April 15, 1998
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 May 19, 1998 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, 1997. 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 MAY 19, 1998
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 May 19, 1998 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, 1998; 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 3, 1998 (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 3,775,142 of the
shares of the Company's Common Stock outstanding on the Record Date, have
indicated that they intend to vote all such shares FOR both 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 15, 1997
<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 May 19, 1998 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 15, 1998.
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"
or the "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.
If you participate in the Unilab Corporation Profit Sharing
Plan for Employees (the Company's "401(k) Plan"), you may vote shares of Common
Stock of the Company credited to your 401(k) account by instructing Northwestern
Trust Company, the trustee of the 401(k) Plan, pursuant to the instruction card
being mailed with this proxy statement to plan participants. You should complete
and return the 401(k) Plan proxy card to Chase Mellon Shareholder Services, the
proxy tabulators, at the address set forth on the card. The trustee will vote
your shares in accordance with your duly executed instructions received by May
14, 1998. If you do not send instructions, the shares credited to your account
will be voted by the trustee in the same proportion that it votes share
equivalents for which it did receive timely instructions.
You may also revoke previously given voting instructions by
May 14, 1998 by filing with the trustee either a written notice of revocation or
a properly completed and signed voting instruction card bearing a later date.
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.
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 3, 1998 (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
40,632,898 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 (8 persons), who as of
the Record Date beneficially owned of record in the aggregate approximately
3,775,142 of the outstanding shares of Unilab Common Stock, have indicated that
they intend to vote all such shares FOR both of the proposals set forth herein.
PROPOSAL 1
ELECTION OF DIRECTORS
Nominees to each of the six 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. 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 Age Principal Occupation
Haywood D. Cochrane, Jr.- 49 Mr.Cochrane has been a director since May 1997.
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 Laboratory Corporation
of America Holdings, Inc. ("LabCorp") from
April 1995 to November 1996 and a consultant to
LabCorp from November 1996 to February 1997.
Mr.Cochrane was President, Chief Executive
Officer and a Director of Allied Clinical
Laboratories, Inc.("Allied") from its
formation in 1989 until its acquisition by
National Health Laboratories, Inc. ("NHL")
in June 1994. Mr. Cochrane serves as a
Director of JDN Realty Corp, Pathology
Corporation of America and Meridian
Occupational Healthcare Associates, Inc.
Kirby L. Cramer - 61 Mr. Cramer has been a member of Unilab's
Board of Directors since March 1990. He is
Chairman Emeritus of the Board of Directors of
Hazleton Laboratories Corporation (a subsidiary
of Corning Incorporated), a biological
research company. He served as Chief Executive
Officer of Hazleton Laboratories Corporation
from 1968 through 1987 (when it was sold to
Corning Incorporated) and as Chairman of the
Board of Directors of Hazleton Laboratories
Corporation from 1987 through 1991. Currently,
he serves as a director of Immunex Corp.,
Commerce Bancorporation, Landec Corporation,
ATL Ultrasound, Inc., Northwestern Trust
Company, and Pharmaceutical Product
Development, Inc.
William Gedale - 56 Mr. Gedale has been a member of Unilab's
Board of Directors since September 1997.
Since April 1998 he has been President of
Sheer Asset Management, an investment
counseling firm. Prior to that he served as
President and CEO of Mount Everest Advisors,
LLC, an investment counseling and management
firm through March 1998. Previously, from 1989
to 1994 he served as President and CEO of
General American Investors, a New York Stock
Exchange closed-end investment company and as
a Managing Director of John W. Bristol from
June 1995 to June 1996. He currently serves as
a director of Bioreliance Corporation, a
biological pre-clinical contract research
organization. He previously served as a
director of Allied (until its merger with
NHL) and of U.S. Home Health Care. He is a
director of New York Hospital Departmental
Associates and is a trustee of the
Neuroscience Research Foundation.
Richard A. Michaelson - 46 Mr. Michaelson has been a member of Unilab's
Board of Directors since September 1997. He
has been a Principal of Focused Healthcare
Partners Ltd., a healthcare investment entity,
since January 1998. He served as Senior Vice
President of Unilab from September 1997 to
December 1997, Senior Vice President-Finance,
Treasurer and Chief Financial Officer of Unilab
from February 1994 to September 1997, and Vice
President-Finance, Treasurer and Chief
Financial Officer of Unilab from November 1993
to February 1994. Mr. Michaelson also served
as Vice President of Unilab beginning in
October 1990. Mr. Michaelson joined MetPath,
Inc., the clinical laboratory subsidiary of
Corning Incorporated that was a predecessor to
Quest Diagnostics Incorporated, in 1980 and
served as Vice President of MetPath from 1983
and Treasurer of Corning Lab Services, Inc.
from 1990 through, in each case,
September 1992.
Gabriel Balthazar Thomas - 56 Mr. Thomas has been a member of Unilab's
Board of Directors since its formation in
November 1988. He was a Director of Unilab's
predecessor entity from December 1986 until
November 1988. He has been a 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.
Mr. Thomas was President of Unilab from 1989
through January 1992. He is a director of
Decora Industries, Inc.
David C. Weavil - 47 David C. Weavil has been Chairman, President
and Chief Executive Officer of the Company
since January 1997. He served as Executive
Vice President of LabCorp from the date of the
April 1995 merger of Roche Biomedical
Laboratories, Inc. ("RBL") and NHL which
created LabCorp, through December 1996. He
was appointed Chief Operating Officer of
LabCorp in September 1995. Previously,
Mr. Weavil served as Senior 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 through 1988.
Michael B. Hoffman served as a director of the Company from October
1992 to his resignation for personal reasons on January 22, 1998. Walker B.
Lewis and Thomas O. Pyle served as directors during 1997 until they elected not
to run for reelection at the June 17, 1997 Annual Meeting of Stockholders.
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 and Named Executive Officers (see "Executive
Compensation" for definition of Named Executive Officer) and (ii) all directors
and 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 1,413,928(2) 3.4%
Haywood D. Cochrane, Jr. 28,052(3) *
Kirby L. Cramer 1,038,409(4) 2.5%
William Gedale 13,721(5) *
Richard A. Michaelson 717,811(6) 1.7%
Gabriel B. Thomas 83,721(7)
All Directors and Officers of
Unilab as a Group (8 persons) 3,775,142 9.2%
<FN>
- ---------------
* 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
40,632,898 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 (half of which have been paid back to the Company, including
accrued 6% interest thereon), 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 partial payment of his 1997 bonus.
During 1997 Mr. Weavil donated 7,500 shares to charity. Pursuant to his
Employment Agreement, Mr. Weavil has also received options to purchase
250,000 shares at the January 17, 1997 closing price of $0.4375 per share,
50,000 shares of which have vested and are included in this ownership
calculation, and options to purchase 250,000 shares at the January 2, 1998
closing price of $1.75, none of which have vested. See "Employment
Agreements; Other Arrangements -- Weavil Employment Agreement".
(3) Mr. Cochrane is a director of the Company. Includes a presently
exercisable option to purchase 5,000 shares at $0.75 per share, which
expires in June 2007 and a presently exercisable option to purchase 5,000
shares at $1.75 per share, which expires in January 2008. Also includes
953 shares received in pro rata payment of second quarter 1997 director
fees, 4,444 shares received in payment of third quarter 1997 director
fees, 3,077 shares received in payment of fourth quarter 1997 director
fees, 2,857 shares received in payment of first quarter 1998 director fees
and 3,721 shares received in payment of second quarter 1998 director fees.
(4) 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, a presently exercisable option to
purchase 20,000 shares at $2.625 per share, which expires in January 2006,
a presently exercisable option to purchase 20,000 shares at $0.50 per
share, which expires in January 2007 and a presently exercisable option to
purchase 10,000 shares at $1.75 per share, which expires in January 2008.
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, 8,000 shares received in payment of second quarter 1997
director fees, 4,444 shares received in payment of third quarter 1997
director fees, 3,077 shares received in payment of fourth quarter 1997
director fees, and 3,721 shares received in payment of second quarter 1998
director fees. Mr. Cramer purchased 500,000 shares of Common Stock from
the Company on April 4, 1997 at a per share purchase price equal to the
closing market price on such date of $0.5625. Such shares were purchased
pursuant to the Directors Stock Purchase Plan.
See "Compensation of Directors".
(5) Mr. Gedale is a director of the Company. Includes a presently exercisable
option to purchase 5,000 shares at $1.6875 per share, which expires in
September 2007, and a presently exercisable option to purchase 5,000
shares at $1.75 per share, which expires in January 2008. Also includes
3,721 shares received in payment of second quarter 1998 director fees. See
"Compensation of Directors".
(6) Mr. Michaelson is a director of and consultant to the Company. He served
as Senior Vice President of the Company until December 31, 1997. Includes
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 35,000 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, a presently exercisable option to
purchase 35,000 shares at $2.1875 per share, which expires in February
2006, a presently exercisable option to purchase 200,000 shares at $0.625
per share which expires in April 2007, and a presently exercisable option
to purchase 5,000 shares at $1.75 per share, which expires in January
2008. Also includes 29,090 shares received in partial payment of salary
for the months of August and September 1996. Additionally, includes 3,721
shares received in payment of second quarter 1998 director fees. See
"Compensation of Directors" and "Employment Agreements; Other Arrangements
- Michaelson Transition Agreement".
(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, a presently exercisable option to purchase 20,000 shares at
$0.50 per share, which expires in January 2007 and a presently exercisable
option to purchase 10,000 shares at $1.75 per share, which expires in
January 2008. Also includes 3,721 shares received in payment of second
quarter 1998 director fees. See "Compensation of Directors".
</FN>
</TABLE>
<PAGE>
Meetings and Committees of Board of Directors
Meetings of Board of Directors
The Board of Directors of Unilab held ten meetings during 1997, and
took one action by unanimous written consent during the year. During 1997, 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. From January 1, 1997 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 March 7, 1997
until June 17, 1997, the Audit Committee was comprised of Walker Lewis, Thomas
O. Pyle and Gabriel B. Thomas (Chairman). (Mr. Lewis and Mr. Pyle are former
directors of the Company who elected not to run for reelection at the June 17,
1997 Annual Meeting of Stockholders.) From June 17, 1997 until September 17,
1997, the Audit Committee was comprised of Haywood Cochrane and Gabe Thomas
(Chairman). From September 17, 1997 until the date hereof, Messrs. Cochrane,
Gedale and Thomas have comprised the Audit Committee. Mr. Thomas remains
Chairman. Each member of the Audit Committee is considered to be an independent
director 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 two meetings during the year ended December 31, 1997.
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 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. From January 1, 1997 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. (Messrs.
Hoffman, Lewis and Pyle are no longer directors.) From March 7, 1997 until
January 22, 1998, the Compensation Committee was comprised of Messrs. Cramer
(Chairman), Hoffman and Thomas. Since January 23, 1998, the Compensation
Committee has been comprised of Messrs. Cramer (Chairman) and Thomas. Mr.
Hoffman is a Senior Managing Director of The Blackstone Group, which has
periodically provided investment banking services to the Company. In addition, a
subcommittee of the Compensation Committee, comprised of Messrs. Cramer and
Thomas, was 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 two meetings during the year ended
December 31, 1997.
Nominating Committee
The Company formed a Nominating Committee on March 7, 1997. The
Nominating Committee was 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. From March 7, 1997 until
January 22, 1998, the members of the Nominating Committee were Michael B.
Hoffman (Chairman), Kirby L. Cramer and Gabriel Thomas. After January 23, 1998
the Nominating Committee was comprised of Messrs. Cramer and Thomas. Effective
as of March 5, 1998, the Nominating Committee was discontinued, given the small
size of the Board and the Board's determination that all directors should be
involved in the process of nominating, considering and appointing or electing
new directors.
Compensation of Directors
Directors received an annualized payment of $20,000 for their services
as directors of Unilab during 1997, payable $5,000 per quarter in cash or Unilab
Common Stock, at the election of the individual director. Directors who did not
serve for the full year or any full quarter received a pro rata share of such
director compensation. David C. Weavil, the Company's Chairman, President and
Chief Executive Officer from and after January 20, 1997, received no payment for
his services as a director of Unilab during 1997, because he was an employee of
the Company. Similarly, Richard A. Michaelson received no payment for his
services as a director from September 17, 1997 through December 31, 1997,
because he served as the Company's Senior Vice President during such time.
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
receives an additional annual grant of 10,000 options to purchase Unilab Common
Stock pursuant to the Non-Employee Directors Stock Plan, as described below).
As noted above, during 1997 and through the first quarter of 1998,
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. Cochrane, Cramer, Hoffman and Lewis elected to
receive all of their directors compensation in shares of Unilab Common Stock.
Accordingly, Messrs. Cramer, Hoffman and Lewis received (a) 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 (b) 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. Cochrane received 953 shares as his pro rata payment for the second quarter
of 1997. Messrs. Cochrane, Cramer and Hoffman received (a) 4,444 shares of
Unilab Common Stock for the third quarter of 1997 (calculated by dividing the
$5,000 quarterly payment by $1.125, the closing market price of Unilab Common
Stock on July 1, 1997, the first business day in the quarter) and (b) 3,077
shares of Unilab Common Stock for the fourth quarter of 1997 (calculated by
dividing the $5,000 quarterly payment by $1.625, the closing market price of
Unilab Common Stock on October 1, 1997, the first business day in the quarter).
Additionally, 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. Messrs. Gedale and Thomas
elected to receive all of their directors compensation in cash. Messrs.
Michaelson and Weavil received no directors fees in 1997 because they were
full-time employees of the Company.
Effective as of April 1, 1998, all non-employee directors were required to
receive their director fees in shares of Unilab Common Stock, calculated on the
same basis as the voluntary receipt of shares has been previously calculated (as
described in the immediately preceding paragraph). Also effective as of April 1,
1998, the amount of annual director fees was reinstated at $40,000 (as had
existed prior to the Board's voluntary reduction to $20,000 in 1997).
Accordingly, as a result each non-employee director (Messrs. Cochrane, Cramer,
Gedale, Michaelson, Thomas) received 3,721 shares of Unilab Common Stock on
April 1, 1998 in payment of second quarter 1998 director fees (calculated by
dividing the $10,000 quarterly payment by $2.6875, the closing market price of
Unilab Common Stock on April 1, 1998, the first business day of the quarter).
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. In addition, a new non-employee director receives a grant of 10,000
ten year options upon his joining the Board, at an exercise price equal to the
closing market price on the date of grant.
Pursuant to this program, Mr. Cochrane received options to purchase 10,000
shares in June 1997 at an exercise price of $0.75 per share, and options to
purchase 10,000 shares in January 1998 at an exercise price of $1.75 per share;
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, options
to purchase 20,000 shares in January 1997 at an exercise price of $0.50 per
share and options to purchase 20,000 shares in January 1998 at an exercise price
of $1.75 per share; Mr. Gedale received options to purchase 10,000 shares in
September 1997 at an exercise price of $1.6875 per share and options to purchase
10,000 shares in January 1998 at an exercise price of $1.75 per share; Mr.
Hoffman received options to purchase 10,000 shares in January 1996 at an
exercise price of $2.625 per share, options to purchase 10,000 shares in January
1997 at an exercise price of $0.50 per share and, by virtue of his position as
Chairman of Nominating Committee, options to purchase 20,000 shares in January
1998 at an exercise price of $1.75 per share; Mr. Michaelson received options to
purchase 10,000 shares in January 1998 at an exercise price of $1.75 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, options
to purchase 20,000 shares in January 1997 at an exercise price of $0.50 per
share and options to purchase 20,000 shares in January 1998 at an exercise price
of $1.75 per share. All such options vest one-half immediately and one-half one
year after grant.
Effective April 1, 1997, the Board approved and adopted the Directors
Stock Purchase Plan, pursuant to which 1.5 million shares of Common Stock were
reserved for purchase by directors of the Company at then current market prices.
As of the Record Date, one director (Kirby Cramer) had purchased 500,000 shares
of Common Stock on April 4, 1997, at such date's closing market price of $0.5625
per share. The Board voted to discontinue such plan at its March 5, 1998 Board
meeting, effective as of March 31, 1998. As a result, the one million shares
remaining which had been reserved for issuance under the Directors Stock
Purchase Plan were returned to treasury.
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, 1997, 1996 and 1995 of those persons who
were, at December 31, 1997, (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, 1997 exceeded $100,000 (Messrs. Weavil and Michaelson
collectively are referred to herein as the "Named Executive Officers").
<TABLE>
Summary Compensation Table
<CAPTION>
Long Term
Annual Compensation Compensation Awards
Restricted Securities
Name and Other Annual Stock Underlying
Principal Position Year Salary ($)(3) Bonus ($) Compensation ($) Award ($) Options(#)
- ------------------ ---- --------------- --------- ---------------- ----- --- ----------
<S> <C> <C> <C> <C> <C> <C>
David C. Weavil 1997 $464,710 $200,000(4) $139,659(5) -- 250,000
Chairman of the Board,
President and Chief Executive
Officer of Unilab(1)
Richard A. Michaelson 1997 $287,000 $70,313 $22,901 -- 275,000
Senior Vice 1996 $292,678 -- $53,784(5) -- 35,000
President-Finance, 1995 $332,778 -- -- $129,875(6) 185,000
Treasurer and Chief Financial
Officer of Unilab(2)
<FN>
(1) Mr. Weavil has served as Chairman, President and Chief Executive Officer
of the Company since January 20, 1997. See "Employment Agreements; Other
Arrangements--"Weavil Employment Agreement".
(2) Mr. Michaelson served as an officer of the Company through December 31,
1997 and currently serves as a director of and consultant to the Company.
See "Employment Agreements; Other Arrangements--Michaelson Employment
Agreement" and "Michaelson Transition Agreements."
(3) Includes amounts equal to 8% of cash compensation paid into a deferred
compensation account ($40,000 for Mr. Weavil in 1997 and $29,425, $21,083
and $21,333 for Mr. Michaelson, for 1997, 1996 and 1995, respectively) and
amounts accrued under the Unilab Corporation Executive Retirement Plan
($24,560 for Mr. Weavil and $14,075, $9,853 and $44,778 for Mr. Michaelson
for 1997, 1996 and 1995, respectively). 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) Mr. Weavil was paid a bonus of $200,000 in 1997, pursuant to his
employment agreement with the Company. Mr. Weavil received payment of
$100,000 of the bonus in shares of Unilab Common Stock at the start of his
employment with the Company in January 1997. As a result, Mr. Weavil
received 228,571 shares in payment of the bonus (calculated on the basis
of the January 17, 1997 closing market price of Unilab Common Stock of
$0.4375 per share). The remaining $100,000 of the bonus was paid in cash
in the second half of 1997.
(5) For Mr. Weavil, represents the benefits from a car allowance, expenses
paid by the Company related to Mr. Weavil's relocation to and residence in
California, the benefit from the Company providing group term life
insurance and related tax gross-up payments on such amounts (such tax
gross-up payments being $60,955). See "Employment Agreements; Other
Arrangements -- Weavil Employment Agreement". For Mr. Michaelson,
represents the benefits from a car allowance, Company matching
contributions to the Company's 401(k) profit-sharing plan, payment by the
Company of 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 $11,108). See
"Employment Agreements; Other Arrangements -- Michaelson Employment
Agreement" and "--Michaelson Transition Agreement".
(6) 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 (the Company's Common Stock traded on Nasdaq/NNM at that
time). As of December 31, 1997 (the last trading day in 1997), the closing
market price of unrestricted Unilab Common Stock on the American Stock
Exchange was $1.875 per share. Accordingly, 25,000 shares of such
unrestricted stock at such date would have had an aggregate value of
$46,875.
</FN>
</TABLE>
Option Grants
The following table sets forth the grants of non-qualified stock
options during the year ended December 31, 1997, to the Named Executive
Officers:
<TABLE>
Option Grants In Last Fiscal Year
<CAPTION>
% of Total Market
Options Exercise Price of
Options Granted to or Date of Grant Date
Granted Employees in Base Price Grant Expiration Present Value
Name (#) Fiscal Year ($/Sh) ($/Sh) Date ($/Sh)
- ---- --- ----------- ------ ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
David C. Weavil 250,000(1) 14.3% $0.4375 $0.4375 1/2007 $0.39(3)
Richard A. Michaelson 275,000(2) 15.7% $0.625 $0.625 4/2007 $0.57(3)
<FN>
(1) In January 1997, pursuant to the Company's Stock Option and Performance
Incentive Plan and the terms of his employment agreement, Mr. Weavil was
granted options to purchase 250,000 shares of Unilab Common Stock at an
exercise price of $0.4375 per share, the closing price per share of Unilab
Common Stock as reported on the American Stock Exchange on the date of the
grant. Such options vested one-fifth on January 20, 1998, and are to vest
one-fifth on January 20, 1999, one-fifth on January 20, 2000, one-fifth on
January 20, 2001, and one-fifth on January 20, 2002.
(2) In April 1997, pursuant to the Company's Stock Option and Performance
Incentive Plan, Mr. Michaelson was granted options to purchase 275,000
shares of Unilab Common Stock at an exercise price of $0.625 per share,
the closing price per share of Unilab Common Stock as reported on the
American Stock Exchange on the date of the grant. 200,000 of such options
were to vest one-half on April 1, 1998, and one half on April 1, 1999.
75,000 of such options were to vest on April 1, 1998. In connection with
the Michaelson Transition Agreements (see "Resignation of Richard A.
Michaelson as Senior Vice President, Treasurer and CFO" and "Employment
Agreements; Other Arrangements--Michaelson Transition Agreements"), the
vesting of all such options was accelerated to September 17, 1997. Mr.
Michaelson exercised 75,000 of such options in October 1997.
(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 91.7% and (iii) for
purposes of present value calculations, the ten-year, zero coupon Treasury
note interest rate at the date of grant (6.9%) was used.
</FN>
</TABLE>
Other Stock Options
Unilab has from time to time granted non-qualified stock options,
some of which were granted not pursuant to any formal plan other than an
individual stock option agreement and some of which were issued under the
Company's Stock Option and Performance Incentive Plan, to its officers,
employees, consultants and directors. As of the Record Date, non-qualified stock
options to purchase a total of 5,030,334 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, and may receive other grants of Unilab Common
Stock in various forms (Restricted Stock, SARs, etc.). Options granted under the
Stock Option and Performance Incentive Plan have a ten year term and vest in
equal installments over a vesting period determined by the Administrative
Committee of the Stock Option and Performance Incentive Plan, which is typically
one 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 1,751,000 shares of Unilab Common Stock were issued to employees of
the Company during 1997.
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-employee directors of the Company in January 1997 and options to purchase
80,000 shares were issued to non-employee directors in January 1998.
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, 759,499 shares of restricted Unilab Common Stock were
outstanding, including (a) 5,999 restricted shares issued to Thomas O. Pyle, a
former 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 the options to purchase Unilab Common
Stock that were exercised by the Named Executive Officers during the fiscal year
ended December 31, 1997 and lists the number and value of the unexercised
options to purchase Unilab Common Stock held by the Named Executive Officers at
December 31, 1997.
<TABLE>
Aggregated Option Exercises In Last Fiscal Year and FY-End Option Values
<CAPTION>
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>
David C. Weavil(1) -- -- 0/250,000(1) $0/359,375
Richard A. Michaelson(2) 75,000 112,500 470,000/0(2) $250,000/0
<FN>
(1) Pursuant to Mr. Weavil's employment agreement he received in January 1997
options to purchase 250,000 shares of Common Stock, which vest in equal
installments over five years, beginning January 1998 and ending January
2002. He also received in January 1998 pursuant to his employment
agreement additional options to purchase 250,000 shares of Unilab Common
Stock at an exercise price equal to the $1.75 per share closing market
price of Unilab Common Stock on the date of grant, which vest in equal
installments over five years, beginning January 1999 and ending January
2003.
(2) On September 17, 1997, in connection with Mr. Michaelson's resignation an
officer of the Company, the vesting of all of the 695,000 outstanding
options to purchase Unilab Common Stock beneficially owned by Mr.
Michaelson were accelerated and all such options became immediately
exercisable as of such date. 150,000 of such options expired unexercised
on October 20, 1997. Mr. Michaelson exercised 75,000 of such options in
October 1997.
</FN>
</TABLE>
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 certain selected 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), in each case only 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 1997, seven of the Company's executives participated in the SERP.
David C. Weavil, the Company's Chairman, President and Chief Executive Officer
during 1997, received a 1997 contribution to the SERP from the Company
equivalent to $24,560. Richard A. Michaelson, the former Senior Vice
President-Finance, Treasurer and Chief Financial Officer, received a 1997
contribution to the SERP from the Company equivalent to $14,075. The other five
participants in the SERP received aggregate 1997 contributions to the SERP
equivalent to $48,865. The amount of such Awards was calculated on the date of
issuance of the Awards, utilizing the common stock price valuation as of such
date. Since the price of Unilab Common Stock increased between the date of
issuance and December 31, 1997, the value of the Awards also increased. In light
of the increase during 1997 of the Company's Common Stock price, the Board
limited the maximum number of Awards to be granted for 1997 to all participants
in the SERP to 200,000 Awards in the aggregate.
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 since 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/or a company wholly owned by him received the following: (i) 500,000
restricted shares of Common Stock (the "Transition Shares"), such restrictions
initially 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
the end of that time. In addition, Mr. Baker agreed to sell his California
residence at the Company's direction and the Company agreed to pay the costs of
such house (e.g. mortgage, interest, taxes) except for costs of maintaining the
house, which Mr. Baker was responsible for paying. 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)
would be forgiven. Mr. Baker was unable to sell his California residence and, as
a result, effective as of April 1, 1998, Mr. Baker assumed responsibility for
all payments associated with that house, including the costs formerly paid by
the Company. 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".
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".
Resignation of Richard A. Michaelson as Senior Vice President-Finance,
Treasurer and Chief Financial Officer
Richard A. Michaelson, who had served as Senior Vice
President-Finance, Treasurer and Chief Financial Officer of the Company since
April 1992, resigned from those positions effective as of September 17, 1997 and
resigned as an officer of the Company (Senior Vice President) effective as of
December 31, 1997. Mr. Michaelson became a director of the Company on September
17, 1997 and a consultant to the Company on January 1, 1998. Mr. Michaelson
resigned from his employment with the Company to return home to the East Coast.
In connection with his resignation and in consideration for the Company's
obligations to Mr. Michaelson under his employment agreement and his
participation in the Company's benefit plans, Mr. Michaelson received the
following: (i) the restrictions on 25,000 restricted shares of Common Stock
previously granted to Mr. Michaelson were deemed to have lapsed as of September
17, 1997, (ii) the expiration dates of the options to purchase 695,000 shares of
Unilab Common Stock previously granted to Mr. Michaelson were maintained at the
dates that are ten years following the grant date of each such option, instead
of the expiration of the option 365 days following termination of employment,
(iii) execution of a Consulting Agreement effective as of January 1, 1998,
between the Company and Mr. Michaelson, to provide consulting services to the
Company for a base payment of $5,000 per month for an initial one year term,
with automatic one-year renewals unless earlier terminated in accordance with
the terms of the Consulting Agreement, (iv) office space in New Jersey through
October 1998 and secretarial and administrative services through such date, (v)
continued benefits coverage (medical, hospitalization, dental, life, disability,
accidental death and travel accident) for eighteen months, (vi) reimbursement of
normal and approved business expenses during the consulting period, (vii)
reimbursement of up to $2,500 of expenses associated with moving certain
personal possessions back to the East Coast; and (viii) title of the Company car
driven by Mr. Michaelson on the East Coast would be transferred to Mr.
Michaelson or, at the Company's option, Mr. Michaelson would be provided with
continued use of the car pending delivery of the title to Mr. Michaelson, which
the Company would have up to 18 months to complete. In addition, Mr. Michaelson
received in January 1998 a payout of the amounts accrued in his deferred
compensation account ($110,115) and all amounts accrued in his Executive
Retirement Plan account (66,647 Awards) were deemed fully vested as of January
1, 1998. Based on the December 31, 1997 closing market price of Unilab Common
Stock of $1.875 per share, the value of Mr. Michaelson's Awards at such date was
$124,963.
The foregoing agreements between the Company and Mr.
Michaelson are referred to as the "Michaelson Transition Agreements".
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 to purchase 35,000 shares of Unilab Common Stock (the "Warrant Shares")
as well as tax payments related to such exercise. The Company had executed a
guarantee of this loan at the time Mr. Michaelson received the loan. In
consideration for the Company's payment of the loan under its guarantee, Mr.
Michaelson (i) executed a $150,000, 6% five-year secured promissory note (the
"Michaelson Note") in favor of the Company. The Michaelson Note was secured by
the Warrant Shares. In connection with the Michaelson Transition Agreements, the
Michaelson Note was converted to a non-interest bearing note. See "Certain
Relationships and Transactions with Related Persons Indebtedness of Management".
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
initially ended on January 19, 1998, and automatically renewed 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 was
also eligible to receive, and did receive, an additional 1997 cash bonus of
$100,000 when Unilab met certain performance objectives pre-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. Mr. Weavil earned
$40,000 in deferred compensation during 1997. 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 was due 180 days after the date
of loan (i.e., by July 20, 1997), was unsecured and bore interest at 6%. That
note was repaid in full by Mr. Weavil on July 20, 1997. 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 vested 20% on January 20, 1998,
and will vest 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 provided 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 were
granted on January 2, 1998 at an exercise price of $1.75 per share. Such options
will vest in equal installments over five years, beginning on January 2, 1999
and ending on January 2, 2003.
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 received 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. 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 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 Agreements. 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
served as Senior Vice President-Finance, Treasurer and Chief Financial Officer
of Unilab. The term of Mr. Michaelson's agreement ended on December 31, 1997,
and was not renewed in light of Mr. Michaelson's resignation. See "Resignation
of Richard A. Michaelson as Senior Vice President-Finance, Treasurer and Chief
Financial Officer". During 1997 Mr. Michaelson received 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). In
addition, Mr. Michaelson was eligible to receive an annual bonus ranging from 0%
to 80% of his base salary if Unilab met certain performance objectives
established by the Board of Directors or its Compensation Committee prior to the
beginning of each year. The agreement also provided 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.
All such deferred compensation was paid to Mr. Michaelson under the Michaelson
Transition Agreements.
Mr. Michaelson's employment agreement contained essentially the
same terms as Mr. Baker's employment 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. Generally, the Michaelson employment agreement was superseded
by the Michaelson Transition Agreements. See "Resignation of Richard A.
Michaelson as Senior Vice President-Finance, Treasurer and Chief Financial
Officer".
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."
Michaelson Transition Agreements
As noted above, in connection with Mr. Michaelson's
resignation as Senior Vice President-Finance, Treasurer and CFO as of September
17, 1997, his resignation as an officer (Senior Vice President) effective as of
December 31, 1997, his appointment as a director of the Company, effective
September 17, 1997 and his retention as a consultant to the Company as of
January 1, 1998, Mr. Michaelson executed the Michaelson Transition Agreements.
See "Resignation of Richard A. Michaelson as Senior vice President-Finance,
Treasurer and Chief Financial Officer".
Compensation Committee Interlocks and Insider Participation
From January 1, 1997 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. (Messrs. Hoffman, Lewis and Pyle are no longer directors.) From
March 7, 1997 until January 22, 1998, the Compensation Committee was
comprised of Messrs. Cramer (Chairman), Hoffman and Thomas. Since
January 23, 1998, the Compensation Committee has been comprised of Messrs.
Cramer and Thomas. Mr. Hoffman is a Senior Managing Director of The Blackstone
Group, which has periodically provided investment banking services to the
Company. Mr. Thomas served as President of the Company from 1989 through
January 1992.
Compensation Committee
Report on Executive Compensation
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 selected senior executives, 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 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 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. With one exception (a raise given in
connection with a promotion), base salaries of senior executives have been
frozen since that time.
The Company's executive officers and other key persons may be
eligible for an annual cash and/or stock 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 or the Board and are awarded upon the discretionary recommendation of
the CEO. 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 CEO or the Compensation
Committee. No such cash bonuses were awarded in 1997 (except for a cash bonus to
David C. Weavil, the Company's Chairman, President and Chief Executive Officer,
in connection with an amount owing under his employment agreement. See "Chief
Executive Officer's Compensation"). However, based upon the Company's improved
financial performance during 1997 (and especially during the second half of
1997), cash bonuses were awarded to certain senior executives of the Company in
February 1998, in consideration for meeting pre-determined performance
objectives in 1997.
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 has been and 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 executives 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 1997, 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).
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 1997, David C. Weavil, the Chairman, President and Chief
Executive Officer of the Company during such period, was paid a base salary of
$400,000. The Compensation Committee considered Mr. Weavil's salary to be
appropriate in light of (i) the need to recruit Mr. Weavil in January 1997 with
an attractive compensation package, (ii) Mr. Weavil's compensation at his prior
employer, (iii) the compensation of other senior executives in the clinical
laboratory industry and (iv) the fact that the base salary was the same as the
base salary of the Company's former CEO being replaced by Mr. Weavil. Mr. Weavil
received a $100,000 bonus in January 1997 payable in shares of Unilab common
Stock (228,571 shares) and a $100,000 cash bonus, which was paid in the second
half of 1997. Mr. Weavil also received deferred compensation equal to 8% of his
1997 cash compensation (valued at $40,000), plus participation in the Company's
Executive Retirement Plan (valued at $24,560), which brought his annual cash
compensation for 1997 to $464,710. Pursuant to his Employment Agreement, Mr.
Weavil also received in January 1997 options to purchase 250,000 shares of
Unilab Common Stock at an exercise price of $0.4375 per share, the then current
market price, and another 250,000 options to purchase Common Stock in January
1998 at an exercise price of $1.75 per share, the then current market price.
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. 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
was due 180 days after the date of loan (i.e., by July 20, 1997), was unsecured
and bore interest at 6% and was repaid on time. 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%. Such compensation and bonus structure were determined
pursuant to Mr. Weavil's Employment Agreement, described above under the caption
"Employment Agreements; Other Arrangements -- Weavil Employment Agreement".
Under the terms of Mr. Weavil's Employment Agreement, bonus
payments for 1998 and beyond are to be determined in the discretion of the Board
of Directors or the Compensation Committee. The Committee expects to base Mr.
Weavil's 1998 bonus on the Company's ability to meet or exceed certain
pre-established financial parameters.
Compensation of Other Named Executive Officer and Key Management Personnel
The Company also entered into employment agreements with the
Company's other Named Executive Officer and other key management personnel. The
employment agreement with Richard Michaelson was superseded by the Michaelson
Transition Agreement. Each agreement provides a base salary plus potential
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).
The Compensation Committee believes that significant stock
ownership, through grants of stock options, restricted stock, loans to finance
the purchase of Common 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)
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 Amex Market Value Index (which tracks the aggregate performance of equity
securities of companies traded on the American Stock Exchange) and (ii) 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.
[FIVE YEAR PERFORMANCE GRAPH]
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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 beginning December 1995), 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 BioCypher Laboratories Inc.
(formerly Physicians Clinical Laboratory Incorporated) (whose respective
initial public offerings occurred in 1992 and, accordingly, whose stocks
are included in the peer group for the full 5 year period).
** Assumes $100 invested on December 31, 1992 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.
Number Percent of
of Shares of Common Stock
Name and Address of Common Stock Beneficially
Beneficial Owner Beneficially Owned Owned(1)
Rockefeller & Co., Inc. 3,591,504(2) 8.8%
30 Rockefeller Plaza
New York, NY 10112
Andrew H. Baker 2,716,228(3) 6.7%
c/o Focused Healthcare Partners, Ltd.
401 Hackensack Avenue
Hackensack, NJ 07601
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(1) Calculated pursuant to Rule 13d-3 promulgated under the Exchange
Act and based on 40,632,898 shares of Unilab Common Stock
outstanding as of the Record Date.
(2) As reported in Schedule 13G, Amendment No. 2 filed with the Commission on
February 17, 1998.
(3) Mr. Baker is the former Chairman, President and Chief Executive Officer of
the Company. Represents 2,176,238 shares directly or indirectly 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, a Form 4 filed by Mr. Baker on
January 30, 1997 and a Schedule 13D filed by Mr. Baker on April 16, 1997.
CERTAIN RELATIONSHIPS AND
TRANSACTIONS WITH RELATED PERSONS
The Blackstone Group
The Company has periodically engaged The Blackstone Group, of which
Michael B. Hoffman, a director of the Company until January 22, 1998 and a
member of the Compensation and Nominating Committees until such date, is a
Senior Managing Director, to provide investment banking services.
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 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
forgave the remaining $500,000 of the loan to Mr. Baker. Mr. Baker was unable
to sell his California house. In light of his inability to sell the
California house, effective as of April 1, 1998 Mr. Baker assumed responsibility
for all costs associated with the house, including costs for mortgage, interest
and taxes previously paid by the Company pursuant to 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, which can be paid in cash or shares of Unilab Common Stock. The
Baker Note may be prepaid at any time. See "Resignation of Andrew H. Baker as
Chairman, President and Chief Executive Officer".
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 35,000 shares of Unilab Common Stock (the "Warrant
Shares"), 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 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 Michaelson Transition Agreements,
the Michaelson Note was converted to a non-interest bearing note.
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 due was unsecured and bore interest at 6% and
was repaid on schedule on July 20, 1997. 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%.
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 in 1997, the Company believes that all such
required forms were filed on a timely basis.
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,
1998. Arthur Andersen audited the Company's financial statements for the fiscal
year ended December 31, 1997. 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, 1997, 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, 1997. 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 1999 Meeting of Stockholders must be received by the Company no later
than December 15, 1998 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.
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 15, 1998
