SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
UNILAB CORPORATION
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(Name of Registrant as Specified In Its Charter)
same
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11(1).
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
<PAGE>
April 28, 1997
Dear Stockholder:
The directors and officers of Unilab Corporation cordially
invite you to attend the Annual Meeting of Stockholders of the Company to be
held on June 17, 1997 at 9:00 a.m., local time. The meeting will be held at the
Warner Center Marriott, 21850 Oxnard Street, Woodland Hills, California 91364.
Notice of the Annual Meeting, the Proxy Statement and a proxy card are enclosed.
At this year's meeting you will be asked to (i) elect
directors and (ii) ratify and approve the appointment of Arthur Andersen LLP as
the Company's independent auditors.
You are urged to mark, sign, date and mail the enclosed Proxy
immediately. By mailing your Proxy now you will not be precluded from attending
the meeting. Your Proxy is revocable, and in the event you find it convenient to
attend the meeting, you may, if you wish, withdraw your Proxy and vote in
person.
For your information, we have also enclosed a copy of Unilab's
Annual Report for the fiscal year ended December 31, 1996. We look forward to
seeing you at the meeting.
Very truly yours,
David C. Weavil
Chairman of the Board,
President and Chief Executive Officer
<PAGE>
UNILAB CORPORATION
18448 Oxnard Street
Tarzana, California 91356
(818) 996-7300
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 17, 1997
Notice is hereby given that the Annual Meeting of Stockholders
(the "Meeting") of Unilab Corporation, a Delaware corporation (the "Company"),
will be held at the Warner Center Marriott, 21850 Oxnard Street, Woodland Hills,
California 91364 on June 17, 1997 at 9:00 a.m., local time, for the purpose of
considering and voting on the following matters described in the attached Proxy
Statement:
1. Election of directors;
2. Ratification and approval of Arthur Andersen LLP as the Company's
independent auditors for the fiscal year ending December 31, 1997;
and
3. Transacting such other business as may properly come before the
Meeting or any adjournment thereof.
Common stockholders of record at the close of business on
April 15, 1997 (the "Record Date") shall be entitled to notice of and to vote at
the Meeting or any adjournment thereof. You are invited to attend the Meeting in
person. Whether or not you intend to attend the Meeting, please mark, sign, date
and return the enclosed Proxy to make certain that your shares are represented
at the Meeting. Stockholders who attend the Meeting may vote their shares
personally, even though they have previously returned Proxies.
The directors and officers of the Company, who, as of the
Record Date, beneficially owned in the aggregate approximately 8.7% of the
shares of the Company's common stock, par value $.01 per share, outstanding on
the Record Date, have indicated that they intend to vote all such shares FOR all
of the proposals set forth above.
Your attention is invited to the attached Proxy Statement.
BY ORDER OF THE BOARD OF DIRECTORS:
Mark L. Bibi
Secretary
Dated: April 28, 1997
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<PAGE>
UNILAB CORPORATION
18448 Oxnard Street
Tarzana, California 91356
(818) 996-7300
PROXY STATEMENT
This Proxy Statement is furnished in connection with the
solicitation of proxies (the "Proxies") by and on behalf of the Board of
Directors of Unilab Corporation, a Delaware corporation ("Unilab" or the
"Company"), for its Annual Meeting of Stockholders (the "Meeting") to be held at
9:00 a.m., local time, on June 17, 1997 at the Warner Center Marriott, 21850
Oxnard Street, Woodland Hills, California, 91364 or at any adjournment thereof.
The Company anticipates that this Proxy Statement and the accompanying form of
Proxy will be first mailed or given to the stockholders of the Company on or
about April 28, 1997.
The cost of soliciting Proxies will be borne by the Company.
Officers and regular employees of the Company, without additional compensation,
may solicit Proxies by further mailing, telephone, telegraph, facsimile
transmission or by personal conversations. The Company will, upon request,
reimburse banks, brokerage firms, nominees, fiduciaries and other custodians for
their expenses in forwarding solicitation material to the beneficial owners of
the Company's common stock, par value $.01 per share (the "Unilab Common
Stock"). In addition, the Company has retained Kissel-Blake Inc. to assist in
soliciting proxies and to provide proxy material to banks, brokerage firms,
nominees, fiduciaries and other custodians. For such services, it is anticipated
that the Company will pay to Kissel-Blake Inc. a fee of approximately $4,000
plus reasonable out-of-pocket expenses.
Any Proxy that is properly submitted to the Company may be
revoked by the person giving it at any time before it has been voted. Proxies
may be revoked by (i) delivering to the Secretary of the Company at or before
the Meeting a written notice of revocation bearing a later date than the Proxy,
(ii) duly executing a subsequent Proxy relating to the same shares of Unilab
Common Stock and delivering it to the Secretary of the Company at or before the
Meeting or (iii) attending the Meeting and voting in person (although attendance
at the Meeting will not in and of itself constitute revocation of a Proxy).
The persons named in the Proxies will vote the Proxies in
accordance with the instructions specified therein. Unless instructed to the
contrary in a Proxy that is returned by a stockholder of the Company, the Proxy
will be voted (i) FOR the persons named below in the election of the Company's
Board of Directors and (ii) FOR the ratification and approval of the independent
auditors selected by the Company. The persons named in the Proxy will exercise
their judgment with respect to other matters which may properly come before the
Meeting. The Company is not currently aware of any other matters to come before
the Meeting.
Holders of a majority of the shares of stock of the Company
entitled to vote, present in person or represented by proxy, constitute a quorum
at the Meeting. Abstentions are counted as present for purposes of establishing
the quorum necessary for the Meeting to proceed. Likewise, if a broker indicates
on the proxy that it does not have discretionary authority as to certain shares
to vote on a particular matter (a "broker non-vote"), such broker non-vote is
counted as present for purposes of establishing the quorum necessary for the
Meeting to proceed.
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<PAGE>
Directors will be elected by a favorable vote of a plurality
of the shares of stock present and entitled to vote, in person or by proxy, at
the Meeting. Accordingly, abstentions and broker non-votes as to the election of
directors will not affect the election of the candidates receiving the plurality
of votes. All other matters to come before the Meeting require the approval of a
majority of the shares of stock present and entitled to vote, in person or by
proxy, at the Meeting. Accordingly, abstentions from voting will be included for
purposes of determining whether the requisite number of affirmative votes are
received on any such matter submitted to the stockholders for vote and, thus,
will have the same effect as a vote against such matters. Broker non-votes on
all other matters will not be entitled to vote, and will have no effect on the
vote, with respect to such matters.
SHARES OUTSTANDING AND VOTING RIGHTS
Common stockholders of record at the close of business on
April 15, 1997 (the "Record Date"), will be entitled to vote at the Meeting. The
holders of the shares of Unilab Common Stock are entitled to one vote per share.
Such shares may not be voted cumulatively. As of the Record Date, there were
40,249,692 shares of Unilab Common Stock issued and outstanding and entitled to
vote. Holders of the Company's Non-Voting Convertible Preferred Stock, par value
$.01 per share (the "Convertible Preferred Stock"), will not be entitled to vote
on any matters presented at the Meeting. The presence in person or by Proxy of
the holders of at least a majority of the outstanding shares of Unilab Common
Stock is necessary to constitute a quorum at the Meeting. The directors and
officers of the Company as a group as of the Record Date (10 persons), who as of
the Record Date beneficially owned of record in the aggregate approximately 8.7%
of the outstanding shares of Unilab Common Stock, have indicated that they
intend to vote all such shares FOR all of the proposals set forth herein.
PROPOSAL 1
ELECTION OF DIRECTORS
Nominees to each of the five positions on the Board of
Directors of the Company are to be elected at the Meeting. If elected, each will
serve for one year or until his successor is elected and qualified. Each such
nominee is a current director, except for Haywood D. Cochrane, Jr., who is a new
nominee. The Company does not contemplate that any of the persons named below
will be unable or will decline to serve; however, if any such nominee is unable
or declines to serve, the persons named in the accompanying Proxy will vote for
a substitute, or substitutes, in their discretion.
Listed below are the names and ages of the nominees, the year
in which each first became a director and their principal occupations for at
least the past five years.
Name and Principal
Age Occupation
David C. Weavil - 46 David C. Weavil has been Chairman, President
and Chief Executive Officer of the Company
since January 1997. He served as Executive
Vice President of Laboratory Corporation of
America Holdings Inc. ("LabCorp") from the
date of the April 1995 merger of Roche
Biomedical Laboratories, Inc. ("RBL") and
National Health Laboratories, Inc., ("NHL")
which created LabCorp, through December
1996. He was appointed Chief Operating
Officer of LabCorp in September 1995.
Previously, Mr. Weavil served as Senior
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<PAGE>
Vice President and Chief Operating Officer
of RBL from 1989 to April 1995. From 1988
through 1989, Mr. Weavil was Regional Senior
Vice President-Mid-Atlantic of RBL. Prior to
that, he served as Senior Vice President and
Chief Financial Officer of RBL from 1982.
Haywood D. Cochrane, Jr.- 48 Mr. Cochrane is a new nominee to the Board.
He has served as President and Chief
Executive Officer of Meridian Occupational
Healthcare Associates, Inc. since February
1997. He was Executive Vice President, Chief
Financial Officer and Treasurer of LabCorp
from April 1995 to November 1996 and a
consultant to LabCorp from November 1996 to
February 1997. Mr. Cochrane served from June
1994 to April 1995 as unelected Vice
Chairman of NHL, following NHL's acquisition
of Allied Clinical Laboratories, Inc.
("Allied"). Mr. Cochrane was President,
Chief Executive Officer and a Director of
Allied from its formation in 1989 until its
acquisition by NHL in June 1994. Mr.
Cochrane serves as a Director of JDN Realty
Corp.
Kirby L. Cramer - 60 Member of Unilab's Board of Directors since
March 1990. Chairman Emeritus of the Board
of Directors of Hazleton Corporation (a
subsidiary of Corning Incorporated and
formerly, Hazleton Laboratories Corp.), a
biological research company. Chief Executive
Officer from 1968 through 1987 (when it was
sold to Corning) and Chairman of the Board
of Directors from 1987 through 1991 of
Hazleton Laboratories Corp. Currently, a
director of Immunex Corp., Commerce
Bancorporation, Advanced Technology
Laboratories, Inc., Northwestern Trust
Company, Intellicoat Corporation and
Pharmaceutical Product Development, Inc.
Michael B. Hoffman - 46 Member of Unilab's Board of Directors since
October 1992. General Partner of The
Blackstone Group, an investment banking
firm, since 1989. From 1982 through 1989,
Partner and Co-head of Mergers and
Acquisitions at Smith Barney, Harris Upham &
Co. Currently, a director of Harvard
Industries.
Gabriel B. Thomas - 55 Member of Unilab's Board of Directors since
its formation in November 1988. Director of
Unilab's predecessor entity from December
1986 until November 1988. Consultant in
international marketing and management since
1971 and a consultant to Unilabs Holdings
S.A., a Swiss corporation and clinical
laboratory holding company, from October
1987 to May 1992. President of Unilab from
1989 through January 1992. Since 1985,
consultant to Frankfurt Consult, the
merger/acquisition subsidiary of BHF-Bank,
Frankfurt, Germany. Currently, a director of
Decora Industries, Inc.
Walker Lewis, who has served as a director of the Company since
September 1994, and Thomas Pyle, who has been a director since February 1995,
are not running for reelection and will retire from the Board as of June 17,
1997.
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<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND DIRECTORS
The following table sets forth certain information known to Unilab
regarding the beneficial ownership of Unilab Common Stock as of the Record Date
by: (i) each of Unilab's directors, nominee for director and Named Executive
Officers and (ii) all directors and Executive Officers as a group. For purposes
of this table, a person or group of persons is deemed to have "beneficial
ownership" of any shares as of a given date which such person has the right to
acquire within 60 days after such date. For purposes of computing the percentage
of outstanding shares held by each person or group of persons named below on a
given date, any security which such person or persons have the right to acquire
within 60 days after such date is deemed to be outstanding, but is not deemed to
be outstanding for the purpose of computing the percentage ownership of any
other person. Except as noted below, each person has full voting and investment
power over the shares indicated.
<TABLE>
<CAPTION>
Number of Shares of Percent of
Unilab Common Stock Unilab Common Stock
Name and Address of Beneficial Owner Beneficially Owned Beneficially Owned(1)
- ------------------------------------ ------------------- ---------------------
<S> <C> <C>
David C. Weavil 1,371,428(2) 3.4%
Haywood D. Cochrane, Jr. 3,000 *
Kirby L. Cramer 1,007,167(3) 2.5%
Michael B. Hoffman 99,667(4) *
Walker Lewis 49,667(5) *
Thomas O. Pyle 33,221(6) *
Gabriel B. Thomas 60,000(7) *
Richard A. Michaelson 535,340(8) 1.3%
All Directors and Executive Officers of
Unilab as a Group (10 persons) 3,613,906 8.7%
</TABLE>
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* less than 1%
(1) Calculated pursuant to Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and based on
40,249,692 shares of Unilab Common Stock outstanding as of the Record
Date.
(2) Mr. Weavil is Chairman, President and Chief Executive Officer of the
Company. Pursuant to the terms of an Employment Agreement dated January
20, 1997 between David C. Weavil and Unilab, Mr. Weavil (a) purchased
$500,000 of Common Stock from the Company at the closing market price of
the Common Stock on January 17, 1997 ($0.4375), with funds borrowed from
the Company, resulting in ownership of 1,142,857 shares and (b) received
228,571 shares ($100,000 of stock issued at the January 17, 1997 closing
price ($0.4375)) as a bonus. See, "Employment Agreements; Other
Arrangements -- Weavil Employment Agreement".
(3) Mr. Cramer is a director of the Company. Includes a presently exercisable
option to purchase 10,000 shares at $2.00 per share, which expires in July
2000, a presently exercisable option to purchase 30,000 shares at $6.125
per share, which expires in March 2003, a presently exercisable option to
purchase 10,000 shares at $6.00 per share, which expires in November 2003,
a presently exercisable option to purchase 20,000 shares at $4.50 per
share, which expires in December 2004,
<PAGE>
a presently exercisable option to purchase 20,000 shares at $2.625 per
share, which expires in January 2006 and a presently exercisable option to
purchase 10,000 shares at $0.50 per share, which expires in January 2007.
Also includes 6,667 shares received in payment of fourth quarter 1996
director fees, 10,000 shares received in payment of first quarter 1997
director fees and 8,000 shares received in payment of second quarter 1997
director fees. See "Compensation of Directors".
(4) Mr. Hoffman is a director of the Company. Includes a presently exercisable
option to purchase 30,000 shares at $6.125 per share, which expires in
March 2003, a presently exercisable option to purchase 10,000 shares at
$6.00 per share, which expires in November 2003, a presently exercisable
option to purchase 10,000 shares at $4.50 per share, which expires in
December 2004, a presently exercisable option to purchase 10,000 shares at
$2.625 per share, which expires in January 2006 and a presently
exercisable option to purchase 5,000 shares at $0.50 per share which
expires in January 2007. Also includes 6,667 shares received in payment of
fourth quarter 1996 director fees, 10,000 shares received in payment of
first quarter 1997 director fees and 8,000 shares received in payment of
second quarter 1997 director fees. See "Compensation of Directors".
(5) Mr. Lewis is a director of the Company, but is not running for reelection
as a director. Includes a presently exercisable option to purchase 10,000
shares at $5.125 per share, which expires in September 2004, a presently
exercisable option to purchase 10,000 shares at $2.625, per share, which
expires in January 2006 and a presently exercisable option to purchase
5,000 shares at $0.50 per share which expires in January 2007. Also
includes 6,667 shares received in payment of fourth quarter 1996 director
fees, 10,000 shares received in payment of first quarter 1997 director
fees and 8,000 shares received in payment of second quarter 1997 director
fees. See "Compensation of Directors".
(6) Mr. Pyle is a director of the Company, but is not running for reelection
as a director. Includes a presently exercisable option to purchase 10,000
shares at $4.00 per share, which expires in February 2005, a presently
exercisable option to purchase 10,000 shares at $2.625, which expires in
January 2006 and a presently exercisable option to purchase 5,000 shares
at $0.50 per share which expires in January 2007. Also includes 2,222
shares received in partial payment of fourth quarter 1996 director fees,
3,333 shares received in partial payment of first quarter 1997 director
fees and 2,666 shares received in partial payment of second quarter 1997
director fees. See "Compensation of Directors".
(7) Mr. Thomas is a director of the Company. Includes a presently exercisable
option to purchase 10,000 shares at $6.00 per share, which expires in
November 2003, a presently exercisable option to purchase 20,000 shares at
$4.50 per share, which expires in December 2004, a presently exercisable
option to purchase 20,000 shares at $2.625 per share, which expires in
January 2006 and a presently exercisable option to purchase 10,000 shares
at $0.50 per share, which expires in January 2007. See "Compensation of
Directors".
(8) Mr. Michaelson is Senior Vice President-Finance, Treasurer and Chief
Financial Officer of the Company. Includes a presently exercisable option
to purchase 150,000 shares at $5.665 per share, which expires in October
1997, a presently exercisable option to purchase 50,000 shares at $5.625
per share, which expires in February 2004, a presently exercisable option
to purchase 17,500 shares at $4.50 per share, which expires in January
2005, a presently exercisable option to purchase 150,000 shares at $5.1875
per share, which expires in May 2005 and a presently
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<PAGE>
exercisable option to purchase 8,750 shares at $2.1875, which expires in
February 2006. Also includes 29,090 shares received in partial payment of
salary for the months of August and September 1996.
Meetings and Committees of Board of Directors
Meetings of Board of Directors
The Board of Directors of Unilab held eight meetings during 1996.
During 1996, each of the incumbent directors attended at least 75% of the total
number of meetings of the Board and Board Committees on which he served.
Audit Committee
The Audit Committee of the Board of Directors of Unilab is authorized
to make recommendations to the Board regarding the appointment of independent
accountants; to review and approve any major changes in accounting policy; to
review the arrangements for, scope and results of the independent audit; to
review and approve the scope of non-audit services to be performed by
independent accountants and to consider the possible effect on the independence
of the accountants; to review the effectiveness of internal auditing procedures
and personnel; to review Unilab's policies and procedures for compliance with
disclosure requirements with respect to conflicts of interest and for prevention
of unethical, questionable or illegal payments; and to take such other actions
as the Board shall from time to time so authorize. During 1996 and until March
7, 1997 the following directors served on Unilab's Audit Committee: Kirby L.
Cramer, Thomas O. Pyle and Gabriel B. Thomas (Chairman). From and after March 7,
1997, the Audit Committee has been comprised of Walker Lewis, Thomas O. Pyle and
Gabriel B. Thomas (Chairman). Mr. Lewis is a Senior Advisor to Dillon Read &
Co., Inc., which provided investment banking services to the Company in 1996.
Mr. Pyle and Mr. Thomas are considered to be independent directors under the
rules and regulations of the American Stock Exchange, Inc., the exchange on
which the Company's Common Stock is listed and traded. The Audit Committee of
Unilab held one meeting during the year ended December 31, 1996.
Compensation Committee
The Compensation Committee is authorized to establish and approve
compensation policies, salary levels and bonus payments; to grant stock options,
stock appreciation rights, phantom stock rights, incentive compensation and
authorize and approve all other forms of compensation-related credits,
guarantees and policies except as may be precluded by applicable law; and to
provide an overview of compensation programs. During 1996 and until March 7,
1997 the following directors served on Unilab's Compensation Committee: Kirby L.
Cramer (Chairman), Michael B. Hoffman, Walker Lewis, Thomas O. Pyle and Gabriel
B. Thomas. From and after March 7, 1997, the Compensation Committee has been
comprised of Messrs. Cramer (Chairman), Hoffman and Thomas. Mr. Hoffman is a
General Partner of The Blackstone Group, which provided investment banking
services to the Company during 1996. Mr. Lewis is a Senior Advisor to Dillon,
Read & Co., Inc., which provided investment banking services to the Company in
1996. In addition, a subcommittee of the Compensation Committee, comprised of
Messrs. Cramer and Thomas, has been formed for purposes of addressing issues
required or recommended to be addressed by independent directors, including
administration of the Company's Executive Retirement Plan and the Stock Option
and Performance Incentive Plan. The Compensation Committee of Unilab held one
meeting during the year ended December 31, 1996.
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<PAGE>
Nominating Committee
The Company did not have a Nominating Committee during 1996. Such a
Committee was formed on March 7, 1997. The Nominating Committee is authorized to
establish procedures for selecting, screening and nominating candidates for
election as directors at the annual or special meetings of stockholders; to make
recommendations of director nominees to fill vacancies on the Board resulting
from director resignations; to increase the number of directors for purposes of
recommending the addition of a director to the Board; to review the
qualifications of director nominations made by the Company's stockholders,
directors, officers or others; and to adopt procedures regarding the
qualifications and tenure of directors. Stockholders who wish to make
nominations of directors shall submit the name and qualifications of such
nominee in writing to the attention of the Company's Secretary at the offices of
the Company, 18448 Oxnard Street, Tarzana, CA 91356. The members of the
Nominating Committee are Michael B. Hoffman (Chairman), Kirby L. Cramer, Thomas
O. Pyle and David C. Weavil (Mr. Weavil replaced Andrew H. Baker as the
Company's Chairman, President and Chief Executive Officer, effective January 20,
1997; see "Hiring of David C. Weavil as Chairman, President and Chief Executive
Officer"). In the event of a tie vote, Mr. Weavil is authorized to break such
tie.
Compensation of Directors
Messrs. Cramer, Hoffman, Lewis, Pyle and Thomas received an annual
payment of $40,000 for their services as directors of Unilab for the period from
January 1, 1996 through September 30, 1996, payable $10,000 per quarter in cash.
Effective with the quarter beginning October 1, 1996, the directors determined
to reduce their annual payment to $20,000 per year. Accordingly, non-employee
directors received $5,000 in director compensation for the fourth quarter of
1996, rather than the $10,000 they had received during the first three quarters
of 1996. Andrew H. Baker, the Company's Chairman, President and Chief Executive
Officer during 1996, received no payment for his services as a director of
Unilab during 1996, because he was an employee of the Company. Directors receive
no additional per-meeting payments or payments for service on committees of the
Board (except that each Chairman of a Committee of the Board received an
additional 10,000 stock options to purchase Unilab Common Stock pursuant to the
Non-Employee Directors Stock Plan, as described below).
Effective as of the quarter beginning October 1, 1996, directors were
offered the opportunity to receive all or a portion of their annual payment in
shares of Unilab Common Stock pursuant to the Non-Employee Directors Stock Plan.
Messrs. Cramer, Hoffman and Lewis elected to receive all of their directors
compensation in shares of Unilab Common Stock. Accordingly, each such director
received (a) 6,667 shares of Unilab Common Stock for the fourth quarter of 1996
(calculated by dividing the $5,000 quarterly payment by $0.75, the closing
market price of Unilab Common Stock on October 1, 1996, the first business day
in the quarter), (b) 10,000 shares of Unilab Common Stock for the first quarter
of 1997 (calculated by dividing the $5,000 quarterly payment by $0.50, the
closing market price of Unilab Common Stock on January 2, 1997, the first
business day in the quarter) and (c) 8,000 shares of Unilab Common Stock for the
second quarter of 1997 (calculated by dividing the $5,000 quarterly payment by
$0.625, the closing market price of Unilab Common Stock on April 1, 1997, the
first business day of the quarter). Mr. Pyle elected to receive two thirds of
his directors compensation in cash and one third in shares of Unilab Common
Stock. Accordingly, Mr. Pyle received $3,350 in cash and 2,222 shares of Unilab
Common Stock for the fourth quarter of 1996, $3,350 in cash and 3,333 shares of
Unilab Common Stock for the first quarter of 1997 and $3,350 in cash and 2,666
shares of Unilab Common Stock for the second quarter of 1997. Mr.
Thomas elected to continue to receive all of his directors compensation in cash.
9
<PAGE>
Effective as of January 1, 1996, the Company's stockholders approved and
adopted the Non-Employee Directors Stock Plan pursuant to which, among other
things, (i) non-employee directors receive annual grants of ten year options to
purchase 10,000 shares of Unilab Common Stock at an exercise price equal to the
closing price per share of Unilab Common Stock on the American Stock Exchange on
the grant date and (ii) directors who serve as Chairman of a Board Committee or
Committees receive an additional annual grant of ten year options to purchase
10,000 shares of Unilab Common Stock at an exercise price equal to the closing
price per share of Unilab Common Stock on the American Stock Exchange on the
grant date. Pursuant to this program, Mr. Cramer (Chairman of the Compensation
Committee) received options to purchase 20,000 shares in January 1996 at an
exercise price of $2.625 per share and options to purchase 20,000 shares in
January 1997 at an exercise price of $0.50 per share; Mr. Hoffman received
options to purchase 10,000 shares in January 1996 at an exercise price of $2.625
per share and options to purchase 10,000 shares in January 1997 at an exercise
price of $0.50 per share; Mr. Lewis received options to purchase 10,000 shares
in January 1996 at an exercise price of $2.625 per share and options to purchase
10,000 shares in January 1997 at an exercise price of $0.50 per share; Mr. Pyle
received options to purchase 10,000 shares in January 1996 at an exercise price
of $2.625 per share and options to purchase 10,000 shares in January 1997 at an
exercise price of $0.50 per share; and Mr. Thomas (Chairman of the Audit
Committee) received options to purchase 20,000 shares in January 1996 at an
exercise price of $2.625 per share and options to purchase 20,000 shares in
January 1997 at an exercise price of $0.50. The options vest one-half
immediately and one-half one year after grant.
Each director is reimbursed for all travel expenses related to each
meeting of the Board or Committee that he attends in person.
Executive Compensation
The following table sets forth the annual and long-term compensation
paid or accrued by Unilab for services rendered in all capacities to Unilab
during the years ended December 31, 1996, 1995 and 1994 of those persons who
were, at December 31, 1996, (i) the Chief Executive Officer and (ii) the other
Named Executive Officer of Unilab whose total annual salary and bonus for the
year ended December 31, 1996 exceeded $100,000 (together, the "Named Executive
Officers").
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Annual Compensation Compensation Awards
- -------------------------------------------------------------------------------------------------------------------
Restricted Securities
Name and Other Annual Stock Underlying
Principal Position Year Salary ($) (3) Bonus ($) Compensation ($) Award($) Options(#)
- ------------------ ---- -------------- --------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Andrew H. Baker 1996 $431,555 -- $268,775(4) 60,000
Chairman of the Board, 1995 $515,269 -- $152,763(4) -- 180,000
President and Chief Executive 1994 $432,000 -- $170,624(4) -- --
Officer of Unilab(1)(2)
Richard A. Michaelson 1996 $292,678 -- $53,578(4) 35,000
Senior Vice 1995 $332,778 -- -- $129,875(5) 185,000
President-Finance, 1994 $270,000 -- -- -- 50,000
Treasurer and Chief Financial
Officer of Unilab(2)
</TABLE>
(1) Mr. Baker served as Chairman, President and Chief Executive Officer of
the Company until January 20, 1997, when he resigned and was replaced by
David C. Weavil. Mr. Baker continues
10
<PAGE>
to serve as a consultant to the Company. See "Resignation of Andrew Baker
as Chairman, President and Chief Executive Officer" and "Hiring of David
C. Weavil as Chairman, President and Chief Executive Officer".
(2) On October 20, 1992, the Board of Directors of the Company approved an
employment agreement, dated as of October 20, 1992, for each of Andrew H.
Baker and Richard A. Michaelson, which provided for the Company to begin
paying compensation to Messrs. Baker and Michaelson as of January 1, 1993.
Employment agreements substantially identical to these agreements were
entered into with each of Mr. Baker and Mr. Michaelson on November 10,
1993. See "Employment Agreements; Other Arrangements."
(3) Includes amounts equal to 8% of base salary paid into a deferred
compensation account ($23,461 and $32,000 for Mr. Baker and $19,483 and
$21,333 for Mr. Michaelson, for 1996 and 1995, respectively) and amounts
accrued under the Unilab Corporation Executive Retirement Plan ($24,755
and $83,267 for Mr. Baker and $9,853 and $44,778 for Mr. Michaelson for
1996 and 1995, respectively). Mr. Baker voluntarily accepted $90,000 of
his 1996 base salary ($30,000 per month for the months of August,
September and October 1996) in newly issued shares of the Company's Common
Stock. He received 135,274 shares in lieu of the cash payment of $90,000.
The number of shares received by Mr. Baker was calculated on the basis of
the closing market price of Unilab Common Stock on the payroll date for
each month in which Mr. Baker received stock in lieu of cash. Mr.
Michaelson voluntarily accepted $20,000 of his 1996 base salary ($10,000
per month for the months of August and September 1996) in newly issued
shares of the Company's Common Stock. He received 29,090 shares in lieu of
the cash payment of $20,000. The number of shares received by Mr.
Michaelson was calculated on the basis of the closing market price of
Unilab Common Stock on the payroll date for each month in which Mr.
Michaelson received stock in lieu of cash.
(4) For Mr. Baker, represents the benefits from the personal use of a
Company-provided automobile, club membership, Company matching
contributions to the Company's 401(k) profit-sharing plan and imputed
interest on a $1.0 million non-interest bearing loan provided to Mr. Baker
for the purchase of a residence in California (such imputed interest being
$63,593, $65,200 and $66,482 in 1996, 1995 and 1994, respectively),
interest paid by the Company on a loan taken by Mr. Baker and guaranteed
by the Company, expenses paid by the Company related to Mr. Baker's
residence in California, tax return preparation fees and related tax
gross-up payments to Mr. Baker on such amounts (such tax gross-up payments
being $130,398, $70,865 and $82,136 in 1996, 1995 and 1994, respectively).
See "Employment Agreements; Other Arrangements -- Baker Employment
Agreement" and "Resignation of Andrew Baker as Chairman, President and
Chief Executive Officer". For Mr. Michaelson, represents the benefits from
the personal use of a Company-provided automobile, Company matching
contributions to the Company's 401(k) profit-sharing plan, interest paid
by the Company on a loan taken by Mr. Michaelson from a bank and
guaranteed by the Company, tax return preparation fees, and related tax
gross-up payments or such amounts (such tax gross-up payment being
$24,082). See "Employment Agreements; Other Arrangements -- Michaelson
Employment Agreement."
(5) Represents the value of 25,000 shares of restricted stock granted on May
1, 1995, based on a closing market price on that date on Nasdaq/NNM of
$5.1875 per share. As of December 31, 1996 (the last trading day in 1996),
the closing market price of unrestricted Unilab Common Stock on the
American Stock Exchange was $0.4375 per share. Accordingly, 25,000 shares
of such unrestricted stock at such date would have had an aggregate value
of $10,937.50.
Option Grants
The following table sets forth the grants of non-qualified stock
options during the year ended December 31, 1996, to the Named Executive
Officers:
11
<PAGE>
<TABLE>
<CAPTION>
Option Grants In Last Fiscal Year
- ---------------------------------
% of Total Market
Options Exercise Price of
Options Granted to or Date of Grant Date
Granted Employees in Base Price Grant Expiration Present Value
Name (#) Fiscal Year ($/Sh) ($/Sh) Date ($/Sh)
- ---- --- ----------- ------ ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Andrew H. Baker 60,000 (1) 8.8% $2.1875 $2.1875 1/2006 $1.94(3)
Richard A. Michaelson 35,000(2) 5.1% $2.1875 $2.1875 2/2006 $1.94(3)
</TABLE>
(1) In February 1996, pursuant to the Company's Stock Option and Performance
Incentive Plan, Mr. Baker was granted options to purchase 60,000 shares of
Unilab Common Stock at an exercise price of $2.1875 per share, the closing
price per share of Unilab Common Stock as reported on the Nasdaq/NNM on
the date of the grant. Such options vested one-quarter on January 1, 1997,
and were to vest one-quarter on January 1, 1998, one-quarter on January 1,
1999 and one-quarter on January 1, 2000. Such options were fully vested as
of January 20, 1997 pursuant to the Baker Transition Agreements. See
"Resignation of Andrew Baker as Chairman, President and Chief Executive
Officer" and "Employment Agreements; Other Arrangements -- Baker
Transition Agreements".
(2) In February 1996, pursuant to the Company's Stock Option and Performance
Incentive Plan, Mr. Michaelson was granted options to purchase 35,000
shares of Unilab Common Stock at an exercise price of $2.1875 per share,
the closing price per share of Unilab Common Stock as reported on the
Nasdaq/NNM on the date of the grant. Such options vested one-quarter on
January 1, 1997, and will vest one-quarter on January 1, 1998, one-quarter
on January 1, 1999 and one quarter on January 1, 2000.
(3) In accordance with Securities and Exchange Commission rules, the
Black-Scholes option pricing model was used to estimate the grant date
present value of the options set forth in this table. The Company's use of
this model should not be construed as an endorsement of its accuracy in
valuing options. All option valuation models, including Black-Scholes,
require a prediction about the future movement of the stock price. The
actual value, if any, an executive may realize will depend on the excess
of the stock price over the exercise price on the date the option is
exercised. The estimated values under the model are based on the following
assumptions and variables: (i) the exercise of all options occurs at their
expiration dates, (ii) the weighted one-year historic stock price
volatility of the Common Stock is approximately 95% and (iii) for purposes
of present value calculations, the ten-year, zero coupon Treasury note
interest rate at the date of grant (6.1%) was used.
Other Stock Options
Unilab has from time to time granted non-qualified stock options,
not pursuant to any formal plan other than an individual stock option agreement,
to its officers, employees, consultants and directors. As of the Record Date,
non-qualified stock options to purchase a total of 4,229,500 shares of Unilab
Common Stock (some of which have not yet vested) were outstanding.
Effective as of January 1, 1996, the Company's stockholders approved
and adopted a Stock Option and Performance Incentive Plan, pursuant to which
certain of the Company's employees may receive grants of options to purchase
shares of Unilab Common Stock. Such options have a ten year term and vest in
equal installments over a vesting period determined by the Administrative
Committee
12
<PAGE>
of the Stock Option and Performance Incentive Plan, which is typically three to
five years. The exercise price is the per share price of Unilab Common Stock on
the American Stock Exchange (or for grants made prior to the Company's listing
on the American Stock Exchange on June 24, 1996, on Nasdaq/NNM) at the close of
business on the grant date. Pursuant to this Plan, options to purchase a total
of 681,500 shares of Unilab Common Stock were issued to employees of the Company
during 1996.
Effective as of January 1, 1996, the Company's stockholders approved
and adopted a Non-Employee Directors Stock Plan, pursuant to which certain of
the Company's directors receive annual grants, typically on the first trading
day of each year, of options to purchase shares of Unilab Common Stock. Such
stock options have a ten year term and vest 50% on the date of grant and 50% on
the first anniversary of the date of grant. The exercise price is the per share
price of Unilab Common Stock on the American Stock Exchange (or for grants prior
to the June 24, 1996 listing date on the American Stock Exchange, on Nasdaq/NNM)
at the close of business on the grant date. Pursuant to this program, options to
purchase a total of 70,000 shares of Unilab Common Stock were issued to
non-management directors of the Company in each of January 1996 and January 1997
(an aggregate of 140,000 option shares).
Restricted Stock
Unilab has, from time to time, granted restricted stock to its
employees. Such shares typically contain restrictions on transfer of the granted
shares of Unilab Common Stock for a two to five year period, with forfeiture of
such shares upon earlier separation from the Company, in the Board's discretion.
As of the Record Date, 864,833 shares of restricted Unilab Common Stock were
outstanding, including (a) 5,999 restricted shares issued to Thomas O. Pyle, a
director, in partial consideration for his quarterly directors compensation in
January and April 1997, (b) 500,000 restricted shares issued to Andrew Baker,
the Company's former Chairman, President and Chief Executive Officer, in January
1997 as part of the Baker Transition Agreements and c) 25,000 shares issued to
Richard A. Michaelson, one of the Named Executive Officers, in May 1995.
Option Exercises and Fiscal Year-End Values
The following table reflects that no options to purchase Unilab
Common Stock were exercised by the Named Executive Officers during the fiscal
year ended December 31, 1996 and lists the number and value of the unexercised
options to purchase Unilab Common Stock held by the Named Executive Officers at
December 31, 1996.
<TABLE>
<CAPTION>
Aggregated Option Exercises In Last Fiscal Year and FY-End Option Values
Number of
Securities
Underlying Value of
Unexercised Unexercised
Options at In-the-Money
FY-End (#) Options at
FY-End ($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Andrew H. Baker -- -- 315,000/225,000(1) $0
Richard A. Michaelson -- -- 292,500/127,500 $0
</TABLE>
13
<PAGE>
(1) On January 20, 1997, in connection with Mr. Baker's resignation as
Chairman, President and Chief Executive Officer of the Company, the
vesting of all of the 540,000 outstanding options to purchase Unilab
Common Stock beneficially owned by Baker were accelerated and all such
options became immediately exercisable as of such date.
On January 20, 1997, David C. Weavil was granted options to purchase
250,000 shares of Unilab Common Stock at an exercise price of $0.4375 per share,
the closing market price of Unilab Common Stock on January 17, 1997, the last
trading day prior to Mr. Weavil's employment as Chairman, President and Chief
Executive Officer of the Company. Such options vest in equal installments over
five years beginning on January 20, 1998. Mr. Weavil's employment agreement also
provides for him to receive on January 2, 1998 additional options to purchase
250,000 shares of Unilab Common Stock at an exercise price equal to the closing
market price of Unilab Common Stock on the date of grant.
Executive Retirement Plan
Effective as of January 1, 1995, the Company's stockholders approved the
adoption of the Executive Retirement Plan (the "SERP"). The SERP provides for
issuance to officers and other senior executives of the Company ("Executives")
of up to 1,000,000 shares in the aggregate of Unilab Common Stock. Shares of
Unilab Common Stock to be issued in connection with the SERP will be made
available from treasury or authorized and unissued shares of Unilab Common
Stock. An Executive participating in the SERP is entitled to receive an annual
allocation of Awards. An Award is a unit of measurement equivalent to a share of
Unilab Common Stock. The number of Awards allocated each year will have a fair
market value equal to the annual expense of a projected single life annuity
commencing at age 65, providing an Executive with a benefit equal to 2% of the
Executive's "Final Compensation" multiplied by the number of years of service
(not to exceed 25) (the "Target Benefit"). For purposes of determining the
annual expense under the SERP, an Executive's "Final Compensation" equals the
projected average compensation of the Executive for the 5 consecutive calendar
years preceding and including the Executive's attainment of age 65. Initially,
based on recommendations from the actuary for the SERP, an Executive's
compensation will be projected to increase at the rate of 5 1/2% per year.
As soon as practicable following the death, disability or retirement of an
Executive after attaining age 65 (the "Payment Date"), the Executive (or his
Beneficiary, as the case may be) will be issued a certificate or certificates
for a number of shares of Common Stock equal to the vested number of Awards in
the Account of the Executive. In addition, an Executive shall be entitled to a
distribution of his Account upon his termination of employment for Good Reason
or without Cause (as defined in the SERP) after a Change in Control. Any other
amounts in an Account, other than Awards, shall be distributed in a single cash
lump sum payment.
During 1996, six of the Company's executives participated in the SERP.
Andrew Baker, the Company's Chairman, President and Chief Executive Officer
during 1996, received a 1996 contribution to the SERP from the Company
equivalent to $24,755. Richard Michaelson, the Company's Senior Vice
President-Finance, Treasurer and Chief Financial Officer, received a 1996
contribution to the SERP from the Company equivalent to $9,833. The other four
participants in the SERP received aggregate 1996 contributions to the SERP
equivalent to $28,679.
14
<PAGE>
Resignation of Andrew H. Baker as Chairman, President and
Chief Executive Officer
Andrew H. Baker, who had served as Chairman, President and Chief Executive
Officer of the Company from April 1992, resigned from those positions effective
as of January 20, 1997. In connection with his resignation and in consideration
for the Company's obligations to Mr. Baker under his employment agreement and
his participation in the Company's benefit plans, including the Executive
Retirement Plan, Mr. Baker and a company wholly owned by him received the
following: (i) 500,000 restricted shares of Common Stock (the "Transition
Shares"), such restrictions to lapse upon the earliest to occur of (1) a Change
of Control of the Company, (2) Baker's attainment of age 65 and (3) Baker's
death or disability; (ii) the expiration dates of the options to purchase
540,000 shares of Unilab Common Stock previously granted to Baker were extended
to January 20, 2007 and all such options became immediately vested; (iii) a
Consulting Agreement between the Company and a company wholly owned by Baker, to
provide consulting services to the Company, for an aggregate payment of
$900,000, $600,000 of which was paid in January 1997 and the remaining $300,000
of which is payable $100,000 per year, quarterly in arrears, for the three-year
period ending on January 20, 2000, (iv) office space in New Jersey through
October 1998 and secretarial and administrative services through January 2000;
(v) continued benefit coverage (medical, hospitalization, dental, life,
disability, accidental death and travel accident) for three years; (vi)
reimbursement of reasonable business expenses during the consulting period, as
approved by the Company's CEO; and (vii) continued use of his company auto for
three years, to be transferred to him at that time. In addition, Mr. Baker
agreed to sell his California residence as soon as possible, at the Company's
direction. Five hundred thousand dollars of the proceeds from the sale of that
house will be used to pay the outstanding indebtedness on the house held by a
commercial bank, with the excess proceeds over $500,000 being retained by Mr.
Baker. The $500,000 owed by Mr. Baker to the Company (remaining from the
original $1,000,000 loan extended by the Company to Mr. Baker in 1994 to assist
Mr. Baker in purchasing the California residence) will be forgiven. Mr. Baker
agreed not to compete with the Company in the clinical laboratory business in
the State of California for three years.
The foregoing agreements between the Company and Mr. Baker are referred to
as the "Baker Transition Agreements".
Effective April 15, 1997, the Company paid the principal amount of
$300,000 to a commercial bank in payment of a loan Mr. Baker had taken from the
bank in April 1994 in order to pay taxes on "paper profits" Mr. Baker realized
as a result of the Company's November 1993 reorganization transaction with
Corning. The Company had executed a guarantee of this loan at the time Mr. Baker
received the loan. In consideration for the Company's payment of the loan under
its guarantee, Mr. Baker (i) executed a $300,000, 6% five-year secured
promissory note (the "Baker Note") in favor of the Company and (ii) was required
to purchase $300,000 of newly issued shares of Unilab Common Stock at the
closing market price on a date or dates selected by Mr. Baker prior to September
1, 1997 (the "New Shares"). Mr. Baker acquired such shares on April 3, 1997 at a
per share purchase price of $0.5625, resulting in the purchase of 533,333
shares. The Baker Note is secured by the Transition Shares as well as the New
Shares. All restrictions on the Transition Shares and New Shares will lapse upon
Mr. Baker's payment in full of the principal of and accrued interest on the
Baker Note. The Baker Note may be prepaid at any time. See "Certain
Relationships and Transactions with Related Persons -- Indebtedness of
Management".
15
<PAGE>
Hiring of David C. Weavil as Chairman, President and Chief Executive Officer
Concurrently with the resignation of Mr. Baker as Chairman,
President and Chief Executive Officer of the Company, the Board hired David C.
Weavil to fill those positions. The Board selected Mr. Weavil after considering
multiple potential candidates. Effective as of January 20, 1997, Mr. Weavil
entered into an employment agreement with the Company, which is described below
under "Employment Agreements; Other Arrangements -- Weavil Employment
Agreement".
Employment Agreements; Other Arrangements
Weavil Employment Agreement. On January 20, 1997, Unilab and
David C. Weavil entered into an employment agreement (the "Weavil Employment
Agreement") pursuant to which he serves as Chairman of the Board, President and
Chief Executive Officer of Unilab. The term of the Weavil Employment Agreement
ends on January 19, 1998, and will automatically renew for successive one-year
periods unless one party thereto gives at least a six month notice of
termination before the end of the current term (the "Employment Period"). Mr.
Weavil receives an annual base salary of $400,000, subject to upward adjustment
at the Board of Directors' discretion. Mr. Weavil received upon execution of the
Weavil Employment Agreement a bonus of $100,000, which was paid in shares of
Unilab Common Stock. In payment of this bonus, Mr. Weavil received 228,571
shares of Unilab Common Stock, calculated by dividing $100,000 by $0.4375, the
closing market price of Unilab Common Stock on January 17, 1997, the last
trading day prior to Mr. Weavil's commencement of employment. Mr. Weavil is also
eligible to receive an additional 1997 bonus of $100,000 in cash if Unilab meets
certain performance objectives established by the Board of Directors of Unilab.
The Weavil Employment Agreement also provides that Unilab will establish for Mr.
Weavil a deferred compensation account to be credited annually with an
additional amount equal to 8% of Mr. Weavil's total cash compensation (inclusive
of all bonuses) for that year. The Weavil Employment Agreement also provides for
Mr. Weavil's participation in the Company's Executive Retirement Plan.
Pursuant to the terms of the Weavil Employment Agreement, Mr.
Weavil purchased from the Company on January 20, 1997 $500,000 worth of newly
issued shares of Unilab common stock based on the January 17, 1997 closing
market price of $0.4375. Accordingly, Mr. Weavil purchased 1,142,857 shares of
Unilab Common Stock at that time. Mr. Weavil was granted demand registration
rights with respect to such shares, as well as the 228,571 shares he received in
payment of his $100,000 bonus noted in the preceding paragraph. The $500,000
utilized by Mr. Weavil to purchase such shares was borrowed from the Company.
The repayment of $250,000 of such borrowed funds is due 180 days after the date
of loan (i.e., by July 20, 1997), is unsecured and bears interest at 6%.
Repayment of the other $250,000 of such funds is due five years after issuance
(i.e. by January 20, 2002), is secured by the shares of Unilab Common Stock
purchased from the proceeds thereof and bears interest at 6%.
Also pursuant to the Weavil Employment Agreement, on January
20, 1997, Mr. Weavil was granted options to purchase 250,000 shares of Unilab
Common Stock at an exercise price of $0.4375. the closing market price of Unilab
Common Stock on January 17, 1997. Such options will vest 20% on January 20,
1998, 20% on January 20, 1999, 20% on January 20, 2000, 20% on January 20, 2001
and 20% on January 20, 2002. Additionally, the Weavil Employment Agreement
provides for Mr. Weavil to be granted on January 2, 1998 options to purchase
250,000 shares of Unilab Common Stock at an exercise price equal to the closing
market price of Unilab Common Stock on such date. Such options will vest in
equal installments over five years, beginning on January 2, 1999 and ending on
January 2, 2003.
16
<PAGE>
In connection with his relocation from North Carolina to
California to begin his employment with the Company, Mr. Weavil was reimbursed
$41,657 for moving and other relocation costs, pursuant to the terms of his
Employment Agreement. In addition, under the terms of his relocation package,
Mr. Weavil is entitled to receive a $4,000 per month housing allowance for the
first six months following his move to California (January 1997 through July
1997).
In the event that Mr. Weavil's employment is terminated by the
Company without Cause (as defined in the Weavil Employment Agreement) and not in
association with a Change of Control (as defined in the Weavil Employment
Agreement), Mr. Weavil will receive 18 months of continued compensation (salary,
bonus and deferred compensation) and continued benefits coverage for 18 months.
Mr. Weavil has agreed not to compete with the Company for 18 months following
termination of employment without Cause and not in association with a Change of
Control.
The Weavil Employment Agreement also provides for certain
payments to Mr. Weavil upon his termination or resignation following a Change of
Control of Unilab (as defined in the Weavil Employment Agreement). If in
association with a Change of Control, Mr. Weavil resigns his employment for Good
Reason or his employment is terminated without Cause, then he becomes entitled
to receive a lump sum in cash equal to two times Mr. Weavil's annual total
compensation (inclusive of cash bonuses and deferred compensation).
Baker Employment Agreement. On November 10, 1993, Unilab and
Andrew H. Baker entered into an employment agreement (the "Baker Employment
Agreement") pursuant to which he served as Chairman of the Board, President and
Chief Executive Officer of Unilab prior to his resignation on January 20, 1997.
Mr. Baker received an annual base salary of $400,000, subject to upward
adjustment at the Board of Directors' discretion. In July 1996, at his own
suggestion Mr. Baker agreed to a voluntary 10% salary reduction, reducing his
base salary to $360,000. (A number of other senior managers of the Company
similarly accepted 10% salary reductions.) In addition, Mr. Baker accepted three
months of his 1996 pay in shares of Unilab Common Stock, receiving 135,274
shares in lieu of cash payment of $90,000. The number of shares received by Mr.
Baker was calculated on the basis of the closing market price of Unilab Common
Stock on the payroll date for each month in which Mr. Baker received stock in
lieu of cash (August, September, October). In addition, Mr. Baker was eligible
to receive an annual bonus ranging from 0% to 100% of his base salary if Unilab
met certain performance objectives to be established by the Board of Directors
of Unilab or its Compensation Committee prior to the beginning of each year. The
Baker Employment Agreement also provided that Unilab establish for Mr. Baker a
deferred compensation account for each fiscal year during the Employment Period
to be credited annually with an additional amount equal to 8% of Mr. Baker's
total cash compensation (inclusive of all bonuses) for that year.
The Baker Employment Agreement stated that in the event Mr.
Baker's employment was terminated by death, disability, without Cause (as
defined in the Baker Employment Agreement) or for Good Reason (as defined in the
Baker Employment Agreement), Mr. Baker (or his estate) was entitled to receive,
among other things, a lump sum payment equal to the then full value of Mr.
Baker's vested award under any restricted stock, stock option or stock
appreciation rights plan or pursuant to any stock option agreement (the "Lump
Sum Option Payment") and the full value contained in Mr. Baker's deferred
compensation account plus an amount equal to his base salary for the greater of
18 months following the termination date or the remainder of the two year
Employment Period.
The Baker Employment Agreement also provided for certain
payments to Mr. Baker upon his termination following a Change of Control of
Unilab (as defined in the Baker Employment Agreement). If within two years after
a Change of Control, Mr. Baker resigned his employment for
17
<PAGE>
Good Reason or his employment was terminated without Cause, then he was to
become entitled to receive the Lump Sum Option Payment and an additional lump
sum in cash equal to 2.99 times Mr. Baker's average total cash compensation
(inclusive of cash bonuses and deferred compensation) for the three previous
fiscal years. In addition, the Baker Employment Agreement permitted Unilab to
require by written notice that Mr. Baker not compete directly or indirectly with
Unilab in any state in which Unilab has a clinical laboratory testing facility
for a period of three years from the date of termination following a Change of
Control. The Baker Employment Agreement also required in certain circumstances
that Mr. Baker not compete directly or indirectly with Unilab for a period of
two years from the date of termination at any other time other than following a
Change of Control. Generally, the Baker Employment Agreement was superseded by
the Baker Transition Agreement. See "Resignation of Andrew Baker as Chairman,
President and Chief Executive Officer".
Michaelson Employment Agreement. On November 10, 1993, Unilab
and Mr. Michaelson entered into an employment agreement pursuant to which he
serves as Senior Vice President-Finance, Treasurer and Chief Financial Officer
of Unilab. The term of Mr. Michaelson's agreement ends on December 31, 1997, and
will automatically renew for successive periods of two years unless one party
thereto gives a six month notice of termination before the end of the current
term (the "Employment Period"). Mr. Michaelson receives an annual base salary of
$247,500 (following Mr. Michaelson's voluntary 10% salary reduction in July
1996, as part of a voluntary salary reduction for senior management), subject to
upward adjustment at the Chief Executive Officer's or the Board of Directors'
discretion. In addition, Mr. Michaelson is eligible to receive an annual bonus
ranging from 0% to 80% of his base salary if Unilab meets certain performance
objectives established by the Board of Directors or its Compensation Committee
prior to the beginning of each year. The agreement also provides that Unilab
will establish a deferred compensation account for Mr. Michaelson for each
fiscal year during the Employment Period to be credited annually with an amount
equal to 8% of Mr. Michaelson's total cash compensation (inclusive of all
bonuses) for that year.
Mr. Michaelson's agreement contains essentially the same terms
as Mr. Baker's agreement with respect to (i) payments made upon termination by
death, disability, without Cause and resignation for Good Reason, (ii) payments
made upon termination without Cause upon a Change of Control and resignation for
Good Reason upon a Change of Control and (iii) non-competition.
Baker Transition Agreements
As noted above, in connection with Mr. Baker's resignation as Chairman,
President and Chief Executive Officer, effective as of January 20, 1997, Mr.
Baker executed the Baker Transition Agreements. See "Resignation of Andrew Baker
as Chairman, President and Chief Executive Officer."
Compensation Committee Interlocks and Insider Participation
The following directors currently serve on Unilab's Compensation
Committee: Kirby L. Cramer (Chairman), Michael B. Hoffman, and Gabriel B.
Thomas. During most of 1996 and until March 7, 1997, the Compensation Committee
was comprised of Messrs. Cramer, Hoffman, Lewis, Pyle and Thomas. Mr. Hoffman is
a General Partner of The Blackstone Group, which provided investment banking
services to the Company during 1996. Mr. Lewis is a Senior Advisor to Dillon,
Read & Co. Inc., which provided investment banking services to the Company in
1996. Mr. Thomas served as President of the Company from 1989 through January
1992.
18
<PAGE>
Compensation Committee
Report on Executive Compensation
General
The Compensation Committee of the Board of Directors is composed entirely
of non-management directors and since March 7, 1997 has been comprised of
Messrs. Kirby L. Cramer (Chairman), Michael Hoffman and Gabriel Thomas. From
February 27, 1996 through March 7, 1997, the Compensation Committee consisted of
Messrs. Kirby L. Cramer (Chairman), Michael B. Hoffman, Walker Lewis, Thomas O.
Pyle and Gabriel B. Thomas. (Mr. Thomas served as President of the Company from
1989 through January 1992.) From January 1, 1996 through February 26, 1996, the
Compensation Committee consisted of Messrs. Cramer (Chairman), Hoffman and
Lewis.
Philosophy
The Company has developed an overall compensation program and
specific compensation plans which are designed to enhance corporate performance,
and thus stockholder value, by aligning the financial interests of executives
with those of its stockholders. In pursuit of these overall objectives, the
structure and scope of the Company's compensation program are designed to
attract key executives to the Company and retain the best possible executive
talent; to reinforce and link executive and stockholder interests through
equity-based plans; and to provide a compensation package that recognizes
individual performance in conjunction with overall corporate performance.
Principal Components of Executive Compensation
The principal elements of the Company's executive compensation
program consist of both annual and long-term programs and include base salary,
annual cash and/or stock bonus if performance objectives are achieved, and, at
appropriate intervals, long-term incentive compensation in the form of stock
option grants and/or awards of restricted stock. Such stock option grants and
restricted stock awards are issued to the Company's executives and other
employees under the Stock Option and Performance Incentive Plan. The Company
also provides medical and other fringe benefits generally available to Company
employees and, for certain of its officers, a deferred compensation plan and the
SERP.
In order to make certain that implementation of its executive
compensation policies are made on a fully informed basis, with concrete
information as to the compensation policies adopted by comparable companies,
during 1996 (and in 1997, specifically in connection with the Baker Transition
Agreements and the compensation package for David Weavil, who became Chairman,
President and Chief Executive Officer in January 1997) the Compensation
Committee engaged Towers Perrin, a leading compensation consulting firm, to
advise the Committee, as it had done in previous years. The Committee's
executive compensation policies are based in part on the information provided
by, and recommendations made by, Towers Perrin.
Base salaries for executives are determined by evaluating the
responsibilities of the position held and the experience of the individual, with
reference to the competitive marketplace for executive talent, including a
comparison to base salaries for positions having comparable responsibilities at
other companies in the clinical laboratory industry (including certain of the
companies included in the index used for the Performance Graph contained
herein). In addition to comparing base salary compensation of other companies,
consideration is given to the relative overall corporate performance of the
Company in relation to its competitors in the industry, with the objective of
achieving standards and setting base executive salaries in the Company somewhat
above the market
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rate paid for comparable positions in the clinical laboratory industry. In July
1996 at the request of the Company's Chief Executive Officer, with the backing
of the Compensation Committee, the Company's senior executives voluntarily
accepted a 10% reduction in base salary in light of the Company's disappointing
1996 financial performance.
The Company's executive officers and other key persons may be
eligible for an annual cash bonus under their individual employment agreements.
Individual performance objectives formulated by Company management are
recommended by the Chief Executive Officer for approval by the Compensation
Committee. Eligible executives may receive bonus awards based upon certain
percentages of base salary at threshold and maximum levels appropriate to the
nature of their position in the Company. Whether any bonus is awarded, and, if
so, the amount thereof depends upon actual performance against predetermined
individual and corporate objectives established by the Compensation Committee.
No such cash bonuses were awarded in 1996.
Awards of stock options and restricted stock have been made
periodically to executive officers and certain other employees of the Company
upon consultation with and recommendation of the Chief Executive Officer and
approval of the Compensation Committee, which may, under certain circumstances,
be submitted for ratification by the Board of Directors. Such options have been
granted with an exercise price equal to the market value of Unilab Common Stock
on the date of grant. The purpose of these awards has been to provide a
meaningful equity interest in the Company to Company executives in a format that
is designed to retain and align the financial interests of these executives with
those of stockholders. The Board and the Compensation Committee believe that
this program will be instrumental in focusing the Company's senior management on
building long-term value for stockholders. It has been the practice of the
Company to make grants of stock options with a staggered vesting schedule and
forfeiture of shares if not exercised within a specified period following
separation from the Company's employ. The restricted stock grants similarly
contain certain restrictions on vesting and transfer tied to the recipient's
continued employment by the Company. These restrictions on stock option awards
and restricted stock grants are designed to encourage recipients to remain in
the Company's employ in order to recognize the full value of the awards. The
term over which these restrictions have applied typically is one to five years
in the case of stock options and two to five years in the case of restricted
stock. To date, only stock options and restricted stock have been granted under
the Stock Option and Performance Incentive Plan; however, the Compensation
Committee expects that other forms of equity-based compensation permitted under
that plan may also have similar restrictions.
In addition, the Company provides health care benefits and
profit sharing for senior officers and other key persons on terms generally
available to all Company employees. The Compensation Committee believes that
such benefits are comparable to those offered by other clinical laboratory
companies. Except as noted elsewhere in this proxy statement, the value of
perquisites, as determined in accordance with the rules of the Securities and
Exchange Commission relating to executive compensation, did not exceed $50,000
or 10% of the total salary and bonus of any executive officer in the last fiscal
year.
Since no executive officer of the Company received compensation
in excess of $1 million during 1996, the Compensation Committee presently
anticipates that all compensation paid to executive officers will qualify for
deductibility under Section 162(m) of the Internal Revenue Code, which limits in
certain circumstances the deductibility of compensation in excess of $1 million
paid to certain executive officers, except for "performance-based compensation"
which complies with requirements imposed under Section 162(m).
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From February 27, 1996 to March 7, 1997 Messrs. Cramer and Pyle
comprised a subcommittee (the "Subcommittee") of "outside directors" of the
Compensation Committee. From and after March 7, 1997, the sub-committee has
consisted of Messrs. Cramer and Thomas. This subcommittee administers and
approves grants of stock options under the Company's Stock Option and
Performance Incentive Plan and administers the SERP.
Chief Executive Officer's Compensation
For 1996, Andrew H. Baker, the Chairman, President and Chief
Executive Officer of the Company during such period, was paid a base salary of
$400,000 from January 1, 1996 through July 31, 1996, when Mr. Baker (along with
other senior executives) accepted a voluntary 10% salary reduction. Accordingly,
from August 1, 1996 through December 31, 1996, Mr. Baker was paid a base salary
of $360,000. As a result Mr. Baker's total base salary for 1996 was $383,333.
The Compensation Committee considered the salary reduction to be appropriate in
light of the Company's disappointing 1996 financial performance. Mr. Baker's
base salary had been $400,000 per year since 1993. In addition, in order to
evidence his belief in the value of Unilab Common Stock as well as to enhance
the Company's cash flow, Mr. Baker voluntarily accepted payment of three months
of his 1996 salary (August, September and October) in shares of Unilab Common
Stock. He received 135,274 shares in lieu of cash payment of $90,000 during such
period. The number of shares of Unilab Common Stock issued in lieu of cash
salary was determined on the basis of the closing market price of Unilab Common
Stock on the American Stock Exchange on the payroll date for each applicable
month. Mr. Baker also received deferred compensation equal to 8% of his base
salary (valued at $23,466), plus participation in the Company's Executive
Retirement Plan (valued at $24,358), which brought his annual cash compensation
for 1996 to $431,157. Mr. Baker did not receive any cash bonus in 1996, since in
the Compensation Committee's view, the Company did not meet certain performance
objectives which were established by the Board of Directors. Such compensation
and bonus structure were determined pursuant to the Mr. Baker's Employment
Agreement, described above under the caption "Employment Agreements; Other
Arrangements -- Baker Employment Agreement." Pursuant to the Company's Stock
Option and Performance Incentive Plan, Mr. Baker received grants in February
1996 of stock options to purchase 60,000 shares of Unilab common stock at an
exercise price of $2.1875 per share, the closing market price of Unilab Common
Stock on the grant date.
The Compensation Committee considered the following matters in
determining Mr. Baker's compensation for 1996: the Company's financial
performance; the decline in the Company's stock price; compensation of CEO's at
peer group companies; the Company's contractual compensation obligations to Mr.
Baker; and the fact that Mr. Baker voluntarily accepted $90,000 of his 1996 base
salary in the form of shares of Unilab Common Stock (receiving 135,274 shares)
and voluntarily accepted a 10% salary reduction. Given that Mr. Baker's 1996
compensation was less than that of prior years, the Committee determined Mr.
Baker's 1996 compensation to be appropriate under the circumstances.
Compensation of Other Named Executive Officer and Key Management Personnel
The Company has also entered into employment agreements with
the Company's other Named Executive Officer and other key management personnel.
Each agreement provides a base salary plus bonus, if certain performance
objectives are achieved, and other incentive compensation at the discretion of
the Chief Executive Officer (approved by the Compensation Committee, in the case
of the Company's other Named Executive Officer, Mr. Michaelson).
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<PAGE>
Since the Company did not achieve its pre-established
performance objectives in 1996, none of the Company's officers received a cash
bonus.
The Compensation Committee believes that significant stock
ownership, through grants of stock options, restricted stock and other forms of
equity-based incentive compensation that would be permitted under the Stock
Option and Performance Incentive Plan, are a major incentive in aligning the
interests of employees, including senior management, and stockholders. The
Compensation Committee therefore intends to continue to explore various methods
of assuring such commonality of interest in the Company's long-term performance.
Kirby L. Cramer (Chairman)
Michael B. Hoffman
Gabriel B. Thomas
Members of the Compensation Committee
Five-Year Performance Graph
The following graph compares the Company's cumulative total
stockholder return on Unilab Common Stock with (i) the cumulative total return
of the Nasdaq Stock Market U.S. Index (which tracks the aggregate performance of
equity securities of companies traded on the Nasdaq Stock Market) (the Company
traded on the Nasdaq Stock Market for the period prior to June 23, 1996), (ii)
the cumulative total return of the Amex Market Value Index (which tracks the
aggregate performance of equity securities of companies traded on the American
Stock Exchange) (the Company traded on the American Stock Exchange for the
period from June 24, 1996 through December 31, 1996 and still trades on Amex)
and (iii) a peer group comprised of publicly-traded companies engaged
principally in the non-esoteric clinical laboratory industry. In accordance with
the regulations promulgated by the Securities and Exchange Commission, the
stockholder return for each entity in the peer group index has been weighted on
the basis of market capitalization as of the beginning of each measurement date
set forth on the graph. The graph shows historical stock price performance
(assuming reinvestment of dividends) and is not necessarily indicative of future
price performance.
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- -------------------
* The peer group includes LabOne, Inc. (which is included in the peer group
for the full five-year period), Meris Laboratories, Inc. (which is
included in the peer group for the full five-year period), Laboratory
Corporation of America Holdings, Inc. (formerly National Health
Laboratories Incorporated, which merged with Roche Biomedical Laboratories
during 1995 under the combined name Laboratory Corporation of America, and
is included in the peer group for the full five-year period) and Universal
Standard Medical Laboratories, Inc. and Physicians Clinical Laboratory
Incorporated (whose respective initial public offerings occurred in 1992
and, accordingly, whose stocks are included in the peer group for the
period 1993-1996).
** Assumes $100 invested on December 31, 1991 in stock or index (including
reinvestment of dividends). Assumes fiscal year ending December 31.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information, to the knowledge
of Unilab, regarding the beneficial ownership of Unilab Common Stock as of the
Record Date by all stockholders known by Unilab (based on public filings with
the Commission, except as otherwise noted) to be the beneficial owners of more
than 5% of the outstanding shares of Unilab Common Stock. For purposes of this
table, a person or group of persons is deemed to have "beneficial ownership" of
any shares as of a given date which such person has the right to acquire within
60 days after such date. For purposes of computing the percentage of outstanding
shares held by each person or group of persons named above on a given date, any
security which such person or persons has the right to acquire within 60 days
after such date is deemed to be outstanding, but is not deemed to be outstanding
for the purpose of computing the percentage ownership of any other person.
Except as noted below, each person has full voting and investment power over the
shares indicated.
<TABLE>
<CAPTION>
Number Percent of
of Shares of Common Stock
Name and Address of Common Stock Beneficially
Beneficial Owner Beneficially Owned Owned(1)
- ------------------- ------------------ ------------
<S> <C> <C>
Rockefeller & Co., Inc. 3,244,304(2) 8.1%
30 Rockefeller Plaza
New York, NY 10112
Andrew H. Baker 2,716,228(3) 6.7%
636 Winding Hollow Drive
Franklin Lakes, NJ 07417
</TABLE>
- --------------------
(1) Calculated pursuant to Rule 13d-3 promulgated under the Exchange Act and
based on 40,249,692 shares of Unilab Common Stock outstanding as of the
Record Date.
(2) As reported in Schedule 13G, Amendment No. 1 filed with the Commission on
February 3, 1997.
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<PAGE>
(3) Mr. Baker is the former Chairman, President and Chief Executive Officer of
the Company. Represents 2,176,238 shares directly owned by Mr. Baker (of
which 18,069 shares are directly owned by Mr. Baker's spouse) and
beneficial ownership of 540,000 shares issuable upon exercise of fully
vested and presently exercisable options to purchase Unilab Common Stock.
Based on Company records and a Form 4 filed by Mr. Baker on January 30,
1997.
CERTAIN RELATIONSHIPS AND
TRANSACTIONS WITH RELATED PERSONS
Corning Lab Services Inc./MetPath Inc.
According to Amendment No. 2 to Schedule 13G filed with the Commission on
February 14, 1996, as of such date Corning beneficially owned 1,044,840 shares
of Unilab Common Stock, including options to purchase 20,000 shares of Unilab
Common Stock, and 300,000 shares of Unilab Convertible Preferred Stock. The
Company does not know if Corning still owns all or some of the Common Stock it
reported in such Schedule 13G Amendment, since no subsequent public filing has
been made.
UniHolding Corp.
Effective June 30, 1995, the Company sold its 40% equity interest in
Unilabs Group Limited ("UGL") to UGL for $30.0 million. As part of the
consideration for the Company's sale of its interest in UGL, UGL and UniHolding
Corp. ("UH") issued a $15.0 million promissory note due June 30, 1996 to the
Company. Edgard Zwirn, Chief Executive Officer of UH, served on the Company's
Board of Directors until July 1995. Effective November 7, 1996, the Company sold
that note for $11 million in cash to Donaldson, Lufkin & Jenrette Securities
Corporation. In connection with the sale the Company took a non-recurring charge
of $4.5 million in the fourth quarter of 1996.
The Blackstone Group
During 1996 the Company engaged The Blackstone Group, of which Michael B.
Hoffman, a director of the Company and a member of the Compensation and
Nominating Committees, is a General Partner, to provide investment banking
services.
Dillon, Read & Co. Inc.
The Company engaged Dillon, Read & Co. Inc. to provide investment banking
services during 1996. Dillon, Read & Co. acted as a lead underwriter of the
Company's March 1996 public offering of $120,000,000 principal amount of 11%
Senior Notes due 2006 and continues to act as a market maker in such Note.
Dillon, Read received a fee of $3.6 million for acting as lead underwriter of
such offering. Walker Lewis, a director and member of the Audit Committee, is a
Senior Advisor of Dillon Read. Mr. Lewis is not running for reelection to the
Board.
Indebtedness of Management
In connection with the move of Unilab's principal executive offices from
New Jersey to California and Mr. Baker's purchase of a home in California, in
October 1992, Unilab loaned to Mr. Baker $1 million to be repaid, without
interest, on the earlier of (i) three years from the date on which such loan was
made and (ii) 30 days after the closing of the sale by Mr. Baker of his
residence in New Jersey. The loan was secured by a first mortgage on Mr. Baker's
California home. Unilab was obligated to pay to
24
<PAGE>
Mr. Baker as additional compensation an amount equal to the amount of income tax
paid, if any, as a result of the receipt of such loan. In August 1994, Mr. Baker
refinanced such loan with a major commercial bank, which provided $500,000 to
the Company. The Company released the mortgage on Mr. Baker's California home
and Mr. Baker granted a first mortgage to the bank that refinanced his loan. The
remainder of the Company's loan to Mr. Baker was unsecured.
In connection with the Baker Transition Agreements, Mr. Baker agreed to
use his best efforts to sell his California house soon as possible. The Company
has the right to determine the acceptability of any bid to purchase the house
and Mr. Baker agreed to follow the Company's reasonable instructions in selling
the house. Mr. Baker has agreed to use $500,000 of the proceeds from the sale of
the house to pay the outstanding bank indebtedness on the house, with the
proceeds in excess of $500,000 being retained by Mr. Baker. The Company will
forgive the remaining $500,000 of the loan to Mr. Baker.
Effective April 15, 1997, the Company paid the principal amount of
$300,000 to a commercial bank in payment of a loan Mr. Baker had taken from the
bank in April 1994 in order to pay taxes on "paper profits" Mr. Baker realized
as a result of the Company's November 1993 reorganization transaction with
Corning. The Company had executed a guarantee of this loan at the time Mr. Baker
received the loan. In consideration for the Company's payment of the loan under
its guarantee, Mr. Baker (i) executed a $300,000, 6% five-year secured
promissory note (the "Baker Note") in favor of the Company and (ii) was required
to purchase $300,000 of newly issued shares of Unilab Common Stock at the
closing market price on a date or dates selected by Mr. Baker prior to September
1, 1997 (the "New Shares"). Mr. Baker acquired such shares on April 3, 1997 at a
per share purchase price of $0.5625, resulting in the purchase of 533,333
shares. The Baker Note is secured by the Transition Shares as well as the New
Shares. All restrictions on the Transition Shares and New Shares will lapse upon
Mr. Baker's payment in full of the principal of and accrued interest on the
Baker Note, which can be paid in cash or shares of Unilab Common Stock. The
Baker Note may be prepaid at any time. See "Certain Relationships and
Transactions with Related Persons -- Indebtedness of Management".
Also effective April 15, 1997, the Company paid the principal amount of
$150,000 to a commercial bank in payment of a loan Mr. Michaelson had taken from
the bank in April 1994 in order to pay the exercise price of a warrant (the
"Warrant") to purchase shares of Unilab Common Stock, as well as tax payments
related to such exercise. The Company had executed a guarantee of the loan at
the time Mr. Michaelson received the loan. In consideration for the Company's
payment of the loan under the guarantee, Mr. Michaelson executed a $150,000 6%
five-year secured promissory note (the "Michaelson Note") in favor of the
Company. The Michaelson Note is secured by the 35,000 shares of Unilab Common
Stock Mr. Michaelson received upon exercise of the Warrant (the "Warrant
Shares"). Mr. Michaelson has the option of paying the Michaelson Note in full by
delivery of the Warrant Shares or by payment of cash or shares of Unilab Common
Stock.
In connection with the hiring of David Weavil as the Company's Chairman,
President and Chief Executive Officer in January 1997, the Company loaned Mr.
Weavil $500,000, which Mr. Weavil used to acquire 1,142,857 newly issued shares
of Unilab Common Stock, valued at the January 17, 1997 closing market price of
$0.4375. $250,000 of such amount is due on July 20, 1997, is unsecured and bears
interest at 6%. Repayment of the other $250,000 is due on January 20, 2002, is
secured by the shares of Unilab Common Stock purchased with the proceeds thereof
and bears interest at 6%.
25
<PAGE>
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Based upon a review of Forms 3, 4, and 5 filed with the Commission by
the Company's directors and officers, the Company believes that all such
required Forms 3 and 4 were filed on a timely basis with the following
exception: the Form 4, dated November 4, 1996, filed by Andrew Baker was
supposed to have been filed with the Commission by November 10, 1996 but was not
received until November 12, 1996.
PROPOSAL 2
RATIFICATION AND APPROVAL OF SELECTION OF AUDITORS
The Company has selected Arthur Andersen LLP ("Arthur Andersen") to
audit the Company's financial statements for the fiscal year ending December 31,
1997. Arthur Andersen audited the Company's financial statements for the fiscal
year ended December 31, 1996. The Board of Directors considers it appropriate to
submit for ratification and approval by the stockholders its selection of Arthur
Andersen.
It is expected that a representative of Arthur Andersen will be present
at the Meeting and will be given the opportunity to make a statement if he or
she desires to do so. It is also expected that the representative will be
available to respond to appropriate questions from stockholders.
Ratification and approval of the selection of the independent auditors
requires the affirmative vote of a majority of the shares of Unilab Common Stock
represented at the Meeting in person or by proxy.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE SELECTION OF ARTHUR
ANDERSEN LLP AND RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE RATIFICATION AND
APPROVAL OF SUCH SELECTION.
ANNUAL REPORT AND FINANCIAL STATEMENTS
You are referred to the Annual Report to Stockholders for the fiscal
year ended December 31, 1996, including the financial statements and the
management's discussion and analysis of the Company's financial condition and
results of operations contained therein, which has been previously or
concurrently delivered to stockholders, for your information. The Company will
provide, without charge, to any stockholder upon written request a copy of the
Company's Annual Report on Form 10-K (excluding exhibits but including the
financial statements and financial statement schedules) for the year ended
December 31, 1996. Such written requests should be directed to: Mark L. Bibi,
Secretary, Unilab Corporation, 18448 Oxnard Street, Tarzana, California 91356.
The Annual Report to Stockholders is not to be regarded as proxy soliciting
material or a communication by means of which any solicitation is to be made.
STOCKHOLDER PROPOSALS
Any proposal by a stockholder intended to be presented at the
Company's 1998 Meeting of Stockholders must be received by the Company no later
than December 28, 1997 to be included in the Company's proxy statement and form
of proxy relating to such annual meeting. Any proposal should be addressed to
the offices of the Company, 18448 Oxnard Street, Tarzana, California 91356,
Attn: Secretary.
26
<PAGE>
OTHER MATTERS
The Board does not know of any other matters to be brought before
the Meeting. However, if any other matters should properly come before the
Meeting, it is the intention of the persons named in the accompanying Proxy to
vote such Proxy as in their discretion they may deem advisable.
By Order of the Board of Directors
Mark L. Bibi
Secretary
Dated: April 28, 1997
<PAGE>
UNILAB CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
JUNE 17, 1997
COMMON STOCK
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Richard A. Michaelson, Mark L.
Bibi and Brian D. Urban, and any of them, attorneys and proxies, with full power
of substitution and revocation, to vote, as designated below, all shares of
stock which the undersigned is entitled to vote, with all powers which the
undersigned would possess if personally present at the Annual Meeting (including
all adjournments thereof) of stockholders of Unilab Corporation to be held on
June 17, 1997 at 9:00 A.M., local time, at the Warner Center Marriott, 21850
Oxnard Street, Woodland Hills, California. The Board of Directors recommends a
vote FOR proposals 1 and 2.
1. Election of Directors.
____ FOR all nominees ____ WITHHOLD AUTHORITY
listed below to vote for all
nominees listed
below.
Haywood D. Cochrane, Kirby L. Cramer, Michael B. Hoffman,
Gabriel B. Thomas and David C. Weavil.
Stockholders may withhold authority to vote for any nominee by lining
through or otherwise striking out the name of any nominee named above.
2. Ratification and approval of the appointment of Arthur Andersen
LLP as the Company's independent auditors for the fiscal year ending
December 31, 1997.
____ FOR ____ AGAINST ____ ABSTAIN
3. The proxy is authorized to transact such other business as may properly
come before the meeting.
This proxy, when properly executed, will be voted in the manner
directed herein by the undersigned stockholder. If no direction is
given, this proxy will be voted FOR the election of each director named
herein and FOR Proposal 2 and in the discretion of said Proxy on any
other matter which may come before the meeting or any adjournments
thereof, except that broker non-votes will not be entitled to vote, and
will have no effect on the vote with respect to the matter being
considered.
Dated: ___________, 1997
--------------------------
--------------------------
Signature(s)
<PAGE>
NOTE: When shares are held by joint tenants, both should sign. When signing
as attorney, executor, administrator, trustee, custodian, guardian or
corporate officer, please give your full title as such. If a
corporation, please sign full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name
by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
