....................3
(b) Articles of Incorporation................3
(c) Bylaws...................................3
(d) Directors and Officers...................3
(e) Other....................................4
2.2 Effect of the Merger on Capital Stock.............4
(a) LabOne Common Stock .....................4
(b) Payment of Merger Consideration
for Cash Election Shares................6
(c) LabOne shares held by Holdings
and LabOne..............................9
(d) Holdings Common Stock....................9
(e) Assumption of LabOne Stock Options.......9
(f) Adjustment of Holdings Stock Options....10
(g) Stated Capital..........................10
2.3 Dissenting Shares................................11
2.4 No Liability.....................................11
ARTICLE III
REPRESENTATIONS AND WARRANTIES.....................................11
3.1 Representations and Warranties of LabOne.........11
(a) Organization, Standing and Power........11
(b) Capital Structure.......................12
(c) Non-Subsidiaries Equity Investment......13
(d) Authority; No Violations; Consents
and Approvals..........................13
(e) SEC Documents...........................15
(f) Information Supplied....................16
(g) Absence of Certain Changes or Events....16
i
<PAGE>
(h) No Undisclosed Material Liabilities.....17
(i) Material Contracts; No Defaults.........17
(j) Compliance with Applicable Laws.........18
(k) Litigation..............................18
(l) Taxes...................................18
(m) Pension and Benefit Plans; ERISA........20
(n) Labor Matters...........................23
(o) Intangible Property.....................23
(p) Environmental Matters...................24
(q) Opinion of Financial Advisor............26
(r) Vote Required...........................27
(s) Insurance...............................27
(t) Brokers.................................27
(u) Title...................................27
(v) Books and Records.......................27
(w) Certain Payments........................28
(x) Transactions with Related Parties.......28
(y) State Takeover Laws.....................28
(z) Nature of Election by Certain
Affiliates.............................28
3.2 Representations and Warranties of Holdings.......29
(a) Organization, Standing and Power........29
(b) Capital Structure.......................29
(c) Non-Subsidiaries Equity Investment......30
(d) Authority; No Violations; Consents
and Approvals..........................30
(e) SEC Documents...........................32
(f) Information Supplied....................33
(g) Absence of Certain Changes or Events....33
(h) No Undisclosed Material Liabilities.....34
(i) Material Contracts; No Defaults.........34
(j) Compliance with Applicable Laws.........35
(k) Litigation..............................35
(l) Taxes...................................36
(m) Pension and Benefit Plans; ERISA........37
(n) Labor Matters...........................39
(o) Intangible Property.....................40
(p) Environmental Matters...................41
(q) Opinion of Financial Advisor............42
(r) Vote Required...........................42
(s) Insurance...............................42
(t) Brokers.................................42
(u) Title...................................43
(v) Books and Records.......................43
(w) Certain Payments........................43
(x) Transactions with Related Parties.......43
(y) State Takeover Laws.....................44
(z) Nature of Election by Certain
Affiliates.............................44
ii
<PAGE>
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS..........................44
4.1 Conduct of Business by LabOne Pending
the Merger......................................44
(a) Ordinary Course.........................44
(b) Dividends; Changes in Stock.............44
(c) Issuance of Securities................. 45
(d) Governing Documents.....................45
(e) No Acquisitions.........................45
(f) No Dispositions.........................45
(g) No Dissolution, Etc.....................45
(h) Certain Employee Matters................46
(i) Indebtedness; Leases; Capital
Expenditures...........................46
(j) No Solicitation.........................46
(k) Pooling.................................47
4.2 Conduct of Business by Holdings Pending
the Merger.....................................47
(a) Ordinary Course.........................47
(b) Dividends; Changes in Stock.............48
(c) Issuance of Securities..................48
(d) Governing Documents.....................48
(e) No Acquisitions.........................48
(f) No Dispositions.........................48
(g) No Dissolution, Etc.....................49
(h) Certain Employee Matters................49
(i) Indebtedness; Leases; Capital
Expenditures...........................49
(j) No Solicitation.........................49
(k) Pooling.................................50
(l) Stock Split.............................51
ARTICLE V
ADDITIONAL AGREEMENTS..............................................52
5.1 Preparation of S-4 and the Proxy Statement.......52
5.2 Letter of LabOne's Accountants...................53
5.3 Letter of Holdings's Accountants.................53
5.4 Access to Information............................53
5.5 Stockholders Meetings............................53
5.6 Legal Conditions to Merger.......................54
5.7 Agreements of Others.............................54
5.8 Listing..........................................55
5.9 Board of Directors and Officers..................55
5.10 Assumption of Plans and Agreements;
Stock Options; Reservation and
Registration of Shares..........................55
5.11 Indemnification; Directors'
and Officers' Insurance.........................56
5.12 Public Announcements.............................58
5.13 Other Actions....................................58
5.14 Advice of Changes; SEC Filings...................59
iii
<PAGE>
5.15 Tax-Free Transaction.............................59
5.16 Employment Agreements............................59
ARTICLE VI
CONDITIONS PRECEDENT...............................................59
6.1 Conditions to Each Party's Obligation
to Effect the Merger...........................59
(a) Stockholder Approval....................60
(b) Listing.................................60
(c) Other Approvals.........................60
(d) S-4.....................................60
(e) No Injunctions or Restraints............60
(f) Dissenters..............................61
(g) Tax Opinion.............................61
(h) Stock Split.............................61
6.2 Conditions of Obligations of Holdings............61
(a) Representations and Warranties..........61
(b) Performance of Obligations of LabOne....61
(c) No Vesting of LabOne Stock Options......61
(d) Employment Agreements...................62
(e) Fairness Opinion........................62
(f) Officers' Certificate...................62
(g) Letters from Affiliates.................62
(h) Financing...............................62
6.3 Conditions of Obligations of LabOne..............62
(a) Representations and Warranties..........62
(b) Performance of Obligations of Holdings..63
(c) Fairness Opinion........................63
(d) Officers' Certificate...................63
(e) Board of Directors and Officers at
the Effective Time.....................63
(f) Financing.............................63
ARTICLE VII
TERMINATION AND AMENDMENT...................................................63
7.1 Termination......................................63
7.2 Effect of Termination............................66
7.3 Amendment........................................66
7.4 Extension; Waiver................................66
ARTICLE VIII
GENERAL PROVISIONS.................................................67
8.1 Payment of Expenses..............................67
8.2 Nonsurvival of Representations,
Warranties and Agreements.......................67
8.3 Notices..........................................67
8.4 Interpretation...................................69
8.5 Counterparts.....................................69
8.6 Entire Agreement; No Third Party Beneficiaries...69
iv
<PAGE>
8.7 Governing Law................................... 69
8.8 Severability.....................................70
8.9 Assignment.......................................70
v
<PAGE>
EXHIBITS TO THE AGREEMENT AND PLAN OF MERGER
Exhibit Description
Exhibit A-1 CForm of Certificate of Merger
Exhibit A-2 --Form of Articles of Merger
Exhibit B CAmended Articles of Incorporation
Exhibit C CAmended Bylaws
Exhibit D CList of Directors and Officers of Surviving Corporation
Exhibit E --Articles Amendment
GLOSSARY OF DEFINED TERMS
Defined Term Defined in Section
Affiliates................................................................5.7
Agreement............................................................Preamble
Amended Articles of Incorporation......................................2.1(b)
Amended Bylaws.........................................................2.1(c)
Articles Amendment .................................................3.2(d)(i)
Articles of Merger........................................................1.1
Cash Election......................................................2.2(a)(ii)
Cash Election Shares..............................................2.2(a)(iii)
Cash Fraction...................................................2.2(a)(iv)(A)
Cash Price Per Share.................................................Recitals
CERCLA..............................................................3.1(p)(A)
Certificate of Merger.....................................................1.1
Closing...................................................................1.1
Closing Date..............................................................1.2
Code.................................................................Recitals
Constituent Corporations...............................................2.1(a)
Delaware Law........................................................ Recitals
Disbursing Agent....................................................2.2(b)(i)
Dissenting Shares.........................................................2.3
Distribution Agent............................................... 4.2(d)(iii)
Distribution Fund ................................................4.2(d)(iii)
Effective Time............................................................1.1
Environmental Law...................................................3.1(p)(A)
ERISA............................................................3.1(m)(i)(l)
Excess Shares.....................................................4.2(l)(iii)
Exchange Act...........................................................3.1(b)
Existing Articles of Incorporation.....................................2.1(b)
Existing Bylaws........................................................2.1(c)
Form of Election...................................................2.2(a)(ii)
GAAP...................................................................3.1(e)
vi
<PAGE>
Governmental Entity................................................3.1(d)(iii)
Hazardous Material...................................................3.1(p)(B)
Holdings..............................................................Preamble
Holdings Acquisition Proposal...........................................4.2(j)
Holdings Benefit Programs.........................................3.2(m)(i)(2)
Holdings Common Stock.................................................Recitals
Holdings Common Stock Trust.........................................4.2(d)(iv)
Holdings Commonly Controlled Equity..............................3.2(m)(ii)(8)
Holdings Intangible Property............................................3.2(o)
Holdings Letter.........................................................3.2(a)
Holdings Litigation.....................................................3.2(k)
Holdings Material Adverse Change........................................3.2(a)
Holdings Material Adverse Effect........................................3.2(a)
Holdings Order..........................................................3.2(k)
Holdings Permits........................................................3.2(j)
Holdings Plans....................................................3.2(m)(i)(1)
Holdings Representatives................................................4.2(j)
Holdings Preferred Stock................................................3.2(b)
Holdings SEC Documents..................................................3.2(e)
Holdings Stock Option...................................................2.2(f)
Holdings Stock Option Plan..............................................2.2(f)
Holdings Stockholder Meeting...............................................5.5
Holdings Voting Debt....................................................3.2(b)
Indemnified Liabilities...................................................5.11
Indemnified Parties.......................................................5.11
Injunction..............................................................6.1(e)
IRS..............................................................3.1(m)(ii)(5)
LabOne................................................................Preamble
LabOne Acquisition Proposal.............................................4.1(j)
LabOne Benefit Programs...........................................3.1(m)(i)(2)
LabOne Common Stock...................................................Recitals
LabOne Commonly Controlled Entity................................3.1(m)(ii)(8)
LabOne Intangible Property..............................................3.1(o)
LabOne Letter...........................................................3.1(a)
LabOne Litigation.......................................................3.1(k)
LabOne Material Adverse Change..........................................3.1(a)
LabOne Material Adverse Effect..........................................3.1(a)
LabOne Order............................................................3.1(k)
LabOne Permits..........................................................3.1(j)
LabOne Plans......................................................3.1(m)(i)(1)
LabOne Preferred Stock..................................................3.1(b)
LabOne Representatives .................................................4.1(j)
LabOne SEC Documents....................................................3.1(e)
LabOne Stock Option.......................................................5.10
LabOne Stock Option Plans...............................................3.1(b)
LabOne Stockholder Meeting.................................................5.5
LabOne Voting Debt.......................................................3.1(b)
vii
<PAGE>
Letter of Transmittal............................................ 2.2(b)(i)(A)
Maximum Cash Payment Amount........................................2.2(a)(iii)
Merger................................................................Recitals
Merger Consideration.................................................2.2(a)(i)
Missouri Law...............................................................1.1
Partial Cash Election...............................................2.2(a)(ii)
OSHA.................................................................3.1(p)(A)
PBGC.............................................................3.1(m)(ii)(5)
Proxy Statement.........................................................3.1(f)
Related Person..........................................................3.1(x)
Release..............................................................3.1(p)(C)
Remedial Action......................................................3.1(p)(D)
Returns..............................................................3.1(l)(i)
S-4.....................................................................3.1(f)
SEC.....................................................................3.1(d)
Securities Act..........................................................3.1(f)
SLH Tax Sharing Agreement...........................................3.2(l)(iv)
Special Committee.....................................................Recitals
Stock Election......................................................2.2(a)(ii)
Stockholder Meetings.......................................................5.5
Stock Split.............................................................3.2(g)
Subsidiary or Subsidiaries..............................................3.1(a)
Surviving Corporation...................................................2.1(a)
Surviving Corporation Common Stock....................................Recitals
Surviving Corporation Material Adverse Effect...........................6.1(c)
Taxes...................................................................3.1(l)
Tax Sharing Agreement...............................................3.1(l)(iv)
Transfer Agent.......................................................2.2(a)(i)
Unaffiliated LabOne Stockholders........................................3.1(q)
Warrant.................................................................3.1(b)
viii
<PAGE>
AGREEMENT AND PLAN OF MERGER,
as amended and restated
AGREEMENT AND PLAN OF MERGER, as amended and restated, dated March as of 7,
1999 (the "Agreement"), by and between Lab Holdings, Inc., a Missouri
corporation ("Holdings"), and LabOne, Inc., a Delaware corporation ("LabOne").
WHEREAS, (i) the Board of Directors of LabOne established a special
committee of independent directors (the "Special Committee") to represent solely
the interests of LabOne and the Unaffiliated LabOne Stockholders (as defined in
Section 3.1 (q)) with respect to any merger or other acquisition proposal
concerning LabOne, (ii) the Special Committee is authorized to exercise all
lawfully delegable powers of the LabOne Board of Directors with respect to any
such merger or acquisition proposal and pursuant thereto has negotiated the
terms and conditions of the Agreement with the assistance of independent legal
and financial advisers to the Special Committee, (iii) the LabOne Board of
Directors is required by Section 252 of the Delaware General Corporation Law
("Delaware Law") to adopt and approve a resolution approving the Agreement and
has done so in accordance with a recommendation by the Special Committee;
WHEREAS, the Special Committee has determined that it is in furtherance of
and consistent with the long-term business strategies of LabOne and is fair to
and in the best interests of the Unaffiliated LabOne Stockholders for LabOne to
merge with and into Holdings upon the terms and subject to the conditions in
this Agreement (the "Merger"), pursuant to which each share of common stock, par
value $0.01 per share, of LabOne ("LabOne Common Stock") issued and outstanding
immediately prior to the Effective Time (other than shares of LabOne Common
Stock held by Holdings), subject to the Maximum Cash Payment Amount specified in
Section 2.2(a)(iii) and subject to prior effectiveness of the Stock Split (as
defined in Section 3.2(g), shall be converted, at the option of the holder, into
either, or a combination of (a) the right to receive an amount in cash equal to
$12.75 (the "Cash Price Per Share") or (b) the right to receive one (1) share of
Surviving Corporation Common Stock; provided, however, that immediately prior to
the Effective Time (as defined in Section 1.1) Holdings shall effect a Stock
Split (as defined in Section 3.2(g)) (payable as a dividend), pursuant to which
each issued and outstanding share of common stock , par value $1.00 per share,
of Holdings ("Holdings Common Stock") shall be converted into (assuming the
effectiveness of the Merger) 1.50 shares of Surviving Corporation Common Stock;
WHEREAS, the Boards of Directors of Holdings and LabOne each have
determined that the Merger is in furtherance of and consistent with their
respective long-term business strategies and is fair to and in the best
interests of their respective stockholders;
1
<PAGE>
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a tax free transaction under the United States Internal Revenue
Code of 1986, as amended (the "Code"); and
WHEREAS, Holdings and LabOne desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained, the parties agree as
follows:
CERTAIN DEFINITIONS
As used in this Agreement, "Subsidiary" or "Subsidiaries" means, with
respect to any party, any corporation or other organization, whether
incorporated or unincorporated, of which: (i) such party or any other Subsidiary
of such party is a general partner (excluding partnerships, the general partner
interests of which are held by such party or any Subsidiary of such party that
do not have a majority of the voting interest in such partnership); or (ii) at
least a majority of the securities or other interests having by their terms
ordinary voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such corporation or other
organization is, directly or indirectly, owned or controlled by such party or by
any one or more of its Subsidiaries, or by such party and any one or more of its
Subsidiaries; provided, that LabOne and its Subsidiaries shall not be deemed
Subsidiaries of Holdings.
ARTICLE I
THE MERGER
1.1 The Merger; Effective Time of the Merger. Upon the terms and conditions
of this Agreement and in accordance with the Delaware Law and The General and
Business Corporation Law of Missouri (the "Missouri Law"), LabOne shall be
merged with and into Holdings at the Effective Time (as hereinafter defined). As
soon as practicable after the closing of the Merger (the "Closing"), a
certificate of merger in substantially the form attached hereto as Exhibit A-1
(the "Certificate of Merger"), prepared and executed in accordance with the
relevant provisions of the Delaware Law, shall be filed with the Secretary of
State of Delaware, and articles of merger, in substantially the form attached
hereto as Exhibit A-2 (the "Articles of Merger"), prepared and executed in
accordance with the relevant provisions of the Missouri Law, shall be filed with
the Secretary of State of Missouri. The Merger shall become effective at the
time (the "Effective Time") when the Secretary of State of Missouri issues a
certificate of merger attaching to it the Articles of Merger.
2
<PAGE>
1.2 Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
7.1, the Closing shall take place at 10:00 a.m. on the same business day on
which there is satisfaction (or waiver in accordance with this Agreement) of the
latest to occur of the conditions (other than deliveries of instruments to be
made at Closing) set forth in Article VI (the "Closing Date"), at the offices of
Lathrop & Gage L.C., 2345 Grand Boulevard, Kansas City, Missouri 64108 unless
another date, time or place is agreed to in writing by the parties hereto.
ARTICLE II
EFFECT OF THE MERGER
2.1 Effects of the Merger.
(a) Surviving Corporation. At the Effective Time, LabOne shall be merged
with and into Holdings, the separate existence of LabOne shall cease and
Holdings shall continue as the surviving corporation (Holdings and LabOne are
sometimes referred to herein as the "Constituent Corporations" and Holdings is
sometimes referred to herein as the "Surviving Corporation").
(b) Articles of Incorporation. The Articles of Incorporation of Holdings as
in effect immediately prior to the Effective Time (the "Existing Articles of
Incorporation") shall be amended to read as set forth in Exhibit B (the "Amended
Articles of Incorporation") and the Amended Articles of Incorporation shall be
the Articles of Incorporation of the Surviving Corporation.
(c) Bylaws. The Bylaws of Holdings as in effect immediately prior to the
Effective Time (the "Existing Bylaws") shall be amended to read as set forth in
Exhibit C (the "Amended Bylaws") and shall be the Bylaws of the Surviving
Corporation.
(d) Directors and Officers. The individuals named on Exhibit D hereto
shall, from and after the Effective Time, be the directors and officers of the
Surviving Corporation. The initial terms of such directors are set forth on
Exhibit D. Prior to the Effective Time, one additional person with significant
experience in the clinical laboratories industry will be named as a director,
and such person's initial term shall be set, by mutual agreement of the Special
Committee and Holdings. All such persons shall serve until their successors have
been duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Amended Articles of Incorporation
and Amended Bylaws. If any such person becomes unable or unwilling to serve
prior to the Effective Time for any reason, such vacancy shall be filled as
provided in Section 5.9. Directors and officers of Holdings immediately prior to
the
3
<PAGE>
Effective Time who are not so named shall cease to be directors and officers of
the Surviving Corporation from and after the Effective Time.
(e) Other. The Merger shall have such other effects as specified in the
Delaware Law and the Missouri Law.
2.2 Effect of the Merger on Capital Stock. At the Effective Time, by virtue
of the Merger and without any action on the part of the Constituent Corporations
or their respective stockholders:
(a) LabOne Common Stock.
(i) Subject to the provisions of this Section 2.2(a) and to the prior
effectiveness of the Stock Split, each share of LabOne Common Stock
issued and outstanding immediately prior to the Effective Time (other
than shares of LabOne Common Stock held by Holdings) shall be
converted into, at the option of the holder, either, or a combination,
of the following (the "Merger Consideration"):
(A) the right to receive an amount in cash equal to
the Cash Price Per Share; or
(B) the right to receive one (1) share of Surviving
Corporation Common Stock.
All such shares of LabOne Common Stock, when so converted, shall no longer
be outstanding and shall automatically be canceled and retired and shall cease
to exist, and each holder of a certificate representing any such shares shall
cease to have any rights with respect thereto, except that, from and after the
Effective Time, certificates representing LabOne Common Stock (other than shares
to be canceled in accordance with Section 2.2(c) and other than shares converted
into the right to receive cash as provided herein) immediately prior to the
Effective Time shall be deemed for all purposes to represent the number of
shares of Surviving Corporation Common Stock into which they were converted
pursuant to this subparagraph (a) (provided that if an exchange of certificates
formerly representing LabOne Common Stock for certificates representing
Surviving Corporation Common Stock is required by law or applicable rule or
regulation, the parties will cause the Surviving Corporation to arrange for such
exchange on a one share-for-one share basis). Following the Effective Time,
holders of such certificates converted into the right to receive stock may
obtain new certificates that bear the name "LabOne, Inc." and that reflect
Missouri as the state of incorporation and a par value of $0.01 per share by
delivering the old certificates to American Stock Transfer and Trust Company, or
such other institution as may be the transfer agent of the Surviving
4
<PAGE>
Corporation (the "Transfer Agent"), together with properly completed and
executed transmittal documents specified by the Transfer Agent.
(ii) Subject to the provisions of this Section 2.2 (a) and to the prior
effectiveness of the Stock Split, each record holder of shares of
LabOne Common Stock immediately prior to the Effective Time will be
entitled at his or her election, (i) to receive the Cash Price Per
Share for all of such holder's shares ("Cash Election"); (ii) to
receive the Cash Price Per Share for a stated number of such holder's
shares and to receive Surviving Corporation Common Stock for the
balance of such holder's shares ("Partial Cash Election"); or (iii) to
receive Surviving Corporation Common Stock for all of such holder's
shares ("Stock Election"). All Cash Elections and Partial Cash
Elections shall be unconditional and made on a form designed for that
purpose and mutually agreeable to LabOne and Holdings (a "Form of
Election"). The Form of Election shall be mailed to holders of record
of shares of LabOne Common Stock as of the record date for the meeting
of LabOne stockholders referred to in Section 5.5. At the Effective
Time, all shares of LabOne Common Stock, except shares held by LabOne
or Holdings and shares which are converted into the right to receive
cash pursuant to a Cash Election or Partial Cash Election that has
been properly and timely made, shall be converted into Surviving
Corporation Common Stock. Any holder of shares of LabOne Common Stock
who fails to properly make a Cash Election or Partial Cash Election
and any holder who fails to submit to the Disbursing Agent referred to
below a properly completed and signed and properly and timely
submitted Form of Election shall be deemed to have made a Stock
Election and will receive Surviving Corporation Common Stock as Merger
Consideration.
(iii) Notwithstanding anything contained herein to the contrary, the amount
payable in cash with respect to the number of shares of LabOne Common Stock to
be converted pursuant to this Agreement into the right to receive cash shall not
be more than $16,600,000 in the aggregate (the "Maximum Cash Payment Amount").
If the amount payable in cash with respect to the number of shares of LabOne
Common Stock for which a Cash Election or a Partial Cash Election was made
(collectively, the "Cash Election Shares") exceeds the Maximum Cash Payment
Amount, then the consideration to be received by stockholders of LabOne who have
made a Cash Election or a Partial Cash Election shall be adjusted in the manner
provided below.
(iv) If the cash otherwise payable with respect to Cash Election Shares
exceeds the Maximum Cash Payment Amount, the Cash Election Shares shall be
converted into the right to receive Surviving Corporation Common Stock and cash
in the following manner, so that each Cash Election Share shall be converted
into the right to receive:
5
<PAGE>
(A) an amount in cash (rounded to the nearest cent and
subject to adjustment, as provided in clause (iv)(B) below),
without interest, equal to the product of (A) the Cash Price
Per Share and (B) a fraction ("Cash Fraction"), the numerator
of which shall be the Maximum Cash Payment Amount and the
denominator of which shall be the aggregate amount payable
(except for clause (iii) of this paragraph (a)) with respect
to all Cash Election Shares; and
(B) a number of shares of Surviving Corporation Common
Stock equal to the product of (I) one (1) multiplied by (II) a
fraction equal to one ( 1) minus the Cash Fraction. If the
product of clause (iv)(B)(I) and (II) result in a fractional
share (taking into account all Cash Election Shares held by a
holder), then th number of shares to be issued such holder
shall be rounded up to the nearest whole number of shares and
the amount of cash payable such holder under clause (iv)(A)
shall be reduced by $12.75 less the value of such fractional
share.
(v) If the aggregate amount payable with respect to all Cash Election
Shares is less than the Maximum Cash Payment Amount, then each Cash Election
Share shall be converted into the right to receive the Cash Price Per Share.
(b) Payment of Merger Consideration for Cash Election Shares.
(i) Deposit of Cash and Shares. Prior to the Effective Time, Holdings shall
appoint American Stock Transfer &Trust Company, or such other institution as it
may select, to act as disbursing agent (the "Disbursing Agent") for the payment
of Merger Consideration with respect to Cash Election Shares upon surrender of
certificates representing the shares of LabOne Common Stock. Holdings will enter
into a disbursing agent agreement with the Disbursing Agent, in form and
substance reasonably acceptable to LabOne. At the Effective Time, Surviving
Corporation shall deposit or cause to be deposited with the Disbursing Agent in
trust for the benefit of LabOne's stockholders cash in an aggregate amount
necessary to make the cash payments pursuant to Section 2.2(a) and such number
of shares of Surviving Corporation Common Stock necessary to exchange the LabOne
Common Stock for Surviving Corporation Stock pursuant to Section 2.2(a).
(ii) Election and Payment Procedures.
(A) Holdings shall prepare and mail a Form of Election
contained in a letter of transmittal ("Letter of Transmittal")
with the Joint Proxy Statement/Prospectus to the record
holders of LabOne Common Stock as of the record date for the
LabOne meeting of stockholders referred to in
6
<PAGE>
Section 5.5. The Form of Election shall specify that delivery
shall be effected, and risk of loss and title to the LabOne
certificates shall pass, only upon proper delivery of the
LabOne certificates to the Disbursing Agent, shall contain
instructions for use in effecting the surrender of LabOne
certificates in exchange for payment of the Cash Price Per
Share to stockholders who wish to make a Cash Election or a
Partial Cash Election, and shall be subject to the reasonable
approval of LabOne. Such Form of Election shall be used by
each record holder of shares of LabOne Common Stock who wishes
to elect to receive the Cash Price Per Share for any or all
any or all such shares held by such holder. Holdings and
LabOne shall use reasonable efforts to make the Form of
Election and related Letter of Transmittal and the Joint Proxy
Statement/Prospectus available to all persons who become
record holders of LabOne Common Stock during the period period
between such record date and the Election Date referred to
below.
(B) Any stockholder's election to receive the Cash Price
Per Share shall have been properly made only if the Disbursing
Agent shall have received at its designated office, by 10:00
a.m., New York City time, on the date of the LabOne
Stockholders Meeting (the "Election Date"), a Form of Election
and related Letter of Transmittal, properly completed and
signed, and accompanied by certificates for the shares of
LabOne Common Stock to which such Form of Election relates,
properly endorsed or otherwise in proper form for transfer (or
accompanied by an appropriate guarantee of delivery of such
certificates as set forth in such Letter of Transmittal from a
firm which is a member of a registered national securities
exchange or of the National Association of Securities Dealers,
Inc. or a commercial bank or trust company having an office or
correspondent in the United States, provided such certificates
are in fact delivered to the Disbursing Agent within three
trading days after the date of execution of such guarantee of
delivery). Failure to deliver certificates covered by a
guarantee of delivery within three trading days after the date
of execution of such guarantee of delivery shall be deemed to
invalidate any otherwise properly made Cash Election or
Partial Cash Election.
(C) The stockholder who submitted it to the Disbursing
Agent may revoke any Form of Election only by written notice
received by the Disbursing Agent prior to 10:00 a.m., New York
City time, on the Election Date. In addition, all Forms of
Election shall automatically be revoked if the Disbursing
Agent is notified in writing by Holdings and LabOne that the
Merger has been abandoned. If a Form of Election is revoked,
the certificate or certificates (or guarantees of delivery, as
appropriate) for the shares of LabOne Common Stock to which
such Form of Election relates
7
<PAGE>
shall be promptly returned to the stockholder submitting the
same to the Disbursing Agent.
(D) Promptly after the Effective Time, the Surviving
Corporation shall cause the Disbursing Agent to pay the Merger
Consideration elected by such holder in accordance with
Section 2.2(a) to each stockholder who has timely and properly
submitted his or her LabOne certificates together with a duly
executed Letter of Transmittal and such other documents as may
be reasonably required by the Disbursing Agent, and such
LabOne certificate shall forthwith be canceled. No interest
will be paid or accrued on the Merger Consideration payable
upon the surrender of the LabOne certificates. If payment is
to be made to a person other than the person in whose name the
LabOne certificate surrendered is registered, it shall be a
condition of payment that the LabOne certificate so
surrendered be properly endorsed or otherwise be in proper
form for transfer and that the person requesting such payment
pay any transfer or other taxes required by reason of the
payment to a person other than the registered holder of the
LabOne certificate surrendered or establish to the
satisfaction of the Surviving Corporation that such tax has
been paid or is not applicable.
(E) Surviving Corporation shall have the discretion,
which it may delegate in whole or in part to the Disbursing
Agent, to determine whether Forms of Election have been
properly completed, signed and submitted and to disregard any
defects it determines are immaterial. The decision of
Surviving Corporation or the Disbursing Agent on such matters
shall be conclusive and binding. Neither LabOne, Holdings,
Surviving Corporation nor the Disbursing Agent shall be under
any obligation to notify any person of any defect in a Letter
of Transmittal submitted to the Disbursing Agent. If Surviving
Corporation or Disbursing Agent shall determine that any
purported Cash Election or Partial Cash Election was not not
properly made, such purported election shall be deemed to be
of no force and effect and any stockholder making such
purported Cash Election or Partial Cash Election shall for
purposes hereof be deemed to have made a Stock Election.
(F) The Disbursing Agent shall make all computations as
to the proration contemplated by Section 2.2(a)(v), and any
such computation shall be conclusive and binding on the
holders of shares of LabOne Common Stock. The Disbursing Agent
may, with the mutual agreement of Holdings and LabOne, make
such rules as are consistent with this Section 2.2 for the
implementation of the elections provided for herein as shall
be necessary or desirable fully to effect such elections.
8
<PAGE>
(iii) All cash paid upon the surrender of LabOne certificates including
Cash Election Shares in accordance with the terms of this Section 2.2 shall be
deemed to have been paid in full satisfaction of all rights pertaining to the
shares of LabOne Common Stock previously represented by such LabOne
certificates.
(iv) At any time more than 180 days after the Effective Time, the Surviving
Corporation shall be entitled to require the Disbursing Agent to deliver to it
any funds or shares of Surviving Corporation Common Stock which had been made
available to the Disbursing Agent and not disbursed in exchange for LabOne
certificates (including, without limitation, all interest, dividends and other
income received by the Disbursing Agent in respect of all such funds and
shares). Thereafter, holders of shares of LabOne Common Stock shall look only to
the Surviving Corporation (subject to the terms of this Agreement, abandoned
property, escheat and other similar laws) as general creditors thereof with
respect to any Merger Consideration that may be payable, without interest, upon
due surrender of the LabOne certificates held by them.
(v) No dividends or other distributions declared after the Effective Time
with respect to Surviving Corporation Common Stock which are payable to
shareholders of record of Surviving Corporation after the Effective Time shall
be paid to a stockholder of LabOne with respect to Cash Election Shares.
(c) LabOne shares held by Holdings and LabOne. Each share of LabOne
Common Stock held by Holdings or LabOne shall, by virtue of the
Merger, and without any action on the part of Holdings or LabOne,
cease to be outstanding and be cancelled without payment of any
consideration therefor and shall cease to exist.
(d) Holdings Common Stock. Subject to the provisions of Section 2.3
hereof, each share of Holdings Common Stock issued and
outstanding immediately prior to the Effective Time (other than
Dissenting Shares (as hereinafter defined)) and each treasury
share, assuming the prior effectiveness of the Stock Split, shall
be converted into a share of Surviving Corporation Common Stock
(provided that if an exchange of certificates formerly
representing Holdings Common Stock for certificates representing
Surviving Corporation Common Stock is required by law or
applicable rule or regulation, the parties will cause the
Surviving Corporation to arrange for such exchange on a one
share-for-one share basis). Following the Effective Time holders
of such shares may obtain new certificates that bear the name
"LabOne, Inc." and that reflect Missouri as the state of
incorporation and a par value of $0.01 per share by delivering
the old certificates to the Transfer Agent of the Surviving
Corporation together with properly completed and executed
transmittal documents specified by the Transfer Agent.
(e) Assumption of LabOne Stock Options. Each outstanding LabOne Stock
Option (as defined in Section 5.10) shall be assumed by the
Surviving Corporation as
9
<PAGE>
provided in Section 5.10. No LabOne Stock Options shall vest or become
exercisable as a result of the Merger or change in stock ownership or
composition of the Board of Directors of the Surviving Corporation.
(f) Adjustment of Holdings Stock Options. The Holdings 1997
Directors' Stock Option Plan, as amended (the "Holdings Stock
Option Plan") and stock options issued thereunder ("Holdings
Stock Options") shall be adjusted and amended in the following
manner, subject to the prior effectiveness of the Stock Split, at
the Effective Time:
(i) The number of shares authorized for issuance under Section 4
of the Holdings Stock Option Plan shall be adjusted to an
amount equal to the product of 90,000 times 1.50.
(ii) The first sentence of Section 5 of the Holdings Stock Option
Plan shall be amended at the Effective Time to add the
following proviso: "provided, however, no options shall be
granted under the Plan from and after the Effective Time of
any merger of LabOne into Holdings."
(iii)The amendments to the Holdings Stock Option Plan and
Holdings Stock Options outstanding thereunder that were
adopted by the Board of Directors of Holdings on August 27,
1998 extending the period during which such options may be
exercised following termination of director status, shall be
deemed ratified, confirmed and approved.
(iv) Holdings Stock Options granted under the Holdings Stock
Option Plan that are outstanding immediately prior to the
Effective Time shall be adjusted such that the number of
shares subject to each option immediately prior to the
Effective Time shall be increased to an amount equal to such
number times 1.50 and the price to be paid for each such
share upon exercise shall be reduced to a price equal to the
exercise price immediately prior to the Effective Time
divided by 1.50.
(v) The foregoing shall be deemed to adjust and otherwise
supersede any conflicting provisions contained in the
Holdings Stock Option Plan or the option agreements covering
the Holdings Stock Options, including the provisions of
Section 3 of each such option agreements.
(g) Stated Capital. Immediately after the Effective Time, the stated
capital of the Surviving Corporation shall be reduced by
transferring from stated capital to paid-in- surplus all amounts
in excess of the aggregate par value of shares of Surviving
Corporation Common Stock issued after giving effect to the
Merger.
10
<PAGE>
2.3 Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, shares of Holdings Common Stock that are issued and outstanding
immediately prior to the Effective Time and which are held by shareholders who
have properly exercised dissenters' rights with respect thereto under Section
351.455 of the Missouri Law (the "Dissenting Shares") shall not be converted as
provided in Section 2.2(d), but the holders of Dissenting Shares shall be
entitled to receive such payment of the fair value of such shares held by them
from the Surviving Corporation as shall be determined in a judicial proceeding
pursuant to the Missouri Law; provided, however, that if any such holder shall
have failed to perfect or shall withdraw or lose the right to appraisal and
payment under the Missouri Law, each such holder's shares shall thereupon be
deemed to have been converted as of the Effective Time without any interest
thereon, as provided in Section 2.2(d), and such shares shall no longer be
Dissenting Shares.
2.4 No Liability. Neither Holdings nor LabOne shall be liable to any
holder of shares of LabOne Common Stock or Holdings Common Stock, as the case
may be, for such shares (or dividends or distributions with respect thereto),
any Merger Consideration or cash in lieu of fractional shares of Surviving
Corporation Common Stock delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. Any amounts remaining
unclaimed by holders of any such shares on the day immediately preceding the day
on which such amounts would otherwise escheat to or become property of any
governmental entity shall, to the extent permitted by applicable law, become the
property of Surviving Corporation free and clear of any claims or interest of
any such holders or their successors, assigns or personal representatives
previously entitled thereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of LabOne. LabOne represents and
warrants to Holdings as follows:
(a) Organization, Standing and Power. Each of LabOne and its
Subsidiaries is a corporation, partnership or limited liability company duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted, and is duly qualified and in good standing to do
business in each jurisdiction in which the business it is conducting, or the
operation, ownership or leasing of its properties, makes such qualification
necessary, other than in such jurisdictions where the failure to qualify would
not have a LabOne Material Adverse Effect (as defined below). LabOne has
heretofore delivered to Holdings complete and correct copies of its Certificate
of Incorporation and Bylaws and the organizational documents of each of its
Subsidiaries. All Subsidiaries of LabOne, the percentage of LabOne's ownership
of such Subsidiaries, the identity and percentage ownership of all
11
<PAGE>
other persons with equity interests in such Subsidiaries and their respective
jurisdictions of incorporation or organization are identified on Schedule 3.1(a)
of the letter dated and delivered to Holdings on the date hereof (the "LabOne
Letter"), which relates to this Agreement and is designated therein as being
LabOne Letter. As used in this Agreement, a "LabOne Material Adverse Effect" or
"LabOne Material Adverse Change" shall mean any effect or change that is,
individually or in the aggregate, materially adverse to the business,
operations, assets, condition (financial or otherwise) or results of operation
of LabOne and its Subsidiaries taken as a whole except for general economic
changes and changes that may affect the industries of LabOne or any of its
Subsidiaries generally.
(b) Capital Structure. As of the date hereof, the authorized capital
stock of LabOne consists of 40,000,000 shares of LabOne Common Stock, par value
$0.01 per share, and 1,000,000 shares of preferred stock, par value $0.01 per
share ("LabOne Preferred Stock"). At the close of business on the date hereof,
(i) 13,311,450 shares of LabOne Common Stock are issued and outstanding, (ii)
2,150,000 shares are reserved for issuance pursuant to LabOne's 1987 Long Term
Incentive Plan, 1,000,000 shares of LabOne Common Stock are reserved for
issuance pursuant to LabOne's 1997 Incentive Plan , 100,000 shares of LabOne
Common Stock are reserved for issuance pursuant to LabOne's Stock Plan for
Non-Employee Directors and 1,000,000 shares of LabOne Common Stock are reserved
for issuance pursuant to warrants issued to National Support Services, Inc,
dated February 23, 1998 and USA Managed Care Organization, dated November 13,
1998 (the "Warrants") (LabOne's 1987 Long Term Incentive Plan, 1997 Incentive
Plan, Plan for Non-Employee Directors and Warrant are collectively referred to
as the "LabOne Stock Option Plans"), (iii) 869,244 shares of LabOne Common Stock
are issuable pursuant to outstanding and unvested stock options or other rights
granted pursuant to LabOne Stock Option Plans, and 968,683 shares of LabOne
Common Stock are issuable pursuant to outstanding and vested stock options or
other rights granted pursuant to LabOne Stock Option Plans; (iv) no shares of
LabOne Preferred Stock are issued and outstanding; and (v) no bonds, debentures,
notes or other indebtedness having the right to vote (or convertible into
securities having the right to vote) on any matters on which LabOne stockholders
may vote ("LabOne Voting Debt") are issued or outstanding. All outstanding
shares of LabOne Common Stock have been duly authorized, are validly issued,
fully paid and nonassessable and are not subject to preemptive rights. Except as
set forth on Schedule 3.1(b) of the LabOne Letter, all outstanding shares of
capital stock of the Subsidiaries of LabOne are owned by LabOne, or a direct or
indirect wholly owned Subsidiary of LabOne, free and clear of all liens,
charges, encumbrances, claims and options of any nature. Except as set forth in
this Section 3.1(b) or on Schedule 3.1(b) of LabOne Letter and except for
changes resulting from the exercise of employee stock options (or Warrants)
outstanding on the date hereof granted pursuant to LabOne Stock Option Plans, or
as contemplated by this Agreement, there are outstanding: (i) no shares of
capital stock, LabOne Voting Debt or other voting securities of LabOne; (ii) no
securities of LabOne or any Subsidiary of LabOne convertible into or
exchangeable for shares of capital stock, LabOne Voting Debt or other voting
securities of LabOne or any
12
<PAGE>
Subsidiary of LabOne; and (iii) no options, warrants, calls, rights (including
preemptive rights), commitments or agreements to which LabOne or any Subsidiary
of LabOne is a party or by which it is bound in any case obligating LabOne or
any Subsidiary of LabOne to issue, deliver, sell, purchase, redeem or acquire,
or cause to be issued, delivered, sold, purchased, redeemed or acquired,
additional shares of capital stock or any LabOne Voting Debt or other voting
securities of LabOne or of any Subsidiary of LabOne, or obligating LabOne or any
Subsidiary of LabOne to grant, extend or enter into any such option, warrant,
call, right, commitment or agreement. Except as set forth on Schedule 3.1(b) of
LabOne Letter, there are no stockholder agreements, registration rights, voting
trusts or other similar agreements or understandings to which LabOne is a party
or by which it is bound. Except as set forth on Schedule 3.1(b) of the LabOne
Letter, there are no restrictions on LabOne's ability to vote the stock held by
LabOne of any of its Subsidiaries. To the knowledge of LabOne, as of the date of
this Agreement, except for W. D. Grant, Wallace R. Weitz & Company and a group
consisting of American Century Investment Management, Inc. and American Century
Capital Portfolios, Inc., no stockholder of LabOne or "group" within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), will be immediately after the Effective Time the beneficial
owner of more than 10% of the then outstanding Surviving Corporation Common
Stock.
(c) Non-Subsidiaries Equity Investment. Schedule 3.1(c) of LabOne
Letter sets forth the book value of each investment by LabOne or any of its
Subsidiaries in the voting securities, partnership interests or other equity
interests of any corporation, partnership or other entity (other than a
Subsidiary of LabOne) and the nature and percentage of LabOne's or its
Subsidiaries' ownership interests in such investment. Except as set forth in
Schedule 3.1(c) of LabOne Letter, the voting securities, partnership interests
or other equity interests of LabOne or its Subsidiaries in such investments are
owned free and clear of all liens, charges and encumbrances.
(d) Authority; No Violations; Consents and Approvals.
(i) Upon the recommendation of the Special Committee of
independent outside directors of the Board of Directors of LabOne, (the
"Special Committee"), the Board of Directors of LabOne has approved the
Merger and this Agreement, by unanimous vote of the directors (except
for those directors who abstained), and declared the Merger and this
Agreement to be advisable and in the best interests of the stockholders
of LabOne. LabOne has all requisite corporate power and authority to
enter into this Agreement and, subject, with respect to consummation of
the Merger, to approval of this Agreement and the Merger by the
stockholders of LabOne in accordance with the Delaware Law, to
consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary
corporate action on the part of LabOne, subject, with respect to
13
<PAGE>
consummation of the Merger, to approval of this Agreement and the
Merger by the stockholders of LabOne in accordance with the Delaware
Law. This Agreement has been duly executed and delivered by LabOne and,
subject, with respect to consummation of the Merger, to approval of
this Agreement and the Merger by the stockholders of LabOne in
accordance with the Delaware Law, and assuming this Agreement
constitutes the valid and binding obligation of Holdings, constitutes a
valid and binding obligation of LabOne enforceable in accordance with
its terms except to the extent that the enforcement of this Agreement
may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally, and (ii) general principles of equity
regardless of whether enforceability is considered in a proceeding in
equity or at law.
(ii) Except as set forth on Schedule 3.1(d) of the LabOne
Letter, the execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby and compliance
with the provisions hereof will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to the loss of a material benefit
under, or result in the creation of any lien, security interest, charge
or encumbrance upon any of the properties or assets of LabOne or any of
its Subsidiaries under, any provision of (i) the Certificate of
Incorporation or Bylaws of LabOne or any provision of the comparable
charter or organizational documents of any of its Subsidiaries, (ii)
any loan or credit agreement, note, bond, mortgage, or indenture
applicable to LabOne or any of its Subsidiaries, (iii) any other
agreement, instrument, permit, concession, franchise or license
applicable to LabOne or any of its Subsidiaries or (iv) assuming the
consents, approvals, authorizations or permits and filings or
notifications referred to in Section 3.1(d)(iii) are duly and timely
obtained or made and the approval of the Merger and this Agreement by
the stockholders of LabOne has been obtained in accordance with
Delaware Law, any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to LabOne or any of its Subsidiaries or
any of their respective properties or assets, other than, in the case
of clause (iii), any such conflicts, violations, defaults, rights,
liens, security interests, charges or encumbrances that, individually
or in the aggregate, would not have a LabOne Material Adverse Effect,
materially impair the ability of LabOne to perform its obligations
hereunder or prevent the consummation of any of the transactions
contemplated hereby.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, or permit from any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign (a "Governmental Entity"), is
required by or with respect to LabOne or any of its Subsidiaries in
connection with the execution and delivery of this Agreement by
14
<PAGE>
LabOne or the consummation by LabOne of the transactions contemplated
hereby, as to which the failure to obtain or make would have a LabOne
Material Adverse Effect, except for: (A) the filing with the Securities
and Exchange Commission (the "SEC") of a proxy statement in preliminary
and definitive form relating to the meeting of LabOne's stockholders to
be held in connection with the approval of this Agreement and the
Merger by stockholders of LabOne, such reports under Section 13(a) of
the Exchange Act and such other compliance with the Securities Act and
the Exchange Act and the rules and regulations thereunder as may be
required in connection with this Agreement and the transactions
contemplated hereby, and the obtaining from the SEC of such orders as
may be so required; (B) filings with, and approval of, the Nasdaq Stock
Market; (C) such filings and approvals as may be required by any
applicable state securities, "blue sky" or takeover laws, or
environmental laws; and (D) the filing of the Articles of Merger with
the Secretary of State of the State of Missouri and the Certificate of
Merger with the Secretary of State of the State of Delaware.
(e) SEC Documents. LabOne has made available to Holdings a true and
complete copy of each quarterly, annual or current report on Form 10-Q, 10-K or
8-K, registration statement and definitive proxy statement filed by LabOne with
the SEC since January 1, 1994, which are all the documents (other than
preliminary material) that LabOne was required to file with the SEC since
January 1, 1994. LabOne will make available to Holdings, a true and complete
copy of each quarterly, annual or current report on Form 10-Q, 10-K or 8-K,
registration statement and definitive proxy statement filed by LabOne with the
SEC subsequent to the date of this Agreement and prior to the Effective Time.
All of such reports and statements filed prior to the date of this Agreement are
hereinafter referred to as the "LabOne SEC Documents." As of their respective
filing dates (or if amended or superseded by a filing prior to the date hereof,
then on the date of such filing), the LabOne SEC Documents complied in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations of the SEC thereunder
applicable to such LabOne SEC Documents, and none of the LabOne SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. As of
their respective filing dates (or if amended or superseded by a filing prior to
the date hereof, then on the date of such filing), the financial statements of
LabOne included in the LabOne SEC Documents complied as to form in all material
respects with the published rules and regulations of the SEC with respect
thereto, were prepared in accordance with generally accepted accounting
principles in effect in the United States ("GAAP") applied on a consistent basis
during the periods involved (except (i) as may be indicated in the notes
thereto, (ii) in the case of the unaudited financial statements, such
differences in presentation or omissions as permitted by Rule 10-01 of
Regulation S-X of the SEC and (iii) the unaudited financial statements do not
contain all notes required by GAAP) and fairly present in accordance with
applicable requirements of GAAP (subject,
15
<PAGE>
in the case of the unaudited financial statements, to normal year-end
adjustments on a basis comparable with past periods) the consolidated financial
position of LabOne and its consolidated Subsidiaries as of their respective
dates and the consolidated results of operations and the consolidated cash flows
of LabOne and its consolidated Subsidiaries for the periods presented therein.
(f) Information Supplied. None of the information supplied or to be
supplied by LabOne for inclusion or incorporation by reference in Holdings's
1998 Form 10-Ks, Form 10-Qs or Form 8-Ks or the Registration Statement on Form
S-4 to be filed with the SEC by Holdings in connection with the issuance of
shares of Surviving Corporation Common Stock in the Merger (the "S-4") will, at
the time the S-4 becomes effective under the Securities Act, and the rules and
regulations thereunder or at the Effective Time (or in the case of Holdings's
Form 10-K, upon filing thereof), contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and none of the information supplied
or to be supplied by LabOne and included or incorporated by reference in the
related joint proxy statement (the "Proxy Statement") will, at the time of
mailing thereof or at the time of the meetings of the stockholders of Holdings
or LabOne to be held in connection with the Merger or at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time any event with respect to
LabOne or any of its Subsidiaries, or with respect to other information supplied
by LabOne for inclusion in the Proxy Statement or S-4, shall occur which is
required to be described in an amendment of, or a supplement to, the Proxy
Statement or the S-4, such event shall be so described, and such amendment or
supplement shall be promptly filed with the SEC and, as required by law,
disseminated to the stockholders of Holdings and LabOne. The S-4 and the Proxy
Statement, insofar as they relate to LabOne or its Subsidiaries or other
information supplied by LabOne for inclusion therein, will comply as to form in
all material respects with the provisions of the Securities Act and the Exchange
Act, and the rules and regulations thereunder.
(g) Absence of Certain Changes or Events. Except as disclosed in, or
reflected in the financial statements included in the LabOne SEC Documents or on
Schedule 3.1(g) of the LabOne Letter, or except as contemplated by this
Agreement, since September 30, 1998, LabOne has in all material respects
conducted its business only in the ordinary course and there has not been: (i)
any declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of LabOne's capital
stock other than regular quarterly cash dividends consistent with past practice;
(ii) any amendment of any material term of any outstanding equity security of
LabOne or any Subsidiary; (iii) any repurchase, redemption or other acquisition
by LabOne or any Subsidiary of any outstanding shares of capital stock or other
equity securities of, or other ownership interests in, LabOne or any Subsidiary;
(iv) any material change in any method
16
<PAGE>
of accounting or accounting practice, or in any tax method, principle, election
or practice by LabOne or any Subsidiary; (v) if the covenants and agreements
with respect to LabOne and its Subsidiaries set forth in Section 4.1 had been
applicable to LabOne and its Subsidiaries during the period from September 30,
1998 to the date of this Agreement, any action, transaction, commitment or
failure to act that would cause LabOne or any such Subsidiary to fail to comply
with such covenants and agreements; or (vi) any other action, transaction,
commitment, dispute or other event or condition (financial or otherwise) of any
character (whether or not in the ordinary course of business) that has had, or
may reasonably be expected to have, a LabOne Material Adverse Effect.
(h) No Undisclosed Material Liabilities. Except as fully reflected or
reserved against in financial statements included in the LabOne SEC Documents,
or disclosed in the footnotes thereto, or referred to in Schedule 3.1(h) or
elsewhere in LabOne Letter, as of the date hereof LabOne and its Subsidiaries
have no liabilities, absolute or contingent, other than liabilities which,
individually or in the aggregate, are reasonably expected not to have a LabOne
Material Adverse Effect. Except as so reflected, reserved or disclosed, LabOne
and its Subsidiaries have no commitments which, individually or in the
aggregate, are reasonably expected to have a LabOne Material Adverse Effect.
(i) Material Contracts; No Defaults. All of the material contracts of
LabOne and its Subsidiaries that are required to be described in the LabOne SEC
Documents or to be filed as exhibits thereto, or that would be required to be
described or filed if a Form 10-K with respect to the LabOne were required to be
filed on the date hereof, have been described or filed in the LabOne SEC
Documents except as disclosed on Schedule 3.1(i) of the LabOne Letter. Neither
LabOne nor any of its Subsidiaries is in violation of or in default under (and
no event has occurred which, with notice or the lapse of time or both, would
constitute a default or violation) of any term, condition or provision of (i) in
the case of LabOne and its Subsidiaries, their respective certificate or
articles of incorporation and bylaws or comparable organizational documents,
(ii) except as disclosed in Schedule 3.1(i) of the LabOne Letter, any note,
bond, mortgage, indenture, license, agreement or other instrument or obligation
to which LabOne or any of its Subsidiaries is now a party or by which LabOne or
any of its Subsidiaries or any of their respective properties or assets may be
bound or (iii) any order, writ, injunction, decree, statute, rule or regulation
applicable to LabOne or any of its Subsidiaries, except in the case of (ii) and
(iii) for defaults or violations which in the aggregate would not have a LabOne
Material Adverse Effect. Schedule 3.1(i) of the LabOne Letter lists each
contract (a) containing covenants which in any way purport to limit the freedom
of LabOne or any of its Subsidiaries to engage in any line of business or engage
in business in any geographic area or to compete with any person, or (b) that
imposes a material obligation (contingent or otherwise) that is not reflected in
LabOne's audited GAAP financial statements and notes thereto included in its
most recently filed Annual Report on Form 10-K. Except as disclosed on Schedule
3.1(i) of the LabOne Letter, to the knowledge of LabOne, none of the other
parties to material contracts of LabOne or its Subsidiaries are in violation of
or in default under (nor
17
<PAGE>
does there exist any condition which upon the passage of time or the giving of
notice would cause such a violation of or default under) any contract, other
than such violations or defaults as would not have a LabOne Material Adverse
Effect.
(j) Compliance with Applicable Laws. LabOne and its Subsidiaries hold
all permits, licenses, variances, exemptions, orders, franchises and approvals
of all Governmental Entities necessary for the lawful conduct of their
respective businesses (the "LabOne Permits"), except where the failure so to
hold would not have a LabOne Material Adverse Effect. LabOne and its
Subsidiaries are in compliance with the terms of LabOne Permits, except where
the failure so to comply would not have a LabOne Material Adverse Effect. Except
as disclosed or as set forth on Schedule 3.1(j), 3.1(k), 3.1(l), 3.1(m), 3.1(n)
or 3.1(o) of LabOne Letter, the businesses of LabOne and its Subsidiaries are
not being conducted in violation of any law, ordinance, regulation, judgment or
decree of any Governmental Entity, except for possible violations which would
not have a LabOne Material Adverse Effect. Except as set forth on Schedule
3.1(j) of LabOne Letter, as of the date of this Agreement, no investigation or
review by any Governmental Entity with respect to LabOne or any of its
Subsidiaries is, to the best knowledge of LabOne, pending or threatened, other
than those the outcome of which would not have a LabOne Material Adverse Effect.
(k) Litigation. Schedule 3.1(k) of LabOne Letter discloses all suits,
actions or proceedings pending, or, to, the best knowledge of LabOne, threatened
against LabOne or any Subsidiary of LabOne ("LabOne Litigation") on the date of
this Agreement and all judgments, decrees, injunctions, rules or orders of any
Governmental Entity or arbitrator outstanding against LabOne or any Subsidiary
of LabOne ("LabOne Order") on the date of this Agreement, in each case in which
the amount claimed or that could be involved is in excess of $100,000. Except as
disclosed on Schedule 3.1(k) of LabOne Letter, there is no LabOne Litigation
that, individually or in the aggregate with all other LabOne Litigation, is
reasonably likely to have a LabOne Material Adverse Effect, nor is there any
LabOne Order that, individually or in the aggregate with all other LabOne
Litigation, is reasonably likely to have a LabOne Material Adverse Effect or a
material adverse effect on LabOne's ability to perform its obligations hereunder
or to consummate the transactions contemplated by this Agreement.
(l) Taxes. With respect to any period and with respect to any action as
to which the applicable statute of limitations has not expired as of the date
hereof, and except as set forth on Schedule 3.1(l) of the LabOne Letter and
except for exceptions to the following that would not, individually or in the
aggregate, have a LabOne Material Adverse Effect:
(i) LabOne and each of its Subsidiaries has (A) duly and
timely (taking into account any extensions) filed all federal, state,
local, foreign and other returns, declarations, reports, estimates,
information returns and statements
18
<PAGE>
("Returns") required to be filed or sent by or with respect to it in
respect of any Taxes (as hereinafter defined), other than consolidated
or combined Returns that are required to be filed by Holdings pursuant
to the Tax Sharing Agreement (as hereinafter defined), (B) duly paid or
deposited on a timely basis all Taxes (including estimated Taxes) that
are due and payable (except for audit adjustments not material in the
aggregate or to the extent that liability therefor is reserved for in
LabOne's most recent audited financial statements) for which LabOne or
any of its Subsidiaries may be liable, except with respect to Taxes
covered by the Tax Sharing Agreement, (C) established reserves that are
required by GAAP for the payment of all Taxes not yet due and payable
with respect to the results of operations of LabOne and its
Subsidiaries through the date hereof, and (D) complied in all material
respects with all applicable laws, rules and regulations relating to
the withholding of Taxes and has in all material respects timely
withheld from employee wages and paid over to the proper governmental
authorities all amounts required to be so withheld and paid over.
(ii) Except as listed in Schedule 3.1(l) of the LabOne Letter,
and except with respect to Returns files by Holdings pursuant to the
Tax Sharing Agreement, (A) there is no audit or examination being
conducted by any tax authority with respect to any Return of LabOne or
any of its Subsidiaries and (B) no extension or waiver of a statute of
limitation regarding liability for Taxes or the filing of any Return
has been given or agreed to by LabOne or any of its Subsidiaries that
has the effect of keeping open a statutory limitations period that
would otherwise now be closed. Except to the extent being contested in
good faith and as disclosed in Schedule 3.1(l),all material
deficiencies for Taxes asserted as a result of an audit or examination
conducted by any taxing authority with respect to any Return of LabOne
or any of its Subsidiaries have been paid or provided for, in
accordance with GAAP, in LabOne's most recent audited financial
statements included in the LabOne SEC documents. Except as provided
for, in accordance with GAAP, in LabOne's most recent audited financial
statements included in the LabOne SEC documents and as disclosed in
Schedule 3.1(l) and except with respect to Returns filed by Holdings
pursuant to the Tax Sharing Agreement, no material deficiency for any
such Taxes has been proposed, asserted, or assessed against LabOne or
any of its Subsidiaries by any federal, state, local, foreign or other
taxing authority with respect to any period. Neither LabOne nor any of
its Subsidiaries is a party to an agreement that provides for the
payment of any amount that would constitute an "excess parachute
payment" within the meaning of Section 280G of the Code.
(iii) Neither LabOne nor any of its Subsidiaries is a party
to, is bound by or has any obligation under any tax sharing or
allocation agreement or similar agreement or arrangement, except for
that certain Tax Sharing Agreement among
19
<PAGE>
Holdings, LabOne and certain other parties dated August 1, 1990 (the
"Tax Sharing Agreement"). All of the information that has heretofore
been furnished by LabOne or any of its Subsidiaries to Holdings
relating to Taxes, in connection with the preparation of a consolidated
tax return of the consolidated group composed of Holdings and its
subsidiaries, was when delivered true, accurate, and complete, in all
material respects, (and, to the extent that such information reflected
liability for Taxes or any component of such liability (such as the
amount of income or deductions for a taxable period), such information
was prepared in accordance with the applicable law relating to such
Taxes or other items), and each item of such information is now
believed by LabOne to have been true, accurate, and complete, in all
material respects, as of the date thereof. All payments that are
required to have been made prior to the date hereof by LabOne or any of
its Subsidiaries to Holdings pursuant to the Tax Sharing Agreement have
been made, and any payments that are required to be made with respect
to periods prior to the date hereof, but not due until a date
subsequent to the date hereof, are disclosed in Schedule 3.1(l) and
LabOne and each of its Subsidiaries has complied in all material
respects with all provisions of the Tax Sharing Agreement that are
applicable to it.
For purposes of this Agreement, "Taxes" means all federal, state,
local, foreign and other taxes, charges, fees, levies, imposts, duties, licenses
or other governmental assessments, together with any interest, penalties,
additions to tax or additional amounts imposed by any taxing authority with
respect thereto.
(m) Pension and Benefit Plans; ERISA.
(i) LabOne has made available to Holdings true, correct, and
complete copies of each of the following which is sponsored, maintained
or contributed to by LabOne or any of its Subsidiaries for the benefit
of the employees of LabOne or such Subsidiary:
(1) each "employee benefit plan," as such term is
defined in Section 3(3) of the United States Employee
Retirement Income Security Act of 1974, as amended ("ERISA")
(including, but not limited to, employee benefit plans, such
as foreign plans, which are not subject to the provisions of
ERISA) ("LabOne Plans"); and
(2) each personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement,
incentive award plan or arrangement, vacation policy,
severance pay plan, policy or agreement, deferred compensation
agreement or arrangement, executive compensation or
supplemental income arrangement, consulting agreement,
employment
20
<PAGE>
agreement and each other employee benefit plan, agreement,
arrangement, program, practice or understanding which is not
described in Section 3.1(m)(i)(1) ("LabOne Benefit Programs").
(ii) Except as disclosed in Schedule 3.1(m)(ii) of LabOne
Letter:
(1) LabOne and its Subsidiaries do not contribute to
or have an obligation to contribute to, and have not at any
time within six years prior to the Effective Time contributed
to or had an obligation to contribute to, a multi employer
plan within the meaning of Section 3(37) of ERISA;
(2) LabOne and its Subsidiaries have substantially
performed all material obligations, whether arising by
operation of law or by contract, required to be performed by
them in connection with LabOne Plans and LabOne Benefit
Programs, and to the knowledge of LabOne there have been no
defaults or violations by any other party under the LabOne
Plans or LabOne Benefit Programs that would have a LabOne
Material Adverse Effect;
(3) All reports and disclosures relating to LabOne
Plans required to be filed with or furnished to governmental
agencies, LabOne Plan participants or beneficiaries have been
filed or furnished substantially in accordance with applicable
law in a timely manner, except where the failure to do so
would not have a LabOne Material Adverse Effect;
(4) Each LabOne Plan intended to be qualified under
Section 401 of the Code satisfies the requirements of such
Section and has received a favorable determination letter from
the Internal Revenue Service regarding such qualified status
and has not, since receipt of the most recent favorable
determination letter, been amended or, to the knowledge of
LabOne, operated, in a way which would reasonably be expected
to materially adversely affect such qualified status. As to
any LabOne Plan intended to be qualified under Section 401 of
the Code, there has been no termination or partial termination
of such LabOne Plan within the meaning of Section 411(d)(3) of
the Code;
(5) There are no actions, suits or claims pending
(other than routine claims for benefits) or, to the knowledge
of LabOne, threatened against, or with respect to, any of the
LabOne Plans or LabOne Benefit Programs or their assets that
could reasonably be expected to have a Material Adverse
Effect. To the knowledge of LabOne, there is no matter pending
(other than routine qualification determination filings) with
respect to any of the LabOne Plans before the Internal Revenue
Service ("IRS"),
21
<PAGE>
the United States Department of Labor or the Pension Benefit
Guaranty Corporation ("PBGC");
(6) There are no LabOne Plans subject to Title IV of
ERISA.;
(7) No act, omission or transaction has occurred
which would result in imposition on LabOne or any of its
Subsidiaries of (A) liability for a breach of fiduciary duty
under Section 409 of ERISA, (B) a civil penalty assessed
pursuant to subsection (c), (i) or (1) of Section 502 of ERISA
or (C) a tax imposed pursuant to Chapter 43 of Subtitle D of
the Code that, in any such case, could reasonably be expected
to have a LabOne Material Adverse Effect;
(8) With respect to any employee benefit plan, within
the meaning of Section 3(3) of ERISA, which is not a LabOne
Plan but which is sponsored, maintained or contributed to, or
has been sponsored, maintained or contributed to within six
years prior to the Effective Time, by any corporation, trade,
business or entity that is a Subsidiary of LabOne, (A) no
withdrawal liability, within the meaning of Section 4201 of
ERISA, has been incurred, which withdrawal liability has not
been satisfied, (B) no liability to the PBGC has been incurred
by any Subsidiary of LabOne, which liability has not been
satisfied, (C) no accumulated funding deficiency, whether or
not waived, within the meaning of Section 302 of ERISA or
Section 412 of the Code has been incurred, and (D) all
contributions (including installments) to such plan required
by Section 302 of ERISA and Section 412 of the Code have been
timely made; and
(9) After taking into account all consents obtained
from participants in LabOne Plans and LabOne Benefit Programs
referred to in Schedule 3.1(m), the execution and delivery of
this Agreement and the consummation of the transactions
contemplated hereby will not (A) require LabOne or any of its
Subsidiaries to make a larger contribution to, or pay greater
benefits under, any LabOne Plan or LabOne Benefit Program than
it otherwise would, (B) create or give rise to any additional
or accelerated vested rights or service credits under any
LabOne Plan or LabOne Benefit Program, or (C) accelerate the
vesting, accrual or exercisability of any benefits or rights
under any LabOne Plan or LabOne Benefit Program, including,
without limitation, acceleration of the date on which any
stock option(s) may first be exercised.
(iii) Except as disclosed on Schedule 3.1(m)(iii) of LabOne
Letter, there are no severance agreements or employment agreements
between LabOne or any
22
<PAGE>
of its Subsidiaries and any employee of LabOne or such Subsidiary. True
and correct copies of all such severance and employment agreements have
been provided to Holdings. Except as disclosed on Schedule 3.1(m)(iii)
of LabOne Letter, (A) neither LabOne nor any of its Subsidiaries has
any consulting agreement or arrangement with any person involving
annual compensation in excess of $100,000, except as are terminable
without penalty upon one month's notice or less, and (B) no stock or
other security issued by LabOne or any of its Subsidiaries forms or has
formed a material part of the assets of any LabOne Plan or LabOne
Benefit Program.
(n) Labor Matters.
(i) Except as set forth in Schedule 3.1(n)(i) of LabOne
Letter, as of the date of this Agreement, (1) no employees of LabOne or
any of its Subsidiaries are represented by any labor organization; (2)
no labor organization or group of employees of LabOne or any of its
Subsidiaries has made a pending written demand or, to LabOne's
knowledge, other form of demand, for recognition or certification, and
there are no representation or certification proceedings or petitions
seeking a representation proceeding presently pending or threatened in
writing to be brought or filed with the National Labor Relations Board
or any other labor relations tribunal or authority; and (3) to the
knowledge of LabOne, there are no organizing activities involving
LabOne or any of its Subsidiaries pending with any labor organization
or group of employees of LabOne or any of its Subsidiaries.
(ii) Except as set forth on Schedule 3.1(n)(ii) of LabOne
Letter, LabOne and each of its Subsidiaries is in compliance with all
applicable employment and labor laws and regulations relating to the
employment of labor, including all such laws and orders relating to
wages, hours, collective bargaining, discrimination, civil rights,
safety and health workers' compensation and the collection and payment
of withholding and/or Social Security Taxes and similar Taxes, except
where the failure to comply would not have a LabOne Material Adverse
Effect.
(o) Intangible Property. To LabOne's knowledge, LabOne and its
Subsidiaries possess or have adequate rights to use all material trademarks,
trade names, patents, service marks, brand marks, brand names, computer
programs, database, industrial designs, trade secrets, technology, and
copyrights necessary for the operation of the businesses of each of LabOne and
its Subsidiaries (collectively, the "LabOne Intangible Property"), except where
the failure to possess or have adequate rights to use such properties would not
reasonably be expected to have a LabOne Material Adverse Effect. Schedule 3.1(o)
of LabOne Letter lists all material patents and trademark registrations (and
applications for patents and trademark registrations) or licensing agreements
that are applicable to a material portion of the business of LabOne or its
Subsidiaries. To the knowledge of LabOne, except as set forth on Schedule 3.1(o)
of LabOne Letter, all of
23
<PAGE>
LabOne Intangible Property is owned or used by LabOne or its Subsidiaries free
and clear of any and all liens, claims or encumbrances, except those that are
not reasonably likely to have a LabOne Material Adverse Effect, and neither
LabOne nor any such Subsidiary has forfeited or otherwise relinquished any
LabOne Intangible Property which forfeiture would result in a LabOne Material
Adverse Effect. To the knowledge of LabOne, the use of LabOne Intangible
Property by LabOne or its Subsidiaries does not, in any material respect,
conflict with, infringe upon, violate or interfere with or constitute an
appropriation of any valid right, title, interest or goodwill, including,
without limitation, any intellectual property right, trademark, trade name,
patent, service mark, brand mark, brand name, computer program, database,
industrial design, copyright or any pending application therefor of any other
person and there have been no claims made, and neither LabOne nor any of its
Subsidiaries has received any notice of any claim or otherwise knows, that any
of LabOne Intangible Property is invalid or conflicts with the asserted rights
of any other person or has not been used or enforced or has been failed to be
used or enforced in a manner that would result in the abandonment, cancellation
or unenforceability of any of LabOne Intangible Property, except for any such
conflict, infringement, violation, interference, claim, invalidity, abandonment,
cancellation or unenforceability that would not reasonably be expected to have a
LabOne Material Adverse Effect.
(p) Environmental Matters.
For purposes of this Agreement:
(A) "Environmental Law" means any applicable law
regulating or prohibiting Releases into any part of the
natural environment, or pertaining to the protection of
natural resources, the environment and public and employee
health and safety including, without limitation, the
Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA") (42 U.S.C. Section 9601 et seq.), the
Hazardous Materials Transportation Act (49 U. S. C. Section
1801 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. Section 6901 et seq.), the Clean Water Act (33 U.S.C.
Section 1251 et seq.), the Clean Air Act (33 U.S.C. Section
7401 et seq.), the Toxic Substances Control Act (15 U.S.C.
Section 7401 et seq.), the Federal Insecticide, Fungicide, and
Rodenticide Act (7 U.S.C. Section 136 et seq.), and the
Occupational Safety and Health Act (29 U.S.C. Section 651 et
seq.) ("OSHA") and the regulations promulgated pursuant
thereto, and any such applicable state or local statutes, and
the regulations promulgated pursuant thereto, as such laws
have been and may be amended or supplemented through the
Closing Date;
(B) "Hazardous Material" means any substance,
material or waste which is regulated, or which could be the
subject of Remedial Action, pursuant to any Environmental Law
by any public or governmental
24
<PAGE>
authority in the jurisdictions in which the applicable party
or its Subsidiaries conducts business, or the United States,
including, without limitation, any material or substance which
is defined as a "hazardous waste," "hazardous material,"
"hazardous substance," ("extremely hazardous waste" or
"restricted hazardous waste," "pollutant," "contaminants,"
"toxic waste" or "toxic substance" under any provision of
Environmental Law;
(C) "Release" means any release, spill, effluent,
emission, leaking, pumping, injection, deposit, disposal,
discharge, dispersal, leaching or migration of a regulated
quantity of Hazardous Material into the outdoor environment,
or into or out of any property owned, operated or leased by
the applicable party or its Subsidiaries; and
(D) "Remedial Action" means all actions with respect
to a regulated quantity of Hazardous Materials, including,
without limitation, any capital expenditures, required by a
governmental entity or required under any Environmental Law,
or voluntarily undertaken to (I) clean up, remove, treat, or
in any other way ameliorate the Release of any Hazardous
Materials in the outdoor environment; (II) prevent the Release
or threat of Release, or minimize the further Release of any
Hazardous Material so it does not endanger or threaten to
endanger the public health or welfare of the indoor or outdoor
environment; (III) perform pre-remedial studies and
investigations or post-remedial monitoring and care pertaining
or relating to a Release; or (IV) bring the applicable party
into compliance with any Environmental Law.
(i) Except as disclosed on Schedule 3.1(p) of LabOne Letter,
the operations of LabOne and its Subsidiaries have been and are
currently in compliance with all Environmental Laws, except where the
failure to so comply would not reasonably be expected to have a LabOne
Material Adverse Effect.
(ii) Except as disclosed on Schedule 3.1(p) of LabOne Letter,
LabOne and its Subsidiaries have obtained and maintained all permits
required under applicable Environmental Laws for the continued
operations of their respective businesses, except such permits the lack
of which would not reasonably be expected to have a LabOne Material
Adverse Effect.
(iii) Except as disclosed on Schedule 3.1(p) of LabOne Letter,
as of the date hereof LabOne and its Subsidiaries are not subject to
any material (individually or in the aggregate) outstanding written
orders or material contracts with any Governmental Entity or other
person respecting (A) Environmental Laws,
25
<PAGE>
(B) Remedial Action or (C) any Release or threatened Release of a
Hazardous Material.
(iv) Except as disclosed on Schedule 3.1(p) of LabOne Letter,
LabOne and its Subsidiaries have not received any written communication
alleging, with respect to any such party, and has no knowledge of the
violation of or liability under any Environmental Law, which violation
or liability would reasonably be expected to have a LabOne Material
Adverse Effect.
(v) Except as disclosed on Schedule 3.1(p) of LabOne Letter,
neither LabOne nor any of its Subsidiaries has any contingent liability
in connection with any Release of any Hazardous Material including,
without limitation, in connection with the exposure of any person or
property to Hazardous Material that would reasonably be expected to
have a LabOne Material Adverse Effect.
(vi) Except as disclosed on Schedule 3.1(p) of LabOne Letter,
the operations of LabOne or its Subsidiaries involving the generation,
transportation, treatment, storage or disposal of hazardous waste, as
defined and regulated under 40 C.F.R. Parts 260-270 (in effect as of
the date of this Agreement) or any state equivalent, or any other
Hazardous Material are in compliance with applicable Environmental
Laws, except where the failure to so comply would not reasonably be
expected to have a LabOne Material Adverse Effect.
(vii) Except as disclosed on Schedule 3.1(p) of LabOne Letter,
to the knowledge of LabOne as of the date hereof, there is not now on
or in any property of LabOne or its Subsidiaries any of the following:
(A) any underground storage tanks or surface impoundments, (B) any
asbestos-containing materials, or (C) any polychlorinated biphenyls,
any of which ((A), (B) or (C) preceding) could reasonably be expected
to have a LabOne Material Adverse Effect. To the knowledge of LabOne as
of the date hereof, none of the properties owned or operated by LabOne
are restricted as to use or as to transfer of title, or the subject of
any special recorded notice, under any Environmental Law.
(viii) LabOne has made available to Holdings for review all
written reports of environmental audits and assessments prepared for
LabOne or any of its Subsidiaries within the last three years by third
party consultants or internal environmental, safety or health personnel
which are in the possession or control of LabOne and which relate to
the assets or operations of LabOne or any of its Subsidiaries.
(q) Opinion of Financial Advisor. The Special Committee has received
the opinion of U.S. Bancorp Piper Jaffray Inc. (a copy of which will be
delivered to Holdings), to the effect that, as of the date hereof, the
consideration to be received by the
26
<PAGE>
holders of LabOne Common Stock, other than Holdings, officers and directors of
Holdings and beneficial owners of 10% or more of the outstanding shares of
Holdings Common Stock (such holders after such exclusions are referred to as
"Unaffiliated LabOne Stockholders) pursuant to this Agreement is fair from a
financial point of view to the Unaffiliated LabOne Stockholders.
(r) Vote Required. Except as provided in the second sentence of Section
6.1(a)(i) of this Agreement, the affirmative vote of the holders of a majority
of the shares of LabOne Common Stock outstanding is the only vote of the holders
of any class or series of LabOne capital stock necessary to approve this
Agreement and the transactions contemplated hereby.
(s) Insurance. LabOne has delivered to Holdings an insurance schedule
of LabOne's and each of its Subsidiaries' (i) directors' and officers' liability
insurance, and (ii) primary and excess casualty insurance policies, providing
coverage for bodily injury and property damage to third parties, including
products liability and completed operations coverage, and worker's compensation,
in each case in effect as of the date hereof. LabOne maintains insurance
coverage reasonably adequate for the operation of the business of LabOne and
each of its Subsidiaries (taking into account the cost and availability of such
insurance), and the transactions contemplated hereby will not materially
adversely affect such coverage.
(t) Brokers. Except as disclosed on Schedule 3.1(t) of LabOne Letter,
no broker, investment banker, or other person is entitled to any broker's,
finder's or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
LabOne.
(u) Title. Except as disclosed in financial statements included in the
LabOne SEC Documents or on Schedule 3.1(u) of LabOne Letter, LabOne and each of
its Subsidiaries have good and marketable title to all real property and good
title to all personal property owned by them, in each case free and clear of all
liens, pledges or encumbrances securing money borrowed, the deferred purchase
price of property in excess of $300,000 or capital leases and free and clear of
all other liens, pledges, encumbrances or defects that could affect the value or
use thereof, except for any such other liens, pledges, encumbrances or defects
that would not have a LabOne Material Adverse Effect.
(v) Books and Records. LabOne and its Subsidiaries (i) make and keep
accurate books and records and (ii) maintain internal accounting controls which
provide reasonable assurance that (A) transactions are executed in accordance
with management's authorization, (B) transactions are recorded as necessary to
permit preparation of their financial statements and to maintain accountability
for their assets, (C) access to their assets is permitted only in accordance
with management's authorization and (D) the reported accountability for their
assets is compared with existing assets at reasonable
27
<PAGE>
intervals, except for any inaccuracy or inadequacy of controls that would not
reasonably be expected to have a LabOne Material Adverse Effect.
(w) Certain Payments. Neither LabOne nor any of its Subsidiaries, nor
any director, officer, agent, employee or other person associated with or acting
on behalf of the LabOne or any of its Subsidiaries, has used any corporate funds
for any unlawful contribution, gift, entertainment or other unlawful expense
relating to political activity; made any direct or indirect unlawful payment to
any foreign or domestic governmental official or employee from corporate funds;
violated or is in violation of any provision of the United States Foreign
Corrupt Practices Act of 1977; nor made any illegal bribe, rebate, payoff,
influence payment, kickback or other unlawful payment, except for any such
expenses, payments or violations that would not reasonably be expected to have a
LabOne Material Adverse Effect.
(x) Transactions with Related Parties. Except as set forth in Schedule
3.1(x) of LabOne Letter or in the LabOne SEC Documents, there are no agreements,
contracts or other arrangements between (i) LabOne or any of its Subsidiaries,
on the one hand, and (ii) any Related Person (as defined below) of LabOne, on
the other hand. Except as set forth in Schedule 3.1(x) of LabOne Letter and
except for the ownership of the Surviving Corporation Common Stock issued
hereunder, as of the Closing Date no Related Person of LabOne and no present
officer or director of any Related Person of LabOne shall have any interest in
any property (real or personal, tangible or intangible) or contract used in or
pertaining to the business of LabOne and its Subsidiaries (or the Surviving
Corporation and its Subsidiaries) and no Related Person of LabOne shall have any
direct or indirect ownership interest (excluding immaterial passive investments)
in any person (other than through LabOne or any of its Subsidiaries) with which
LabOne or any of its Subsidiaries competes in any material respect or has a
material business relationship. Other than those services described in the
LabOne SEC Documents, Schedule 3.1(x) of LabOne letter sets forth as of the date
of this Agreement a description of all services provided by any Related Person
of LabOne or LabOne and any of its Subsidiaries. A "Related Person" of any
person shall mean any holder of in excess of 5% of the equity securities of such
person and any affiliates or associates (as defined in Rule 12b-2 under the
Exchange Act) of such holder (other than such original person or its
Subsidiaries).
(y) State Takeover Laws. LabOne has taken all necessary action to
exempt the transactions contemplated by this Agreement from the provisions of
Section 203 of the Delaware Law.
(z) Nature of Election by Certain Affiliates. Each of William D. Grant
and W. Thomas Grant II has represented to LabOne that he intends to make a Stock
Election with respect to any shares of LabOne Common Stock that he owns at the
Effective Time.
28
<PAGE>
3.2 Representations and Warranties of Holdings. Holdings represents and
warrants to LabOne as follows:
(a) Organization, Standing and Power. Holdings is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of the State of Missouri, has all requisite power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted, and is duly qualified and in good standing to do business in each
jurisdiction in which the business it is conducting, or the operation, ownership
or leasing of its properties, makes such qualification necessary, other than in
such jurisdictions where the failure to qualify would not have a Holdings
Material Adverse Effect (as defined below). Holdings has heretofore delivered to
LabOne complete and correct copies of Holdings's Articles of Incorporation and
Bylaws. As used in this Agreement "Holdings Material Adverse Effect" or
"Holdings Material Adverse Change" shall mean any effect or change that is,
individually or in the aggregate, materially adverse to the business,
operations, assets, condition (financial or otherwise) or results of operation
of Holdings except for general economic changes and changes that may affect the
industries of Holdings generally.
(b) Capital Structure. As of the date hereof, the authorized capital
stock of Holdings consists of 24,000,000 shares of Holdings Common Stock, par
value $1.00 per share, and 3,000,000 shares of preferred stock, par value $1.00
per share ("Holdings Preferred Stock"). At the close of business on the date
hereof: (i) 6,489,103 shares of Holdings Common Stock are issued and
outstanding, an aggregate of 90,000 shares of Holdings Common Stock are reserved
for issuance pursuant to the Holdings Stock Option Plan, 40,000 shares of
Holdings Common Stock are issuable pursuant to outstanding and unvested stock
options granted pursuant to the Holdings Stock Option Plan and 20,000 shares of
Holdings Common Stock are issuable pursuant to outstanding and vested stock
options granted pursuant to the Holdings Stock Option Plan; (ii) no shares of
Holdings Preferred Stock are issued and outstanding; and (iii) no bonds,
debentures, notes or other indebtedness having the right to vote (or convertible
into securities having the right to vote) on any matters on which Holdings
stockholders may vote ("Holdings Voting Debt") are issued or outstanding. From
the date hereof until the Effective Time, no additional shares, options or
similar rights will be issued or authorized other than shares issued in
connection with options which were outstanding and vested (or which vest in
accordance with their original terms as in effect on the close of business on
the date hereof ) pursuant to the Holdings Stock Option Plan as in effect on the
close of business on the date hereof. Assuming the Effective Date is prior to
July 31, 1999, no options or similar rights that were not vested at the close of
business on the date hereof will vest prior to the Effective Time (other than in
the case of the death of a holder of such option or as otherwise provided in the
Holdings Stock Option Plan). All outstanding shares of Holdings Common Stock
have been duly authorized, are validly issued, fully paid and nonassessable and
are not subject to preemptive rights, and, subject to the approval of this
Agreement and the Merger, all shares of Surviving Corporation Common Stock
issuable in the Merger will
29
<PAGE>
be duly authorized and, when issued, will be validly issued, fully paid and
non-assessable and free of preemptive rights. Except as set forth on Schedule
3.2(b) of the letter dated and delivered to LabOne on the date hereof (the
"Holdings Letter"), which relates to this Agreement and is designated therein as
being the Holdings Letter, all outstanding shares of capital stock of LabOne
that are owned by Holdings are free and clear of all liens, charges,
encumbrances, claims and options of any nature. Except as set forth in this
Section 3.2(b) or on Schedule 3.2(b) of the Holdings Letter and except for
changes resulting from the exercise of employee stock options outstanding on the
date hereof granted pursuant to the Holdings Stock Option Plan, or as
contemplated by this Agreement there are outstanding: (i) no shares of capital
stock, Holdings Voting Debt or other voting securities of Holdings; (ii) no
securities of Holdings convertible into or exchangeable for shares of capital
stock, Holdings Voting Debt or other voting securities of Holdings; and (iii) no
options, warrants, calls, rights (including preemptive rights), commitments or
agreements to which Holdings is a party or by which it is bound in any case
obligating Holdings to issue, deliver, sell, purchase, redeem or acquire, or
cause to be issued, delivered, sold, purchased, redeemed or acquired, additional
shares of capital stock or any Holdings Voting Debt or other voting securities
of Holdings, or obligating Holdings to grant, extend or enter into any such
option, warrant, call, right, commitment or agreement. Except as set forth on
Schedule 3.2(b) of the Holdings Letter, there are no stockholder agreements,
registration rights, voting trusts or other similar agreements or understandings
to which Holdings is a party or by which it is bound. Except as set forth on
Schedule 3.2(b) of the Holdings Letter, there are no restrictions on Holdings's
ability to vote the stock of LabOne held by Holdings. To the knowledge of
Holdings, as of the date of this Agreement, except for William D. Grant, Wallace
R. Weitz & Company and a group consisting of American Century Investment
Management, Inc. and American Century Capital Portfolios, Inc., no stockholder
of Holdings or "group" within the meaning of Section 13(d)(3) of the Exchange
Act will be immediately after the Effective Time the beneficial owner of more
than 10% of the then outstanding Surviving Corporation Common Stock.
(c) Non-Subsidiaries Equity Investment. Holdings has no Subsidiaries.
Schedule 3.2(c) of the Holdings Letter sets forth the book value of each
investment by Holdings in the voting securities, partnership interests or other
equity interests of any corporation, partnership or other entity (other than
LabOne and its Subsidiaries) and the nature and percentage of Holdings's
ownership interests in such investment. Except as set forth in Schedule 3.2(c)
of the Holdings Letter, the voting securities, partnership interests or other
equity interests of Holdings in such investments are owned free and clear of all
liens, charges and encumbrances and none of such entities is a Subsidiary of
Holdings.
(d) Authority; No Violations; Consents and Approvals.
(i) The Board of Directors of Holdings has, by unanimous vote
of the directors, approved and declared to be in the best interests of
the stockholders of
30
<PAGE>
Holdings the Articles Amendment (as defined below), the Merger, this
Agreement and the amendments to the Existing Articles of Incorporation
and Existing Bylaws of Holdings provided in the Certificate of Merger.
Holdings has all requisite corporate power and authority to enter into
this Agreement and, subject, with respect to consummation of the
Merger, to approval of the amendment to Holdings's Articles of
Incorporation set forth in Exhibit E (the "Articles Amendment") and to
approval of this Agreement and the Merger by the stockholders of
Holdings in accordance with the Missouri Law, to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part
of Holdings, subject to approval of this Agreement and the Merger by
the stockholders of Holdings in accordance with the Missouri Law. This
Agreement has been duly executed and delivered by Holdings and,
subject, with respect to consummation of the Merger, to approval of the
Articles Amendment and to approval of this Agreement and the Merger by
the stockholders of Holdings in accordance with the Missouri Law, and,
assuming this Agreement constitutes the valid and binding obligation of
LabOne, constitutes a valid and binding obligation of Holdings
enforceable in accordance with its terms, except to the extent that the
enforcement of this Agreement may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally, and (ii)
general principles of equity regardless of whether enforceability is
considered in a proceeding in equity or at law.
(ii) Except as set forth on Schedule 3.2(d) of the Holdings
Letter, the execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby and compliance
with the provisions hereof will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to the loss of a material benefit
under, or result in the creation of any lien, security interest, charge
or encumbrance upon any of the properties or assets of Holdings under,
any provision of (i) the Articles of Incorporation or Bylaws of
Holdings, (ii) any loan or credit agreement, note, bond, mortgage, or
indenture applicable to Holdings, (iii) any other agreement,
instrument, permit, concession, franchise or license applicable to
Holdings or (iv) assuming the consents, approvals, authorizations or
permits and filings or notifications referred to in Section 3.2(d)(iii)
are duly and timely obtained or made and the approval of this Agreement
and the Merger by the stockholders of Holdings has been obtained in
accordance with Missouri Law, any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Holdings or any of its
properties or assets, other than, in the case of clause (iii), any such
conflicts, violations, defaults, rights, liens, security interests,
charges or encumbrances that, individually or in the aggregate, would
not have a Holdings Material Adverse
31
<PAGE>
Effect, materially impair the ability of Holdings to perform its
obligations hereunder or prevent the consummation of any of the
transactions contemplated hereby.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, or permit from any
Governmental Entity is required by or with respect to Holdings in
connection with the execution and delivery of this Agreement by
Holdings or the consummation by Holdings of the transactions
contemplated hereby, as to which the failure to obtain or make would
have a Holdings Material Adverse Effect, except for: (A) the filing
with the SEC of a proxy statement in preliminary and definitive form
relating to the meeting of Holdings's stockholders to be held in
connection with the approval of this Agreement and the Merger by
stockholders of Holdings, the S-4, such reports under Section 13(a) of
the Exchange Act and such other compliance with the Securities Act and
the Exchange Act and the rules and regulations thereunder as may be
required in connection with this Agreement and the transactions
contemplated hereby, and the obtaining from the SEC of such orders as
may be so required; (B) filings with, and approval of, the Nasdaq Stock
Market; (C) such filings and approvals as may be required by any
applicable state securities, "blue sky" or takeover laws, or
environmental laws; and (D) the filing of the Certificate or Articles
of Merger with the Secretary of State of the States of Delaware and
Missouri.
(e) SEC Documents. Holdings has made available to LabOne a true and
complete copy of each quarterly, annual or current report on Form 10-Q, 10-K or
8-K, registration statement and definitive proxy statement filed by Holdings
with the SEC since January 1, 1994, which are all the documents (other than
preliminary material) that Holdings was required to file with the SEC since
January 1, 1994. Holdings will make available to LabOne, a true and complete
copy of each quarterly, annual or current report on Form 10-Q, 10-K or 8-K,
registration statement and definitive proxy statement filed by Holdings with the
SEC subsequent to the date of this Agreement and prior to the Effective Time.
All of such reports and statements filed prior to the date of this Agreement are
hereinafter referred to as the "Holdings SEC Documents." As of their respective
filing dates (or if amended or superseded by a filing prior to the date hereof,
then on the date of such filing), the Holdings SEC Documents complied in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations of the SEC thereunder
applicable to such Holdings SEC Documents, and, assuming the accuracy of
information supplied by LabOne for inclusion therein, none of the Holdings SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. As of their respective filing dates (or if amended or superseded
by a filing prior to the date hereof, then on the date of such filing), the
financial statements of Holdings included in
32
<PAGE>
the Holdings SEC Documents complied as to form in all material respects with the
published rules and regulations of the SEC with respect thereto, were prepared
in accordance with GAAP applied on a consistent basis during the periods
involved (except (i) as may be indicated in the notes thereto, (ii) in the case
of the unaudited statements, such differences in presentation or omissions as
permitted by Rule 10-01 of Regulation S-X of the SEC and (iii) the unaudited
financial statements do not contain all notes required by GAAP) and fairly
presented in accordance with applicable requirements of GAAP (subject, in the
case of the unaudited statements, to normal year-end adjustments on a basis
comparable with past periods) the consolidated financial position of Holdings
and its consolidated subsidiaries as of their respective dates and the
consolidated results of operations and the consolidated cash flows of Holdings
and its consolidated subsidiaries for the periods presented therein.
(f) Information Supplied. Assuming the accuracy of information supplied
by LabOne for inclusion therein, none of the information supplied or to be
supplied by Holdings for inclusion or incorporation by reference in the S-4
will, at the time the S-4 becomes effective under the Securities Act or at the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, and none of the information supplied or to be
supplied by Holdings and included or incorporated by reference in the Proxy
Statement will, at the time of mailing thereof or at the time of the meetings of
the stockholders of Holdings or LabOne to be held in connection with the Merger
or at the Effective Time, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. If at any time prior to the Effective Time any
event with respect to Holdings, or with respect to other information supplied by
Holdings for inclusion in the Proxy Statement or S-4, shall occur which is
required to be described in an amendment of, or a supplement to, the Proxy
Statement or the S-4, such event shall be so described, and such amendment or
supplement shall be promptly filed with the SEC and, as required by law,
disseminated to the stockholders of Holdings and LabOne. The S-4 and the Proxy
Statement, insofar as they relate to Holdings or other information supplied by
Holdings for inclusion therein, will comply as to form in all material respects
with the provisions of the Exchange Act and the rules and regulations
thereunder.
(g) Absence of Certain Changes or Events. Except as disclosed in, or
reflected in the financial statements included in the Holdings SEC Documents or
on Schedule 3.2(g) of the Holdings Letter, or except as contemplated by this
Agreement, since September 30, 1998, Holdings has, in all material respects,
conducted its business only in the ordinary course and there has not been: (i)
any declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of Holdings's capital
stock, other than regularly quarterly cash dividends consistent with past
practice and except that, in connection with its approval of this Agreement, the
Board of Directors
33
<PAGE>
of Holdings has declared a stock split payable as a dividend so that,
immediately prior to the Effective Time, each issued and outstanding share of
Holdings Common Stock shall be automatically converted into (assuming the
effectiveness of the Merger) 1.50 shares (the "Stock Split") of validly issued,
fully paid and nonassessable shares of Holdings Common Stock (with the resulting
number of shares of each registered holder of Holdings Common Stock being
rounded down to the nearest whole number and with each such registered holder
being entitled to receive in lieu of any fractional shares prior to such
rounding down an amount in cash (without interest) equal to an amount determined
in a manner provided in Section 4.2(l); (ii) any amendment of any material term
of any outstanding equity security of Holdings; (iii) any repurchase, redemption
or other acquisition by Holdings of any outstanding shares of capital stock or
other equity securities of, or other ownership interests in, Holdings; (iv) any
material change in any method of accounting or accounting practice, or in any
tax method, principle, election or practice by Holdings; (v) if the covenants
and agreements with respect to the Holdings set forth in Section 4.2 had been
applicable to Holdings during the period from September 30, 1998 to the date of
this Agreement, any action, transaction, commitment or failure to act that would
cause Holdings to fail to comply with such covenants and agreements; or (vi) any
other action, transaction, commitment, dispute or other event or condition
(financial or otherwise) of any character (whether or not in the ordinary course
of business) that has had, or may reasonably be expected to have, a Holdings
Material Adverse Effect.
(h) No Undisclosed Material Liabilities. Except as fully reflected or
reserved against in the financial statements included in the Holdings SEC
Documents, or disclosed in the footnotes thereto, or referred to in Schedule
3.2(h) or elsewhere in the Holdings Letter, as of the date hereof Holdings has
no liabilities, absolute or contingent other than liabilities which,
individually or in the aggregate, are reasonably expected not to have a Holdings
Material Adverse Effect. Except as so reflected, reserved or disclosed, Holdings
has no commitments which, individually or in the aggregate, are reasonably
expected to have a Holdings Material Adverse Effect.
(i) Material Contracts; No Defaults. All of the material contracts of
Holdings that are required to be described in the Holdings SEC Documents or to
be filed as exhibits thereto, or that would be required to be described or filed
if a Form 10-K with respect to Holdings were required to be filed on the date
hereof, have been described or filed in the Holdings SEC Documents except as
disclosed on Schedule 3.2(i) of the Holdings Letter. Holdings is not in
violation nor in default under (and no event has occurred which, with notice or
the lapse of time or both, would constitute a default or violation) of any term,
condition or provision of (i) its Articles of Incorporation and Bylaws or
comparable organizational documents, (ii) except as disclosed in Schedule 3.2(i)
of the Holdings Letter, any note, bond, mortgage, indenture, license, agreement
or other instrument or obligation to which Holdings is now a party or by which
Holdings or any of its properties or assets may be bound or (iii) any order,
writ, injunction, decree, statute, rule or regulation applicable to Holdings,
except in the case of (ii) and (iii) for defaults or
34
<PAGE>
violations which in the aggregate would not have a Holdings Material Adverse
Effect. Schedule 3.2(i) of the Holdings Letter lists each contract (a)
containing covenants which in any way purport to limit the freedom of Holdings
to engage in any line of business or engage in business in any geographic area
or to compete with any person or (b) that imposes a material obligation
(contingent or otherwise) that is not reflected in Holdings's audited GAAP
financial statements and notes thereto included in its most recently filed
Annual Report on Form 10-K. Except as disclosed on Schedule 3.2(i) of the
Holdings Letter, to the knowledge of Holdings, none of the other parties to
material contracts of Holdings are in violation of or in default under (nor does
there exist any condition which upon the passage of time or the giving of notice
would cause such a violation of or default under) any contract, other than such
violations or defaults as would not have a Holdings Material Adverse Effect.
(j) Compliance with Applicable Laws. Holdings holds all permits,
licenses, variances, exemptions, orders, franchises and approvals of all
Governmental Entities necessary for the lawful conduct of its business (the
"Holdings Permits"), except where the failure so to hold would not have a
Holdings Material Adverse Effect. Holdings is in compliance with the terms of
the Holdings Permits, except where the failure so to comply would not have a
Holdings Material Adverse Effect. Except as disclosed or as set forth on
Schedule 3.2(j), 3.2(k), 3.2(l), 3.2(m), 3.2(n) or 3.2(p) of the Holdings Letter
the business of Holdings is not being conducted in violation of any law,
ordinance, regulation, judgment or decree of any Governmental Entity, except for
possible violations which would not have a Holdings Material Adverse Effect.
Except as set forth on Schedule 3.2(j) of the Holdings Letter, as of the date of
this Agreement, no investigation or review by any Governmental Entity with
respect to Holdings is, to the best knowledge of Holdings, pending or
threatened, other than those the outcome of which would not have a Holdings
Material Adverse Effect.
(k) Litigation. Schedule 3.2(k) of the Holdings Letter discloses all
suits, actions or proceedings pending, or, to, the best knowledge of Holdings,
threatened against Holdings ("Holdings Litigation") on the date of this
Agreement and all judgments, decrees, injunctions, rules or orders of any
Governmental Entity or arbitrator outstanding against Holdings ("Holdings
Order") on the date of this Agreement, in each case in which the amount claimed
or that could be involved is in excess of $100,000. Except as disclosed on
Schedule 3.2(k) of the Holdings Letter, there is no Holdings Litigation that,
individually or in the aggregate with all other Holdings Litigation, is
reasonably likely to have a Holdings Material Adverse Effect, nor is there any
Holdings Order that, individually or in the aggregate with all other Holdings
Litigation, is reasonably likely to have a Holdings Material Adverse Effect or a
material adverse effect on Holdings's ability to perform its obligations
hereunder or to consummate the transactions contemplated by this Agreement.
35
<PAGE>
(l) Taxes. With respect to any period and with respect to any action as
to which the applicable statute of limitations has not expired as of the date
hereof, and except as set forth on Schedule 3.2(1) of the Holdings Letter and
except for exceptions to the following that would not, individually or in the
aggregate, have a Holdings Material Adverse Effect:
(i) Holdings has (A) duly and timely (taking into account any
extensions) filed all federal, state, local, foreign and other Returns
required to be filed or sent by or with respect to it in respect of any
Taxes, including the consolidated and combined Returns that it is
required to file pursuant to the Tax Sharing Agreement, (B) duly paid
or deposited on a timely basis all Taxes (including estimated Taxes)
that are due and payable (except for audit adjustments not material in
the aggregate or to the extent that liability therefor is reserved for
in Holdings's most recent audited financial statements) for which
Holdings may be liable, (C) established reserves that are required by
GAAP for the payment of all Taxes not yet due and payable with respect
to the results of operations of Holdings through the date hereof, and
(D) complied in all material respects with all applicable laws, rules
and regulations relating to the withholding of Taxes and has in all
material respects timely withheld from employee wages and paid over to
the proper governmental authorities all amounts required to be so
withheld and paid over; provided, all of the representations made in
this paragraph are conditioned, to the extent based on information
provided by LabOne or any of its Subsidiaries to Holdings, on the
assumption that all such information is true, accurate and complete in
all material respects.
(ii) Except as listed in Schedule 3.2(l) of the Holdings
Letter, (A) there is no audit or examination being conducted by any tax
authority with respect to any Return of Holdings and (B) no extension
or waiver of a statute of limitation regarding liability for Taxes or
the filing of any Return has been given or agreed to by Holdings that
has the effect of keeping open a statutory limitations period that
would otherwise now be closed. Except to the extent being contested in
good faith and as disclosed in Schedule 3.2(l), all material
deficiencies for Taxes asserted as a result of an audit or examination
conducted by any taxing authority with respect to any Return of
Holdings have been paid or provided for, in accordance with GAAP, in
Holdings's most recent audited financial statements included in the
Holdings SEC Documents. Except as provided for, in accordance with
GAAP, in Holdings's most recent audited financial statements included
in the Holdings SEC Documents and as disclosed in Schedule 3.2(l), no
material deficiency for any such Taxes has been proposed, asserted, or
assessed against Holdings by any federal, state, local, foreign or
other taxing authority with respect to any period. Holdings is not a
party to an agreement that provides for the
36
<PAGE>
payment of any amount that would constitute an "excess parachute
payment" within the meaning of Section 280G of the Code.
(iii) Holdings is not a party to, bound by or in any way
obligated under any tax sharing or allocation agreement or similar
agreement or arrangement, except for the Tax Sharing Agreement and the
tax sharing agreement dated as of February 28, 1997, with SLH
Corporation (now named "Syntroleum Corporation," the "SLH Tax Sharing
Agreement"). All payments that are required to have been made prior to
the date hereof by Holdings pursuant to the Tax Sharing Agreement and
the SLH Tax Sharing Agreement have been made, and any payments that are
required to be made with respect to periods prior to the date hereof,
but not due until a date subsequent to the date hereof, are disclosed
on Schedule 3.2(l), Holdings has complied in all material respects with
all provisions of the Tax Sharing Agreement and the SLH Tax Sharing
Agreement that are applicable to it.
(m) Pension and Benefit Plans; ERISA.
(i) Holdings has made available to LabOne true, correct, and
complete copies of each of the following which is sponsored, maintained
or contributed to by Holdings for the benefit of the employees of
Holdings:
(1) each "employee benefit plan," as such term is
defined in Section 3(3) of ERISA, including, but not limited
to, employee benefit plans, such as foreign plans, which are
not subject to the provisions of ERISA ("Holdings Plans"); and
(2) each personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement,
incentive award plan or arrangement, vacation policy,
severance pay plan, policy or agreement, deferred compensation
agreement or arrangement, executive compensation or
supplemental income arrangement, consulting agreement,
employment agreement and each other employee benefit plan,
agreement, arrangement, program, practice or understanding
which is not described in Section 3.2(m)(i)(l) ("Holdings
Benefit Programs").
(ii) Except as disclosed in Schedule 3.2(m)(ii) of the
Holdings Letter:
(1) Holdings does not contribute to or have an
obligation to contribute to, and have not at any time within
six years prior to the Effective Time contributed to or had an
obligation to contribute to, a multi employer plan within the
meaning of Section 3(37) of ERISA;
37
<PAGE>
(2) Holdings has substantially performed all material
obligations, whether arising by operation of law or by
contract, required to be performed by it in connection with
the Holdings Plans and the Holdings Benefit Programs, and to
the knowledge of Holdings there have been no defaults or
violations by any other party to the Holdings Plans or
Holdings Benefit Programs that would have a Holdings Material
Adverse Effect;
(3) All reports and disclosures relating to the
Holdings Plans required to be filed with or furnished to
governmental agencies, Holdings Plan participants or
beneficiaries have been filed or furnished substantially in
accordance with applicable law in a timely manner, except
where the failure to do so would not have a Holdings Material
Adverse Effect;
(4) Each Holdings Plan intended to be qualified under
Section 401 of the Code satisfies the requirements of such
Section and has received a favorable determination letter from
the Internal Revenue Service regarding such qualified status
and has not, since receipt of the most recent favorable
determination letter, been amended or, to the knowledge of
Holdings, operated in a way which would reasonably be expected
to materially adversely affect such qualified status. As to
any Holdings Plan intended to be qualified under Section 401
of the Code, there has been no termination or partial
termination of the Holdings Plan within the meaning of Section
411(d)(3) of the Code;
(5) There are no actions, suits or claims pending
(other than routine claims for benefits) or, to the knowledge
of Holdings, threatened against, or with respect to, any of
the Holdings Plans or Holdings Benefit Programs or their
assets that would reasonably be expected to have a Holdings
Material Adverse Effect. To the knowledge of Holdings, there
is no matter pending (other than routine qualification
determination filings) with respect to any of the Holdings
Plans before the IRS, the United States Department of Labor or
the PBGC;
(6) There are no Holdings Plans subject to Title IV
of ERISA;
(7) No act, omission or transaction has occurred
which would result in imposition on Holdings of (A) liability
for a breach of fiduciary duty under Section 409 of ERISA, (B)
a civil penalty assessed pursuant to subsections (c), (i) or
(1) of Section 502 of ERISA or (C) a tax imposed pursuant to
Chapter 43 of Subtitle D of the Code that, in any such case,
could reasonably be expected to have a Holdings Material
Adverse Effect;
38
<PAGE>
(8) With respect to any employee benefit plan, within
the meaning of Section 3(3) of ERISA, which is not a Holdings
Plan but which is sponsored, maintained or contributed to, or
has been sponsored, maintained or contributed to within six
years prior to the Effective Time, by any corporation, trade,
business or entity under common control with Holdings, within
the meaning of Section 414(b), (c) or (m) of the Code or
Section 4001 of ERISA ("Holdings Commonly Controlled Entity"),
(A) no withdrawal liability, within the meaning of Section
4201 of ERISA, has been incurred, which withdrawal liability
has not been satisfied, (B) no liability to the PBGC has been
incurred by any Holdings Commonly Controlled Entity, which
liability has not been satisfied, (C) no accumulated funding
deficiency, whether or not waived, within the meaning of
Section 302 of ERISA or Section 412 of the Code has been
incurred, and (D) all contributions (including installments)
to such plan required by Section 302 of ERISA and Section 412
of the Code have been timely made; and
(9) After taking into account all consents obtained
from participants in Holdings Plans and Holdings Benefit
Programs, the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not
(A) require Holdings to make a larger contribution to, or pay
greater benefits under, any Holdings Plan or Holdings Benefit
Program than it otherwise would (B) create or give rise to any
additional or accelerated vested rights or service credits
under any Holdings Plan or Holdings Benefit Program, or (C)
accelerate the vesting, accrual or exercisability of any
benefits or rights under any Holdings Plan or Holdings Benefit
Program, including, without limitation, acceleration of the
date on which any stock option(s) may first be exercised,
other than the options referred to in Schedule 3.2(m)(ii).
(iii) Except as disclosed on Schedule 3.2(m)(iii) of the
Holdings Letter, there are no severance agreements or employment
agreements between Holdings and any employee of Holdings. True and
correct copies of all such severance and employment agreements have
been provided to LabOne. Except as disclosed on Schedule 3.2(m)(iii) of
the Holdings Letter, (A) Holdings has no consulting agreement or
arrangement with any person involving annual compensation in excess of
$100,000, except as are terminable without penalty upon one month's
notice or less, and (B) no stock or other security issued by Holdings
forms a material part of the assets of any Holdings Plan or Holdings
Benefit Program.
(n) Labor Matters.
(i) Except as set forth in Schedule 3.2(n)(i) of the Holdings
Letter, as of the date of this Agreement, (1) no employees of Holdings
are represented by any
39
<PAGE>
labor organization; (2) no labor organization or group of employees of
Holdings has made a written, or, to Holdings's knowledge, other form of
demand pending demand for recognition or certification, and there are
no representation or certification proceedings or petitions seeking a
representation proceeding presently pending or threatened in writing to
be brought or filed with the National Labor Relations Board or any
other labor relations tribunal or authority; and (3) to the knowledge
of Holdings, there are no organizing activities involving Holdings
pending with any labor organization or group of employees of Holdings;
or
(ii) Except as set forth on Schedule 3.2(n)(ii) of the
Holdings Letter, Holdings is in compliance with all applicable
employment and labor laws and regulations relating to the employment of
labor, including all such laws and orders relating to wages, hours,
collective bargaining, discrimination, civil rights, safety and health
workers' compensation and the collection and payment of withholding
and/or Social Security Taxes and similar Taxes, except where the
failure to comply would not have a Holdings Material Adverse Effect.
(o) Intangible Property. To Holdings's knowledge, Holdings possesses or
has adequate rights to use all material trademarks, trade names, patents,
service marks, brand marks, brand names, computer programs, database, industrial
designs, trade secrets, technology and copyrights necessary for the operation of
its business (collectively, the "Holdings Intangible Property"), except where
the failure to possess or have adequate rights to use such properties would not
reasonably be expected to have a Holdings Material Adverse Effect. Schedule
3.2(o) lists all material patents and trademark registrations (and applications
for patents and trademark applications) or licensing agreements that are
applicable to a material portion of the business of Holdings and the failure to
possess would not reasonably be expected to have a Holdings Material Adverse
Effect. To the knowledge of Holdings, except as set forth on Schedule 3.2(o) of
the Holdings Letter, all of the Holdings Intangible Property is owned or used by
Holdings free and clear of any and all liens, claims or encumbrances, except
those that are not reasonably likely to have a Holdings Material Adverse Effect,
and Holdings has not forfeited or otherwise relinquished any Holdings Intangible
Property which forfeiture would result in a Holdings Material Adverse Effect. To
the knowledge of Holdings, the use of Holdings Intangible Property by Holdings
does not, in any material respect, conflict with, infringe upon, violate or
interfere with or constitute an appropriation of any valid right, title,
interest or goodwill, including, without limitation, any intellectual property
right, trademark, trade name, patent, service mark, brand mark, brand name,
computer program, database, industrial design, copyright or any pending
application therefor of any other person and there have been no claims made and
Holdings has not received any notice of any claim or otherwise knows that any of
Holdings Intangible Property is invalid or conflicts with the asserted rights of
any other person or has not been used or enforced or has been failed to be used
or enforced in a manner that would result in the abandonment, cancellation or
unenforceability of any of Holdings Intangible Property, except for any such
conflict,
40
<PAGE>
infringement, violation, interference, claim, invalidity, abandonment,
cancellation or unenforceability that would not reasonably be expected to have a
Holdings Material Adverse Effect.
(p) Environmental Matters.
(i) Except as disclosed on Schedule 3.2(p) of the Holdings
Letter, the operations of Holdings have been and are currently in
compliance with all Environmental Laws, except where the failure to so
comply would not reasonably be expected to have a Holdings Material
Adverse Effect.
(ii) Except as disclosed on Schedule 3.2(p) of the Holdings
Letter, Holdings has obtained and maintained all permits required under
applicable Environmental Laws for the continued operations of their
respective businesses, except such permits the lack of which would not
reasonably be expected to have a Holdings Material Adverse Effect.
(iii) Except as disclosed on Schedule 3.2(p) of the Holdings
Letter, as of the date hereof Holdings is not subject to any material
(individually or in the aggregate) outstanding written orders or
material contracts with any Governmental Entity or other person
respecting (A) Environmental Laws, (B) Remedial Action or (C) any
Release or threatened Release of a Hazardous Material.
(iv) Except as disclosed on Schedule 3.2(p) of the Holdings
Letter, Holdings has not received any written communication alleging,
with respect to any such party, and has no knowledge of, the violation
of or liability under any Environmental Law, which violation or
liability would reasonably be expected to have a Holdings Material
Adverse Effect.
(v) Except as disclosed on Schedule 3.2(p) of the Holdings
Letter, Holdings has no contingent liability in connection with any
Release of any Hazardous Material including, without limitation, in
connection with the exposure of any person or property to Hazardous
Material that would reasonably be expected to have a Holdings Material
Adverse Effect.
(vi) Except as disclosed on Schedule 3.2(p) of the Holdings
Letter, the operations of Holdings involving the generation,
transportation, treatment, storage or disposal of hazardous waste, as
defined and regulated under 40 C.F.R. Parts 260-270 (in effect as of
the date of this Agreement) or any state equivalent, or any other
Hazardous Material are in compliance with applicable Environmental
Laws, except where the failure to so comply would not reasonably be
expected to have a Holdings Material Adverse Effect.
41
<PAGE>
(vii) Except as disclosed on Schedule 3.2(p) of the Holdings
Letter, to the knowledge of Holdings as of the date hereof, there is
not now on or in any property of Holdings any of the following: (A) any
underground storage tanks or surface impoundments, (B) any
asbestos-containing materials, or (C) any polychlorinated biphenyls,
any of which ((A), (B) or (C) preceding) could reasonably be expected
to have a Holdings Material Adverse Effect. To the knowledge of
Holdings as of the date hereof, none of the properties owned or
operated by Holdings are restricted as to use or as to transfer of
title, or the subject of any special recorded notice, under any
Environmental Law.
(viii) Holdings has made available to LabOne for review all
written reports of environmental audits and assessments prepared for
Holdings within the last three years by third party consultants or
internal environmental, safety or health personnel which are in the
possession or control of Holdings and which relate to the assets or
operations of Holdings.
(q) Opinion of Financial Advisor. The Board of Directors of Holdings
has received the opinion of Salomon Smith Barney Inc. (a copy of which will be
delivered to LabOne), dated the date of this Agreement, to the effect that, as
of such date, after taking into account the Stock Split, the Merger
Consideration is fair to Holdings from a financial point of view.
(r) Vote Required. Assuming that the Articles Amendment is approved,
the affirmative vote of the holders of two-thirds of the outstanding shares of
Holdings Common Stock is the only vote of the holders of any class or series of
Holdings capital stock necessary to approve this Agreement and the Merger and
the transactions contemplated hereby.
(s) Insurance. Holdings has delivered to LabOne an insurance schedule
of Holdings's (i) directors' and officers' liability insurance, and (ii) primary
and excess casualty insurance policies, providing coverage for bodily injury and
property damage to third parties, including products liability and completed
operations coverage, and worker's compensation, in each case in effect as of the
date hereof. Holdings maintains insurance coverage reasonably adequate for the
operation of the business of Holdings (taking into account the cost and
availability of such insurance), and the transactions contemplated hereby will
not materially adversely affect such coverage.
(t) Brokers. Except as disclosed on Schedule 3.2(t) of the Holdings
Letter, no broker, investment banker, or other person is entitled to any
broker's, finder's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Holdings.
42
<PAGE>
(u) Title. Except as disclosed in the Holdings Financial Statements or
on Schedule 3.2(u) of the Holdings Letter, Holdings has good and marketable
title to all real property and good title to all personal property owned by it,
in each case free and clear of all liens, pledges or encumbrances securing money
borrowed, the deferred purchase price of property in excess of $300,000 or
capital leases and free and clear of all other liens, pledges, encumbrances or
defects that could affect the value or use thereof except for any such other
liens, pledges, encumbrances or defects that would not have a Holdings Material
Adverse Effect.
(v) Books and Records. Holdings (i) makes and keeps accurate books and
records and (ii) maintains internal accounting controls which provide reasonable
assurance that (A) transactions are executed in accordance with management's
authorization, (B) transactions are recorded as necessary to permit preparation
of their financial statements and to maintain accountability for their assets,
(C) access to its assets is permitted only in accordance with management's
authorization and (D) the reported accountability for its assets is compared
with existing assets at reasonable intervals, except for any inaccuracy or
inadequacy of controls that would not reasonably be expected to have a Holdings
Material Adverse Effect.
(w) Certain Payments. Neither Holdings, nor any director, officer,
agent, employee or other person associated with or acting on behalf of the
Holdings, has used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expense relating to political activity; made any
direct or indirect unlawful payment to any foreign or domestic governmental
official or employee from corporate funds; violated or is in violation of any
provision of the Foreign Corrupt Practices Act of 1977; nor made any illegal
bribe, rebate, payoff, influence payment, kickback or other unlawful payment,
except for any such expenses, payments or violations that would not reasonably
be expected to have a Holdings Material Adverse Effect.
(x) Transactions with Related Parties. Except as set forth in Schedule
3.2(x) of the Holdings Letter or in the Holdings SEC Documents, there are no
agreements, contracts or other arrangements between (i) Holdings, on the one
hand, and (ii) any Related Person of Holdings, on the other hand. Except as set
forth in Schedule 3.2(x) of the Holdings Letter, as of the Closing Date no
Related Person of Holdings and no present officer or director of any Related
Person of Holdings shall have any interest in any property (real or personal,
tangible or intangible) or contract used in or pertaining to the business of
Holdings and no Related Person of Holdings shall have any direct or indirect
ownership interest (excluding immaterial passive investments) in any person
(other than through Holdings) with which Holdings competes in any material
respect or has a material business relationship. Other than those services
described in the Holdings SEC Documents, Schedule 3.2(x) of the Holdings Letter
sets forth as of the date of this Agreement a description of all services
provided by any Related Person of Holdings to Holdings.
43
<PAGE>
(y) State Takeover Laws. The transactions contemplated by this
Agreement are exempt from the provisions of Sections 351.407 and 351.459 of the
Missouri Law.
(z) Nature of Election by Certain Affiliates. Each of the Directors and
executive officers of Holdings has represented to Holdings that such person
intends to make a Stock Election with respect to any shares of LabOne Common
Stock that such person owns at the Effective Time.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 Conduct of Business by LabOne Pending the Merger. During the period
from the date of this Agreement and continuing until the Effective Time, LabOne
agrees as to itself and its Subsidiaries that (except as expressly contemplated
or permitted by this Agreement, or to the extent that Holdings shall otherwise
consent in writing):
(a) Ordinary Course. Except as provided on Schedule 4.1(a) of LabOne
Letter and except as contemplated by Section 5.16, each of LabOne and its
Subsidiaries shall carry on its businesses only in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted and
shall use all commercially reasonable efforts to preserve intact its present
business organizations, keep available the services of its current officers and
employees, and endeavor to preserve its relationships with customers, suppliers
and others having business dealings with it to the end that its goodwill and
ongoing business shall not result in any LabOne Material Adverse Effect as of
the Effective Time.
(b) Dividends; Changes in Stock. Except as provided on Schedule 4.1(b)
of LabOne Letter and except for quarterly cash dividends consistent with the
current practice of the LabOne Board, LabOne shall not and it shall not permit
any of its Subsidiaries to: (i) declare or pay any dividends on or make other
distributions in respect of any of its capital stock, except for the declaration
and payment of dividends from a Subsidiary of LabOne to LabOne or another
Subsidiary of LabOne and except for cash dividends or distributions paid on or
with respect to the capital stock of a Subsidiary of LabOne; (ii) split, combine
or reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock; or (iii) repurchase, redeem or otherwise
acquire, or permit any of its Subsidiaries to purchase, redeem or otherwise
acquire, any shares of its capital stock,
44
<PAGE>
except as required by the terms of its securities outstanding on the date
hereof, as contemplated by any LabOne Plan or LabOne Benefit Program or pursuant
to the terms of any existing agreements with employees of LabOne and its
Subsidiaries upon the termination of employment of any such employee.
(c) Issuance of Securities. LabOne shall not and it shall not permit
any of its Subsidiaries to, issue, deliver or sell, or authorize or propose to
issue, deliver or sell, any shares of its capital stock of any class, any Voting
Debt or any securities convertible into, or any rights, warrants or options to
acquire, any such shares, Voting Debt or convertible securities, other than: (i)
the issuance of LabOne Common Stock upon the exercise of stock options or other
rights granted under LabOne Stock Option Plans that are outstanding on the date
hereof, or in satisfaction of stock grants or stock based awards made prior to
the date hereof pursuant to LabOne Stock Option Plans or the exercise of any
other rights by participants under any LabOne Plan or LabOne Benefit Program;
and (ii) issuances by a wholly owned Subsidiary of its capital stock to its
parent.
(d) Governing Documents. Except as contemplated hereby or in connection
herewith, LabOne shall not amend or propose to amend its Certificate of
Incorporation or Bylaws.
(e) No Acquisitions. Other than acquisitions listed on Schedule 4.1(e)
of LabOne Letter, LabOne shall not and it shall not permit any of its
Subsidiaries to, acquire or agree to acquire by merging or, consolidating with,
or by purchasing a substantial equity interest in or a substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof.
(f) No Dispositions. Other than: (i) dispositions or proposed
dispositions listed on Schedule 4.1(f) of LabOne Letter; (ii) dispositions as
may be necessary or required by law to consummate the transactions contemplated
hereby; or (iii) dispositions of other assets that are not material,
individually or in the aggregate, to LabOne and its Subsidiaries taken as a
whole, LabOne shall not and it shall not permit any of its Subsidiaries to sell,
lease, encumber or otherwise dispose of, or agree to sell, lease (whether such
lease is an operating or capital lease), encumber or otherwise dispose of, any
of its assets. Notwithstanding the foregoing, none of LabOne nor its
Subsidiaries shall sell, lease, encumber or otherwise dispose of, or agree to
dispose of, any of its assets to any Related Person other than in the ordinary
course of business on an arms length basis.
(g) No Dissolution, Etc. Except as otherwise permitted or contemplated
by this Agreement, LabOne shall not authorize, recommend, propose or announce an
intention to adopt a plan of complete or partial liquidation or dissolution of
LabOne or any of its Subsidiaries.
45
<PAGE>
(h) Certain Employee Matters. Except as set forth on Schedule 4.1(h) of
LabOne Letter, LabOne shall not and it shall not permit any of its Subsidiaries
to: (i) grant any increases in the compensation of any of its directors,
officers or employees, except increases in the ordinary course of business and
in accordance with past practice; (ii) pay or agree to pay any pension,
retirement allowance or other employee benefit not required or contemplated by
any of the existing LabOne Benefit Programs or LabOne Plans as in effect on the
date hereof to any such director, officer or employee, whether past or present;
(iii) enter into any new, or amend any existing, employment or severance or
termination agreement with any such director, officer or key employee; or (iv)
become obligated under any new LabOne Benefit Program or LabOne Plan, which was
not in existence or approved by the Board of Directors of LabOne prior to or on
the date hereof, or amend any such plan or arrangement in existence on the date
hereof if such amendment would have the effect of materially enhancing or
accelerating any benefits thereunder.
(i) Indebtedness; Leases; Capital Expenditures. Except as set forth on
Schedule 4.1(i) of LabOne Letter, LabOne shall not, nor shall LabOne permit any
of its Subsidiaries to, (i) except in the ordinary course of business, incur any
indebtedness for borrowed money or guarantee any such indebtedness or issue or
sell any debt securities or warrants or rights to acquire any debt securities of
such party or any of its Subsidiaries or guarantee any debt securities of
others, (ii) except in the ordinary course of business, enter into any lease
(whether such lease is an operating or capital lease) or create any mortgages,
liens, security interests or other encumbrances on the property of LabOne or any
of its Subsidiaries in connection with any indebtedness thereof, except for
those securing purchase money indebtedness or (iii) commit to aggregate capital
expenditures in excess of $100,000 outside the capital budget, as approved by
LabOne prior to the date hereof.
(j) No Solicitation. Until the Effective Time or the earlier
termination of this Agreement, LabOne will not, and will not authorize or permit
any of its officers, directors, employees, agents and other representatives or
those of any of its Subsidiaries (collectively, "LabOne Representatives") to,
directly or indirectly, solicit or initiate any prospective buyer or the making
of any proposal that constitutes, or may reasonably be expected to lead to, a
LabOne Acquisition Proposal (as defined herein) from any person; provided,
however, that, notwithstanding any other provision of this Agreement, (i) LabOne
may engage in discussions or negotiations with a third party who (without any
solicitation or initiation, directly or indirectly, by or with LabOne or any
LabOne Representatives after the date of this Agreement) seeks to initiate such
discussions or negotiations and may furnish such third party information
concerning LabOne and its business, properties and assets, (ii) LabOne's Board
of Directors may take and disclose to LabOne's stockholders a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act and (iii)
following receipt of a LabOne Acquisition Proposal that is financially superior
to the Merger and reasonably capable of being financed (as determined in each
case in good faith by the Special Committee after consultation with the
financial advisors to the Special Committee), the Board of Directors of LabOne
may withdraw,
46
<PAGE>
modify or change its recommendation referred to in Section 5.5, based on the
recommendation by the Special Committee, or terminate this Agreement in
accordance with Section 7.1(b), based on the recommendation by the Special
Committee, but in each case referred to in the foregoing clauses (i) through
(iii) only to the extent that (A) the Board of Directors of LabOne in the
exercise of its good faith judgment as to its fiduciary duties to all LabOne
Stockholders, as advised by outside counsel, or (B) the Special Committee in the
exercise of its good faith judgment as to its fiduciary duties to the
unaffiliated LabOne Stockholders, as advised by outside counsel to the Special
Committee, shall conclude that such action is necessary. LabOne shall
immediately cease and cause to be terminated any existing solicitation,
initiation, encouragement, activity, discussion or negotiation with any parties
conducted heretofore by LabOne or any LabOne Representatives with respect to any
LabOne Acquisition Proposal existing on the date hereof. LabOne will promptly
notify Holdings of any such requests for such information or the receipt of any
LabOne Acquisition Proposal, including the identity of the person or group
engaging in such discussions or negotiations, requesting such information or
making such LabOne Acquisition Proposal, and (unless (i) the Board of Directors
of LabOne concludes such disclosure is inconsistent with its fiduciary
obligations to all LabOne Stockholders, as advised by outside counsel, or (ii)
the Special Committee concludes that such disclosure is inconsistent with its
fiduciary obligations to Unaffiliated LabOne Stockholders, as advised by outside
counsel to the Special Committee) the material terms and conditions of any
LabOne Acquisition Proposal. As used in this Agreement, "LabOne Acquisition
Proposal" shall mean any proposal or offer, other than a proposal or offer by
Holdings or any of its affiliates, for a tender or exchange offer, a merger,
consolidation or other business combination involving LabOne or any Subsidiary
of LabOne or any proposal to acquire in any manner a substantial equity interest
in, or substantially all of the assets of, LabOne or any of its Subsidiaries.
(k) Pooling. LabOne shall not, nor shall LabOne permit any of its
Subsidiaries to, enter into any agreement, effect any transaction, incur any
obligation or commitment or take any other action that could reasonably be
expected to prevent any merger, consolidation or acquisition of stock or assets
of any entity by the Surviving Corporation to be accounted for as a pooling of
interests under applicable SEC requirements and GAAP, assuming that the sole
consideration from the Surviving Corporation therefor is Surviving Corporation
Common Stock.
4.2 Conduct of Business by Holdings Pending the Merger. During the
period from the date of this Agreement and continuing until the Effective Time,
Holdings agrees that (except as expressly contemplated or permitted by this
Agreement, or to the extent that LabOne shall otherwise consent in writing):
(a) Ordinary Course. Except as provided on Schedule 4.2(a) of the
Holdings Letter, Holdings shall carry on its businesses only in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted and shall use all commercially
47
<PAGE>
reasonable efforts to preserve intact its present business organizations, keep
available the services of its current officers and employees, and endeavor to
preserve its relationships with customers, suppliers and others having business
dealings with it to the end that its goodwill and ongoing business shall not
result in any Holdings Material Adverse Effect as of the Effective Time.
(b) Dividends; Changes in Stock. Except as provided on Schedule 4.2(b)
of the Holdings Letter, Holdings shall not: (i) declare or pay any dividends on
or make other distributions in respect of any of its capital stock other than
regular quarterly cash dividends consistent with past practice; (ii) split,
combine or reclassify any of its capital stock or issue or authorize or propose
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock; or (iii) repurchase, redeem or
otherwise acquire, or permit any of its Subsidiaries to purchase, redeem or
otherwise acquire, any shares of its capital stock, except for the Stock Split
or as required by the terms of its securities outstanding on the date hereof, as
contemplated by any Holdings Plan or Holdings Benefit Program or pursuant to the
terms of any existing agreements with employees of Holdings upon the termination
of employment of any such employee.
(c) Issuance of Securities. Except pursuant to the Stock Split or as
provided on Schedule 4.2(c) of the Holdings Letter, Holdings shall not, issue,
deliver or sell, or authorize or propose to issue, deliver or sell, any shares
of its capital stock of any class, any Voting Debt or any securities convertible
into, or any rights, warrants or options to acquire, any such shares, Voting
Debt or convertible securities, other than the issuance of Holdings Common Stock
upon the exercise of stock options granted under Holdings Stock Option Plan that
are outstanding on the date hereof or the exercise of any other right by
participants under any Holdings Plan or Holdings Benefit Program.
(d) Governing Documents. Except as contemplated hereby or in connection
herewith, Holdings shall not amend or propose to amend its Articles of
Incorporation or Bylaws.
(e) No Acquisitions. Other than acquisitions listed on Schedule 4.2(e)
of the Holdings Letter, Holdings shall not and it shall not permit any of its
Subsidiaries to, acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial equity interest in or a substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof.
(f) No Dispositions. Other than: (i) dispositions listed on Schedule
4.2(f) of the Holdings Letter (ii) dispositions as may be necessary or required
by law to consummate the transactions contemplated hereby; or (iii) dispositions
of other assets that are not material, individually or in the aggregate, to
Holdings, Holdings shall not sell, lease, encumber or otherwise dispose of, or
agree to sell, lease (whether such lease is an
48
<PAGE>
operating or capital lease), encumber or otherwise dispose of, any of its
assets. Notwithstanding the foregoing, Holdings shall not sell, lease, encumber
or otherwise dispose of, or agree to dispose of, (A) any of its assets to any
Related Person other than in the ordinary course of business on an arms length
basis or (B) any shares of LabOne Common Stock.
(g) No Dissolution, Etc. Except as otherwise permitted or contemplated
by this Agreement, Holdings shall not authorize, recommend, propose or announce
an intention to adopt a plan of complete or partial liquidation or dissolution
of Holdings.
(h) Certain Employee Matters. Except as set forth on Schedule 4.2(h) of
the Holdings Letter, Holdings shall not : (i) grant any increases in the
compensation of any of its directors, officers or employees, except increases in
the ordinary course of business and in accordance with past practice; (ii) pay
or agree to pay any pension, retirement allowance or other employee benefit not
required or contemplated by any of the existing Holdings Benefit Programs or
Holdings Plans as in effect on the date hereof to any such director, officer or
employee, whether past or present; (iii) enter into any new, or amend any
existing, employment or severance or termination agreement with any such
director, officer or key employee; or (iv) become obligated under any new
Holdings Benefit Program or Holdings Plan, which was not in existence or
approved by the Board of Directors of Holdings prior to or on the date hereof,
or amend any such plan or arrangement in existence on the date hereof if such
amendment would have the effect of materially enhancing or accelerating any
benefits thereunder.
(i) Indebtedness; Leases; Capital Expenditures. Except as set forth on
Schedule 4.2(i) of the Holdings Letter or as contemplated by Section 5.13,
Holdings shall not, (i) except in the ordinary course of business, incur any
indebtedness for borrowed money (except for working capital under Holdings's
existing credit facilities, and refinancings of existing debt that permit
prepayment of such debt without penalty) or guarantee any such indebtedness or
issue or sell any debt securities or warrants or rights to acquire any debt
securities or guarantee any debt securities of others, (ii) except in the
ordinary course of business, enter into any lease (whether such lease is an
operating or capital lease) or create any mortgages, liens, security interests
or other encumbrances on the property of Holdings in connection with any
indebtedness thereof, except for those securing purchase money indebtedness or
(iii) commit to aggregate capital expenditures in excess of $100,000 outside the
capital budget, as approved by Holdings prior to the date hereof.
(j) No Solicitation: Until the Effective Time or the earlier
termination of this Agreement, Holdings will not, and will not authorize or
permit any of its officers, directors, employees, agents and other
representatives (collectively, "Holdings Representatives") to, directly or
indirectly, solicit or initiate any prospective buyer or the making of any
proposal that constitutes, or may reasonably be expected to lead to, a
49
<PAGE>
Holdings Acquisition Proposal (as defined herein) from any person; provided,
however, that, notwithstanding any other provision of this Agreement, (i)
Holdings may engage in discussions or negotiations with a third party who
(without any solicitation or initiation, directly or indirectly, by or with
Holdings or any Holdings Representatives after the date of this Agreement) seeks
to initiate such discussions or negotiations and may furnish such third party
information concerning Holdings and its business, properties and assets, (ii)
Holdings's Board of Directors may take and disclose to Holdings's stockholders a
position contemplated by Rule 14e-2(a) promulgated under the Exchange Act and
(iii) following receipt of a Holdings Acquisition Proposal that is financially
superior to the Merger and reasonably capable of being financed (as determined
in each case in good faith by Holdings's Board of Directors after consultation
with Holdings's financial advisors), the Board of Directors of Holdings may
withdraw, modify or change its recommendation referred to in Section 5.5 or
terminate this Agreement in accordance with Section 7.1(b), but in each case
referred to in the foregoing clauses (i) through (iii) only to the extent that
the Board of Directors of Holdings shall conclude, in the exercise of its good
faith judgment as to its fiduciary duties to its stockholders imposed by law, as
advised by outside counsel, that such action is necessary. Holdings shall
immediately cease and cause to be terminated any existing solicitation,
initiation, encouragement, activity, discussion or negotiation with any parties
conducted heretofore by Holdings or any Holdings representatives with respect to
any Holdings Acquisition Proposal existing on the date hereof. Holdings will
promptly notify LabOne of any such requests for such information or the receipt
of any Holdings Acquisition Proposal, including the identity of the person or
group engaging in such discussions or negotiations, requesting such information
or making such Holdings Acquisition Proposal, and (unless the Board of Directors
of Holdings concludes such disclosure is inconsistent with its fiduciary
obligations under applicable law, as advised by outside counsel) the material
terms and conditions of any Holdings Acquisition Proposal. As used in this
Agreement, "Holdings Acquisition Proposal" shall mean any proposal or offer,
other than a proposal or offer by LabOne or any of its affiliates, for a tender
or exchange offer, a merger, consolidation or other business combination
involving Holdings or LabOne or any proposal to acquire in any manner a
substantial equity interest in, or substantially all of the assets of, Holdings
or LabOne.
(k) Pooling. Except for stock purchases required to maintain the
ability to file consolidated tax reports with LabOne on a consolidated basis,
Holdings shall not enter into any agreement, effect any transaction, incur any
obligation or commitment or take any other action that could reasonably be
expected to prevent any merger, consolidation or acquisition of stock or assets
of any entity by the Surviving Corporation to be accounted for as a pooling of
interests under applicable SEC requirements and GAAP, assuming that the sole
consideration from the Surviving Corporation therefor is Surviving Corporation
Common Stock.
50
<PAGE>
(l) Stock Split.
(i) Holdings shall take all actions reasonably necessary to
cause the Stock Split (to be effected as a stock dividend) to become effective
immediately prior to the Effective Time (provided that Holdings's obligation to
cause the Stock Split to become effective shall be subject to the prior
satisfaction or waiver, as applicable, of each of the conditions to the
respective obligation of each party to effect the Merger set forth in Article VI
(other than Section 6.1(h)) shall have been satisfied or waived).
(ii) In connection with the Stock Split, there shall be
transferred on the books of Holdings from retained earnings to the common stock
capital account of Holdings, immediately prior to the Effective Time, an amount
equal to the product of $1.00 times the number of whole shares of Holdings
Common Stock issuable in connection with such dividend.
(iii) In connection with the Stock Split, Holdings may deposit
with American Stock Transfer & Trust Company or such other institution as it may
select (the "Distribution Agent") for the benefit of the holders of shares of
Holdings Common Stock, for distribution through the Distribution Agent, cash or
shares in an amount sufficient to satisfy the obligations of Holdings to make a
distribution in connection with the Stock Split and to make payments for
fractional shares (such cash or shares being hereinafter referred to as the
"Distribution Fund"). In such event, as promptly as practicable following the
Effective Time, the Distribution Agent will determine the excess of (A) the
number of whole shares delivered to the Distribution Agent over (B) the
aggregate number of whole shares payable to holders of Holdings Common Stock in
connection with the Stock Split (such excess being herein called the "Excess
Shares"). Following the Effective Time, the Distribution Agent will sell the
Excess Shares at then-prevailing prices on the Nasdaq Stock Market, all in the
manner provided in clause (iv) below.
(iv) Any sale of the Excess Shares by the Distribution Agent
will be executed through one or more brokers or dealers, as the Distribution
Agent shall determine, in round lots to the extent practicable. The Distribution
Agent will use reasonable efforts to complete the sale of the Excess Shares as
promptly following the Effective Time as, in the Distribution Agent's sole
judgment, is practicable consistent with obtaining the best execution of such
sales in light of prevailing market conditions. Until the net proceeds of such
sale or sales have been distributed to the prior holders of Holdings Common
Stock, the Distribution Agent will hold such proceeds in trust for such holders
entitled thereto (the "Holdings Common Stock Trust"). All commissions, transfer
taxes and other out-of-pocket transaction costs, including the expenses and
compensation of the Distribution Agent incurred in connection with such sale of
the Excess Shares will be paid from the Holdings Common Stock Trust. The
Distribution Agent will determine the portion of the Holdings Common Stock Trust
to which each holder is entitled, if any, by
51
<PAGE>
multiplying the amount of the aggregate net proceeds comprising the Holdings
Common Stock Trust by a fraction, the numerator of which is the amount of the
fractional share interest to which such holder is entitled (after taking into
account all Holdings Common Stock held at the Effective Time by such holder) and
the denominator of which is the aggregate amount of fractional share interests
to which all holders of Holdings Common Stock at the Effective Time are
entitled.
(v) Notwithstanding the provisions of clauses (iii) and (iv) of this
Section 4.2(l) Holdings may elect at its option, exercised prior to the
Effective Time, in lieu of the issuance and sale of Excess Shares and the making
of the payments hereinabove contemplated, to pay each holder of Holdings Common
Stock an amount in cash (without interest) equal to the value of such fraction
of a share based upon the closing price of Surviving Corporation Common Stock on
the Nasdaq Stock Market on the date on which the Effective Time shall occur (or
if the Surviving Corporation Common Stock shall not trade on the Nasdaq Stock
Market on such date, the first day that Surviving Corporation Common Stock shall
trade on the Nasdaq Stock Market thereafter) and, in such case, all references
herein to the cash proceeds of the sale of the Excess Shares and similar
references will be deemed to mean and refer to the payments calculated as set
forth in this Section 4.2(v).
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of S-4 and the Proxy Statement. LabOne, acting through
the Special Committee, and Holdings shall promptly prepare the Proxy Statement.
Holdings shall file with the SEC the S-4, in which the Proxy Statement will be
included as a prospectus. Holdings shall use its commercially reasonable efforts
to have the S-4 declared effective under the Securities Act as promptly as
practicable after such filing. Holdings shall use its commercially reasonable
efforts to cause the Proxy Statement and any supplement to be mailed to
stockholders of Holdings at the earliest practicable date. LabOne, acting
through the Special Committee, shall use its commercially reasonable efforts to
cause the Proxy Statement and any supplement thereto to be mailed to
stockholders of LabOne at the earliest practicable date. Holdings shall use its
commercially reasonable efforts to obtain all necessary state securities laws or
"blue sky" permits, approvals and registrations in connection with the issuance
of Surviving Corporation Common Stock in the Merger. LabOne, acting through the
Special Committee, shall furnish all information concerning LabOne and the
holders of LabOne Common Stock, including financial statements required by Form
S-4 and the proxy rules under the Exchange Act, as may be reasonably requested
in connection with obtaining such permits, approvals and registrations. The
parties acknowledge that any withdrawal or material modification of a fairness
opinion rendered in connection with the approval of this
52
<PAGE>
Agreement by the Board of Directors of Holdings or the Special Committee and
Board of Directors of LabOne would be an event requiring mailing of a supplement
to the stockholders of the affected company.
5.2 Letter of LabOne's Accountants. LabOne, acting through the Special
Committee, shall use its commercially reasonable efforts to cause to be
delivered to Holdings a letter of KPMG LLP, LabOne's independent public
accountants, dated a date within two business days before the date on which the
S-4 shall become effective and addressed to LabOne and Holdings, in form and
substance reasonably satisfactory to Holdings and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the S-4.
5.3 Letter of Holdings's Accountants. Holdings shall use its
commercially reasonable efforts to cause to be delivered to LabOne a letter of
KPMG LLP, Holdings's independent public accountants, dated a date within two
business days before the date on which the S-4 shall become effective and
addressed to Holdings and LabOne, in form and substance reasonably satisfactory
to Holdings and LabOne and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the S-4.
5.4 Access to Information. Upon reasonable notice, LabOne, acting
through the Special Committee, and Holdings shall each (and shall cause each of
their respective Subsidiaries to) afford to the officers, employees,
accountants, counsel and other representatives of the other, access, during
normal business hours during the period prior to the Effective Time, to all its
properties, books, contracts, commitments and records and, during such period,
each of LabOne and Holdings shall (and shall cause each of their respective
Subsidiaries to) furnish promptly to the other (a) a copy of each quarterly,
annual or current report on Form 10-Q, 10-K or 8-K, schedule, registration
statement and other document filed or received by it during such period pursuant
to SEC requirements and (b) all other information concerning its business,
properties and personnel as such other party may reasonably request, excluding,
however, information covered by confidentiality agreements with third parties.
Each of LabOne, and Holdings agrees that (i) it will not, and will cause its
respective representatives not to, use any information obtained pursuant to this
Section 5.4 for any purpose unrelated to the consummation of the transactions
contemplated by this Agreement or Holdings's ownership of LabOne capital stock,
and (ii) will maintain the confidentiality of such information, except to the
extent required to be disclosed in the S-4 or the Proxy Statement or any
supplement thereto or as otherwise required by law or legal process.
5.5 Stockholders Meetings. LabOne and Holdings shall each call a
meeting of its stockholders (respectively, the "LabOne Stockholder Meeting" and
the "Holdings Stockholder Meeting" and, collectively, the "Stockholder
Meetings") to be held as promptly as practicable after the date hereof for the
purpose of voting upon this Agreement
53
<PAGE>
and the Merger. Subject to the proviso of the first sentence of Section 4.1(j),
LabOne will, through its Board of Directors and in accordance with any
recommendation by the Special Committee, recommend to its stockholders approval
of such matters and not rescind such recommendation and shall use its
commercially reasonable efforts to obtain approval and adoption of this
Agreement and the Merger by its stockholders; provided, however, that the Board
of Directors of LabOne may also withdraw, modify or change its recommendation
based on a recommendation to do so by the Special Committee following a
withdrawal or material modification of the opinion described in Section 3.1(q).
Subject to the proviso of the first sentence of Section 4.2(j), Holdings will,
through its Board of Directors, recommend to its stockholders approval of such
matters and not rescind such recommendation and shall use its commercially
reasonable efforts to obtain approval and adoption of this Agreement and the
Merger by its stockholders; provided, however, that the Board of Directors of
Holdings may also withdraw, modify or change its recommendation following a
withdrawal or material modification of the opinion described in Section 3.2(q).
LabOne and Holdings shall coordinate and cooperate with respect to the timing of
such meetings and shall use their commercially reasonable efforts to hold such
meetings on the same day.
5.6 Legal Conditions to Merger. LabOne and Holdings will take all
commercially reasonable actions necessary to comply promptly with all legal
requirements that may be imposed on such party with respect to the Merger
(including, without limitation, furnishing all information in connection with
approvals of or filings with any Governmental Entity) and will promptly
cooperate with and furnish information to each other in connection with any such
requirements imposed upon any of them or any of their Subsidiaries in connection
with the Merger. LabOne will, and will cause its Subsidiaries to, and Holdings
will, take all commercially reasonable actions necessary to obtain (and will
cooperate with each other in obtaining) any consent, acquiescence,
authorization, order or approval of, or any exemption or nonopposition by, any
Governmental Entity, court or other person or entity required to be obtained or
made by LabOne, any of its Subsidiaries or Holdings in connection with the
Merger or the taking of any action contemplated thereby or by this Agreement.
5.7 Agreements of Others. Prior to the Effective Time, LabOne shall
cause to be prepared and delivered to Holdings a list identifying all persons
who, at the time of LabOne Stockholder Meeting may be deemed to be "affiliates"
of LabOne as that term is used in paragraphs (c) and (d) of Rule 145 under the
Securities Act (the "Affiliates"). LabOne shall use its commercially reasonable
efforts to cause each person who is identified as an Affiliate and who will not
be an Affiliate of the Surviving Corporation in such list to deliver to
Holdings, at or prior to the Effective Time, a written agreement, in a form
mutually agreeable to LabOne and Holdings whereby each such person acknowledges
that such person is subject to the provisions of Rule 145(d) promulgated under
the Securities Act.
54
<PAGE>
5.8 Listing. Holdings shall use its commercially reasonable efforts to
cause the shares of Surviving Corporation Common Stock to be issued in the
Merger, the shares of Surviving Corporation Common Stock issuable upon exercise
of LabOne Stock Options and issuable under LabOne Stock Option Plans to be
approved for trading on the Nasdaq Stock Market, subject to official notice of
issuance, prior to the Closing Date.
5.9 Board of Directors and Officers. Holdings and LabOne shall take all
necessary action so that as of the Effective Time the directors of the Surviving
Corporation shall only be those individuals identified on Exhibit D hereto,
except to the extent any such individual is unwilling or unable to serve in such
capacity, and except that prior to the Effective Time, one additional person
with significant experience in the clinical laboratories industry will be named
as a director by mutual agreement of the Special Committee and Holdings. If
prior to the Effective Time an individual identified on Exhibit D hereto as a
director or officer is unwilling or unable to serve in such capacity, any person
proposed to fill such vacancy shall be subject to the approval of Holdings and
the Special Committee.
5.10 Assumption of Plans and Agreements; Stock Options; Reservation and
Registration of Shares. (a) Holdings and LabOne agree that they shall, at or
prior to the Effective Time, execute and deliver an assumption agreement
pursuant to which Holdings will, from and after the Effective Time, be
substituted for, assume and agree to perform, all obligations of LabOne pursuant
to any LabOne Plans and LabOne Benefit Programs established or maintained by
LabOne immediately prior to the Effective Time, in each case as Holdings and
LabOne may provide in such assumption agreement. In connection with such
assumption and without further action by shareholders of LabOne or Holdings,
such plans shall be amended such that all references to LabOne and LabOne Common
Stock shall become references to the Surviving Corporation and Surviving
Corporation Common Stock, if provided in the assumption agreement referred to in
the preceding sentence.
(b) At the Effective Time, each outstanding option or Warrant to
purchase LabOne Common Stock and any stock appreciation rights related thereto
that have been granted pursuant to LabOne Stock Option Plans (a "LabOne Stock
Option"), whether vested or unvested, shall be deemed to constitute an option or
warrant to acquire, on the same terms and conditions as were applicable under
such LabOne Stock Option or Warrants, as the case may be, a number of shares of
Surviving Corporation Common Stock equal to the number of shares of LabOne
Common Stock purchasable pursuant to such LabOne Stock Option or Warrants, as
the case may be, at a price per share of Holdings Common Stock equal to the
per-share exercise price for the shares of LabOne Common Stock purchasable
pursuant to such LabOne Stock Option or Warrants, as the case may be, provided,
however, that in the case of any option to which Section 421 of the Code applies
by reason of its qualification under any of Sections 422-424 of the Code, the
option price, the number
55
<PAGE>
of shares purchasable pursuant to such option and the terms and conditions of
exercise of such option shall be determined in order to comply with Section
424(a) of the Code.
(c) Holdings shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Surviving Corporation Common Stock for
delivery upon exercise of LabOne Stock Options or Warrants, as the case may be.
As soon as practicable after the Effective Time, Holdings shall file with the
SEC a registration statement on Form S-8 (or any successor form) or another
appropriate form with respect to the shares of Surviving Corporation Common
Stock subject to LabOne Stock Options and shall use its commercially reasonable
efforts to maintain the effectiveness of such registration statement or
registration statements (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as LabOne Stock Options remain
outstanding.
5.11 Indemnification; Directors' and Officers' Insurance. (a) From and
after the Effective Time, the Surviving Corporation shall indemnify, defend and
hold harmless each person who is now, or has been at any time prior to the date
hereof or who becomes prior to the Effective Time, an officer or director of
Holdings or LabOne or any of their subsidiaries or an employee of Holdings or
LabOne or any of their subsidiaries who acts as a fiduciary under any of the
Holdings Benefit Programs, the Holdings Plans, LabOne Benefit Programs or LabOne
Plans, together with the beneficiaries of such persons upon their death (the
"Indemnified Parties") against all losses, claims, damages, costs, expenses
(including attorneys' fees ), liabilities, judgments, penalties or fines
(including excise taxes assessed with respect to an employee benefit plan), as
well as amounts that are paid in settlement with the approval of the
indemnifying party (which approval shall not be unreasonably withheld), and all
interest, assessments and other charges paid or payable in connection with, or
in respect of , any such judgments, fines, penalties or amounts paid in
settlement, of or in connection with any threatened or actual claim, action,
suit, proceeding or investigation based in whole or in part on or arising in
whole or in part out of the fact that such person is or was a director, officer,
or such employee of Holdings or LabOne or any of their subsidiaries or as a
fiduciary under any of the Holdings Benefit Programs, the Holdings Plans, LabOne
Benefit Programs or LabOne Plans, whether pertaining to any matter existing or
occurring at or prior to the Effective Time and whether asserted or claimed
prior to, or at or after, the Effective Time ("Indemnified Liabilities"),
including all Indemnified Liabilities based in whole or in part on, or arising
in whole or in part out of, or pertaining to this Agreement or the transactions
contemplated hereby. Such indemnification shall be made to an Indemnified Party
no later than thirty (30) days after receipt by the Surviving Corporation of the
written request of an Indemnified Party, unless the conduct of such Indemnified
Party resulting in such Indemnified Liabilities has been finally adjudged in a
judicial proceeding to have been knowingly fraudulent, deliberately dishonest or
wilful misconduct.
(b) The Surviving Corporation also will pay expenses on an unsecured
basis in advance of the final disposition of any such action or proceedings to
each Indemnified
56
<PAGE>
Party upon receipt of a written undertaking by the Indemnified Party to repay
such amount if it is finally adjudged in the judicial proceeding in which the
Indemnified Liabilities are imposed that the Indemnified Party is not entitled
to indemnification. Without limiting the foregoing, in the event any such claim,
action, suit, proceeding or investigation is brought against any Indemnified
Parties (whether arising before or after the Effective Time), (i) the
Indemnified Parties may retain counsel of their choice (subject to the
limitations below) reasonably satisfactory to them and the Surviving
Corporation, and the Surviving Corporation shall pay all fees and expenses of
such counsel for the Indemnified Parties promptly as statements therefor are
received; and (ii) the Surviving Corporation will use all commercially
reasonable efforts to assist in the vigorous defense of any such matter,
provided that the Surviving Corporation shall not be liable for any settlement
effected without its written consent, which consent, however, shall not be
unreasonably withheld.
(c) Any Indemnified Party wishing to claim indemnification under this
Section 5.11, upon learning of any such claim, action, suit, proceeding or
investigation, shall notify the Surviving Corporation, but the failure so to
notify shall not relieve the Surviving Corporation from any liability to
indemnify that it may have under this Section 5.11, except to the extent such
failure materially increases the amount of indemnification which the Surviving
Corporation is obligated to pay hereunder, in which case the amount of
indemnification the Indemnified Party shall be entitled to receive shall be
reduced to an amount which the Surviving Corporation proves in a judicial
proceeding the Indemnified Party would have been entitled to receive had such
notice been timely given. The Indemnified Parties as a group may retain only one
law firm to represent them with respect to each such matter unless there is,
under applicable standards of professional conduct, a conflict on any
significant issue between the positions of any two or more Indemnified Parties.
(d) In addition to the indemnification and advances provided for above,
the Surviving Corporation shall indemnify an Indemnified Party against any and
all expenses (including attorneys' fees) and, if requested by an Indemnified
Party, shall (within two business days of such request) advance such expenses to
an Indemnified Party which are reasonably incurred by the Indemnified Party in
connection with any claim asserted or action brought by an Indemnified Party for
(i) indemnification or advance payment of expenses by the Surviving Corporation
under this Agreement or any other agreement or By-law of the Surviving
Corporation now or hereafter in effect relating to Indemnified Liabilities
and/or (ii) recovery under any directors' and officers' liability insurance
policies maintained by Holdings, LabOne or the Surviving Corporation, regardless
of whether an Indemnified Party ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be.
(e) Holdings and LabOne agree that (i) the rights to indemnification or
advances provided in this agreement shall be enforceable by an Indemnified Party
in any court of
57
<PAGE>
competent jurisdiction and (ii) in any such proceeding in which the Surviving
Corporation is contesting an Indemnified Party's right to indemnification or
advances, the Surviving Corporation shall bear the burden of proof.
(f) LabOne and Holdings agree that the rights afforded in this
Agreement are in addition to, and not in substitution for, all rights to
indemnification, including provisions relating to advances of expenses incurred
in defense of any action or suit, existing in favor of the Indemnified Parties
(including in the Articles of Incorporation or Bylaws or in the indemnification
agreements previously provided by Holdings or LabOne to the Indemnified Parties)
with respect to matters occurring through the Effective Time, and all such
rights shall survive the Merger and shall continue in full force and effect for
a period of six years from the Effective Time; provided, however, that all
rights to indemnification in respect of any Indemnified Liabilities asserted or
made within such period shall continue until the disposition of such Indemnified
Liabilities.
(g) After the Effective Time, Surviving Corporation shall cause to be
maintained in effect the current policies of directors' and officers' liability
insurance maintained by Holdings and LabOne and its Subsidiaries or other
policies of comparable coverage and amounts with respect to matters arising
before the Effective Time covering Indemnified Parties who are directors or
officers of Holdings or LabOne as of the date hereof and who cease to be
employed as a director or officer of the Surviving Corporation after the date
hereof and within six years after the Effective Time, such that if a claim is
made against any such Indemnified Person during the six years following the
Effective Time with respect to occurrences arising prior to the Effective Time,
the Indemnified Person would be covered as if (a) the Indemnified Person has not
ceased to be so employed or serving as a director, as the case may be, and (b)
such insurance was still in effect.
5.12 Public Announcements. Prior to the Effective Time or the sooner
termination of this Agreement, Holdings and LabOne (acting through the Special
Committee) will consult with each other before issuing any press release or
otherwise making any public statements with respect to the transactions
contemplated by this Agreement and the contents of such press release or public
statement, and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by applicable
law or by obligations pursuant to any listing agreement with any national
securities exchange or transaction reporting system or legal process.
5.13 Other Actions. Except as contemplated by this Agreement, neither
Holdings nor LabOne shall, and shall not permit any of its Subsidiaries to, take
or agree or commit to take any action that is reasonably likely to result in any
of its respective representations or warranties hereunder being untrue in any
material respect or in any of the conditions to the Merger set forth in Article
VI not being satisfied. Except as contemplated by this Agreement, upon the terms
and subject to the conditions set forth in this Agreement, each of the parties
hereto agrees to use its commercially reasonable efforts to take, or cause to
58
<PAGE>
be taken, all actions, and to do, or cause to be done, and to assist and
cooperate with the other parties in doing, all things necessary, proper or
advisable, to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by this
Agreement. In this regard, Holdings and LabOne acknowledge that Holdings may
require financing to consummate the transaction contemplated by this Agreement
and LabOne and Holdings agree to use their respective best efforts to obtain
such financing and to cooperate with one another in procuring such financing.
5.14 Advice of Changes; SEC Filings. Prior to the Effective Time or the
sooner termination of this Agreement, Holdings and LabOne shall confer on a
regular basis with each other, report on operational matters and promptly advise
each other orally and in writing of any change or event having, or which,
insofar as can reasonably be foreseen, could have, a Holdings Material Adverse
Effect or LabOne Material Adverse Effect. LabOne and Holdings shall promptly
provide each other (or their respective counsel) copies of all filings made by
such party with the SEC or any other state or federal Governmental Entity in
connection with this Agreement and the transactions contemplated hereby.
5.15 Tax-Free Transaction. It is the intention of Holdings and LabOne
that the Merger will qualify as a tax-free transaction described in Sections 332
and 368(a) of the Code (and any comparable provisions of applicable state or
local law). Neither Holdings nor LabOne (nor any of their respective
Subsidiaries) will take or omit to take any action (whether before, on or after
the Closing Date) that would cause the Merger not to be so treated. The parties
will characterize the Merger as such a transaction for purposes of all Returns
and other filings.
5.16 Employment Agreements. Prior to the Effective Time, LabOne will
use its best commercially reasonable efforts to amend the employment agreements
of the persons in Schedule 3.1(m)(iii) of the LabOne Letter so that the
transactions contemplated by this Agreement do not constitute a "change in
control" under such employment agreements.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction prior to the Closing Date of the following conditions:
59
<PAGE>
(a) Stockholder Approval.
(i) This Agreement and the Merger shall have been approved and
adopted by the affirmative vote of the holders of a majority of the
outstanding shares of LabOne Common Stock entitled to vote thereon at
LabOne Stockholder Meeting and shall have been approved and adopted by
the holders of two-thirds of the outstanding shares of Holdings Common
Stock entitled to vote thereon at the Holdings Stockholder Meeting. In
addition, this Agreement and the Merger shall have been approved by the
holders of a majority of the outstanding shares of LabOne Common Stock
owned by LabOne Unaffiliated Stockholders present and voting at the
LabOne Stockholder Meeting in favor of or against the Agreement and the
Merger.
(ii) The Articles Amendment shall have been adopted, and until
so adopted this Agreement shall not be effective except for the second
sentence of Section 5.4 and except for Section 8.1.
(b) Listing. The shares of Surviving Corporation Common Stock issuable
to LabOne stockholders pursuant to this Agreement and such other shares of
Surviving Corporation Common Stock required to be reserved for issuance in
connection with the Merger and LabOne Plans and LabOne Benefit Programs shall
have been authorized for trading on the Nasdaq Stock Market, upon official
notice of issuance.
(c) Other Approvals. All filings required to be made prior to the
Effective Time with, and all consents, approvals, permits and authorizations
required to be obtained prior to the Effective Time from any Governmental Entity
or other third party in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby by LabOne
and Holdings shall have been made or obtained (as the case may be), except where
the failure to obtain such consents, approvals, permits, and authorizations
would not be reasonably likely to result in a material adverse effect to the
business, operations, assets, condition (financial or otherwise) or results of
operation of the Surviving Corporation and its Subsidiaries taken as a whole
(assuming the Merger has taken place) (a "Surviving Corporation Material Adverse
Effect") or to materially adversely affect the consummation of the Merger.
(d) S-4. The S-4 shall have become effective under the Securities Act
and shall not be the subject of any stop order or proceedings seeking a stop
order.
(e) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition (an "Injunction")
preventing the consummation of the Merger, or imposing conditions that
compliance with which would reasonably be expected to have a Surviving
Corporation Material Adverse Effect, shall be in effect.
60
<PAGE>
(f) Dissenters. The aggregate number of shares held by holders of
Holdings Common Stock who have made demands for appraisal in accordance with the
Missouri Law shall not exceed 5.0% of the shares of Holdings Common Stock
outstanding and entitled to vote at the Holdings Stockholders Meeting.
(g) Tax Opinion. LabOne and Holdings shall have received an opinion,
reasonably satisfactory to both LabOne and Holdings, dated on or about the date
that is two days prior to the date the Proxy Statement is first mailed to
stockholders of Holdings, of Lathrop & Gage L.C., counsel to Holdings, to the
effect that, if the Merger is consummated in accordance with the terms of this
Agreement, no gain or loss will be recognized for United States federal income
tax purposes by Holdings, LabOne, a stockholder of LabOne who makes a Stock
Election or a shareholder of Holdings as a result of the Merger or upon the
conversion of shares of LabOne Common Stock and Holdings Common Stock into
shares of Surviving Corporation Common Stock, except with respect to cash, if
any, which is received in lieu of fractional shares of Holdings Common Stock or
by shareholders of Holdings who might exercise their dissenters' rights under
Missouri Law, and that a stockholder of LabOne who makes a Cash Election or
Partial Cash Election will recognize taxable income equal to the lesser of the
cash received by such holder and his overall gain on the exchange.
(h) Stock Split. The Stock Split shall have become effective.
6.2 Conditions of Obligations of Holdings. The obligations of Holdings
to effect the Merger are subject to the satisfaction of the following
conditions, any or all of which may be waived in whole or in part by Holdings.
(a) Representations and Warranties. Each of the representations and
warranties of LabOne set forth in this Agreement shall be true and correct as of
the date of this Agreement and (except to the extent such representations and
warranties speak as of an earlier date) as of the time of the Closing on the
Closing Date as though made on and as of the time of Closing on the Closing Date
except for such failures to be so true and correct (without giving effect to the
individual materiality thresholds otherwise contained in Section 3.1 hereof)
which would not, individually or in the aggregate, reasonably be expected to
have a LabOne Material Adverse Effect.
(b) Performance of Obligations of LabOne. LabOne shall have performed
in all material respects all obligations required to be performed by it under
this Agreement at or prior to the time of Closing on the Closing Date.
(c) No Vesting of LabOne Stock Options. LabOne Stock Options shall not
vest, and the exercisability thereof shall not accelerate, as a result of the
Merger and will
61
<PAGE>
maintain the same vesting period, and the time at which they become exercisable,
as if the Merger had not occurred.
(d) Employment Agreements. The employees identified in Schedule 6.2 of
the LabOne Letter shall have agreed to amendments to their employment
agreements, satisfactory to Holdings, providing that the transactions
contemplated by this Agreement do not constitute a "change in control" under
such agreements.
(e) Fairness Opinion. The opinion described in Section 3.2(q) shall not
have been withdrawn or materially modified in an adverse manner prior to the
date of mailing of the Proxy Statement or any supplement thereto.
(f) Officers' Certificate. Holdings shall have received (i) a
certificate dated as of the Closing Date and signed on behalf of LabOne by its
chief executive officer or president and by its chief financial officer, to the
effect that the conditions set forth in Section 6.1 hereof as they relate to
LabOne and in Section 6.2(a) and (b) have been satisfied and (ii) certified
copies of resolutions duly adopted by LabOne's Board of Directors and
stockholders evidencing the taking of all corporate action necessary to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby, all in such reasonable
detail as Holdings and its counsel shall reasonably request.
(g) Letters from Affiliates. Holdings shall have received from each
person named in the letter referred to in Section 5.7 an executed copy of an
agreement as provided in Section 5.7.
(h) Financing. Holdings shall have obtained the financing necessary to
consummate the Merger and other transactions contemplated by this Agreement.
6.3 Conditions of Obligations of LabOne. The obligation of LabOne to
effect the Merger is subject to the satisfaction of the following conditions,
any or all of which may be waived in whole or in part by LabOne:
(a) Representations and Warranties. Each of the representations and
warranties of Holdings set forth in this Agreement shall be true and correct as
of the date of this Agreement and (except to the extent such representations and
warranties speak as of an earlier date) as of the time of closing on the Closing
Date as though made on and as of the time of closing on the Closing Date except
for such failures to be so true and correct which (without giving effect to the
individual materiality thresholds otherwise contained in Section 3.2 hereof)
would not, individually or in the aggregate, reasonably be expected to have a
Holdings Material Adverse Effect.
62
<PAGE>
(b) Performance of Obligations of Holdings. Holdings shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the time of Closing on the Closing Date.
(c) Fairness Opinion. The opinion described in Section 3.1(q) shall not
have been withdrawn or materially modified in an adverse manner prior to the
date of mailing of the Proxy Statement or any supplement thereto.
(d) Officers' Certificate. LabOne shall have received (i) a certificate
dated as of the Closing Date and signed on behalf of Holdings by its chief
executive officer and by its chief financial officer, to the effect that the
conditions set forth in Section 6.1 hereof as they relate to Holdings and in
Section 6.3(a) and (b) have been satisfied and (ii) certified copies of
resolutions duly adopted by Holdings's Board of Directors and stockholders
evidencing the taking of all corporate action necessary to authorize the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby, all in such reasonable detail as LabOne
and its counsel shall reasonably request.
(e) Board of Directors and Officers at the Effective Time. As of the
closing date, Holdings shall have delivered to LabOne irrevocable letters of
resignation effective as of the Effective Time from all of the current directors
and officers of Holdings. The delivery of such resignations by officers of
Holdings shall be deemed to be a termination without cause under any existing
employment agreements.
(f) Financing. Holdings shall have obtained the financing necessary to
consummate the Merger and other transactions contemplated by this Agreement.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after
approval of the matters presented in connection with the Merger by the
stockholders of LabOne or Holdings:
(a) by mutual written consent of LabOne and Holdings, or by mutual
action of their respective Boards of Directors which, in the case of LabOne,
shall require the LabOne Board of Directors to act consistently with the
recommendation of the Special Committee;
63
<PAGE>
(b) by either LabOne or Holdings if (i) the Merger shall not have been
consummated by October 31, 1999 (provided that the right to terminate this
Agreement under this clause (i) shall not be available to any party whose breach
of any representation or warranty or failure to fulfill any covenant, agreement
or condition under this Agreement has been the cause of or resulted in the
failure of the Merger to occur on or before such date); (ii) any court of
competent jurisdiction, or some other governmental body or regulatory authority
shall have issued an order, decree or ruling or taken any other action
permanently restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action shall have become final and nonappealable;
(iii) the stockholders of Holdings shall not approve the Articles Amendment or
this Agreement and the Merger at the Holdings Stockholder Meeting or at any
adjournment thereof in accordance with Section 6.1(a) ; (iv) the stockholders of
LabOne or the Unaffiliated LabOne Stockholders shall not approve this Agreement
and the Merger at LabOne Stockholders Meeting or at any adjournment thereof in
accordance with Section 6.1(a); (v) in the exercise of its good faith judgment
pursuant to Section 4.2(j), as advised by outside counsel, the Board of
Directors of Holdings determines that such termination is required by reason of
a Holdings Acquisition Proposal having been made , provided that Holdings may
not terminate this Agreement pursuant to this clause (v) unless two business
days shall have elapsed after delivery to LabOne of a written notification of
Holdings's intention to terminate this Agreement and during such two
business-day period Holdings shall have fully cooperated with LabOne; including,
without limitation, informing LabOne of the terms and conditions of such
Holdings Acquisition Proposal and the identity of the person or group making
such Holdings Acquisition Proposal, with the intent of enabling LabOne to agree
to a modification of the terms and conditions of this Agreement so that the
transactions contemplated hereby may be effected, except that such cooperation
and information shall not be provided to the extent that the Holdings Board of
Directors concludes, in the exercise of its good faith judgment, that such
action would be inconsistent with its fiduciary duties to Holdings Stockholders,
as advised by outside counsel to Holdings; or (vi) in the exercise of its good
faith judgment pursuant to Section 4.1(j) as advised by outside counsel, the
Board of Directors of LabOne determines that such termination is required by
reason of a LabOne Acquisition Proposal having been made, provided that LabOne
may not terminate this Agreement pursuant to this clause (vi) unless two
business days shall have elapsed after delivery to Holdings of a written
notification of LabOne's intention to terminate this Agreement and during such
two business-day period LabOne shall have fully cooperated with Holdings;
including, without limitation, informing Holdings of the terms and conditions of
such LabOne Acquisition Proposal and the identity of the person or group making
such LabOne Acquisition Proposal, with the intent of enabling Holdings to agree
to a modification of the terms and conditions of this Agreement so that the
transactions contemplated hereby may be effected, except that such cooperation
and information shall not be provided to the extent that the Special Committee
concludes, in the exercise of its good faith judgment, that such action would be
inconsistent with its fiduciary duties to the Unaffiliated LabOne Stockholders,
as advised by outside counsel to the Special Committee.
64
<PAGE>
(c) by Holdings if (i) LabOne shall have failed to comply in any
material respect with any of the covenants, agreements or conditions contained
in this Agreement to be complied with or performed by LabOne at or prior to such
date of termination (provided such breach has not been cured within 30 days
following receipt by LabOne of written notice from Holdings of such breach and
is existing at the time of termination of this Agreement); (ii) any
representation or warranty of LabOne contained in this Agreement shall not be
true in all material respects when made (provided such breach has not been cured
within 30 days following receipt by LabOne of written notice from Holdings of
such breach and is existing at the time of termination of this Agreement) or on
and as of the Effective Time as if made on and as of the Effective Time (except
to the extent it relates to a particular date), except for such failures to be
so true and correct (without giving effect to the individual materiality
thresholds otherwise contained in Section 3.1 hereof) which would not
individually or in the aggregate, reasonably be expected to have a LabOne
Material Adverse Effect, (iii) the opinion described in Section 3.2(q) is
withdrawn or materially modified in an adverse manner, or (iv) the Board of
Directors of LabOne (acting in accordance with a recommendation by the Special
Committee), in the exercise of its good faith judgment as to its fiduciary
duties to its stockholders imposed by law, as advised by outside counsel,
withdraws, modifies or changes its recommendation of this Agreement or the
Merger in a manner adverse to Holdings or shall have resolved to do any of the
foregoing; or
(d) by LabOne if (i) Holdings shall have failed to comply in any
material respect with any of the covenants, agreements or conditions contained
in this Agreement to be complied with or performed by it at or prior to such
date of termination (provided such breach has not been cured within 30 days
following receipt by Holdings of written notice from LabOne of such breach and
is existing at the time of termination of this Agreement); (ii) any
representation or warranty of Holdings contained in this Agreement shall not be
true in all material respects when made (provided such breach has not been cured
within 30 days following receipt by Holdings of written notice from LabOne of
such breach and is existing at the time of termination of this Agreement) or on
and as of the Effective Time as if made on and as of the Effective Time (except
to the extent it relates to a particular date), except for such failures to be
so true and correct (without giving effect to the individual materiality
thresholds otherwise contained in Section 3.2 hereof) which would not
individually or in the aggregate, reasonably be expected to have a Holdings
Material Adverse Effect, (iii) the opinion described in Section 3.1(q) shall
have been withdrawn or materially modified or changed in an adverse manner or
(iv) the Board of Directors of Holdings, in the exercise of its good faith
judgment as to its fiduciary duties to its stockholders imposed by law, as
advised by outside counsel, withdraws, modifies or changes its recommendation of
this Agreement or the Merger in a manner adverse to LabOne or shall have
resolved to do any of the foregoing.
65
<PAGE>
7.2 Effect of Termination. (a) In the event of termination of this
Agreement by either LabOne or Holdings as provided in Section 7.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Holdings or LabOne except (i) with respect to Section
7.2(b) , the second sentence of Section 5.4 and Section 8.1, and (ii) and such
termination shall not relieve any party hereto for any intentional breach prior
to such termination by a party hereto of any of its representations or
warranties or of any of its covenants or agreements set forth in this Agreement.
(b) If this Agreement is terminated by Holdings pursuant to Section 7.1
(c)(i) or (ii) or by LabOne under Section 7.1(b)(vi), and if Holdings is not in
material breach of this Agreement at the time of such termination, then LabOne
shall pay the reasonable out-of-pocket expenses incurred by Holdings in
connection with preparing for, entering into and carrying out this Agreement and
the consummation of the transactions contemplated hereby. If this Agreement is
terminated by LabOne pursuant to Section 7.1(d)(i) or (ii) or by Holdings under
Section 7.1(b)(v) and if LabOne is not in material breach of this Agreement at
the time of such termination, then Holdings shall pay the reasonable
out-of-pocket expenses incurred by LabOne in connection with preparing for,
entering into and carrying out this Agreement and the consummation of the
transactions contemplated hereby.
7.3 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, which, in
the case of LabOne, shall require the LabOne Board of Directors to act
consistently with the recommendation of the Special Committee, at any time
before or after approval of the matters presented in connection with the Merger
by the stockholders of LabOne or Holdings, but, after any such approval, no
amendment shall be made which alters or changes the amount or kind of shares or
other Merger Consideration to be received by shareholders of LabOne or Holdings
or the Unaffiliated LabOne Stockholders or otherwise alters or changes any of
the terms and conditions of this Agreement so as to adversely affect the
shareholders of LabOne or Holdings or the Unaffiliated LabOne Stockholders.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
7.4 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Boards of
Directors (which, in the case of LabOne, shall require the LabOne Board of
Directors to act consistently with the recommendation of the Special Committee),
may, to the extent legally allowed: (i) extend the time for the performance of
any of the obligations or other acts of the other parties hereto; (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto; and (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party.
66
<PAGE>
ARTICLE VIII
GENERAL PROVISIONS
8.1 Payment of Expenses. Except as provided in Section 7.2, each party
hereto shall pay its own expenses incident to preparing for, entering into and
carrying out this Agreement and the consummation of the transactions
contemplated hereby, provided, that immediately prior to the Effective Time and
after satisfaction or waiver of all the conditions set forth in Article VI of
this Agreement to consummation of the Merger, Holdings will reimburse LabOne for
all of its expenses incurred in connection the transactions contemplated by this
Agreement.
8.2 Nonsurvival of Representations, Warranties and Agreements. None of
the representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective Time
and any liability for breach or violation thereof shall terminate absolutely and
be of no further force and effect at and as of the Effective Time, except for
the agreements contained in Article II, Sections 5.8, 5.10 through 5.12 and
Article VIII, and the agreements delivered pursuant to Section 5.7.
8.3 Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally, telegraphed or
telecopied or sent by certified or registered mail, postage prepaid, and shall
be deemed to be given, dated and received when so delivered personally,
telegraphed or telecopied or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address or
addresses as such person may subsequently designate by notice given hereunder:
(a) if to Holdings:
P. Anthony Jacobs
President and Chief Executive Officer
Lab Holdings, Inc.
5000 West 95th Street
Suite 260, P.O. Box 7568
Shawnee Mission, Kansas 66207
Phone: (913) 648-3600
Fax: (913) 648-0037
67
<PAGE>
with a copy to:
John H. Calvert, Esq.
Lathrop & Gage L.C.
2345 Grand Blvd.
Kansas City, Missouri 64108
Phone: (816) 460-5807
Fax: (816) 292-2001
(b) if to LabOne, to:
Richard S. Schweiker
Chairman
Special Committee
LabOne, Inc.
10101 Renner Blvd.
Lenexa, Kansas 66219
Phone (913) 888-1770
Fax (913) 888-8343
W. Thomas Grant II
President and Chief Executive Officer
LabOne, Inc.
10101 Renner Blvd.
Lenexa, Kansas 66219
Phone (913) 888-1770 ext. 1250
Fax (913) 888-8343
John A. Granda
Stinson, Mag & Fizzell, P.C.
1201 Walnut
Suite 2800
P.O. Box 419251
Kansas City, Missouri 64141
Phone: 816-842-8600
Fax: 816-691-3495
and with a copy to:
68
<PAGE>
Whitney F. Miller, Esq.
Morrison & Hecker L.L.P.
2600 Grand Avenue
Kansas City, Missouri 64108-4606
Phone: (816) 691-2763
Fax: (816) 474-4208
8.4 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents, glossary of defined terms and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the word "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation." The phrase
"made available" in this Agreement shall mean that the information referred to
has been made available if requested by the party to whom such information is to
be made available. Unless the context otherwise requires, "or" is disjunctive
but not necessarily exclusive, and words in the singular include the plural and
in the plural include the singular. Any representations and warranties of LabOne
that are qualified by the phrase "to the knowledge of LabOne" or phrases with
similar wording shall be interpreted to refer to the actual knowledge of the
individuals set forth on Schedule 8.4 of the LabOne Letter. Any representations
and warranties of Holdings that are qualified by the phrase "to the knowledge of
Holdings" or phrases with similar wording shall be interpreted to refer to the
actual knowledge of the individuals set forth on Schedule 8.4 of the Holdings
Letter.
8.5 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
8.6 Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with any other documents and instruments referred to herein) (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereto and (b) except as provided in Sections 5.7 and 5.11, is
not intended to confer upon any person other than the parties hereto any rights
or remedies hereunder.
8.7 Governing Law. Except to the extent that the laws of the State of
Delaware are mandatorily applicable to the Merger or the internal affairs of any
of the parties, this Agreement shall be governed and construed in accordance
with the laws of the State of Missouri, without giving effect to the principles
of conflicts of law thereof.
69
<PAGE>
8.8 Severability. Each party agrees that, should any court or other
competent authority hold any provision of this Agreement or part hereof to be
null, void or unenforceable, or order any party to take any action inconsistent
herewith or not to take an action consistent herewith or required hereby, the
validity, legality and enforceability of the remaining provisions and
obligations contained or set forth herein shall not in any way be affected or
impaired thereby, unless the foregoing inconsistent action or the failure to
take an action constitutes a material breach of this Agreement or makes the
Agreement impossible to perform in which case this Agreement shall terminate as
if the parties mutually agreed under Section 7.1(a).
8.9 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns.
IN WITNESS WHEREOF, each party has caused this Agreement to be signed by
its respective officers thereunto duly authorized, all as of the date first
written above.
LAB HOLDINGS, INC.
By: s/P. Anthony Jacobs
Name: P. Anthony Jacobs
Title: President and Chief Executive Officer
LABONE, INC.
By: s/W.Thomas Grant II
Name: W. Thomas Grant II
Title: Chairman of the Board, President and
Chief Executive Officer
70
<PAGE>
Exhibit B
ARTICLES OF INCORPORATION
OF
LABONE, INC.
(formerly Lab Holdings, Inc.)
as amended in their entirety
ARTICLE I
The name of the Corporation is: LabOne, Inc.
ARTICLE II
The address, including street and number, of the Corporation's initial
registered office in this state and the name of its initial agent is CT
Corporation System located at 120 S. Central Avenue, Clayton, Missouri 63105.
The principal office of the Corporation shall be located in Kansas City,
Missouri.
ARTICLE III
The aggregate number of shares of capital stock which the Corporation
is authorized to issue is 43,000,000 divided into the following classes
3,000,000 shares of Preferred Stock of the par value of $0.01 per
share, which is hereinafter referred to as "Preferred Stock," and
40,000,000 shares of Common Stock of the par value of $0.01 per share,
which is hereinafter referred to as "Common Stock."
The designations, preferences and relative, participating, optional or
other special rights of each class of stock and the qualifications, limitations
or restrictions of such preferences and/or rights are, or shall be determined,
as follows:
A. Provisions Applicable to Preferred Stock.
1. Issuance of Shares.
(a) Shares of Preferred Stock may be issued
from time to time in one or more series as
provided herein. Each such series
<PAGE>
shall be designated so as to distinguish the
shares thereof from the shares of all other
series, and shall have such voting powers,
full, special or limited, or no voting
powers, and such designations, preferences
and relative, participating, optional or
other special rights, and qualifications,
limitations or restrictions thereof, as
shall be stated and expressed in the
Articles of Incorporation or any amendment
thereto or in the resolution or resolutions
providing for the issue of such stock
adopted by the Board of Directors pursuant
to authority expressly vested in it by the
provisions of these Articles of
Incorporation. The shares of Preferred Stock
of all series shall be of equal rank, and
all shares of any particular series of
Preferred Stock shall be identical, except
that, if the dividends thereon are
cumulative, the date or dates from which
they shall be cumulative may differ. The
terms of any series of Preferred Stock may
vary from the terms of any other series of
Preferred Stock to the full extent now or
hereafter permitted by Missouri law, and the
terms of each series shall be fixed, prior
to the issuance thereof, in the manner
provided in subparagraph (b) of this
Paragraph 1. Without limiting the generality
of the foregoing, shares of Preferred Stock
of different series may, subject to any
applicable provisions of law, vary with
respect to the following terms:
(1) The distinctive designation of such series
and the number or shares of such series;
(2) The rate or rates at which shares of such series
shall be entitled to receive dividends, the
conditions upon, and the times of payment of, such
dividends, the relationship and preference, if any,
of such dividends to dividends payable on any other
class or classes or any other series of stock, and
whether such dividends shall be cumulative or
noncumulative, and, if cumulative, the date or dates
from which such dividends shall be cumulative;
(3) The right, if any, to exchange or convert the
shares of such series into shares of any other class
or classes, or of any other series of the same or any
other class or classes of stock of the Corporation,
and if so convertible or exchangeable, the conversion
price or prices, or the rates of exchange, and the
adjustments, if any, at which such conversion or
exchange may be made;
2
<PAGE>
(4) If shares of such series are subject to
redemption, the time or times and the price or prices
at which, at the terms and conditions on which, such
shares shall be redeemable;
(5) The preference of the shares of such series as to
both dividends and assets in the event of any
voluntary or involuntary liquidation or dissolution
or winding up or distribution of assets of the
Corporation;
(6) The obligation, if any, of the Corporation to
purchase, redeem or retire shares of such series
and/or maintain a fund for such purposes, and the
amount or amounts to be payable from time to time for
such purpose or into such fund, the number of shares
to be purchased, redeemed or retired, and the other
terms and conditions of any such obligation;
(7) The voting rights, if any, full, special or
limited, to be given the shares of such series,
including without limiting the generality of the
foregoing, the right, if any, as a series or in
conjunction with other series or classes, to elect
one or more members of the Board of Directors either
generally or at certain specified times or under
certain circumstances, and restrictions, if any, on
particular corporate acts without a specified vote or
consent of holders of such shares (such as, among
others, restrictions on modifying the terms of such
series of Preferred Stock, authorizing or issuing
additional shares of Preferred Stock or creating any
additional shares of Preferred Stock or creating any
class of stock ranking prior to or on a parity with
the Preferred Stock as to dividends or assets); and
(8) Any other preferences, and relative,
participating, optional, or other special rights, and
qualifications, limitations or restrictions thereof.
(b) Authority is hereby expressly granted to and
vested in the Board of Directors at any time
or from time to time to issue the Preferred
Stock as Preferred Stock of any series, and
in connection with the creation of each such
series, so far as not inconsistent with the
provisions of this Article III applicable to
all series of Preferred Stock, to fix, prior
to the issuance thereof, by resolution or
resolutions providing for the issue of
shares thereof, the authorized number of
shares of such series, which number may be
increased, unless otherwise provided by
the Board of Directors in creating
3
<PAGE>
such series, or decreased, but not below the
number of shares thereof then outstanding,
from time to time by like action of the
Board of Directors, the voting powers of
such series and the designations, rights,
preferences, and relative, participating,
optional or other special rights, and the
qualifications, limitations or restrictions
thereof, of such series.
B. Provisions Applicable to Common Stock.
1. Dividends. Subject to the provisions of law and the rights
of the Preferred Stock and any other class or series of stock having a
preference as to dividends over the Common Stock then outstanding, the holders
of Common Stock shall be entitled to receive dividends at such times and in such
amounts as the Board of Directors shall determine.
2. Liquidation Rights. In the event of any voluntary or
involuntary dissolution, liquidation or winding up of the Corporation, the
holders of Common Stock, after payment in full to the holders of Preferred
Stock, or after provision for such payment shall have been made, all in
accordance with the terms governing such Preferred Stock, shall be entitled to
payment and distribution of the assets of the Corporation ratably in accordance
with the number of shares held by them respectively.
C. General Provisions.
1. Voting Rights. Except as may be provided pursuant to
Paragraph 1 of Section A. of this Article III, the holders of the outstanding
stock, regardless of class, shall be entitled to one vote for each share held on
each matter submitted to a vote at a meeting of shareholders.
2. Preemptive Rights. No holder of any of the shares of any
class or series of stock or of options, warrants or other rights to purchase
shares of any class or series of stock or of other securities of the Corporation
shall have any preemptive right to purchase or subscribe for any unissued stock
of any class or series or any additional shares of any class or series to be
issued by reason of any increase in the authorized capital stock of the
Corporation of any class or series, or bonds, certificates of indebtedness,
debentures or other securities convertible into or exchangeable for stock of the
Corporation of any class or series, or carrying any right to purchase stock of
any class or series, but any such unissued stock, additional authorized issue or
shares of any class or series of stock or securities convertible into or
exchangeable for stock, or carrying any right to purchase stock, may be issued
and disposed of pursuant to resolution of the Board of Directors to such
persons, firms, corporations or associations, whether such holders or others,
and
4
<PAGE>
upon such terms as may be deemed advisable by the Board of Directors in
the exercise of its sole discretion.
3. Relative Powers of Preferred Stock Series. The relative
powers, preferences and rights of each series of Preferred Stock in relation to
the powers, preferences and rights of each other series of Preferred Stock
shall, in each case, be as fixed from time to time by the Board of Directors in
the resolution or resolutions adopted pursuant to authority granted in
subparagraph (b) of Paragraph 1, Section A. of this Article III, and the
consent, by class or series vote or otherwise, of the holders of such of the
series of Preferred Stock as are from time to time outstanding shall not be
required for the issuance by the Board of Directors of any other series of
Preferred Stock whether or not the powers, preferences and rights of such other
series shall be fixed by the Board Directors as senior to, or on a parity with,
the powers, preferences and rights of such outstanding series, or any of them;
provided, however, that the Board of Directors may provide in the resolution or
resolutions as to any series of Preferred Stock adopted pursuant to subparagraph
(b) of paragraph 1 of Section A. of this Article III that the consent of the
holders of a majority (or such greater proportion as shall be therein fixed) of
the outstanding shares of such series voting thereon shall be required for the
issuance of any or all other series of Preferred Stock.
4. Issuance of Preferred Shares. Subject to the provisions of
Paragraph 3 of this Section C., shares of any series of Preferred Stock may be
issued from time to time as the Board of Directors of the Corporation shall
determine, and on such terms and for such consideration as shall be fixed by the
Board of Directors.
ARTICLE IV
The name and place of residence of each incorporator is as follows:
W.R. Mullens 9304 Buena Vista Prairie Village, Kansas
V.W. Voorhees, II 3816 W. 58th St. Fairway, Kansas
Robert L. Meeker 12601 Pawnee Lane Leawood, Kansas
ARTICLE V
The number of directors to constitute the present Board of Directors of
the Corporation is fifteen. Hereafter, the number of directors of the
Corporation shall be fixed by, or in the manner provided in, and elected in the
manner provided in, the Bylaws of the Corporation, the applicable provisions of
which shall be consistent with those provisions of The General and Business
Corporation Law of Missouri relating to election of directors. Vacancies in the
Board of Directors shall be filled in the manner provided in the Bylaws.
5
<PAGE>
Directors need not be shareholders unless the Bylaws of the Corporation require
them to be shareholders.
ARTICLE VI
The duration of the Corporation is perpetual.
ARTICLE VII
The Corporation is formed for the following purposes:
A. To buy, lease, rent or otherwise acquire, own, hold, use, divide,
partition, develop, improve, operate and sell, lease, mortgage or otherwise
dispose of, deal in and turn to account, real estate, leaseholds, and any and
all interests or estates therein or appertaining thereto; and to construct,
acquire, manage, operate, improve, maintain, own, sell, lease or otherwise
dispose of or deal in buildings, structures and improvements situated or to be
situated on any real estate or leasehold, and to enter into joint venture,
partnership or any other type business relationships with other individuals,
firms, partnerships and corporations to acquire, lease, rent and develop real
estate.
B. To purchase, acquire, own, hold, pledge, sell, exchange and dispose
of any stock, bonds and other securities and evidences of indebtedness of any
corporation, association or other entity or enterprise, either domestic or
foreign, without limit as to the nature or type of business activity thereof,
and while owner of any thereof, to exercise all of the rights, powers, and
privileges of ownership.
C. To enter into any lawful contract or contracts with persons, firms,
corporations, other entities, governments or any agencies or subdivisions
thereof, including guaranteeing the performance of any contract or any
obligation of any person, firm, corporation or other entity.
D. To purchase and acquire, as a going concern or otherwise, and to
carry on, maintain and operate all or any part of the property or business of
any corporation, firm, association, entity, syndicate or person whatsoever,
deemed to be of benefit to the Corporation, or of use in any manner in
connection with any of its purposes; and to dispose thereof upon such terms as
may be advisable to the Corporation.
E. To purchase or otherwise acquire, hold, sell pledge, reissue,
transfer or otherwise deal in, shares of the Corporation's own stock, provided
that it shall not use its funds or property for the purchase of its own shares
of stock when such use would be prohibited by law, by the Articles of
Incorporation or by the Bylaws of the Corporation; and provided, further, that
shares of its own stock belonging to it shall not be voted upon directly or
indirectly.
6
<PAGE>
F. To invest, lend and deal with monies of the Corporation in any
lawful manner, and to acquire by purchase, by the exchange of stock or other
securities of the Corporation, by subscription or otherwise, and to invest in,
to hold for investment or for any other purpose, and to use, sell, pledge or
otherwise dispose of, and in general to deal in any interest concerning or enter
into any transaction with respect to (including "long" and "short" sales of) any
stocks, bonds, notes, debentures, certificates, receipts and other securities
and obligations of any government, state, municipality, corporation, association
or other entity, including individuals and partnerships and, while owner
thereof, to exercise all of the rights, powers and privileges of ownership,
including, among other things, the right to vote thereon for any and all
purposes, and to give consents with respect thereto.
G. To borrow or raise money for any purpose of the Corporation and to
secure any loan, indebtedness or obligation of the Corporation, and the interest
accruing thereon, and for that or any other purpose, to mortgage, pledge,
hypothecate or charge all or any part of the present or hereafter acquired
property, rights and franchises of the Corporation, real, personal, mixed or of
any character whatever, subject only to limitations specifically imposed by law.
H. To do any or all of the things hereinabove enumerated alone for its
own account, or for the account of others, or as the agent for others, or in
association with others or by or through others, and to enter into all lawful
contracts and undertakings in respect thereof.
I. To have one or more offices, to conduct its business, carry on its
operations and promote its objects within and without the state of Missouri, in
other states, the District of Columbia, the territories, colonies and
dependencies of the United States, in foreign countries and anywhere in the
world, without restriction as to place, manner or amount, but subject to the
laws applicable thereto; and to do any or all of the things herein set forth to
the same extent as a natural person might or could do and in any part of the
world, either alone or in company with others.
J. In general, to carry on any other business in connection with each
and all of the foregoing or incidental thereto, and to carry on, transact and
engage in any and every lawful business or other lawful thing calculated to be
of gain, profit or benefit to the Corporation as fully and freely as a natural
person might do, to the extent and in the manner, and anywhere within and
without the state of Missouri, as it may from time to time determine; and to
have and exercise each and all of the powers and privileges, either direct or
incidental, which are given and provided by or are available under the laws of
the state of Missouri in respect of general and business corporations organized
for profit thereunder, provided, however, that the Corporation shall not engage
in any activity for which a corporation may not be formed under the laws of the
state of Missouri.
7
<PAGE>
K. To advise and counsel others, and to act for and on behalf of others
concerning the acquisition, organization, promotion, development financing,
operation, management, disposition and termination of corporations,
associations, partnerships, firms and investments of all kinds, and to perform
any and all services relating to the foregoing and otherwise, and to enter into
and perform contracts, agreements and undertakings in connection therewith.
None of the purposes and powers specified in any of the paragraphs of
this Article VII shall be in any way limited or restricted by reference to or
inference from the terms of any other paragraph, and the purposes and powers
specified in each of the paragraphs of this Article VII shall be regarded as
independent purposes and powers. The enumeration of specific purposes and powers
in this Article VII shall not be construed to restrict in any manner the general
purposes and powers of this Corporation, nor shall the expression of one thing
be deemed to exclude another, although it be of like nature. The enumeration of
purposes or powers herein shall not be deemed to exclude or in any way limit by
inference any purposes or powers which this Corporation has power to exercise,
whether expressly by laws of the state of Missouri, now or hereafter in effect,
or impliedly by any reasonable construction of such laws.
ARTICLE VIII
A. Except as may be otherwise specifically provided by statute, or the
Articles of Incorporation or the Bylaws of the Corporation, as from time to time
amended, all powers of management, direction and control of the Corporation
shall be, and hereby are, vested in the Board of Directors, and shall be
exercised by them and by such officers and agents as they may from time to time
appoint and empower. The Board shall have the power to make such Bylaws, rules
and regulations for the transaction of the business of the Corporation as are
not inconsistent with these Articles or the laws of the state of Missouri.
B. Subject always to the provisions of Article XI of these Articles of
Incorporation, the Bylaws of the Corporation may from time to time be altered,
amended, suspended or repealed, or new Bylaws may be adopted, in either of the
following ways: (i) by the affirmative vote, at any annual or special meeting of
the shareholders, of the holders of a majority of the outstanding shares of
stock of the Corporation entitled to vote generally in the election of
directors, or (ii) by resolution adopted by a majority of the full Board of
Directors; provided, however, that the power of the Directors to alter, amend,
suspend or repeal the Bylaws or any portion thereof may be denied as to any
Bylaws or portion thereof enacted by the shareholders if at the time of such
enactment the shareholders shall so expressly provide.
8
<PAGE>
ARTICLE IX
The Corporation reserves the right at any annual or special meeting of
shareholders to alter, amend or repeal any provision contained in its Articles
of Incorporation in the manner now or hereafter prescribed by the statutes of
Missouri, and all rights and powers conferred herein are granted subject to this
reservation.
ARTICLE X
A. No "Business Combination" (as hereinafter defined) shall be
consummated or effected unless such Business Combination shall have been
approved by the affirmative vote of the holders of not less than eighty percent
(80%) of the total voting power of all outstanding shares of voting stock of the
Corporation, voting as a single class. Such vote shall be required
notwithstanding the fact that no vote for such a transaction may be required by
law or that approval by some lesser percentage of shareholders may be specified
by law or in any agreement with any national securities exchange or otherwise;
provided, however, that such eighty percent (80%) vote shall not be required,
and the provisions of Missouri law relating to the vote required for shareholder
approval, if any, shall apply to any such Business Combination if:
1. Both of the following conditions are satisfied:
(a) The Aggregate amount of the cash and the
"Fair Market Value" (as hereinafter defined)
of the property, securities or other
other consideration to be received per share
of capital stock of the Corporation incident
to the consummation of such Business
Combination by any holder of such stock,
other than the Related Person (as
hereinafter defined) involved in such
Business Combination, is not less than the
highest of (i) the "Highest Per Share Price"
or the "Highest Equivalent Price" (as those
terms are hereinafter defined), paid by such
Related Person in acquiring any of its
holdings of the Corporation's capital stock
during the five-year period preceding the
announcement of such Business Combination;
(ii) a price that includes the same or a
greater premium over the market price of
such capital stock immediately prior to the
announcement of such Business Combination as
the greatest premium over market price paid
by such Related Person in the purchase of
any shares of any class of the
Corporation's capital stock during the
five-year period preceding the announcement
of such Business Combination; (iii) the
Highest Per Share Price or the Highest
Equivalent Price that such Related Person
shall, during the five-year
9
<PAGE>
period preceding the announcement of such
Business Combination, have offered to the
shareholders of the Corporation for any
shares of the Corporation's capital stock or
indicated in writing that it would be
prepared to offer under specified
conditions; or (iv) the value determined by
an investment banking or appraisal firm to
be a fair price, for such shares from the
point of view of all shareholders of the
Corporation other than any Related Person
(such firm to be engaged solely on behalf of
such shareholders, to be paid a reasonable
fee for its services upon receipt of its
determination, which fee shall not be
contingent upon the consummation of the
action or transaction, and to be selected
(a) by the affirmative vote of not less than
two-thirds of all of the "Continuing
Directors" (as hereinafter defined) or, (b)
if such selection by the Continuing
Directors cannot be effected for any reason,
by the Secretary of State of the State of
Missouri); and
(b) A proxy statement complying with the
requirements of the Securities Exchange Act
of 1934, as amended, shall have been mailed
to all shareholders of the Corporation for
the purpose of soliciting shareholder
approval of such Business Combination. Such
proxy statement shall contain at the front
thereof, in a prominent place, a statement
by the Continuing Directors of their
position on the advisability (or inadvis-
ability) of the proposed Business
Combination and an opinion of the investment
banking or appraisal firm described in
Subsection 1(a)(iv) of this Section A. as to
the fairness of the terms of the proposed
Business Combination from the point of view
of all shareholders of the Corporation other
than any Related Person; or
2. The Continuing Directors shall have expressly approved such
Business Combination by the affirmative vote of not less than two-thirds of all
of the Continuing Directors either in advance of or subsequent to the
acquisition of outstanding shares of capital stock of the Corporation that
caused the Related Person involved to become a Related Person. In determining
whether or not to approve any such Business Combination, the Continuing
Directors shall give due consideration to all factors they may consider relevant
including without limitation (i) the social, legal, environmental and economic
effects on the Corporation's and/or its subsidiaries' policyholders, employees,
sales representatives and clients, on the communities and geographic areas in
which the Corporation and its subsidiaries operate or are located, and on any of
the business and properties of the Corporation and its subsidiaries,
and (ii) the adequacy of the consideration
10
<PAGE>
offered in relation not only to the current market price of the Corporation's
outstanding securities, but also to the current value of the Corporation in a
freely negotiated transaction and the Continuing Directors' estimate of the
Corporation's future value (including the unrealized value of its properties and
assets) as an independent going concern.
B. For the purpose of this Article X:
1. The term "Business Combination" shall mean (i) any merger,
consolidation or share exchange of the Corporation or any of its subsidiaries
with or into a Related Person, in each case irrespective of which corporation or
company is to be the surviving entity; (ii) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition to or with a Related Person (in a single
transaction or a series of related transactions) of all or a substantial part of
the assets of the Corporation (including without limitation any securities of a
subsidiary of the Corporation) or all or a substantial part of the assets of any
of its subsidiaries; (iii) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition to or with the Corporation, or to or with any of its
subsidiaries (in a single transaction or series of related transactions) of all
or a substantial part of the assets of a Related Person; (iv) the issuance or
transfer by the Corporation or any of its subsidiaries of any securities of the
Corporation or any of its subsidiaries to a Related Person (other than an
issuance or transfer of securities which is effected on a pro-rata basis to all
shareholders of the Corporation); (v) the acquisition by the Corporation or any
of its subsidiaries of any securities of a Related Person; (vi) any
recapitalization or reclassification of shares of any class of voting stock of
the Corporation or any merger or consolidation of the Corporation with any of
its subsidiaries which would have the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares of any class of
capital stock of the Corporation (or any securities convertible into any class
of such capital stock) owned by any Related Person; (vii) any merger or
consolidation of the Corporation with any of its subsidiaries after which the
provisions of this Article X or Articles V, VIII, IX, or XI of these Articles of
Incorporation shall not appear (or in which provisions inconsistent with any
such provisions shall appear) in the Articles of Incorporation of the surviving
entity or after which Article I, Sections 3, 5, 6 and 7, Article II, Sections 1,
2 and 4, Article IV and Article VI of the Bylaws of the Corporation shall not
appear (or in which provisions inconsistent with any such provisions shall
appear) in the Bylaws of the surviving entity; (viii) any plan or proposal for
the liquidation or dissolution of the Corporation; and (ix) any agreement,
contract or other arrangement providing for any of the transactions described in
this definition of Business Combination.
2. The term "Related Person" shall mean any individual,
corporation, partnership or other person or entity which, as of the record date
for the determination of shareholders entitled to notice of and to vote on any
Business Combination, or immediately prior to the consummation of any such
Business Combination, is a "Beneficial Owner" (as defined in Rule 13d-3 of the
General Rules and Regulations under the Securities Exchange Act of 1934 as in
effect at the date of the adoption of this Article X by the shareholders of
11
<PAGE>
the Corporation) (collectively and as so in effect, the "Exchange Act") of
shares of any class or series of capital stock of the Corporation which, when
combined with the shares of such class or series of stock of which any
"Affiliates" or "Associates" (as defined in Rule 12b-2 of the Exchange Act) of
such individual, corporation, partnership or other person or entity are
Beneficial Owners, amount to ten percent (10%) or more of the outstanding shares
of such class or series of stock, and any Affiliate or Associate of any such
Related Person.
3. The term "Continuing Director" shall mean any director of
the Corporation elected to a term of office on or whose term of office continued
as of the effective time of the merger of Lab Holdings, Inc. and LabOne, Inc.,
and any other director that a majority of Continuing Directors shall designate
as a Continuing Director or shall recommend or approve for election or
nomination for election as a director of the Corporation.
4. Whether or not any proposed sale, lease, exchange,
mortgage, pledge, transfer or other disposition of part of the assets of any
entity involves a "substantial part" of the assets of such entity shall be
conclusively determined by the affirmative vote of not less than two-thirds of
all of the Continuing Directors; provided, however, that assets involved in any
single transaction or series of related transactions having an aggregate Fair
Market Value of more than fifteen percent (15%) of the total consolidated assets
of an entity and its subsidiaries as at the end of such entity's last full
fiscal year prior to such determination shall always be deemed to constitute a
"substantial part."
5. For the purposes of Subsection (1)(a) of Section A. of this
Article X, the term "other consideration to be received" shall include, without
limitation, Common Stock or other capital stock of the Corporation retained by
shareholders of the Corporation other than Related Persons or parties to such
Business Combination in the event of a Business Combination in which the
Corporation is the surviving corporation.
6. A "Related Person" shall be deemed to have acquired a share
of the capital stock of the Corporation at the time when such Related Person
became the Beneficial Owner thereof. With respect to shares owned of record by
Affiliates or Associates of a Related Person or other persons whose ownership is
attributed to a Related Person under the foregoing definition of Related Person,
for purposes of Subsection 7 of this Section B., such Related Person shall be
deemed to have purchased such shares at the higher of (a) the price paid upon
the acquisition thereof by the Affiliate, Associate or other person who owns
such shares of record, or (b) the market price of the shares in question at the
time when the Related Person became the Beneficial Owner thereof.
7. The terms "Highest Per Share Price" and "Highest Equivalent
Price" shall mean the following: If there is only one class of capital stock of
the
12
<PAGE>
Corporation issued and outstanding, the Highest Per Share Price shall mean the
highest price that can be determined to have been paid or offered to be paid
during the preceding five years by the Related Person involved for any share or
shares of that class of capital stock. If there is more than one class of
capital stock of the Corporation issued and outstanding, the Highest Equivalent
Price shall mean with respect to each class and series of capital stock of the
Corporation, the amount determined by two-thirds of the Continuing Directors, on
whatever basis they believe to be appropriate, to be the highest per share price
equivalent to the highest price that can be determined to have been paid or
offered to be paid during the preceding five years by the Related Person
involved or any Affiliate or Associate of such Related Person for any share or
shares of any other class or series of capital stock of the Corporation. In
determining the Highest Per Share Price and Highest Equivalent Price, all
purchases by such Related Person or any such Affiliate or Associate shall be
taken into account regardless of whether the shares were purchased before or
after such Related Person became a Related Person. The Highest Per Share Price
and the Highest Equivalent Price shall include any brokerage commissions,
transfer taxes and soliciting dealers' fees paid by such Related Person or any
such Affiliate or Associate with respect to the shares of capital stock of the
Corporation acquired by such Related Person or such Affiliate or Associate. In
the event any Business Combination involving a Related Person shall be proposed,
the Continuing Directors shall determine the Highest Equivalent Price for each
class and series of the capital stock of the Corporation of which there are
shares issued and outstanding.
8. The term "Fair Market Value" shall mean (i) in the case of
stock, the highest closing sale price during the thirty day period immediately
preceding the date in question of a share of such stock on the Composite Tape
for New York Stock Exchange- Listed Stocks, or, if such stock is not quoted on
the Composite Tape, on the New York Stock Exchange, or, if such stock is not
listed on the New York Stock Exchange, on the principal United States securities
exchange registered under the Exchange Act on which such stock is listed, or, if
such stock is not listed on any such exchange, the highest closing sale price of
such stock during the thirty day period preceding the date in question on the
National Association of Securities Dealers, Inc. Automated Quotations System or
any system then in use, or, if such stock is not the subject of last sale
reporting, the highest closing bid quotation with respect to a share, or, if no
such quotations are available, the fair market value on the date in question of
a share of such stock as determined by the affirmative vote of not less than
two-thirds of all of the Continuing Directors, and (ii) in the case of property
other than cash or stock, the fair market value of such property on the date in
question as determined by the affirmative vote of not less than two-thirds of
all the Continuing Directors.
ARTICLE XI
Notwithstanding any other provision of these Articles of Incorporation
or the Bylaws of the Corporation (and notwithstanding the fact that some lesser
percentage may
13
<PAGE>
be specified by law, these Articles of Incorporation or the Bylaws of the
Corporation), the affirmative vote by holders of not less than eighty percent
(80%) of the outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors shall be required to amend, modify,
alter or repeal Article I, Sections 3, 5, 6 and 7, Article II, Sections 1, 2 and
4, Article IV and Article VI of the Bylaws of the Corporation (or to adopt any
provision of the Articles of Incorporation inconsistent with any provision of
such Bylaw provisions) or Articles V, VIII, IX or X or this Article XI of these
Articles of Incorporation (or to adopt any provision of the Articles of
Incorporation inconsistent therewith); provided, however, that the favorable
vote of a majority of the votes entitled to vote generally in the election of
directors shall be sufficient to approve any such amendment, modification,
alteration or repeal of the foregoing provisions of the Bylaws or Articles of
Incorporation (or adoption of any inconsistent provision) that has been
favorably recommended to the shareholders by resolution of the Board of
Directors adopted by the affirmative vote of not less than a majority of the
entire Board of Directors.
ARTICLE XII
The Board of Directors of the Corporation, when evaluating any offer or
proposal of another party to make a tender offering or exchange offer or
comparable offer for any equity security of the Corporation, to merge or
consolidate the Corporation with another corporation or to purchase or otherwise
acquire all or a substantial part of the assets of the Corporation or to enter
into any similar type of transaction, shall, in connection with the exercise of
its judgment in determining what is in the best interests of the Corporation and
its shareholders, give due consideration to the effect of such a transaction on
all relevant factors, including without limitation (a) the consideration being
offered in relation to the Board of Directors' estimate of (i) the current value
of the Corporation in a freely negotiated sale of either the Corporation by
merger, consolidation or otherwise, or all or substantially all of the
Corporation's assets, (ii) the current value of the Corporation if orderly
liquidated, and (iii) the future value of the Corporation over a period of years
as an independent entity discounted to current value; (b) then existing
political, economic and other factors bearing on security prices generally or
the current market value of the Corporation's securities in particular, (c)
whether the offer or proposal might violate federal, state or local laws; (d)
social, legal and economic effects on the Corporation and its subsidiaries, and
on policyholders, employees, suppliers, customers, and others having similar
relationships with them, and the communities in which they conduct their
businesses; (e) the financial condition and earning prospects of the party
making the offer or proposal, including such party's ability to service its debt
and other existing or likely financial obligations; (f) the competence,
experience and integrity of the party making the offer or proposal; (g) the form
of the consideration offered, as well as such other factors as the Directors
deem relevant. Nothing contained in this Article XII shall require the
Corporation or any Director or officer to respond to any particular offer or
proposal.
14
<PAGE>
Exhibit C
AMENDED AND RESTATED
BYLAWS
OF
LABONE, INC.
ARTICLE I - SHAREHOLDERS
Section 1 - Place of Meetings. All meetings of the shareholders shall be
held at the principal office of the corporation in Missouri, except such
meetings as the Board of Directors, to the extent permissible by law, expressly
determines shall be held elsewhere, in which case such meetings may, be held,
upon notice thereof as hereinafter provided, at such other place or places,
within or without the State of Missouri, as the Board of Directors shall have
determined, and as shall be stated in such notice, and, unless specifically,
prohibited by law, any meeting may be held at any place and time, and for any
purpose, if consented to in writing by all the shareholders entitled to vote
thereat.
Section 2 - Annual Meetings. An annual meeting of the shareholders to elect
directors and to transact such other business as may properly be brought before
the meeting shall be held each year on a date to be determined by the Board of
Directors at its meeting to be held in February of each year.
Section 3 - Special Meetings. Special meetings of the shareholders may be
called by the chairman of the board, by the president, by the secretary, by the
Board of Directors, or by any officer directed to do so by the Board of
Directors. Shareholders' requests for a special meeting shall be in writing and
shall state the nature of the business desired to be transacted and shall comply
with Article VI of these Bylaws. The "call"and the "notice" of any such meeting
shall be deemed to be synonymous.
Section 4 - Notice. Written or printed notice of each meeting of the
shareholders, whether annual or special, stating the place, day and hour of the
meeting and, in case of a special meeting, the purpose or purposes thereof,
shall be delivered or given to each shareholder entitled to vote thereat, either
personally or by mail, not less than ten (10) days or more than fifty (50) days
prior to the meeting unless, as to a particular matter, other or further notice
shall be given. In addition to such written or printed notice, published notice
shall be given if (and in the manner) then required by law.
Any notice of a shareholders' meeting sent by mail shall be deemed to be
delivered when deposited in the United States mail with postage thereon prepaid
addressed to the shareholder at his address as it appears on the records of the
corporation.
<PAGE>
Section 5 - Presiding Officials. Every meeting of the shareholders, for
whatever object, shall be convened and presided over by either the president,
the chairman of the board or, in their absence, by any vice president. The
officer presiding over any such meeting shall have the authority on his own
motion to adjourn the meeting from time to time.
Section 6 - Business at Annual Meetings. No business may be transacted at
an annual meeting of shareholders, other than business that is either (i)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors (or any duly authorized committee
thereof), (ii) otherwise properly brought before the annual meeting by or at the
direction of the Board of Directors (or any duly authorized committee thereof)
or (iii) otherwise properly brought before the annual meeting by any shareholder
of record of the corporation who is entitled to vote at such meeting and who
complies with the notice procedures set forth in Article VI of these Bylaws. Any
business to be brought before the annual meeting by any shareholder must also be
a proper matter for shareholder action.
Section 7 - Business which may be Transacted at Special Meetings. Business
transacted at all special meetings shall be confined to the purposes stated in
the notice of such meeting.
Section 8 - Quorum of Shareholders. Except as otherwise provided by law or
by the Articles of Incorporation, a majority of the outstanding shares entitled
to vote at any meeting represented in person or by proxy shall constitute a
quorum at a meeting of the shareholders, but less than a quorum shall have the
right successively to adjourn the meeting to a specified date not longer than
ninety (90) days after such adjournment, and no notice need be given of such
adjournment to shareholders not present at the meeting.
Section 9 - Voting of Shareholders. Subject to the right to elect directors
by cumulative voting, each shareholder shall be entitled to as many votes on any
proposition as he has shares of stock in the corporation, and he may vote them
in person or by proxy. Such proxy shall be in writing, or in such other
transmitted form as may be acceptable to the Secretary, and shall state the name
of the person authorized to cast such vote and the date of the meeting at which
such vote shall be cast, and no such proxy shall be valid unless the same shall
have been given within sixty (60) days prior to the meeting at which such vote
is to be cast and shall be filed with the Secretary at or previous to the time
of the meeting and before the votes are cast.
If the Board of Directors does not close the transfer books or set a record
date for the determination of the shareholders entitled to notice of, and to
vote at, a meeting of shareholders, only the shareholders of record at the close
of business on the twentieth day preceding the date of the meeting shall be
entitled to notice of, and to vote at, the meeting and any adjournment of the
meeting.
2
<PAGE>
Section 10 - Registered Shareholders - Exceptions - Stock Ownership
Presumed. The corporation shall be entitled to treat the holders of the shares
of stock of the corporation, as recorded in the stock record or transfer books
of the corporation, as the holders of record and as the holders and owners in
fact thereof and, accordingly, the corporation shall not be required to
recognize any equitable or other claim to or interest in any such shares on the
part of any other person, firm, partnership, corporation or association, whether
or not the corporation shall have express or other notice thereof, except as is
otherwise expressly required by law, and the term shareholder as used in these
Bylaws means one who is a holder of record of shares of the corporation.
ARTICLE II - DIRECTORS
Section 1 - Directors - Number and Vacancies. Unless and until changed by
the Board of Directors as hereinafter provided, the number of directors to
constitute the Board of Directors shall be the same number as that provided in
the Articles of Incorporation. The Board of Directors, to the extent permitted
by law, shall have the power to change the number of directors from time to time
provided that any notice required by law of any such change is duly given.
Directors need not be shareholders unless the Articles of Incorporation at any
time so provide.
Vacancies on the Board of Directors shall be filled for the unexpired term
by a majority of the remaining directors, or, if they are unable to do so, by
vote of a majority of shareholders at an annual or special meeting.
No director shall be removed from his office as a director by vote or other
action of shareholders or otherwise unless the director to be removed has been
convicted of a felony by a court of competent jurisdiction and such conviction
is no longer subject to direct appeal or unless the director to be removed has
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the corporation by a court of competent jurisdiction and such
adjudication is no longer subject to direct appeal.
Section 2 - Directors - Classification. The Board of Directors shall be
divided into three classes so that there shall be an annual election for such
number or proportion of directors as may be found upon dividing the entire
number of directors by the number of years composing a term; provided, however,
that at the first meeting of the shareholders of the corporation following the
adoption of this amended bylaw, approximately one-third of the directors, to be
known as "Class A", shall be elected for a term of office, such term of such
Class expiring at the next following annual meeting of the shareholders;
approximately one-third of the directors, to be known as "Class B", shall be
elected for a term of office, such term of such Class expiring at the second
following annual meeting of the shareholders; and approximately one-third of the
directors, to be known as "Class C", shall be elected for a term of office, such
term of such Class expiring at the third following annual meeting. If the number
of directors is not evenly divisible into three classes, the
3
<PAGE>
Board of Directors shall determine which of the three classes shall have a
number of members differing from the other two classes. At each subsequent
annual meeting of shareholders, the successors to the Class of directors whose
terms shall expire at that meeting shall be elected to hold office for a term
expiring at the third succeeding annual meeting of shareholders. If the number
of directors is changed, any newly created directorship or any decrease in
directorships shall be apportioned among the classes so as to make all classes
as nearly equal in number as possible; provided, that no decrease in the Board
shall shorten the term of any incumbent director.
A director elected by the Board to fill a vacancy shall hold office for the
unexpired portion of the term of the director whose place he has been elected to
fill, which term may extend beyond the next succeeding annual meeting of
shareholders following the election of such director.
Section 3 - Directors - Employment Qualifications. "Inside director" shall
be defined as any director who is also at that time an employee of the
corporation, or any subsidiary thereof. The term of office of any person serving
as an "inside director" shall cease immediately upon termination of employment
with the corporation and all subsidiaries thereof for any reason.
Section 4 - Powers of the Board. The property and business of the
corporation shall be controlled and managed by the directors, acting as a Board.
The Board shall have and is vested with all and unlimited powers and
authorities, except as may be expressly limited by law, the Articles of
Incorporation or these Bylaws, to do or cause to be done any and all lawful
things for and in behalf of the corporation, to exercise or cause to be
exercised any or all of its powers, privileges, and franchises, and to seek the
effectuation of its objects and purposes.
Section 5 - Regular Meetings. Regular meetings of the Board of Directors
shall be held following the adjournment of the Annual Meeting of the
Shareholders on the same date and in the months of February, August and November
of each year; provided, however, that at any regular meeting, special meeting or
by action taken by written consent of all Directors, severally or collectively,
without a meeting, the Board of Directors may set a date in some other month for
the next succeeding regular meeting. The regular meetings shall be at a time set
by notice mailed or telegraphed to each director at least two days prior
thereto. Notice of any regular meeting of the Board of Directors may be waived
in writing or by telegram before or after the meeting and attendance of a
director at a meeting shall be deemed a waiver of notice except where a director
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular meeting of the
Board of Directors need be specified in the notice or waiver of notice of a
meeting. Any business may be transacted at a regular meeting.
4
<PAGE>
Section 6 - Special Meetings. Special meetings of the Board of Directors
shall be held at such time and place as is specified in the notice of such
meeting and shall be called by the chairman of the board, the president, the
secretary, any vice president, or a majority of the entire Board of Directors.
Notice of any such meeting shall be given personally or by mail or telegram to
each member of the Board at least two hours prior to the scheduled time of the
meeting, but such notice may be waived in writing or by telegram either before
or after the meeting, and attendance at the meeting by any director shall be
deemed a waiver of such notice.
Special meetings of the Board of Directors may be held by means of
telephone conferences or equipment of similar communications by means of which
all directors participating in the meeting can hear each other. Participating in
a meeting by telephone or similar communications equipment shall constitute
presence in person at the special meeting, except where a director participates
in a meeting for the sole purpose of objecting to the transaction of any
business on the ground that the special meeting is not lawfully convened or
called.
Section 7 - Quorum. A majority of the full Board of Directors shall
constitute a quorum for the transaction of business, but less than a quorum may
adjourn from time to time until a quorum is obtained. The act of the majority of
the directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors.
Section 8 - Action without a Meeting. If all the directors severally or
collectively consent in writing to any action to be taken by the directors, such
consents shall have the same force and effect as a unanimous vote of the
directors at a meeting duly held. The secretary shall file such consents with
the minutes of the meetings of the Board of Directors.
Section 9 - Consulting Directors. The Board of Directors may appoint to the
office of consulting director any person whose abilities and interest in the
corporation, in the opinion of the Board, qualify him to render service to the
Board. Such consulting directors may receive notice of and attend meetings of
the Board of Directors, shall have no vote in the affairs of the corporation and
shall not be counted for the purposes of determining a quorum or majority of the
Board for any purpose. Such consulting directors shall serve in an advisory
capacity to the Board of Directors only and no action of the Board shall be
invalid because of the failure of any such consulting director to receive notice
of or to attend any meeting of the Board or to be informed of or to approve of
any action taken by the Board of Directors.
Section 10 - Executive Committee. The Board of Directors may, by resolution
or resolutions adopted by a majority of the whole Board of Directors, designate
an executive committee, such committee to consist of two or more directors of
the corporation, which committee, to the extent provided in said resolution or
resolutions, shall have and may exercise all of the authority of the Board of
Directors in the management of the corporation;
5
<PAGE>
provided, however, that the designation of such committee and the
delegation thereto of authority shall not operate to relieve the Board of
Directors, or any member thereof, of any responsibility imposed upon it or him
by law.
The executive committee shall keep regular minutes of its proceedings,
which minutes shall be recorded in the minutes of the corporation. The secretary
or an assistant secretary of the corporation may act as secretary for the
committee if the committee so requests.
Section 11 - Other Committees. The Board of Directors shall appoint an
Audit Committee and fix its duties, and may from time to time appoint and fix
the duties of such additional committees as they, in their discretion, shall
deem necessary or advisable for the proper operation of the corporation,
including a committee or committees which shall have authority to approve
salaries and increases in salaries for elected officers of the corporation.
Section 12 - Compensation of Directors and Committee Members. Each
director, as such, shall be entitled to receive reimbursement for his reasonable
expenses incurred in attending meetings of the Board of Directors or any
committee thereof or otherwise in connection with his attention to the affairs
of the corporation. In addition, each director, who is not at the time a
regularly compensated officer or employee of the corporation or any of its
subsidiaries, shall be entitled to such fee for his services as a director (and
if a member of any committee of the Board of Directors, such fee for his
services as such member) as may be fixed from time to time by the Board of
Directors. Such fees may be fixed both for meetings attended and on an annual
basis, or either thereof, and may be payable currently or deferred. Nothing
herein contained shall be construed to preclude any director or committee member
from serving the corporation or any of its subsidiaries in any other capacity
and receiving compensation therefor.
ARTICLE III - OFFICERS
Section 1 - Officers - Who shall Constitute. The officers of the
corporation shall be a chairman of the board, a president, one or more vice
presidents, a secretary and a treasurer. The Board shall elect or appoint a
president and secretary at its annual meeting held after each annual meeting of
the shareholders. The Board then, or from time to time, may also elect or
appoint one or more of the other prescribed officers or any other officers as it
shall deem advisable, but need not elect or appoint any officers other than a
president and a secretary. The Board may, if it desires, further identify or
describe any one or more of such officers.
The officers of the corporation need not be members of the Board of
Directors. Any two or more offices may be held by the same person, except the
office of president and secretary.
6
<PAGE>
An officer shall be deemed qualified when he enters upon the duties of the
office to which he has been elected or appointed and furnishes any bond required
by the Board; but the Board may also require of such person his written
acceptance and promise faithfully to discharge the duties of such office.
Section 2 - Term of Office. Each officer of the corporation shall hold his
office at the pleasure of the Board of Directors or for such other period as the
Board may specify at the time of his election or appointment or until his death,
resignation or removal by the Board, whichever first occurs. In any event, the
term of office of each officer of the corporation holding his office at the
pleasure of the Board shall terminate at the annual meeting of the Board next
succeeding his election or appointment and at which any officer of the
corporation is elected or appointed, unless the Board provides otherwise at the
time of his election or appointment.
Section 3 - Removal. Any officer or agent elected or appointed by the Board
of Directors, and any employee, may be removed or discharged by the Board
whenever in its judgment the best interests of the corporation would be served
thereby, but such removal shall be without prejudice to the contract rights, if
any, of the person so removed.
Section 4 - Salaries and Compensation. Salaries and compensation of all
elected or appointed officers and of all employees of the corporation shall be
fixed, increased or decreased by the Board of Directors, but this power (except
as to the salary or compensation of the chairman of the board and the president)
may, unless prohibited by law, be delegated by the Board to the chairman of the
board, the president, a committee or such other officer or officers as the Board
may find convenient to so empower.
Section 5 - Delegation of Authority to Hire, Discharge and Designate
Duties. The Board may, from time to time, delegate to the chairman of the board,
the president or other officer or executive employees of the corporation,
authority to hire, discharge and fix and modify the duties, salary or other
compensation of employees of the corporation under their jurisdiction, and the
Board may delegate to such officer or executive employee similar authority with
respect to obtaining and retaining for the corporation the services of
attorneys, accountants and other experts.
Section 6 - The Chairman of the Board. If a chairman of the board be
elected or appointed, he shall, except as otherwise provided for in these
Bylaws, preside at all meetings of the directors at which he may be present and
shall have such other duties, powers and authority as may be prescribed
elsewhere in these Bylaws. The Board of Directors may delegate such other
authority and assign such additional duties to the chairman of the board, other
than those conferred by law exclusively upon the president as it may from time
to time determine, and, to the extent permissible by law, the Board may
designate the chairman of the board as the chief executive officer of the
corporation under these Bylaws, or it may, from time to time, divide the
responsibilities, duties and authority for the general control and
7
<PAGE>
management of the corporation's business and affairs between the chairman
of the board and the president.
Section 7 - The President. Unless the Board otherwise provides, the
president shall be the chief executive officer of the corporation with such
general executive powers and duties of supervision and management as are usually
vested in the office of the chief executive officer of a corporation and he
shall carry into effect all directions and resolutions of the Board. Except as
otherwise provided for in these Bylaws, the president shall preside at all
meetings of the shareholders. In the absence of the chairman of the board, or if
there be no chairman of the board, the president also shall preside at all
meetings of the Board of Directors.
The president may execute all bonds, notes, debentures, mortgages, and
other contracts requiring a seal, under the seal of the corporation, and may
cause the seal to be affixed thereto, and may also execute any and all other
instruments for and in the name of the corporation.
Unless the Board otherwise provides, the president, or any person
designated in writing by him, may (i) attend meetings of shareholders of other
corporations to represent this corporation thereat and to vote or take action
with respect to the shares of any such corporation owned by this corporation in
such manner as he or his designee may determine, and (ii) execute and deliver
waivers of notice and proxies for and in the name of the corporation with
respect to any such shares owned by this corporation.
He shall, unless the Board otherwise provides, be ex officio a member of
all standing committees.
If a chairman of the board be elected or appointed and designated as the
chief executive officer of the corporation, as provided in these Bylaws, the
president shall perform such duties as may be specifically delegated to him by
the Board of Directors and as are conferred by law exclusively upon him, and in
the absence, disability or inability to act of the chairman of the board, the
president shall perform the duties and exercise the powers of the chairman of
the board.
Section 8 - Vice Presidents. The vice presidents in the order of their
seniority, as determined by the Board, shall, in the absence, disability or
inability to act of the president, perform the duties and exercise the powers of
the president, and shall perform such other duties as the Board of Directors
shall from time to time prescribe.
Section 9 - The Secretary and Assistant Secretaries. The secretary shall
attend all meetings of the shareholders, and shall record or cause to be
recorded all votes taken and the minutes of all proceedings in a minute book of
the corporation to be kept for that
8
<PAGE>
purpose. He shall perform like duties for the executive and other standing
committees when purpose. He shall perform like duties for the executive and
other standing committees when requested by the Board or any such committee to
do so.
He shall see that all books, records, lists and information, or duplicates
required to be maintained at the principal office for the transaction of the
business of the corporation in Missouri, or elsewhere, are so maintained.
He shall keep in safe custody the seal of the corporation, and when duly
authorized to do so, shall affix the same to any instrument requiring it, and
when so affixed, he shall attest the same by his signature.
He shall perform such other duties and have such other authority as may be
prescribed elsewhere in these Bylaws or from time to time by the Board of
Directors or the chief executive officer of the corporation, under whose direct
supervision he shall be.
He shall have the general duties, powers and responsibilities of a
secretary of the corporation.
Any assistant secretary, in the absence, disability or inability to act of
the secretary, may perform the duties and exercise the powers of the secretary,
and shall perform such other duties and have such other authority as the Board
of Directors may, from time to time, prescribe.
Section 10 - The Treasurer and Assistant Treasurers. The treasurer shall
have responsibility for the safekeeping of the funds and securities of the
corporation, shall keep or cause response to be kept full and accurate accounts
of receipts and disbursements in books belonging to the corporation and shall
keep, or cause to be kept, all other books of account and accounting records of
the corporation. He shall deposit or cause to be deposited all moneys and other
valuable effects in the name and to the credit of the corporation in such
depositories as may be designated by the board of directors or by any officers
of the corporation to whom such authority has been granted by the Board of
Directors,
He shall disburse, or permit to be disbursed, the funds of the corporation
as may be ordered, or authorized generally, by the Board, and shall render to
the chief executive officer of the corporation and the directors whenever they
may require it, an account of all his transactions as treasurer and of those
under his jurisdiction, and of the financial condition of the corporation.
He shall perform such other duties and shall have such other responsibility
and authority as may be prescribed elsewhere in these Bylaws or from time to
time by the Board of Directors.
9
<PAGE>
He shall have the general duties, powers and responsibility of a treasurer
of a corporation, and shall, unless otherwise provided by the Board, be the
chief financial and accounting officer of the corporation.
Any assistant treasurer, in the absence, disability or inability to act of
the treasurer, may perform the duties and exercise the powers of the treasurer,
and shall perform such other duties and have such other authority as the Board
of Directors may, from time to time, prescribe.
Section 11 - Duties of Officers may be Delegated. If any officer of the
corporation be absent or unable to act, or for any other reason that the Board
may deem sufficient, the Board may delegate, for the time being, some or all of
the functions, duties, powers and responsibilities of any officer to any other
officer, or to any other agent or employee of the corporation or other
responsible person, provided a majority of the whole Board of Directors concurs
therein.
ARTICLE IV
INDEMNIFICATION AND LIABILITY OF
DIRECTORS, OFFICERS AND EMPLOYEES
Section 1 - Indemnification. A. Each person who is or was a director,
officer or employee of the corporation or is or was serving at the request of
the corporation as a director, officer or employee of another corporation,
partnership, joint venture, trust or other enterprise (including the heirs,
executors, administrators or estate of such person) shall be indemnified by the
corporation as of right to the full extent permitted or authorized by the laws
of the State of Missouri, as now in effect and as hereafter amended, against any
liability, judgment fine, amount paid in settlement, cost and expense (including
attorneys' fees) asserted or threatened against and incurred by such person in
his capacity as or arising out of his status as a director, officer, or employee
of the corporation or, if serving at the request of the corporation, as a
director, officer or employee of another corporation, partnership, joint
venture, trust or other enterprise. The indemnification provided by this Bylaw
provision shall not be exclusive of any other rights to which those indemnified
may be entitled under any other bylaw or under any agreement, vote of
shareholders or disinterested directors or otherwise, and shall not limit in any
way any right which the corporation may have to make different or further
indemnifications with respect to the same or different persons or classes of
persons.
B. Without limiting the foregoing, the corporation is authorized to enter
into an agreement with any person who is a director, officer or employee of the
corporation, or is serving at the request of the corporation as a non-employee
director of another corporation, partnership, joint venture, trust or other
enterprise, providing indemnification for such person against expenses,
including attorneys' fees, judgments, fines and amounts
10
<PAGE>
paid in settlement that result from any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, including any action by or in the right of the corporation, that
arises by reason of the fact that such person is or was a director, officer or
employee of the corporation, or, if not a director, officer or employee of the
corporation, is or was serving at the request of the corporation as a director,
officer or employee of another corporation, partnership, joint venture, trust or
other enterprise, or as a non-employee director of another corporation,
partnership, joint venture, trust or other enterprise, to the full extent
allowed by law, whether or not such indemnification would otherwise be provided
for in this Bylaw, except that no such agreement shall indemnify any person from
or on account of such person's conduct which was finally adjudged to have been
knowingly fraudulent deliberately dishonest or willful misconduct.
C. For the purposes of Section 1B of Article IV, any person who is a
director, officer or employee of the corporation who shall serve as a director,
officer or employee of another corporation, partnership joint venture, trust or
other enterprise, more than 50% of the voting stock of which is owned by the
corporation, and any other person who shall serve as a non-employee director of.
another corporation, partnership, joint venture, trust or other enterprise, more
than 50% of the voting of stock of which is owned by the corporation, shall be
deemed to be serving in such capacity at the request of the corporation, unless
the Board of Directors of the corporation shall determine otherwise. In all
other instances where any person shall serve as a director or officer of another
corporation, joint venture, trust or other enterprise of which the corporation
is or was a shareholder or creditor, or in which it is or was otherwise
interested, if it is not otherwise established that such person is or was
serving as such director or officer at the request of the corporation, the Board
of Directors of the corporation may determine whether such service is or was at
the request of the corporation, and it shall not be necessary to show any actual
or prior request for such service. A person is a "non-employee director" of a
corporation, partnership, joint venture, trust or other enterprise if he or she
is a director, but not an employee of such corporation, partnership, joint
venture, trust or other enterprise.
Section 2 - Insurance. The corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer or employee of the
corporation, or is or was serving at the request of the corporation as a
director, officer or employee of another corporation, partnership, joint
venture, trust or other enterprise, against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of these Bylaws.
Section 3 - Liability. No person shall be liable to the corporation for any
loss, damage, liability or expense suffered by it on account of any action taken
or omitted to be taken by him as a director, officer or employee of the
corporation or of any other corporation which he serves as a director, officer
or employee at the request of the corporation, if such person (i) exercised the
same degree of care and skill as a prudent man would have exercised
11
<PAGE>
under the circumstances in the conduct of his own affairs, or (ii) took or
omitted to take such action in reliance upon advice of counsel for the
corporation, or for such other corporation, or upon statements made or
information furnished by directors, officers, employees, or agents of the
corporation. or of such other corporation which he had no reasonable grounds to
disbelieve.
ARTICLE V - CAPITAL STOCK
Section 1 - Issuance of Certificates. Shares of the capital stock of the
corporation may be represented by entry on the stock record or transfer books of
the corporation and need not be represented by certificates. When shares of
stock of the corporation are represented by certificates, such certificates
shall be numbered, shall be in such form as may be prescribed by the Board of
Directors in conformity with law, and shall be entered in the stock books of the
corporation as they are issued. Such entries shall show the name and address of
the person, firm, partnership, corporation or association to whom each
certificate is issued. Each certificate shall have printed, typed or written
thereon the name of the person, firm, partnership, corporation or association to
whom it is issued and the number of shares represented thereby. It shall be
signed by at least one of either the Chairman of the Board, the President or a
Vice President and also by one of either the Secretary or an Assistant Secretary
or the Treasurer or an Assistant Treasurer of the corporation, and shall be
sealed with the seal of the corporation, which seal may be facsimile, engraved
or printed. If the corporation has a transfer agent or a transfer clerk who
signs such certificates, the signatures of the Chairman of the Board or any of
the officers above mentioned may be facsimile, engraved or printed. In case the
Chairman of the Board or any officer who has signed or whose facsimile signature
has been placed upon any such certificate shall have ceased to hold the position
or office specified on the certificate before such certificate is issued, such
certificate may nevertheless be issued by the corporation with the same effect
as if the individual held the position or office at the date of its issue.
Section 2 - Transfers of Shares - Transfer Agent -Registrar. Transfers of
shares of stock shall be made on the stock record or transfer books of the
corporation only by the person named in the stock certificate, or by his
attorney lawfully constituted in writing, and upon surrender of the certificate
therefor. The stock record book and other transfer records shall be in the
possession of the secretary or of a transfer agent or transfer clerk for the
corporation. The corporation, by resolution of the Board, may from time to time,
appoint a transfer agent or transfer clerk, and, if desired, a registrar, under
such arrangements and upon such terms and conditions as the Board deems
advisable, but until and unless the Board appoints some other person, firm or
corporation as its transfer agent or transfer clerk (and upon the revocation of
any such appointment, thereafter until a new appointment is similarly made), the
secretary of the corporation shall be the transfer agent or transfer clerk of
the corporation without the necessity of any formal action of the Board, and the
secretary, or any person designated by him, shall perform all of the duties
thereof.
12
<PAGE>
Section 3 - Lost Certificates. In case of the loss or destruction of any
certificate for shares of stock of the corporation, another may be issued in its
place upon proof of such loss or destruction and upon the giving of a
satisfactory bond of indemnity to the corporation and the transfer agent and
registrar of such stock, if any, in such sum as the Board of Directors may
provide; provided, however, that a new certificate may be issued without
requiring a bond when, in the judgment of the Board, it is proper so to do.
Section 4 - Regulations. The Board of Directors shall have power and
authority to make all such rules and regulations as it may deem expedient
concerning the issue, transfer, conversion and registration of and all other
rights pertaining to certificates for shares of stock of the corporation, not
inconsistent with the laws of Missouri, the Articles of Incorporation or these
Bylaws.
ARTICLE VI
ADVANCE NOTICE OF SHAREHOLDER NOMINATIONS
AND SHAREHOLDER PROPOSALS
Section 1 - Who May Nominate. Only persons who are nominated in accordance
with the following procedures shall be eligible for election as directors of the
corporation at any meeting of shareholders at which directors are to be elected.
Nominations of persons for election to the Board of Directors may be made at any
such meeting of shareholders (i) by or at the direction of the Board of Director
(or any duly authorized committee thereof) or (ii) by any shareholder of record
of the corporation who would be entitled to vote in the election of directors at
such meeting held on the date of such shareholder's nomination and who complies
with the notice procedures set forth in Section 2. If such shareholder ceases to
be a shareholder entitled to vote for elections of directors prior to the record
date for the meeting at which the nomination would arise, the nomination shall
be deemed to be withdrawn.
Section 2 - Shareholder Nominations. If a shareholder proposes to nominate
one or more candidates for election as directors at a meeting of shareholders at
which directors are to be elected, the shareholder must give timely notice
thereof in proper written form to the Secretary of the corporation, in addition
to complying with any other applicable requirements. To be timely, the
shareholder's notice must be delivered to the Secretary at the principal
executive offices of the corporation not less than ninety days prior to the date
scheduled for such meeting; provided, however, that if notice or public
announcement of the scheduled date of the meeting is not given or made at least
one hundred (100) days prior to the date scheduled for the meeting, such
shareholder's notice must be so delivered to the Secretary not more than ten
(10) days following the day on which such notice of meeting was mailed or such
public announcement was made, whichever is earlier. In no event shall the
postponement, deferral or adjournment of a shareholders' meeting commence a new
time period for the giving of notice by a shareholder as described above. For
purposes of this Section, "public announcement" shall mean disclosure in a press
release reported by the Dow Jones News Service, Associated Press or comparable
national news service or in a document
13
<PAGE>
publicly filed by the corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
To be in proper written form, a shareholder's notice to the Secretary must
set forth (i) as to each person whom the shareholder proposes to nominate for
election as a director (A) the name, age, business address and residence address
of the person, (B) the principal occupation or employment of the person, (C) the
class and number of shares of capital stock of the corporation that are owned
beneficially and owned of record by the person and (D) any other information
concerning the person that would be required to be disclosed in a proxy
statement or other filings in connection with the solicitation of proxies for
the election of such person as a director under Section 14 of the Securities
Exchange Act of 1934, as amended from time to time (the "Exchange Act"), and the
rules and regulations promulgated thereunder; and (ii) as to the shareholder
giving , the notice (A) the name and address, as they appear on the
corporation's books, of such shareholder, (B) the name and address of the
beneficial owner, if any, on whose behalf the nomination(s) are made, (C) the
class and number of shares of capital stock of the corporation that are owned
beneficially and owned of record by such shareholder and any such beneficial
owner, (D) a description of all arrangements or understandings between such
shareholder or beneficial owner and each proposed nominee or any other person or
persons (including their names) pursuant to which the nomination(s) are to be
made by such shareholder and (E) any other information relating to such
shareholder or beneficial owner that would be required to be disclosed in a
proxy statement or other filings required to be made in connection with
solicitations of proxies for the election of directors pursuant to Section 14 of
the Exchange Act and the rules and regulations promulgated thereunder. Such
notice must be accompanied by a written consent of each proposed nominee to
being named as a nominee and to serve as a director if elected.
Section 3 - Shareholder Proposals. If a shareholder proposes to bring
business before an annual meeting of shareholders, the shareholder must give
timely notice thereof in proper written form to the Secretary of the
corporation, in addition to complying with any other applicable requirements. To
be timely, a shareholder's notice must be delivered to the Secretary at the
principal executive offices of the corporation within the period specified in
Section 2 of this Article. In no event shall the postponement, deferral or
adjournment of a shareholders' meeting commence a new time period for the giving
of notice by a shareholder.
To be in proper written form, a shareholder's notice to the Secretary must
set forth (i) a brief description of the proposal desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as they appear on the corporation's books,
of such shareholder, (iii) the name and address of the beneficial owner, if any,
on whose behalf of proposal is made, (iv) the class and number of shares of
capital stock of the corporation that are owned beneficially and owned of record
by such shareholder and any such beneficial owner, (v) a description of all
arrangements or understandings between such shareholder or beneficial owner and
any other person or persons (including their names) in connection with the
proposal of such business by such
14
<PAGE>
shareholder, (vi) a description of any material financial or other interest
of such shareholder or beneficial owner in such proposal and (vii) any other
information that would be required to be disclosed in a proxy statement
soliciting proxies for approval of the proposal pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder.
Section 4 - Additional Information. The Board of Directors, or a designated
committee thereof, may reject any shareholder's nomination or shareholder's
proposal which is not timely made in accordance with the provisions of this
Article VI. If the Board of Directors, or a designated committee thereof,
determines that the information provided in a shareholder's notice does not
comply with the requirements of this Article VI in any material respect, the
Secretary of the corporation shall notify the shareholder of the deficiency. The
shareholder shall have an opportunity to cure the deficiency by providing
additional information to the Secretary within five (5) days from the date such
deficiency notice is given to the shareholder, or such shorter time as may
reasonably be deemed appropriate by the Board or committee. If the deficiency is
not cured within such period, or if the Board of Directors or such committee
determines that the additional information provided by the shareholder, together
with the information previously provided, does not satisfy the requirements of
this Article VI in any material respect, then the Board of Directors or
committee may reject such shareholder's notice.
Section 5 - Determinations. Notwithstanding the procedures set forth in
Section 4 of this Article hereof, if the Board of Directors or any committee
thereof does not make a determination as to whether a shareholder's notice
complies with the provisions of this Article VI, the presiding officer of the
meeting shall make the determination and declare at the meeting whether the
shareholder has so complied. If the presiding officer determines that the
shareholder has not so complied, then unless the presiding officer in his or her
sole and absolute discretion waives such noncompliance, the presiding officer
shall declare at the meeting that the shareholder's nomination or proposal was
not properly made and the defective nomination or shareholder proposal shall be
disregarded.
ARTICLE VII - GENERAL
Section 1 - Fixing of Capital - Transfers of Surplus. Except as may be
specifically otherwise provided in the Articles of Incorporation, the Board of
Directors is expressly empowered to exercise all authority conferred upon it or
the corporation by any law or statute, and in conformity therewith, relative to:
A. the determination of what part of the consideration received for shares
of the corporation shall be stated capital;
B. increasing stated capital;
C. transferring surplus to stated capital;
15
<PAGE>
D. the consideration to be received by the corporation for its shares; and
E. all similar or related matters
provided that any concurrent action or consent by or of the corporation and
its shareholders required to be taken or given pursuant to law, shall be duly
taken or given in connection therewith.
Section 2 - Dividends. Dividends upon the outstanding shares of the
corporation, subject to the provisions of the Articles of Incorporation and of
any applicable law, may be declared by the Board of Directors at any meeting.
Dividends may be paid in cash, in property, or in shares of the corporations
stock.
Liquidating dividends or dividends representing a distribution of paid-in
surplus or a return of capital shall be made only when and in the manner
permitted by law.
Section 3 - Checks. All checks and similar instruments for the payment of
money shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate. If no such
designation is made, and unless and until the Board otherwise provides, the
president and secretary or the president and treasurer, shall have power to sign
all such instruments for, in behalf and in the name of the corporation which are
executed or made in the ordinary course of the corporation's business.
Section 4 - Records. The corporation shall cause to be maintained either at
its principal place of business or at the offices of a duly appointed stock
transfer agent and registrar, books in which shall be recorded the number of its
shares subscribed, the names of the owners of its shares, the numbers owned of
record by them, respectively, the amount of shares paid, and by whom, and the
transfer of said shares with the date of transfer. The corporation shall also
keep at its principal place of business records indicating the amount of its
assets and liabilities and the names and places of residence of its officers,
and from time to time such other or additional records, statements, lists and
information as may be required by law, including shareholders' lists.
Section 5 - Inspection of Records. A shareholder, if he be entitled and
demands to inspect the records of the corporation pursuant to any statutory or
other legal right, shall be privileged to inspect such records only during the
usual and customary hours of business and in such manner as will not unduly
interfere with the regular conduct of the business of the corporation. A
shareholder may delegate his right of inspection to a certified public
accountant on the condition, to be enforced at the option of the corporation,
that the shareholder and accountant agree with the corporation to furnish to the
corporation promptly a true and correct copy of each report with respect to such
inspection made by such accountant. No shareholder shall use, permit to be used
or acquiesce in the use by others of
16
<PAGE>
any information so obtained to the competitive detriment of the
corporation, nor shall he furnish or permit to be furnished any information so
obtained to any competitor or prospective competitor of the corporation. The
corporation, as a condition precedent to any shareholder's inspection of the
records of the corporation, may require the shareholder to indemnify the
corporation, in such manner and for such amount as may be determined by the
Board of Directors, against any loss or damage which may be suffered by it
arising out of or resulting from any unauthorized disclosure made or permitted
to be made by such shareholder of information obtained in the course of such
inspection.
Section 6 - Corporate Seal. The corporate seal shall have inscribed thereon
the name of the corporation and the words: Corporate Seal - Missouri. Said seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
in any manner reproduced.
Section 7 - Amendments. The Bylaws of the corporation may, from time to
time, be suspended, repealed, amended or altered, or new Bylaws may be adopted,
in the manner provided in the Articles of Incorporation.
17
<PAGE>
Appendix B
SALOMON SMITH BARNEY
- --------------------------
A member of citigroup[logo]
March 7, 1999
The Board of Directors
Lab Holdings, Inc.
5000 West 95th Street
Shawnee Mission, Kansas 66207
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to Lab Holdings, Inc. ("Lab Holdings") of the consideration to be paid by
Lab Holdings pursuant to the terms and subject to the conditions set forth in
the Agreement and Plan of Merger, dated March 7, 1999 (the "Merger Agreement"),
by and between Lab Holdings and LabOne, Inc. ("LabOne"). As more fully described
in the Merger Agreement, (i) LabOne will be merged with and into Lab Holdings
(the "Merger" and, the entity result ing from the Merger, the "Surviving
Corporation") and (ii) each outstanding share of the common stock, par value
$0.01 per share, of LabOne (the "LabOne Common Stock") will be converted into
the right to receive, at the election of the holder thereof and subject to
certain proration procedures (as to which we express no opinion) specified in
the Merger Agreement, either or a combination of (A) $12.75 in cash (the "Cash
Consideration") or (B) one share (the "Stock Consideration" and, together with
the Cash Consideration, the "Merger Consideration") of the common stock, par
value $0.01 per share, of the Surviving Corporation (the "Surviving Corporation
Common Stock"). We have been advised by representatives of Lab Holdings that (x)
the maximum Cash Consideration payable in the Merger will be $16,600,000 and (y)
immediately prior to the effective time of the Merger, each share of the common
stock, par value $1.00 per share, of Lab Holdings (the "Lab Holdings Common
Stock") will be converted into 1.50 shares o f Surviving Corporation Common
Stock (the "Stock Split").
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of Lab Holdings and certain senior officers, other representatives
and advisors of LabOne concerning the businesses, operations and prospects of
Lab Holdings and LabOne. We examined certain publicly available business and
financial information relating to Lab Holdings and LabOne as well as certain
financial forecasts and other information and data for Lab Holdings and LabOne
which were provided to or otherwise discussed with us by the respective
managements of Lab Holdings and LabOne, including information relating to
certain strategic implications and operational benefits anticipated to result
from the Merger. We reviewed the financial terms of the Merger as set forth in
the Merger Agreement in relation to, among other things: current and historical
market prices and trading volumes of Lab Holdings Common Stock and LabOne Common
Stock; the histo rical and projected earnings and other operating data of Lab
Holdings and LabOne;
SALOMON SMITH BARNEY INC. 3888 Greenwich Street, New York, NY 10013
<PAGE>
The Board of Directors
Lab Holdings, Inc.
March 7, 1999
Page 2
and the capitalization and financial condition of Lab
Holdings and LabOne. We considered, to the extent publicly available, the
financial terms of certain other similar transactions recently effected which we
considered relevant in evaluating the Merger and analyzed certain financial,
stock market and other publicly available information relating to the businesses
of other companies whose operations we considered relevant in evaluating those
of Lab Holdings and LabOne. We also evaluated the potential pro forma financial
impact of the Merger on Lab Holdings. In addition to the foregoing, we conducted
such other analyses and examinations and considered such other financial,
economic and market criteria as we deemed appropriate in arriving at our
opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed by
or discussed with us. With respect to financial forecasts and other information
and data provided to or otherwise reviewed by or discussed with us, we have been
advised by the managements of Lab Holdings and LabOne that such forecasts and
other information and data were reasonab ly prepared on bases reflecting the
best currently available estimates and judgments of the respective managements
of Lab Holdings and LabOne as to the future financial performance of Lab
Holdings and LabOne and the strategic implications and operational benefits
anticipated to result from the Merger. We have assumed, with your consent, that
the Merger will be treated as a tax-free reorganization for federal income tax
purposes. We are not expressing any opinion as to what the value of the
Surviving Corp oration Common Stock actually will be when issued to LabOne
stockholders pursuant to the Merger or the price at which the Surviving
Corporation Common Stock will trade subsequent to the Merger. We have not made
or been provided with an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of Lab Holdings or LabOne nor have we made
any physical inspection of the properties or assets of Lab Holdings or LabOne.
We express no view as to, and our opinion does not address, the relative merits
of the Merger as compared to any alternative business strategies that might
exist for Lab Holdings or the effect of any other transaction in which Lab
Holdings might engage. Our opinion is necessarily based upon information
available to us, and financial, stock market and other conditions and
circumstances existing and disclosed to us, as of the date hereof.
Salomon Smith Barney Inc. has acted as financial advisor to Lab Holdings in
connection with the Merger and will receive a fee for such services, a portion
of which is contingent upon consummation of the Merger. We also will receive a
fee upon the delivery of this opinion. In the ordinary course of our business,
we and our affiliates may actively trade or hold the securities of Lab Holdings
and LabOne for our own account or for the account of our customers and,
accordingly, may at any time hold a long or short position in such securities.
In addition, we and our affiliates (including Citigroup Inc. and its affiliates)
may maintain relationships with Lab Holdings, LabOne and their respective
affiliates.
<PAGE>
The Board of Directors
Lab Holdings, Inc.
March 7, 1999
Page 3
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of Lab Holdings in its evaluation of the
proposed Merger, and our opinion is not intended to be and does not constitute a
recommendation to any stockholder as to how such stockholder should vote on any
matter relating to the proposed Merger.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant and
after taking into account the Stock Split, we are of the opinion that, as of the
date hereof, the Merger Consideration is fair, from a financial point of view,
to Lab Holdings.
Very truly yours,
/s/ Salomon Smith Barney Inc.
- -------------------------
SALOMON SMITH BARNEY INC.
<PAGE>
Appendix C
Piper Jaffray
222 South Ninth Street
Minneapolis, MN 55402-3804
612 342-6000
March 7, 1999
The Special Committee of the Board of Directors of LabOne, Inc.
c/o John A. Granda, Esq.
Stinson, Mag & Fizzell, P.C.
1201 Walnut Street
Suite 2800
Kansas City, MO 64106-2150
Attention: Richard S. Schweiker
Members of the Special Committee:
In connection with the proposed transaction (the "Transaction") in which LabOne,
Inc. ("LabOne") will be merged with and into Lab Holdings, Inc. ("Holdings"),
you have requested our opinion as to fairness, from a financial point of view,
to the Unaffiliated Stockholders (as defined below) of LabOne of the proposed
Merger Consideration (also defined below) to be received by such holders in the
Transaction. As detailed in the Agreement and Plan of Merger (the "Agreement"),
prior to the effective time of the merger, each issued and outstanding share of
Holdings common stock will be automatically converted into (assuming the
effectiveness of the Transaction) 1.50 shares (the "Stock Split") of validly
issued, fully paid and non-assessable shares of Holdings common stock. Subject
to the prior effectiveness of the Stock Split, each share of LabOne common
stock, other than shares of LabOne held by Holdings ("Minority Interest
Shares"), will be converted into, at the option of the holder, either, or a
combination, of the following (the "Merger Consideration"); (i) $12.75 cash; or
(ii) one share of Holdings common stock. To the extent that cash elections
exceed $16,600,000 or approximately 50% of the Minority Interest Shares, holders
of LabOne common shares that submitted their shares for the cash portion of the
Merger Consideration will receive a pro rata amount of cash and Holdings stock
so that the overall cash component of the Merger Consideration does not exceed
$16,600,000. "Unaffiliated Stockholders" means the holders of common stock of
LabOne other than Holdings, officers and directors of Holdings and beneficial
owners of 10% or more of the outstanding shares of Holdings common stock. The
Transaction is intended to qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
U.S. Bancorp Piper Jaffray, as a customary part of its investment banking
business, is engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, underwriting and secondary
distributions of securities, private placements and valuations for estate,
corporate and other purposes. We will receive a fee for providing this opinion.
This opinion fee is not contingent upon the consummation of the Transaction.
LabOne has also agreed to indemnify us against certain liabilities in connection
with our services. In the ordinary course of our business, we and our affiliates
may actively trade securities of LabOne and Holdings for our own account or the
account of our customers and, accordingly, may at any time hold a long or short
position in such securities.
<PAGE>
In arriving at our opinion, we have undertaken such review, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have reviewed (i) a draft copy of the Agreement and Plan of
Merger dated March 7, 1999, (ii) certain financial, operating and business
information related to LabOne, (iii) certain internal financial information of
LabOne on a stand-alone basis
Since 1895, Members
New York Stock Exchange, Inc.
LabOne, Inc.
March 7, 1999
Page 2
prepared for financial planning purposes and
furnished by the management of LabOne, (iv) to the extent publicly available,
financial terms of certain acquisition transactions involving companies
operating in industries deemed similar to that in which LabOne operates and
selected public companies deemed comparable to LabOne, (v) certain publicly
available financial, operating and business information relative to Holdings,
and (vi) certain publicly available financial and securities data of Holdings,
(vii) certain publicly available financial and securities data related to
LabOne, and (viii) information relating to LabOne and Holdings on a combined
basis. We had discussions with members of the management of (a) Holdings
concerning the financial condition, current operating results and business
outlook for both Holdings and LabOne on a stand-alone basis and the combined
company resulting from the Transaction and Holdings's plans relating to such
combined company as well as the amount and timing of the cost savings and
related expenses expected to result from the Transaction, and (b) LabOne
concerning the financial condition, current operating results and business
outlook for LabOne and the combined company.
We have relied upon and assumed the accuracy, completeness and fairness of the
financial statements and other information provided to us by LabOne and Holdings
and have not assumed responsibility for the independent verification of such
information. Such information was prepared for financial planning purposes and
was not prepared with the expectation of public disclosure. We have relied upon
the assurances of the management of LabOne and Holdings that the information
provided to us as set forth above by LabOne and Holdings has been prepared on a
reasonable basis, and, with respect to financial planning data and other
business outlook information, reflects the best currently available estimates,
and that they are not aware of any information or facts that would make the
information provided to us incomplete or misleading. Further, although we make
no representation that our procedures and resulting opinion are adequate or
sufficient for your purpose, we have relied on memoranda and discussions with
the Special Committee and counsel to the Special Committee concerning the
elements of fairness of price under applicable law in the context of a merger
such as the Transaction.
We have assumed that the final form of the Agreement will be substantially
similar to the last draft reviewed by us, without modification or waiver of
material terms or conditions by Holdings or LabOne. In addition, in arriving at
our opinion, we have assumed that, in the course of obtaining the necessary
regulatory approvals for the Transaction, no restrictions, including any
divestiture requirements will be imposed that will have a material adverse
effect on the contemplated benefits of the Transaction.
<PAGE>
Pursuant to the engagement letter dated April 17, 1997, U.S. Bancorp Piper
Jaffray was hired by the Special Committee of the Board of Directors to
negotiate the Transaction and express an opinion as to fairness of the
Transaction. We were not asked to and accordingly did not solicit alternative
business combination transactions or other strategic alternatives to the
Transaction.
In arriving at our opinion, we have not performed any appraisals or
valuations of any specific assets or liabilities of Holdings or LabOne, and have
not been furnished with any such appraisals or valuations. We have analyzed
LabOne as a going concern and accordingly express no opinion regarding the
liquidation value of any entity.
This opinion is necessarily based upon the information available to us and facts
and circumstances as they exist and are subject to evaluation on the date
hereof; events occurring after the date hereof could materially affect the
assumptions used in preparing this opinion. We are not expressing any opinion
herein as to the price at which shares of Holdings common stock have traded or
may trade at any future time. We have not
Piper Jaffray, Inc.
LabOne, Inc.
March 7, 1999
Page 3
undertaken to reaffirm or revise this opinion or otherwise comment upon any
events occurring after the date hereof and do not have any obligation to update,
revise or reaffirm this opinion.
This opinion is directed to the Special Committee of the Board of Directors of
LabOne and is not intended to be and does not constitute a recommendation to any
stockholder as to how such stockholder should vote with respect to the
Transaction or any election such stockholder should make with respect to the
Merger Consideration offered. We were not requested to opine as to, and this
opinion does not address, the basic business decision to proceed with or effect
the Transaction. This opinion shall not be published, relied upon or otherwise
used, nor shall any public references to us be made, without our prior written
approval.
Based upon and subject to the foregoing and based upon such other factors as we
consider relevant, it is our opinion that, as of the date hereof, the Merger
Consideration proposed to be received in the Transaction pursuant to the
Agreement by the Unaffiliated Stockholders of LabOne common stock is fair, from
a financial point of view, to such holders.
Sincerely,
s/ US Bancorp Piper Jaffray
U.S. BANCORP PIPER JAFFRAY
Piper Jaffray, Inc.
<PAGE>
Appendix D
351.455. Shareholder who objects to merger may demand value of shares, when
1. If a shareholder of a corporation which is a party to a merger or
consolidation shall file with such corporation, prior to or at the meeting of
shareholders at which the plan of merger or consolidation is submitted to a
vote, a written objection to such plan of merger or consolidation, and shall not
vote in favor thereof, and such shareholder, within twenty days after the merger
or consolidation is effected, shall make written demand on the surviving or new
corporation for payment of the fair value of his shares as of the day prior to
the date on which the vote was taken approving the merger or consolidation, the
surviving or new corporation shall pay to such shareholder, upon surrender of
his certificate or certificates representing said shares, the fair value
thereof. Such demand shall state the number and class of the shares owned by
such dissenting shareholder. Any shareholder failing to make demand within the
twenty day period shall be conclusively presumed to have consented to the merger
or consolidation and shall be bound by the terms thereof.
2. If within thirty days after the date on which such merger or consolidation
was effected the value of such shares is agreed upon between the dissenting
shareholder and the surviving or new corporation, payment therefor shall be made
within ninety days after the date on which such merger or consolidation was
effected, upon the surrender of his certificate or certificates representing
said shares. Upon payment of the agreed value the dissenting shareholder shall
cease to have any interest in such shares or in the corporation.
3. If within such period of thirty days the shareholder and the surviving or
new corporation do not so agree, then the dissenting shareholder may, within
sixty days after the expiration of the thirty day period, file a petition in any
court of competent jurisdiction within the county in which the registered office
of the surviving or new corporation is situated, asking for a finding and
determination of the fair value of such shares, and shall be entitled to
judgment against the surviving or new corporation for the amount of such fair
value as of the day prior to the date on which such vote was taken approving
such merger or consolidation, together with interest thereon to the date of such
judgment. The judgment shall be payable only upon and simultaneously with the
surrender to the surviving or new corporation of the certificate or certificates
representing said shares. Upon the payment of the judgment, the dissenting
shareholder shall cease to have any interest in such shares, or in the surviving
or new corporation. Such shares may be held and disposed of by the surviving or
new corporation as it may see fit. Unless the dissenting shareholder shall file
such petition within the time herein limited, such shareholder and all persons
claiming under him shall be conclusively presumed to have approved and ratified
the merger or consolidation, and shall be bound by the terms thereof.
4. The right of dissenting shareholder to be paid the fair value of his
shares as herein provided shall cease if and when the corporation shall abandon
the merger or consolidation.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE REGISTRATION STATEMENT
Item 20. Indemnification of Directors and Officers.
The Registrant is incorporated in Missouri. Under Section 351.355 of
the General and Business Corporation Law of Missouri, a corporation has the
power, under specified circumstances, to indemnify its directors, officers,
employees and agents in connection with actions, suits or proceedings brought
against them by a third party or in the right of the corporation, by reason of
the fact that they were or are such directors, officers, employees or agents,
against expenses incurred in any such action, suit, or proceeding.
The Registrant's Bylaws provide that directors and officers shall be
indemnified to the full extent permitted or authorized under Missouri law. The
Registrant's Bylaws also provide that no director or officer shall be liable to
the Registrant for any loss or expense suffered by it on account of actions or
omissions taken by him in such capacity if he (i) exercised the same degree of
care and skill as a prudent man would have exercised under the circumstances in
the conduct of his own affairs or (ii) took or omitted to take such action in
reliance upon the advice of counsel or upon statements made or information
furnished by directors, officers, employees or agents of the Registrant which he
had no reasonable grounds to disbelieve.
Section 351.355 also permits such persons to seek indemnification under
any applicable bylaw, agreement, vote of stockholders or disinterested directors
or otherwise. Section 351.355 also permits a corporation to provide further
indemnity, in addition to that otherwise contemplated by such section, if
provided for in the Articles of Incorporation or a bylaw or agreement authorized
by a stockholder vote, provided that no such indemnification can be made for
conduct which is finally adjudged to have been knowingly fraudulent,
deliberately dishonest or willful misconduct. Section 351.355 also permits
corporations to maintain insurance for officers and directors against
liabilities incurred while acting in such capacities whether or not the
corporation would be empowered to indemnify such persons under this section.
The Registrant has entered into Indemnification Agreements with its
directors and officers and the nonemployee directors of LabOne under which it
has agreed to indemnify such persons against expenses, judgments and fines
incurred in connection with the defense or settlement of actions, suits or
proceedings brought against them by a third party or in the right of the
corporation, provided such persons' conduct is not finally adjudged to have been
knowingly fraudulent, deliberately dishonest or willful misconduct.
The Merger Agreement provides for certain indemnification for officers
and directors as well as former officers and directors of the Registrant as
described under "The Merger Agreement - Indemnification" in the Joint Proxy
Statement/Prospectus.
The Registrant currently has directors and officers insurance that
insures directors and officers of the Registrant with respect to claims made for
alleged "wrongful acts" in their roles as directors or officers of the
Registrant and its subsidiaries. The insurance also insures the Registrant for
claims against the Registrant's directors or officers in situations in which the
Registrant has an obligation to defend and/or indemnify its directors and
officers.
<PAGE>
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits are listed on the Exhibit Index on the page following the
signatures.
(b) Financial Statement Schedules.
II. Valuation and Qualifying Accounts and Reserves - Years ended
December 31, 1998, 1997 and 1996 (included in the Lab
Holdings, Inc. financial statements included in Lab Holdings,
Inc.
II-1
Form 10-K for the year ended December 31, 1998, which is
incorporated by reference herein).
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high and
of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no
more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of
<PAGE>
Registration Fee" table in the effective registration
statement;
(iii)To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement;
provided, however, that paragraphs (a)(i) and (ii) do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
with or furnished to the Commission by the registrant pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's annual
report
II-2
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) The undersigned hereby undertakes that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this registration statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(d) The undersigned hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
<PAGE>
(e) The undersigned hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to requirements of the Securities Act of 1933, the Registrant
has duly caused this Pre-Effective Amendment No 1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Prairie Village, State of Kansas, on this 27th day of May, 1999.
LAB HOLDINGS, INC.
By s/P. Anthony Jacobs
--------------------------------
P. Anthony Jacobs, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
s/ P. Anthony Jacobs President, Chief Executive May 27, 1999
- --------------------------------------
P. Anthony Jacobs Officer and Director
s/Steven K. Fitzwater Executive Vice President, Chief
- -------------------------------------- Operating and Financial Officer,
Steven K. Fitzwater Treasurer, Secretary and May 27, 1999
Director
s/Linda K. McCoy Vice President and Chief May 27, 1999
- ------------------------------- Accounting Officer
Linda K. McCoy
s/Lan C. Bentsen Director May 27, 1999
- ---------------------------------------
Lan C. Bentsen **
s/John H. Robinson, Jr. Director May 27, 1999
- ------------------------------------
John H. Robinson, Jr.
</TABLE>
** Signed by Steven K. Fitzwater as attorney-in-fact.
II-4
<PAGE>
EXHIBIT INDEX
Exhibit Description
- ------- -----------
2.1 Distribution Agreement, dated December 20, 1996, between the Registrant and
SLH Corporation [filed as Exhibit 2(a) to SLH Corporation's Form 10/A
(Amendment No. 1) filed February 4, 1997 (File No. 0-21911)].*
2.2 Blanket Assignment, Bill of Sale, Deed and Assumption Agreement, dated as
of February 28, 1997, between the Registrant and SLH Corporation [filed as
Exhibit 2(b) to SLH Corporation's Form 10/A (Amendment No. 1) filed
February 4, 1997 (File No. 0-21911)].*
2.3 Form of Agreement and Plan of Merger by and between Lab Holdings, Inc. and
LabOne, Inc., as amended and restated, dated as of March 7, 1999
[Incorporated by reference to Appendix A to the Joint Proxy
Statement/Prospectus).*
3.1 Registrant's Articles of Incorporation, as amended [filed as Exhibit 3.1 to
Amendment No. 1 to Registrant's Registration Statement on Form S-4, filed
April 8, 1988 (File No. 33-20298)].*
3.2 Amendment to Registrant's Articles of Incorporation, effective May 15,
1991, [filed as Exhibit 3(b) to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991 (File No. 0-16946)].*
3.3 Registrant's Bylaws, as amended [filed as Exhibit 3(c) to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992 (File No.
0-16946)].*
4.1 Form of Certificate of Serial Designation of Series A Preferred Stock
[filed as Exhibit 4.2 to Amendment No. 1 to Registrant's Registration
Statement on Form S-4, filed April 8, 1988, (File No. 33-20298)].*
4.2 Trust Indenture dated as of September 1, 1998, between the City of Lenexa,
Kansas and Intrust Bank, N.A. related to the issuance of Taxable Industrial
Revenue Bonds for the LabOne, Inc., Facility Project [filed as Exhibit 4.1
of the LabOne, Inc. Form 10-Q for the quarter ended September 30, 1998].*
4.3 Lease Agreement dated as of September 1, 1998 between the City of Lenexa,
Kansas and LabOne, Inc. related to the Trust Indenture filed as Exhibit 4.1
to the Company's Report on Form 10-Q for the quarter ended September 30,
1998 [filed as Exhibit 4.2 of the LabOne, Inc. Form 10-Q for the quarter
ended September 30, 1998].*
4.4 Reimbursement Agreement dated as of September 1, 1998 between LabOne, Inc.
and Commerce Bank, N.A. related to Exhibits 4.1 and 4.2 to the Company's
Report on Form 10-Q for the quarter ended September 30, 1998 [filed as
Exhibit 4.3 of the LabOne, Inc. Form 10-Q for the quarter ended September
30, 1998].*
4.5 Letter agreement dated September 4, 1998, between the Company and Commerce
Bank, N.A. relating to the Company's obligations with respect to the
Reimbursement Agreement and letters of credit to be issued thereunder that
is filed as Exhibit 4.3 to the Company's Report on Form 10-Q for the
quarter ending September 30, 1998 [filed as Exhibit 4.4 of the Registrant's
form 10-Q for the quarter ended September 30, 1998].*
II-5
<PAGE>
4.6 Line of Credit Loan Agreement and related Note between Commerce Bank, N.A.
and Lab Holdings, Inc.
5.1 Form of opinion of Lathrop & Gage L.C. concerning the legality of the
securities being registered [Filed as exhibit 5.1 to the original
Registration Statement on April 13, 1999].*.
8.1 Form of opinion of Lathrop & Gage L.C. concerning the tax consequences of
the Merger.
10.1 Registrant's 1997 Directors' Stock Option Plan, as amended [filed as
Exhibit 10.4 of the Registrant's Form 10-Q for the quarter ended September
30, 1998 and incorporated herein by reference).*
10.2 Form of Option Agreement with directors under the Directors' Stock Option
Plan, as amended [filed as Exhibit 10.5 of the Registrant's Form 10-Q for
the quarter ended September 30, 1998].*
10.3 Form of Indemnification Agreement between Registrant and its directors and
corporate/executive officers [filed as Exhibit 10(i) to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1989 (File No.
0-16946)].*
10.4 Long-Term Incentive Plan of LabOne, Inc., approved May 16, 1991 with
amendments adopted May 21, 1993 and November 9, 1993 [filed as Exhibit
10.21 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993 (File No.0-16946)].*
10.5 Amendment to LabOne's Long Term Incentive Plan, effective February 10, 1995
[filed as Exhibit 10.31 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995 (File No. 0-16946)].*
10.6 Amendment to LabOne's Long Term Incentive Plan, effective May 9, 1997
[filed as Exhibit 10.5 to LabOne, Inc. Annual Report on Form 10-K for the
year ended December 31, 1997 (File No. 0-15975)].*
10.7 1997 Long-Term Incentive Plan of LabOne, Inc. [filed as Exhibit 10.1 to the
LabOne, Inc. Form 10-Q for the quarter ended June 30, 1998 (File No.
0-15975)].*
10.8 Form of Stock Option Agreement pursuant to the LabOne 1997 Long-Term
Incentive Plan [filed as Exhibit 10.2 to the LabOne, Inc. Form 10-Q for the
quarter ended June 30, 1998 (File No. 0- 15975)].*
10.9 LabOne's Stock Plan for non-employee directors [filed as Exhibit 10.23 to
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994 (File No. 0- 16946)].*
10.10 LabOne's Annual Incentive Plan [filed as Exhibit 10.3 to LabOne,
Inc. Annual Report on Form 10-K for the year ended December 31, 1998 (File
No. 0-15975)].*
10.11 Lab Holdings, Inc. Facilities Sharing and Interim Services
Agreement, dated as of June 1, 1998 [filed as Exhibit 10.29 to the SLH
Corporation Registration Statement on Form S-4 (Registration No.
333-50253)].*
<PAGE>
10.12 Tax Sharing Agreement, dated as of February 28, 1997, between the
Registrant and SLH Corporation [filed as Exhibit 10(b) to SLH Corporation's
Registration Statement on Form 10/A (Amendment No. 1) filed February 4,
1997 (File No. 0-21911)].*
II-6
10.13 Employment agreement between the Registrant and P. Anthony
Jacobs, the President and Chief Executive Officer of the Registrant [filed
as Exhibit 10.1 to the Registrant's Form 10-Q for the quarter ended
September 30, 1998].*
10.14 Employment agreement between the Registrant and Steven K.
Fitzwater, the Executive Vice President and Chief Operating and Financial
Officer of the Registrant [filed as Exhibit 10.2 to the Registrant's Form
10-Q for the quarter ended September 30, 1998].*
10.15 Employment agreement between the Registrant and Linda K. McCoy,
the Vice President and Chief Accounting Officer of the Registrant [filed as
Exhibit 10.3 to the Registrant's Form 10-Q for the quarter ended September
30, 1998].*
10.16 Warrant to Purchase Shares of common stock of LabOne, Inc. issued
to National Support Services, Inc. [filed as Exhibit 4 to the LabOne, Inc.
Form 10-Q for the quarter ended March 31, 1998].*
10.17 Warrant to Purchase Shares of Common Stock of LabOne, Inc. issued
to USA Managed Care Organization [filed as Exhibit 4.5 to the LabOne, Inc.
Annual Report on Form 10-K for the year ended December 31, 1998].*
10.18 Warrant to Purchase Shares of common stock of LabOne, Inc. issued
to STC Technologies, Inc.
10.19 Warrant to Purchase Shares of common stock of LabOne, Inc. issued
to HealthPlan Services, Inc.
11 Statement regarding computation of per share earnings [incorporated by
reference to Note l of Notes to Consolidated Financial Statements,
"Earnings Per Share." included in the Lab Holdings, Inc. financial
statements included in Lab Holdings, Inc. Form 10-K/A for the year ended
December 31, 1998].*
21 Subsidiaries of Registrant [incorporated by reference to Item 1 in Lab
Holdings, Inc. Form 10-K/A for the year ended December 31, 1998].*
23.1 Consent of Lathrop & Gage L.C. (see Exhibits 5.1 and 8.1).
23.2 Consent of KPMG LLP with respect to their report on Financial Statements of
Lab Holdings, Inc. and LabOne, Inc.
23.3 Consents of persons named in the Registration Statement to become directors
of the Registrant.+
24 Powers of Attorney [incorporated by reference to the signature page and to
exhibits 24 to Lab Holdings, Inc. Form 10-K for the year ended December 31,
1998].*
<PAGE>
27 LabOne, Inc. Financial Data Schedule [filed as Exhibit 27 to LabOne Form
10-Q for the quarter ended March 31, 1999].*
99.1 Cautionary Statement under the Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995 (incorporated by reference to the
Registrant's Report on Form 8-K, dated October 23, 1998).*
II-7
99.2 Form of proxy card of Lab Holdings, Inc.[Filed as Exhibit 99.2 to this
Registration Statement as filed on April 13, 1999].*
99.3 Form of proxy card of LabOne, Inc. [Filed as Exhibit 99.3 to this
Registration Statement as filed on April 13, 1999].*
99.4 Letter of Transmittal and Form of Election [Filed as Exhibit 99.4 to this
Registration Statement as filed on April 13, 1999].*
99.5 Consent of Salomon Smith Barney Inc.[Filed as Exhibit 99.5 to this
Registration Statement as filed on April 13, 1999].*
99.6 Consent of U.S. Bancorp Piper Jaffray Inc. [Filed as Exhibit 99.6 to this
Registration Statement as filed on April 13, 1999].*
* Incorporated by reference as indicated.
+ To be filed by amendment.
II-8
<PAGE>
Exhibit 4.6
Commerce Bank
Post Office Box 419248
Kansas City, Missouri 64141-6428
(816) 234-2000
May 12, 1999
Mr. Steven K. Fitzwater
Executive Vice President,
Chief Operating Officer and Secretary
LAB HOLDINGS, INC.
5000 W. 95th Street, Suite 260
Shawnee Mission, Kansas 66207
Re: Line of Credit
Dear Mr. Fitzwater:
I am pleased to advise you that the Senior Loan Committee of Commerce Bank, N.A.
("Bank") has approved an unsecured line of credit in the maximum principal
amount of $15,000,000 ("Line of Credit") to Lab Holdings, Inc. ("Company").
Additional terms for the Line of Credit (which shall survive the execution and
delivery of the Line of Credit Note [hereinafter described] and shall not merge
therewith) are as follows:
PURPOSE: The proceeds of the Line of Credit shall be used by Company to finance
the day to day operations of its subsidiary, LabOne, Inc. ("LabOne") and to
finance Company's repurchase of LabOne stock.
INTEREST: Each borrowing under the Line of Credit shall bear interest, at
Company's option to be selected at the time of each borrowing, at either (i) a
variable per annum rate equal to the Prime Rate, or (ii) a variable per annum
rate equal to three-quarters of one percent (.75%) in excess of the "LIBOR
Rate". For purposes hereof, (i) "Prime Rate" shall mean the per annum rate of
interest established from time to time by Bank for its own internal convenience
as its Prime Rate, which when used to compute the rate of interest hereunder
shall change as of the date of any change in said Prime Rate; no representation
is made that the Prime Rate is the best, lowest or favored rate of interest, and
(ii) "LIBOR Rate" shall mean the thirty-day London Interbank Offered Rate, as
quoted in the Money Rates section of The Wall Street Journal, the Knight-Ridder
News Service, or such
<PAGE>
Mr. Steven K. Fitzwater
May 12, 1999
Page 2
other news service used by Bank, on the business day immediately preceding the
date of the applicable borrowing (or the business day immediately preceding the
date of any adjustment date, as applicable); the LIBOR Rate, with respect to a
particular borrowing, shall be subject to adjustment every thirty days based
upon the then applicable LIBOR Rate. Interest on the Line of Credit shall be
calculated on the actual number of days outstanding on the basis of a year
consisting of 360 days and shall be payable monthly, in arrears.
REPAYMENT, MATURITY: Principal under the Line of Credit shall be due and payable
in full on October 31, 2000; until such date, Company may borrow, repay and
reborrow such sums as Company desires in its sole discretion (but not to exceed
the maximum principal amount, at any time outstanding, of $15,000,000).
PROMISSORY NOTE: The Line of Credit shall be evidenced by a Line of Credit Note,
dated the closing date of the Line of Credit, in form and substance acceptable
to Bank.
COMMITMENT FEE: For the commitment of Bank contained herein, Company agrees to
pay Bank a per annum commitment fee equal to one-tenth of one percent (.1%) of
the average unused amount of the Line of Credit. Such fee shall be payable
quarterly, in arrears. Company shall have the option, at any time, and from time
to time, to irrevocably reduce the amount of Bank's commitment hereunder;
provided, however, in any event Company shall pay to Bank a per annum commitment
fee of at least $10,000.
TERM LOAN CONVERSION OPTIONS: Company shall have the option, from time to time,
to request that the outstanding principal balance (or a portion thereof) under
the Line of Credit be converted to a term loan (with a corresponding reduction
in the amount of Bank's commitment under the Line of Credit), on terms and
conditions satisfactory to Bank in its sole discretion.
REPRESENTATIONS: Company represents and warrants to Bank that the Company is a
corporation existing and in good standing under the laws of the State of
Missouri; that the Company has corporate power and authority to own its
properties and to enter into this agreement, borrow monies from the Bank and
perform its obligations hereunder, and that such entry, borrowing and
performance has been authorized by all necessary corporate action and has
received all necessary governmental approval (if any shall be required) and
shall not contravene or conflict with any provision of law or of the charter or
by-laws of the Company or of any agreement, law or order binding upon the
Company; that all
<PAGE>
Mr. Steven K. Fitzwater
May 12, 1999
Page 3
financial statements delivered to the Bank on behalf of the Company accurately
present the financial condition of the Company; that since the date of the last
financial statements of the Company delivered to the Bank, no material adverse
change in the business, assets, operations or prospects of the Company have
occurred of which the Bank has not been advised either verbally or in writing;
and that no litigation or other contingent liability exists which may have a
material adverse effect on the business, assets, operations or prospects of the
Company of which the Bank has not been advised in writing. Furthermore, Company
represents and warrants that all software utilized in the conduct of Company's
business will have appropriate capabilities and compatibility for operation to
handle calendar dates falling on or after January 1, 2000, and all information
pertaining to such calendar dates, in the same manner and with the same
functionality as the software does respecting calendar dates falling on or
before December 31, 1999. Additionally, Company represents and warrants that the
data-related user interface functions, data-fields, and data-related program
instructions and functions of the subject software include the indication of the
century. The representations and warranties contained herein shall be deemed to
be continuing while this commitment letter remains in effect and/or any sums are
outstanding under the Line of Credit Note.
FINANCIAL INFORMATION: The Company shall deliver to the Bank the following
information:
(a) Within one hundred twenty-five (125) days after its fiscal
year-end, the audited year-end financial statements of Company, in form
acceptable to Bank and prepared by independent certified public accountants
acceptable to Bank;
(b) Within fifty (50) days after the end of each quarter, the balance
sheets and profit and loss statements of Company dated as of the end of such
quarter, certified by the Chief Financial Officer of Company;
(c) Within one hundred twenty-five (125) days after its fiscal
year-end, the audited year-end financial statements of LabOne, in form
acceptable to Bank and prepared by independent certified public accountants
acceptable to Bank;
(d) Within fifty (50) days after the end of each quarter, the balance
sheets and profit and loss statements of LabOne dated as of the end of such
quarter, certified by the Chief Financial Officer of LabOne; and
<PAGE>
Mr. Steven K. Fitzwater
May 12, 1999
Page 4
(e) From time to time, such additional information regarding the
respective financial positions, conditions or businesses of Company and LabOne,
as the Bank may reasonably request.
COVENANTS: For such period of time as this commitment letter remains in effect,
or any indebtedness owing hereunder or under the Line of Credit Note remains
unpaid, Company covenants and agrees:
(a) Company shall permit Bank, and any person designated by Bank as its
agent, to inspect and review any of Company's properties, assets, corporate
books and financial records, and to discuss its affairs, finances and accounts
with its principal officers and independent certified public accountants, all at
such reasonable times and as often as Bank may reasonably request;
(b) Company shall: pay and discharge prior to delinquency all debts,
accounts, liabilities, assessments, and governmental charges or levies imposed
upon it or upon its income or profits or upon any of its properties (provided,
however, Company shall not be required to pay any taxes, assessments or
governmental charges being diligently contested by it in good faith by
appropriate legal proceedings); do all things necessary to preserve and keep in
full force and effect its corporate existence, rights, franchises and
privileges; and comply with all applicable statutes, regulations and orders of,
and all applicable restrictions imposed by, any governmental authority, the
noncompliance with which could materially adversely affect its business or
credit;
(c) Company shall notify Bank in writing of any default hereunder, or
under any indenture, agreement, contract or other instrument to which it is a
party or by which it is bound, or of any acceleration of maturity of any
indebtedness owing by it, and shall take all such steps as are necessary or
appropriate to promptly remedy any such default;
(d) Except with respect to a merger involving LabOne, Company shall not
merge or consolidate with another entity or sell all or substantially all of its
assets to any person, firm or corporation; and
(e) There shall be no material adverse change in the financial
condition of Company or the nature of its business.
<PAGE>
Mr. Steven K. Fitzwater
May 12, 1999
Page 5
EVENTS OF DEFAULT: Upon the occurrence of any of the following events of
default: failure of Company to comply with any of the provisions contained in
this commitment letter or in any other agreement between Company and Bank; any
event under any other agreement to which Company is a party which allows Bank or
any other party to declare any indebtedness owing by Company due and payable in
full; or dissolution, termination of existence, insolvency, appointment of a
receiver of any part of the property of, an assignment for the benefit of
creditors, or the commencement of any proceedings under bankruptcy of insolvency
laws by or against Company; then or at any time thereafter, all obligations of
Company owing to Bank, shall immediately become due and payable without notice
or demand. Unless prohibited by law, Company will pay on demand all costs of
collection, legal expenses and attorneys' fees incurred or paid in collecting
and/or enforcing this commitment letter and/or the Line of Credit. Furthermore,
Bank reserves the right to offset without notice all funds held by Bank against
matured debts owing to Bank by Company.
MISCELLANEOUS:
(a) This commitment letter shall be governed by, and construed in
accordance with, the laws of the State of Missouri.
(b) ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT, INCLUDING PROMISES TO EXTEND OR
RENEW SUCH DEBT, ARE NOT ENFORCEABLE. TO PROTECT YOU (BORROWER) AND US
(CREDITOR) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH
COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND
EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN
WRITING TO MODIFY IT.
BY SIGNING BELOW, YOU AND WE AGREE THAT THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN US.
If the terms and conditions contained in this commitment letter are satisfactory
to you, please sign and return the enclosed duplicate of this commitment letter.
Upon the Bank's receipt of the signed duplicate, this commitment letter shall
become the controlling agreement, with respect to the Line of Credit, between
Commerce Bank, N.A. and Lab Holdings, Inc. If not accepted and returned to Bank
by May 31, 1999 (or such later date as Bank shall agree upon in writing), this
commitment shall automatically expire.
<PAGE>
Mr. Steven K. Fitzwater
May 12, 1999
Page 6
If you have any questions regarding this commitment letter or any matters
relating to this financing, please do not hesitate to call me. Commerce Bank
sincerely appreciates this opportunity and looks forward to continuing its
relationship with Lab Holdings, Inc.
Sincerely,
s/Pam Hill
Pamela T. Hill
Vice President
cc: Mr. Robert D. Thompson
Executive Vice President
and Chief Operating Officer
LabOne, Inc.
Acknowledged and accepted this 14 day of May, 1999.
LAB HOLDINGS, INC.
By:s/Steven K. Fitzwater
Steven K. Fitzwater
Title: EVP, COO, CFO & Secretary
<PAGE>
LINE OF CREDIT NOTE
$15,000,000 May 14 , 1999
Maximum Amount and Interest Kansas City, Missouri
FOR VALUE RECEIVED, the undersigned, LAB HOLDINGS, INC. ("Company"), a
Missouri corporation, hereby promises to pay to the order of COMMERCE BANK, N.A.
("Bank") the principal sum of the lesser of (a) FIFTEEN MILLION DOLLARS
($15,000,000) and (b) the aggregate unpaid principal amount of all advances made
by the Bank to Company pursuant to the Letter Agreement, dated May 12, 1999,
between the Bank and Company. Principal under this Line of Credit Note shall be
due and payable in full on October 31, 2000; until such date, Company may
borrow, repay and reborrow such sums as Company desires in its sole discretion
(but not to exceed the maximum principal amount, at any time outstanding, of
$15,000,000). Company agrees to pay interest on the unpaid principal amount
hereof from time to time from the date hereof until such amount shall become due
and payable (whether at the stated maturity, by acceleration or otherwise) at
the interest rate determined in accordance with the terms of the Letter
Agreement. Interest shall be payable monthly, in arrears, and upon the due date
and payment (including prepayment) in full of the unpaid principal amount
hereof. The principal balance of this Line of Credit Note shall bear interest
after maturity, whether by acceleration or otherwise, at the per annum rate of
three percent (3%) in excess of the Prime Rate (as defined in the Letter
Agreement), but not to exceed the maximum rate allowed by law; and if not paid
monthly, such interest shall be compounded monthly. Both principal and interest
shall be payable in lawful money of the United States of America to Bank at its
office at 1000 Walnut Street, Kansas City, Missouri 64106, in immediately
available funds.
Bank is authorized to endorse on the schedule annexed hereto and made a
part hereof, or on a continuation thereof, or to otherwise record in a manner
satisfactory to the Bank, appropriate notations evidencing the date and amount
of each advance, the interest rate(s) with respect thereto, and the date and
amount of each payment, which endorsement or recording shall constitute prima
facie evidence of the accuracy of the
<PAGE>
information endorsed or recorded; provided, however, that the failure to make
such notations or recordings shall not affect the obligations of Company under
this Line of Credit Note or the Letter Agreement or affect the validity of any
payment with respect thereto.
If any payment under this Line of Credit Note shall become due and
payable on a day which is not a business day of Bank, payment shall be made on
the next succeeding business day and, with respect to payments of principal,
interest shall be payable thereon at the applicable rate during such extension.
Unless prohibited by law, Company will pay on demand all reasonable
costs of collection, legal expenses and attorneys' fees incurred or paid in
collecting and/or enforcing this Line of Credit Note. Furthermore, Bank reserves
the right to offset without notice all funds of Company held by Bank against
matured debts owing to Bank by Company.
All without notice and without affecting its liability to Bank, each
guarantor, endorser or accommodation maker: (1) waives presentment, protest,
demand, notice of dishonor or default, and consents to the release of any party
or parties directly or indirectly liable for payment hereof or the release,
subordination or substitution of any collateral securing this obligation; and
(2) consents to any and all amendments and modifications (including changes in
interest rate).
This Line of Credit Note is the "Line of Credit Note" issued pursuant
to the provisions of the Letter Agreement, to which Letter Agreement, as it may
be amended from time to time, reference is hereby made for a statement of the
terms and conditions under which this Line of Credit Note may be prepaid or its
maturity accelerated. Reference is hereby made to such Letter Agreement for
additional duties and obligations to be performed by Company, and for additional
rights and interests in favor of Bank.
This Line of Credit Note shall be governed by, and construed in
accordance with, the laws of the State of Missouri.
2
<PAGE>
IN WITNESS WHEREOF, Company has duly caused this Line of Credit Note to
be executed and delivered at the place specified above and as of the date first
written above.
LAB HOLDINGS, INC.
s/Steven K. Fitzwater
By: Steven K. Fitzwater
Title: EVP, COO, CFO & Secretary
3
<PAGE>
Exhibit 8.1
Lathrop & Gage L.C.
2345 Grand Boulevard
Kansas City, Missouri 64108
Russell D. Jones
(816) 460-5725
Email: [email protected]
__________, 1999
(Draft)
Lab Holdings, Inc.
5000 West 95th Street
Suite 260, Box 7568
Shawnee Mission, Kansas 66207
LabOne, Inc.
10101 Renner Boulevard
Lenexa, Kansas 66219
Re: Merger of LabOne, Inc. into Lab Holdings, Inc.
Dear Sirs:
We represent Lab Holdings, Inc., a Missouri corporation ("Lab Holdings"), in
connection with the merger (the "Merger") of LabOne, Inc., a Delaware
corporation ("LabOne"), into Lab Holdings pursuant to that certain Agreement and
Plan of Merger, as amended and restated, dated as of March 7, 1999 (the "Merger
Agreement"). The Merger is described in a joint Proxy Statement/Prospectus of
Lab Holdings and LabOne (as amended to date, the "Prospectus") that is included
in a Registration Statement on Form S-4 (Registration No. 333-_____) filed with
the Securities and Exchange Commission with respect to the Merger (as amended to
date, the "Registration Statement").
Section 6.1(g) of the Merger Agreement provides that the obligation of each
of you to effect the Merger shall be subject to your receipt of an opinion
letter of counsel to the effect that the Merger will have certain federal income
tax consequences. This opinion letter is being delivered to each of you pursuant
to such Section 6.1(g).
We have examined such documents and records and made such inquiries as we
consider relevant and necessary for purposes of this opinion letter. In
particular we have reviewed the Merger Agreement, the Prospectus, and the
Registration Statement. Also in particular we have reviewed upon a Certificate
of Fact that has been provided to us by you. Based upon such examination and
inquiry, and further based on the assumptions and subject to the qualifications
set forth below, we are of the opinion that the federal income tax consequences
of the Merger include the following.
<PAGE>
___________, 1999
Page 2
Holdings
With respect to Holdings the Merger will qualify as a tax-free liquidation of
LabOne under Section 332 of the Internal Revenue Code of 1986 (the "Code").
Accordingly, and taking into account other applicable rules, no gain or loss
will be recognized by Holdings upon the receipt by it of all of LabOne's
property and the cancellation of its LabOne stock pursuant to the Merger or as a
result of the stock split that precedes the Merger. However, and notwithstanding
the preceding sentence, Holdings will at the time of the Merger recognize any
gain or loss that is realized by it upon its receipt of property from LabOne in
satisfaction of any debt that is then owed to it by LabOne. Also, and again
notwithstanding the first sentence of this paragraph, Holdings may at the time
of the Merger recognize income from the discharge of indebtedness if any
indebtedness is then owed by it to LabOne.
Holdings' initial tax basis in each of the properties received by it from
LabOne pursuant to the Merger will be the same as LabOne's tax basis therein
immediately before the Merger. Holdings' holding period for the property
received by it from LabOne pursuant to the Merger will include the period for
which the property was held by LabOne.
LabOne
With respect to LabOne the Merger will qualify as a tax-free liquidation of
LabOne under Section 332. Accordingly, no gain or loss will be recognized by
LabOne upon the distribution by it of all of its property to Holdings pursuant
to the Merger.
Holdings Stockholders
In general the Merger will have no effect on Holdings stockholders. However,
and notwithstanding the preceding sentence, Holdings stockholders who receive
cash in lieu of fractional shares in connection
<PAGE>
_________, 1999
Page 3
with the stock split that precedes the Merger will be treated as if they had
received the fractional shares and such shares were then redeemed by Holdings.
As discussed in more detail below, the specific tax consequences to Holdings
stockholders of a deemed redemption of Holdings stock will depend on the
stockholders' individual circumstances. Therefore, we express no opinion with
respect to the specific tax consequences to any Holdings stockholder of the
receipt of cash in lieu of a fractional share of Holdings stock in the stock
split that precedes the Merger. We note, however, that the Internal Revenue
Service (the "IRS") has ruled that a stockholder who receives cash in lieu of a
fractional share in connection with a stock dividend or stock split will
generally recognize gain or loss on the deemed redemption of such fractional
share in an amount equal to the difference between the amount of cash received
and the stockholder's tax basis in such fractional share, provided that the cash
is distributed solely for the purpose of saving the corporation the expense and
inconvenience of issuing and transferring fractional shares and is not
separately bargained-for consideration.
Similarly, and also notwithstanding the first sentence of the preceding
paragraph, Holdings stockholders who receive cash as a result of their exercise
of statutory dissenters' rights will be treated as if their Holdings stock were
redeemed by Holdings. This deemed redemption will be treated as a sale or
exchange of such a stockholder's Holdings stock, and thus will trigger capital
gain or loss, if it is considered to be "not essentially equivalent to a
dividend" under Section 302(b)(1) or if it is considered to be "substantially
disproportionate" with respect to the stockholder under Section 302(b)(2) or if
it results in a complete termination of the stockholder's interest in Holdings
under Section 302(b)(3); otherwise the cash received will be treated as a
dividend. In determining whether the deemed redemption is treated as a sale or
exchange the constructive ownership rules of Section 318, pursuant to which a
stockholder is treated as owning stock that is actually owned by certain other
related parties, are generally applicable.
A deemed redemption of Holdings stock held by a dissenting Holdings
stockholder will be considered to be "not essentially equivalent to a dividend"
under Section 302(b)(1) if the redemption results in a
<PAGE>
_______________, 1999
Page 4
"meaningful reduction" in the stockholder's proportionate interest in
Holdings. U.S. v. Davis, 397 U.S. 301, 313, reh'g denied, 397 U.S. 1071 (1970).
The existence and extent of any decrease in voting control appears to be the
most significant factor to be taken into account in applying this "meaningful
reduction" test, although the existence and extent of decreases in economic
ownership are also relevant considerations.
A deemed redemption of Holdings stock held by a dissenting Holdings
stockholder will be considered to be "substantially disproportionate" with
respect to the stockholder under Section 302(b)(2) if the stockholder actually
and constructively owns less than 50 percent of the voting power of the
outstanding Holdings stock after the deemed redemption and if the percentage of
Holdings stock actually and constructively owned by such stockholder after the
deemed redemption is less than 80 percent of the percentage of Holdings stock
actually and constructively owned by such stockholder immediately before the
deemed redemption.
As indicated in the foregoing discussion, the specific tax consequences of a
deemed redemption of the Holding stock of a Holdings stockholder who exercises
statutory dissenters' rights will depend on such stockholder's individual
circumstances. Therefore, we express no opinion with respect to the specific tax
consequences of such deemed redemption treatment to any particular Holdings
stockholder.
LabOne Stockholders (Other Than Holdings)
With respect to LabOne stockholders (other than Holdings) the Merger will
qualify as a tax-free reorganization under Section 368(a) and both Holdings and
LabOne will be parties to such reorganization under Section 368(b). Accordingly,
the principal tax consequences of the Merger to such stockholders are as
follows.
No gain or loss will be recognized by LabOne stockholders who receive only
Holdings stock in exchange for their LabOne stock pursuant to the Merger.
<PAGE>
___________, 1999
Page 5
LabOne stockholders who receive only cash in exchange for their LabOne stock
pursuant to the Merger will likely be treated as if they had received Holdings
stock in the Merger and such stock was redeemed by Holdings immediately
thereafter, although the law in this regard is unclear and such stockholders may
be treated as if they had sold their LabOne stock to Holdings. A deemed
redemption of LabOne stock will be treated, under the rules discussed above
regarding deemed redemptions of Holdings stock, either as a sale or exchange of
LabOne stock (with the recognition of capital gain or loss) or as a dividend,
depending on the stockholder's individual circumstances. A deemed sale of LabOne
stock to Lab Holdings would cause the recognition of capital gain or loss.
Because of the uncertainty in the law, and because of the LabOne stockholders'
varying circumstances, we express no opinion with respect to the specific tax
consequences of the Merger to LabOne stockholders who receive only cash in
exchange for their LabOne stock pursuant thereto.
LabOne stockholders who receive some Holdings stock and some cash in exchange
for their LabOne stock pursuant to the Merger will recognize gain, but not loss,
on such exchange. The amount of the gain recognized by such a stockholder will
be equal to the lesser of: one, the total gain realized by such stockholder on
the exchange (i.e., the value of the Merger consideration received by such
stockholder, including both cash and Holdings stock, less such stockholder's tax
basis in the LabOne stock that is given up in the exchange); or two, the amount
of cash received. The gain that is realized by a LabOne stockholder may be
capital gain or ordinary income, depending on the stockholder's individual
circumstances (determined in accordance with the rules regarding deemed
redemptions that are discussed above, applied as if the LabOne stockholder
exchanged all of his LabOne stock for Holdings stock and Holdings immediately
redeemed a portion of such Holdings stock for cash). Because of the LabOne
stockholders' varying circumstances, we express no opinion with respect to the
character of the gain, if any, recognized by LabOne stockholders who receive
some Holdings stock and some cash in exchange for their LabOne stock pursuant to
the Merger.
The aggregate tax basis of the shares of Holdings stock received by a LabOne
stockholder pursuant to the Merger will equal the aggregate
<PAGE>
_________, 1999
Page 6
tax basis of such stockholder's shares of LabOne stock exchanged in the
Merger, increased by the amount of any gain recognized by such stockholder and
decreased by the amount of any cash received by such stockholder. The holding
period for shares of Holdings stock received by a LabOne stockholder pursuant to
the Merger will include the holding period for the shares of LabOne stock
exchanged in the Merger.
The foregoing opinions are based on the Code, its legislative history,
Treasury Regulations, judicial authority, and administrative rulings and
practice, all as currently existing and in effect. This opinion letter is not
binding on the IRS or upon the courts, and if the IRS challenges any of the
opinions that are expressed herein substantial expense may at a minimum be
incurred in dealing therewith. Legislative, judicial, or administrative changes
or interpretations may be forthcoming that could alter or modify the opinions
expressed by us herein. Any such changes may be retroactive and could affect,
possibly adversely, the tax consequences of the Merger.
In rendering the foregoing opinions we have assumed the accuracy of all
statements of fact contained in the Merger Agreement, the Prospectus, the
Registration Statement, and other documents examined by us or made to us by
officers or other representatives of Lab Holdings and LabOne in response to our
inquiries. We have also assumed the due authorization, execution and delivery,
and binding effect of all contracts examined by us by and on all parties
thereto. We have further assumed the genuineness of all signatures on all
contracts and other documents examined by us, the authenticity of all documents
submitted to us as originals, and the conformity to original documents of all
documents submitted to us as copies.
We express no opinion as to the federal income tax consequences of the Merger
if any of the assumptions that we are relying upon in issuing this opinion
letter are incorrect. We also express no opinion as to the tax consequences of
the Merger under any state, local, or foreign tax law.
The opinions set forth in this letter are effective as of the date hereof. We
express no opinions other than as herein expressly set forth, and no expansion
of our opinions may be made by implication or otherwise. We do not undertake to
advise you of any matter within the scope of this letter which comes to our
attention after the delivery of this letter and disclaim any responsibility to
advise you of future changes in law or fact which may affect the above opinions.
<PAGE>
___________, 1999
Page 7
This opinion letter may not be filed with any governmental agency or be used
for any other purpose without our prior written consent, except that this
opinion letter may be filed as an exhibit to the Registration Statement. Also,
we consent to the reference that is made to this opinion letter in the
Prospectus under the caption "The Proposed Merger--Federal Income Tax
Consequences."
Very truly yours,
LATHROP & GAGE L.C.
By:
----------------------------
Russell D. Jones
<PAGE>
Exhibit 10.18
THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS AND CANNOT BE OFFERED, SOLD, HYPOTHECATED, TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION OR THE AVAILABILITY OF AN EXEMPTION
FROM REGISTRATION UNDER SUCH LAWS AS PROVIDED IN THIS WARRANT
No. of Shares: 50,000 Warrant No. _______
Original Issue Date: May 14, 1999
WARRANT
To Purchase Shares of Common Stock of
LABONE, INC.
This certifies that, for value received, STC TECHNOLOGIES,
INC. ("STC") is entitled to purchase from LABONE, INC., a Delaware corporation,
from time to time prior to the Expiration Date in accordance with the terms and
conditions hereof, up to 50,000 shares of Common Stock of the Company at a
Purchase Price per share set forth below. The number of shares of Common Stock
purchasable hereunder and the Purchase Price therefor are subject to adjustment
as hereinafter set forth in Section 6.
1. Certain Definitions. For all purposes of this Warrant the following
terms shall have the meanings indicated:
(a) "Common Stock" shall mean the Company's presently
authorized shares of Common Stock, par value $ .01 per share, and any other
securities into which or for which the Common Stock may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
(b) "Company" shall mean LABONE, INC., a Delaware corporation,
and any company which shall succeed to, or assume, the obligations of said
corporation hereunder.
(c) "Expiration Date" shall mean 12:01 o'clock a.m. Central
Daylight Time on July 13, 2001, which is eight (8) calendar quarters plus sixty
(60) days after the date hereof.
(d) "Purchase Price" or "Purchase Price per share" shall mean
the purchase price per Warrant Share (as defined below), which shall equal $.01.
(e) "Warrantholder" or "Registered Holder" shall mean STC, or
its registered transferee.
<PAGE>
(f) "Warrant" shall mean this Warrant and all Warrants issued
in exchange therefor or replacement thereof.
(g) "Warrant Shares" shall mean the shares of Common Stock
purchasable by the Registered Holder upon the exercise of this Warrant pursuant
to Section 2 hereof, as adjusted from time to time pursuant to Section 6 hereof.
All terms used in this Warrant which are not defined in
Section 1 have the meanings respectively set forth therefor elsewhere in this
Warrant.
2. Exercise of Warrant.
(a) Subject to the terms and conditions hereof, this Warrant
may be exercised only on or after the date which is one year from the Original
Issue Date of this Warrant, and prior to the Expiration Date.
(b) In order to exercise this Warrant in whole or in part, the
Registered Holder shall complete the "Notice of Intention to Exercise Warrant"
attached hereto (the "Notice Form"), and deliver to the Corporate Secretary of
the Company at the Company's office located at 10310 West 84th Terrace, Lenexa,
Kansas 66214 (or such other office or agency of the Company as the Company may
designate by notice in writing to the Registered Holder) either
(i) this Warrant, the Notice Form completed to reflect an exercise for cash and
either cash, a cashier's check payable to the order of the Company or a
wire transfer of funds in an amount equal to the then aggregate Purchase
Price of the Warrant Shares being purchased, or
(ii) this Warrant, the Notice Form completed to reflect a cashless exercise
without any payment of cash, cashier's check or wire-transferred funds, in
which case the Company shall issue to the Registered Holder a number of
shares of Common Stock computed using the following formula:
X = Y(A-B)
------
A
Where:
X = the number of shares of Common Stock to be issued.
Y = the number of Warrant Shares exercised by Warrantholder.
A = the fair market value of one share of Common Stock.
B = Purchase Price per share.
As used in this section, the fair market value of the Common
Stock shall mean, with respect to each share of Common Stock,
the average of the closing prices of the Company's Common
stock sold on all securities exchanges on which the Common
Stock may at the time be listed (including, for this purpose,
the NASDAQ National Market), or, if at any time the Common
Stock is not so listed,
2
<PAGE>
the average of the representative bid and asked prices quoted in the
NASDAQ system as of 4:00 p.m., New York City time, or, if at any time
the Common Stock is not quoted in the NASDAQ System, the average of the
highest bid and lowest asked price in the domestic over-the-counter
market as reported by the National Quotation Bureau, Incorporated, or
any similar successor organization, in each such case on the day on
which the Notice of Exercise is received or if no sales of the Common
Stock have occurred on date, on the next preceding date on which there
were such sales. If at any time the Common Stock is not listed on any
securities exchange or quoted in the NASDAQ System or the
over-the-counter market, the fair market value of the Common Stock
shall be the highest price per share which the Company could obtain
from a willing buyer (who is not a current employee or director) for a
share of Common Stock sold by the Company, from authorized but unissued
shares, as determined in good faith by the Board of Directors of the
Company.
In no event may the Warrantholder exercise the Warrant with respect to more than
50,000 shares of Common Stock in the aggregate, subject to adjustment as
provided in this Warrant.
3. Delivery of Stock Certificate, Etc. Upon Exercise. As soon as
practicable after exercise of this Warrant and, in any event, within ten (10)
days after each such exercise, the Company shall cause to be issued and
delivered to the Registered Holder (a) a certificate or certificates
representing the aggregate number of shares of Common Stock specified in said
Notice Form, all of which shares shall be duly authorized and validly issued,
fully paid and nonassessable, (b) cash in lieu of any fractional share based
upon the fair market value of a share of Common Stock, as determined by the
Company and (c) any other securities or property (including cash) to which such
Registered Holder is entitled upon such exercise pursuant to the terms of this
Warrant. Each stock certificate representing shares of Common Stock so issued
and delivered shall be registered in the name of the Registered Holder or,
subject to the provisions of Sections 4 and 5 hereof, such other name as shall
be designated by the Registered Holder. Such certificate or certificates shall
be deemed to have been issued and the Warrantholder or any other person so
designated to be named therein shall be deemed to have become a holder of record
of such shares of Common Stock only as of the date the certificate representing
such shares is issued by the Company.
4. Ownership and Transfer of Warrant and Warrant Shares.
(a) Registered Holder. The Company may deem and treat the
Registered Holder of this Warrant as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes, notwithstanding any notice to the
contrary, until presentation of this Warrant for registration of transfer as
provided in this Section 4.
(b) Transfer. This Warrant and all rights hereunder are
transferable in whole or in part upon the surrender of this Warrant with a
properly executed assignment at the principal office of the Company; provided,
however, that this Warrant and Warrantholder's rights thereunder are in all
respects subject to all provisions of Section 5, including but not limited to
3
<PAGE>
the requirement in Section 5(c).
(c) Exchange of Warrant Upon a Transfer. On surrender of this
Warrant for exchange, together with a properly endorsed Assignment, and subject
to the provisions of this Warrant including all provisions of Section 5,
including but not limited to the requirement in Section 5(c), the Company at its
expense shall issue to or on the order of the Registered Holder a new warrant or
warrants of like tenor, in the name of the Registered Holder or as the Holder
(on payment by the Holder of any applicable transfer taxes) may direct, for the
number of shares of Common Stock issuable upon exercise hereof.
5. Compliance with Securities Laws.
(a) Accredited Investor. By acceptance of this Warrant, the
Registered Holder represents and warrants that it is an "accredited investor"
within the meaning of Rule 501(a) of Regulation D promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), the Registered Holder
being a corporation with total assets in excess of $5,000,000 not formed for the
specific purpose of acquiring the Warrant or the Warrant Shares.
(b) Investment Intent. By acceptance of this Warrant, the
Registered Holder represents and warrants that it is acquiring this Warrant and
any Warrant Shares for its own account and for the purpose of investment and not
with a view to the sale or distribution thereof. The Registered Holder
understands that this Warrant and the Warrant Shares that may be issued upon
exercise of this Warrant will not have been registered under the Securities Act
of 1933, as amended (the "Securities Act") or any state securities laws (the
Company being under no obligation to effect such registration) and that this
Warrant and the Warrant Shares must be held indefinitely unless a subsequent
disposition thereof is registered under the Securities Act and applicable state
securities laws or is exempt from registration as provided herein.
(c) Limitation on Transfer. By acceptance of this Warrant, the
Registered Holder represents, covenants, and agrees that it will not sell or
otherwise dispose of this Warrant or of the Warrant Shares in the absence of (i)
registration under the Securities Act and applicable state securities laws or
(ii) an opinion acceptable in form and substance to the Company from counsel
reasonably satisfactory to the Company, or an opinion of counsel to the Company,
to the effect that no registration is required for such disposition.
(d) Restrictive Legend. Each Warrant shall bear on the face
thereof a legend substantially in the form of the notice set forth on the first
page of this Warrant. Upon exercise of any part of the Warrant and the issuance
of any Warrant Shares, the Company shall instruct its transfer agent to enter
stop transfer orders with respect to such Warrant Shares, and the certificates
representing such Warrant Shares shall have stamped or imprinted thereon or
affixed thereto a legend to the following effect:
The securities represented by this certificate have not been
registered under the Securities Act of 1933 or any state securities
laws and may not be sold, transferred or otherwise disposed of in the
absence of registration under such laws or an opinion in form and
substance acceptable to the Company from counsel
4
<PAGE>
reasonably satisfactory to the Company to the effect that no such
registration is required.
However, if the Company receives an opinion acceptable in form and substance to
the Company from counsel reasonably satisfactory to the Company, or an opinion
of counsel to the Company, to the effect that any stop transfer order or legends
may be removed without violation of applicable law, then the Company shall
instruct its transfer agent to remove any such stop transfer order and such
legends.
(e) State Securities Laws. This Warrant has been offered to
and accepted by the Registered Holder at its principal executive office in the
Commonwealth of Pennsylvania and has not been offered to the Registered Holder
in any other State.
6. Adjustments to the Purchase Price and Number of Warrant Shares.
(a) Subdivision of Stock, etc. In the event of a stock
dividend or other distribution payable in Common Stock or other securities
convertible into or exchangeable for shares of Common Stock, or any stock split
or subdivision of Common Stock into a greater number of shares, the number of
Warrant Shares subject to the Warrant immediately prior to such event shall be
proportionately increased and the Purchase Price in effect immediately prior to
such event shall be proportionately reduced, and in the event that the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the number of Warrant Shares subject to the Warrant
immediately prior to such combination shall be proportionately reduced and the
Purchase Price in effect immediately prior to such combination shall be
proportionately increased.
(b) Reorganization, Consolidation, Merger, etc. In the event
that the Company shall (a) effect a reorganization or recapitalization pursuant
to which all of the outstanding shares of Common Stock are converted into or
exchanged for other securities or property (including cash), (b) consolidate
with or merge into any other person, or (c) transfer all or substantially all of
its properties or assets to any other person in such a way that holders of
Common Stock shall be entitled to receive securities or property (including
cash) with respect to or in exchange for Common Stock; then, in each such case,
the Warrantholder, upon the exercise hereof as provided in Section 2 at any time
after the consummation of such reorganization or recapitalization,
consolidation, merger or sale of assets, as the case may be, shall be entitled
to receive (and the Company shall be required to deliver), in lieu of the
Warrant Shares issuable upon such exercise the securities and property
(including cash) to which the Warrant holder would have been entitled upon such
consummation, if such Warrantholder had so exercised this Warrant immediately
prior thereto. The above provision shall apply to successive reorganizations,
recapitalizations, consolidations, mergers or transfers described therein.
7. Notice of Record Date, Etc. In the event of
(a) any taking by the Company of a record of the holders of
Common Stock for the purpose of determining the holders thereof who are entitled
to receive any dividend (excluding any cash dividend payable out of earnings or
earned surplus of the Company), or any
5
<PAGE>
right to subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right, or
(b) any transfer of all or substantially all of the assets of
the Company to or consolidation or merger of the Company with or into any other
person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each event the Company shall cause to be mailed to the Warrantholder
a notice containing a brief description of the proposed action and stating the
date on which either a record is to be taken for the purpose of such dividend,
distribution or rights, or the date upon which such transfer, consolidation,
merger, dissolution, liquidation or winding-up is to take place and the time, if
any is to be fixed, as of which the holders of Common Stock or other securities
shall receive cash or other property deliverable upon such transfer,
consolidation, merger, dissolution, liquidation or winding-up. Such notice shall
also state that the action in question or the record date is subject to the
effectiveness of a registration statement under the Securities Act or a
favorable vote of stockholders, if either is required. Such notice shall be
mailed to the Warrantholder at least ten (10) days prior to the date specified
in such notice on which any such action is to be taken or the record date,
whichever is earlier.
8. Liquidating Dividends. If the Company pays a dividend or makes a
distribution on the Common Stock payable otherwise then in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company will pay or distribute to the
Registered Holder of this Warrant, upon the exercise hereof, in addition to the
Warrant Shares purchased upon such exercise, the Liquidating Dividend which
would have been paid to such Registered Holder if he had been the owner of
record of such Warrant Shares immediately prior to the date on which a record is
taken for such Liquidating Dividend or, if no record is taken, the date as of
which the record holders of Common Stock entitled to such dividends or
distribution are to be determined.
9. Reservation of Warrant Shares. During the term of this Warrant, the
Company shall at all times reserve and keep available from its authorized but
unissued or treasury shares such number of shares of its Common Stock as shall
be issuable upon exercise of the Warrant.
10. Notices. Any notice or other document required or permitted to be
given or delivered to the Registered Holder shall be delivered at, or sent by
certified or registered mail to the Registered Holder at the last address shown
on the books of the Company maintained for the registry and transfer of the
Warrants.
11. No Rights as Stockholder. This Warrant shall not entitle the
Registered Holder to any voting or other rights as a stockholder of the Company.
12. Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of such loss,
6
<PAGE>
theft or destruction, upon delivery of an indemnity bond reasonably satisfactory
in form and amount to the Company or, in the case of any such mutilation, upon
surrender and cancellation of such Warrant, the Company at its expense will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
13. Law Governing. This Warrant shall be governed by, and construed and
enforced in accordance with, the laws of the State of Delaware (excluding the
choice of law provisions thereof).
14. Miscellaneous. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party (or any predecessor in interest thereof) against which
enforcement of the same is sought. The headings in this Warrant are for purposes
of reference only and shall not affect the meaning or construction of any of the
provisions hereof.
IN WITNESS WHEREOF, this Warrant is executed effective as of the day
and year first above written.
LABONE, INC.
By:
W. Thomas Grant II
Its Chairman of the Board, President,
and Chief Executive Officer
7
<PAGE>
NOTICE OF INTENTION TO EXERCISE WARRANT ____
The undersigned hereby notifies LabOne, Inc. that he has elected to
exercise its right under the within Warrant to purchase ________ shares of
Common Stock, and, if "Cash Exercise" is checked below, has effected a wire
transfer to LabOne, Inc. or enclosed herewith cash or a cashier's check payable
to LabOne, Inc. in the total amount of $_________ in payment of the Purchase
Price for such shares. The certificate(s) representing the shares of Common
Stock being purchased should be delivered in the denominations and to the
persons described below:
No. of
Name Address Shares
---- ------- ------
Check one of the following:
_____ Cash Exercise
_____ Cashless Exercise
STC TECHNOLOGIES, INC.
Date: By:
--------------------------- ----------------------------
(Signature)
----------------------------
(Print Name)
---------------------------
(Title)
<PAGE>
Exhibit 10.19
THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS AND CANNOT BE OFFERED, SOLD, HYPOTHECATED, TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION OR THE AVAILABILITY OF AN EXEMPTION
FROM REGISTRATION UNDER SUCH LAWS AS PROVIDED IN THIS WARRANT
No. of Shares: 500,000 Warrant No. _____
Original Issue Date: May 14, 1999
WARRANT
To Purchase Shares of Common Stock of
LABONE, INC.
This certifies that, for value received, HealthPlan Services,
Inc. ("HealthPlan") is entitled to purchase from LABONE, INC., a Delaware
corporation, from time to time prior to the Expiration Date in accordance with
the terms and conditions hereof, up to 500,000 shares of Common Stock of the
Company at a Purchase Price per share set forth below. The number of shares of
Common Stock purchasable hereunder and the Purchase Price therefor are subject
to adjustment as hereinafter set forth in Section 6.
1. Certain Definitions. For all purposes of this Warrant the
following terms shall have the meanings indicated:
(a) "Agreement" shall mean the Agreement dated April 1, 1999
between the Company and HealthPlan.
(b) "Common Stock" shall mean the Company's presently
authorized shares of Common Stock, par value $.01 per share, and any other
securities into which or for which the Common Stock may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
(c) "Commencement Date" shall mean the first anniversary of
the date hereof.
1
<PAGE>
(d) "Company" shall mean LABONE, INC., a Delaware corporation,
and any company that shall succeed to, or assume, the obligations of said
corporation hereunder.
(e) "Expiration Date" shall mean 12:01 o'clock a.m. Central
Time on July 13, 2005, which is twenty (20) calendar quarters plus sixty (60)
days after the Commencement Date.
(f) "Lab Revenues" shall mean all gross revenues received by
the Company during the applicable calendar quarter from Payors under the
Agreement from and after the Commencement Date, whether or not the Agreement has
been terminated, provided that the term "Lab Revenues" shall not include
revenues received by the Company after (i) a termination of the Agreement by
HealthPlan without cause under Section 8.A of the Agreement or (ii) a
termination of the Agreement by the Company for cause under Section 8.B of the
Agreement.
(g) "Purchase Price" or "Purchase Price per share" shall mean
the purchase price per Warrant Share (as defined below), which shall equal
$12.375, being the closing sale price or, if no sales were reported, then
average of the closing bid and asked prices of the Common Stock, as reported by
the NASDAQ Stock Market, on the last business day prior to the Original Issue
Date of this Warrant, as set forth above, as such purchase price may thereafter
be adjusted from time to time pursuant to the provisions of Section 6 hereof
(rounded to the nearest whole cent).
(h) "Warrantholder" or "Registered Holder" shall mean
HealthPlan, or its registered transferee.
(i) "Warrant" shall mean this Warrant and all Warrants issued
in exchange therefor or replacement thereof.
(j) "Warrant Shares" shall mean the shares of Common Stock
purchasable by the Registered Holder upon the exercise of this Warrant pursuant
to Section 2 hereof, as adjusted from time to time pursuant to Section 6 hereof.
All terms used in this Warrant which are not defined in Section 1 have
the meanings respectively set forth therefor elsewhere in this Warrant.
2
<PAGE>
2. Exercise of Warrant.
(a) Subject to the terms and conditions hereof, from and after
the Commencement Date and prior to the Expiration Date, this Warrant may be
exercised in whole or in part in respect of vested shares. Shares of Common
Stock shall become vested under this Warrant as follows:
(i) for each calendar quarter commencing after the
Commencement Date in which the Lab Revenues reach $500,000 and are less
than $1,000,000, this Warrant will vest in respect of 5,000 shares of
Common Stock subject to this Warrant;
(ii) for each calendar quarter commencing after the
Commencement Date in which the Lab Revenues reach $1,000,000 and are
less than $1,500,000, this Warrant will vest in respect of 10,000
shares of Common Stock subject to this Warrant;
(iii)for each calendar quarter commencing after the
Commencement Date in which the Lab Revenues reach $1,500,000 and are
less than $2,000,000, this Warrant will vest in respect of 15,000
shares of Common Stock subject to this Warrant;
(iv) for each calendar quarter commencing after the
Commencement Date in which the Lab Revenues reach $2,000,000 and are
less than $2,500,000, this Warrant will vest in respect of 20,000
shares of Common Stock subject to this Warrant; and
(v) for each calendar quarter commencing after the
Commencement Date in which the Lab Revenues reach $2,500,000, this
Warrant will vest in respect of 25,000 shares of Common Stock subject
to this Warrant.
The number of shares vested for an applicable calendar quarter shall be limited
to the number of shares in the highest category set forth in 2(a)(i) - (v)
above, if any, which is satisfied for such calendar quarter. The number of
shares vested for each applicable calendar quarter, if any, shall be cumulative
with shares vested from all other applicable calendar quarters. Once shares
become vested under this Warrant, they shall remain vested until the Expiration
Date. Anything in this Warrant to the contrary notwithstanding, this Warrant may
not be exercised
3
<PAGE>
at any time after a material breach by HealthPlan of the Agreement, provided
that HealthPlan receives notice of such breach, unless and until such breach is
cured under the applicable provisions, if any, of such Agreement prior to the
Expiration Date. Anything in this Warrant to the contrary notwithstanding, this
Warrant may not be exercised in whole or in part at any time after the
Expiration Date.
(b) In order to exercise this Warrant in whole or in part, the
Registered Holder shall complete the "Notice of Intention to Exercise Warrant"
attached hereto (the "Notice Form"), and deliver this Warrant, the completed
Notice Form and either cash, a cashier's check payable to the order of the
Company or a wire transfer of funds in an amount equal to the then aggregate
Purchase Price of the Warrant Shares being purchased, to the Corporate Secretary
of the Company at the Company's office located at 10101 Renner Road, Lenexa,
Kansas 66219 (or such other office or agency of the Company as the Company may
designate by notice in writing to the Registered Holder). In no event may the
Warrantholder exercise the Warrant with respect to more than 500,000 shares of
Common Stock in the aggregate, subject to adjustment as provided in this
Warrant.
3. Delivery of Stock Certificate, Etc. Upon Exercise. As soon as
practicable after exercise of this Warrant, the Company shall cause to be issued
and delivered to the Registered Holder (a) a certificate or certificates
representing the aggregate number of shares of Common Stock specified in said
Notice Form, all of which shares shall be duly authorized and validly issued,
fully paid and nonassessable, (b) cash in lieu of any fractional share based
upon the fair market value of a share of Common Stock, as determined by the
Company and (c) any other securities or property (including cash) to which such
Registered Holder is entitled upon such exercise pursuant to the terms of this
Warrant. Each stock certificate representing shares of Common Stock so issued
and delivered shall be registered in the name of the Registered Holder or,
subject to the provisions of Sections 4 and 5 hereof, such other name as shall
be designated by the Registered Holder. Such certificate or certificates shall
be deemed to have been issued and the Warrantholder or any other person so
designated to be named therein shall be deemed to have become a holder of record
of such shares of Common Stock only as of the date the certificate representing
such shares is issued by the Company.
4
<PAGE>
4. Ownership and Transfer of Warrant and Warrant Shares.
(a) Registered Holder. The Company may deem and treat the
Registered Holder of this Warrant as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes, notwithstanding any notice to the
contrary, until presentation of this Warrant for registration of transfer as
provided in this Section 4.
(b) No Transfer. This Warrant may not be sold, transferred, or
assigned by the Registered Holder in whole or in part at any time.
5. Compliance with Securities Laws.
(a) Accredited Investor. By acceptance of this Warrant, the
Registered Holder represents and warrants that it is an "accredited investor"
within the meaning of Rule 501(a)(3) of Regulation D promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), the Registered Holder
being a corporation with total assets in excess of $5,000,000 not formed for the
specific purpose of acquiring the Warrant or the Warrant Shares.
(b) Investment Intent. By acceptance of this Warrant, the
Registered Holder represents and warrants that it is acquiring this Warrant and
any Warrant Shares for its own account and for the purpose of investment and not
with a view to the sale or distribution thereof. The Registered Holder
understands that this Warrant and the Warrant Shares that may be issued upon
exercise of this Warrant will not have been registered under the Securities Act
of 1933, as amended (the "Securities Act") or any state securities laws (the
Company being under no obligation to effect such registration) and that this
Warrant and the Warrant Shares must be held indefinitely unless a subsequent
disposition thereof is registered under the Securities Act and applicable state
securities laws or is exempt from registration as provided herein.
(c) Limitation on Transfer. By acceptance of this Warrant, the
Registered Holder represents, covenants, and agrees that it will not sell or
otherwise dispose of this Warrant or of the Warrant Shares in the absence of (i)
registration under the Securities Act and applicable state securities laws or
(ii) an opinion acceptable in form and substance to the Company from counsel
reasonably satisfactory to the Company, or an opinion of
5
<PAGE>
counsel to the Company, to the effect that no registration is required for
such disposition.
(d) Restrictive Legend. Each Warrant shall bear on the face
thereof a legend substantially in the form of the notice set forth on the first
page of this Warrant. Upon exercise of any part of the Warrant and the issuance
of any Warrant Shares, the Company shall instruct its transfer agent to enter
stop transfer orders with respect to such Warrant Shares, and the certificates
representing such Warrant Shares shall have stamped or imprinted thereon or
affixed thereto a legend to the following effect:
The securities represented by this certificate have not been
registered under the Securities Act of 1933 or any state securities
laws and may not be sold, transferred or otherwise disposed of in the
absence of registration under such laws or an opinion in form and
substance acceptable to the Company from counsel reasonably
satisfactory to the Company to the effect that no such registration is
required.
(e) State Securities Laws. This Warrant has been offered to
and accepted by the Registered Holder at its principal executive office in the
State of Florida and has not been offered to the Registered Holder in any other
State.
6. Adjustments to the Purchase Price and Number of Warrant Shares.
(a) Subdivision of Stock, etc. In the event of a stock
dividend or other distribution payable in Common Stock, or any stock split or
subdivision of Common Stock into a greater number of shares, the number of
Warrant Shares subject to the Warrant immediately prior to such event shall be
proportionately increased and the Purchase Price in effect immediately prior to
such event shall be proportionately reduced, and in the event that the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the number of Warrant Shares subject to the Warrant
immediately prior to such combination shall be proportionately reduced and the
Purchase Price in effect immediately prior to such combination shall be
proportionately increased.
(b) Reorganization, Consolidation, Merger, etc. In the event
that the Company shall (i) effect a reorganization or recapitalization pursuant
to which all of the outstanding shares
6
<PAGE>
of Common Stock are converted into or exchanged for other securities or property
(including cash), (ii) consolidate with or merge into any other person, or (iii)
transfer all or substantially all of its properties or assets to any other
person in such a way that holders of Common Stock shall be entitled to receive
securities or property (including cash) with respect to or in exchange for
Common Stock; then, in each such case, the Warrantholder, upon the exercise
hereof as provided in Section 2 at any time after the consummation of such
reorganization or recapitalization, consolidation, merger or sale of assets, as
the case may be, shall be entitled to receive (and the Company shall be required
to deliver) in lieu of the Warrant Shares issuable upon such exercise prior to
such and other securities and property (including cash) to which such holder
would have been entitled upon such consummation, if such Warrantholder had so
exercised this Warrant immediately prior thereto. The above provision shall
apply to successive reorganizations, recapitalizations, consolidations, mergers
or transfers described therein. Notwithstanding the foregoing, in the event of a
merger between the Company and Lab Holdings, Inc. prior to the exercise hereof,
then upon the exercise hereof as provided in Section 2, the Warrantholder shall
be entitled to receive (and the Company shall be required to deliver), in lieu
of the Warrant Shares issuable upon such exercise, the securities to which the
Warrantholder would have been entitled upon such consummation, if such
Warrantholder had so exercised this Warrant immediately prior to such merger.
7. Notice of Record Date, Etc.. In the event of:
(a) any taking by the Company of a record of the holders of
Common Stock for the purpose of determining the holders thereof who are entitled
to receive any dividend (excluding any cash dividend payable out of earnings or
earned surplus of the Company), or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) any transfer of all or substantially all of the assets of
the Company to or consolidation or merger of the Company with or into any other
person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each event the Company shall cause to be mailed to the Warrantholder
a notice containing a brief description of the
7
<PAGE>
proposed action and stating the date on which either a record is to be taken for
the purpose of such dividend, distribution or rights, or the date upon which
such transfer, consolidation, merger, dissolution, liquidation or winding-up is
to take place and the time, if any is to be fixed, as of which the holders of
Common Stock or other securities shall receive cash or other property
deliverable upon such transfer, consolidation, merger, dissolution, liquidation
or winding-up. Such notice shall also state that the action in question or the
record date is subject to the effectiveness of a registration statement under
the Securities Act or a favorable vote of stockholders, if either is required.
Such notice shall be mailed to the Warrantholder at least ten (10) days prior to
the date specified in such notice on which any such action is to be taken or the
record date, whichever is earlier.
8. Reservation of Warrant Shares; Authority; Validity. During the term
of this Warrant, the Company shall at all times reserve and keep available from
its authorized but unissued or treasury shares such number of shares of its
Common Stock as shall be issuable upon exercise of the Warrant. The Company has
all requisite corporate power and authority to execute, deliver, and perform its
obligations under this Warrant. Upon the Company's execution of this Warrant,
this Warrant shall have been duly authorized, executed, and delivered, and shall
constitute legal, valid, and binding obligations of the Company, enforceable in
accordance with its terms.
9. Listing or Qualification for Trading. The Company shall use its best
efforts to cause the Warrant Shares, immediately upon official notice of
issuance upon exercise of this Warrant, to be listed or admitted for trading on
such principal securities exchange, interdealer quotation system or market
within the United States of America, if any, on which other shares of Common
Stock are then listed or quoted, and to maintain such listing or qualification
for trading for so long as other shares of Common Stock are listed or quoted
thereon. The Company is under no obligation to register or qualify this Warrant
or the Warrant Shares under the Securities Act or any state securities laws.
10. Notices. Any notice or other document required or permitted to be
given or delivered to the Registered Holder shall be delivered at, or sent by
certified or registered mail to the Registered Holder at the last address shown
on the books of the Company maintained for the registry and transfer of the
Warrants.
8
<PAGE>
11. No Rights as Stockholder. This Warrant shall not entitle the
Registered Holder to any voting or other rights as a stockholder of the Company.
12. Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of such loss, theft or destruction, upon delivery
of an indemnity bond reasonably satisfactory in form and amount to the Company
or, in the case of any such mutilation, upon surrender and cancellation of such
Warrant, the Company at its expense will execute and deliver, in lieu thereof, a
new Warrant of like tenor.
13. Law Governing. This Warrant shall be governed by, and construed and
enforced in accordance with, the laws of the State of Delaware (excluding the
choice of law provisions thereof).
14. Miscellaneous. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party (or any predecessor in interest thereof) against which
enforcement of the same is sought. The headings in this Warrant are for purposes
of reference only and shall not affect the meaning or construction of any of the
provisions hereof.
IN WITNESS WHEREOF, this Warrant is executed effective as of the
day and year first above written.
LABONE, INC.
By:
W. Thomas Grant II
Its Chairman of the Board, President,
and Chief Executive Officer
9
<PAGE>
NOTICE OF INTENTION TO EXERCISE WARRANT ____
The undersigned hereby notifies LabOne, Inc. that he has elected to
exercise its right under the within Warrant to purchase ________ shares of
Common Stock, and has effected a wire transfer to LabOne, Inc. or enclosed
herewith cash or a cashier's check payable to LabOne, Inc. in the total amount
of $_________ in payment of the Purchase Price for such shares. The
certificate(s) representing the shares of Common Stock being purchased should be
delivered in the denominations and to the persons described below:
No. of
Name Address Shares
---- ------- ------
HEALTHPLAN SERVICES, INC.
Date: By:
---------------------- -------------------------------
(Signature)
-------------------------------
(Print Name)
-------------------------------
(Title)
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Boards of Directors
Lab Holdings, Inc. and LabOne, Inc.
Shawnee Mission, Kansas:
We consent to the incorporation by reference in Amendment No. 1 to the
Registration Statement on Form S-4 of Lab Holdings, Inc. of our report dated
March 8, 1999, relating to the consolidated balance sheets of Lab Holdings, Inc.
as of December 31, 1998 and 1997, and the related consolidated statements of
operations, changes in stockholder's equity, comprehensive income, and cash
flows for each of the years in the three-year period ended December 31, 1998,
and all related schedules, which report appears in Amendment No. 1 to the Lab
Holdings, Inc. annual report on Form 10-K/A of Lab Holdings, Inc. for the year
ended December 31, 1998.
We consent to the incorporation into Amendment No. 1 to the Registration
Statement on Form S-4 of Lab Holdings, Inc. of our report dated January 29,
1999, except as to note 12, which is as of March 8, 1999, relating to the
consolidated balance sheets of LabOne, Inc. and subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of earnings, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1998, and Schedule II thereto.
We also consent to the reference to our firm in the Prospectus/Joint Proxy
Statement of the Registration Statement under the Caption "Experts."
s/KPMG LLP
KPMG LLP
Kansas City, Missouri
May __, 1999
