<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Laboratory Corporation of America Holdings
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO]LabCorp
Laboratory Corporation of
America(R) Holdings
358 South Main Street
Burlington, NC 27215
Telephone: 336-229-1127
April 30, 1998
Dear Stockholder:
You are cordially invited to attend the 1998 Annual Meeting of Stockholders
of Laboratory Corporation of America Holdings. The meeting will be held at The
Paramount Theater, 128 East Front Street, Burlington, NC 27215, on Wednesday,
June 17, 1998 at 9:00 a.m., Eastern Daylight time.
The notice of the Annual Meeting and Proxy Statement which are attached
provide information concerning the matters to be considered at the meeting.
Whether or not you plan to attend the meeting in person, your shares should
be represented and voted at the meeting. Accordingly, after reading the
enclosed proxy statement, kindly mark the proxy card to indicate your vote,
date and sign the proxy card, and return it in the enclosed, postage-paid
envelope as soon as conveniently possible. If you desire to vote in accordance
with the Board of Directors' recommendations, you need not mark your votes on
the proxy card, but need to sign, date, and return it in the enclosed postage-
paid envelope in order to record your vote. If you later decide to attend the
meeting and wish to vote your shares personally, you may revoke your proxy at
any time before it is exercised.
Sincerely,
/s/ Thomas P. Mac Mahon
------------------------------------
Thomas P. Mac Mahon
Chairman of the Board, President and
Chief Executive Officer
<PAGE>
[LOGO]Labcorp
LABORATORY CORPORATION OF AMERICA HOLDINGS
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of
Laboratory Corporation of America Holdings:
Notice is hereby given that the 1998 Annual Meeting (the "Annual Meeting")
of the stockholders of Laboratory Corporation of America Holdings (the
"Company") will be held at The Paramount Theater, 128 East Front Street,
Burlington, NC 27215, on Wednesday, June 17, 1998 at 9:00 a.m., Eastern
Daylight time, for the following purposes:
1. To elect all of the members of the Company's board of directors to
serve until the Company's next annual meeting and until such directors'
successors are elected and shall have qualified.
2. To ratify the appointment of Price Waterhouse LLP as the Company's
independent accountants for the fiscal year ending December 31, 1998.
3. To transact such other business as may properly come before the Annual
Meeting or at any adjournments thereof.
A proxy statement describing the matters to be considered at the Annual
Meeting is attached to this notice. Only stockholders of record at the close
of business on April 17, 1998 are entitled to notice of, and vote at, the
Annual Meeting and at any adjournments thereof.
By Order of the Board of Directors
/s/ Bradford T. Smith
------------------------------
Bradford T. Smith
Secretary
April 30, 1998
PLEASE COMPLETE, SIGN AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE. THIS WILL ENSURE THAT YOUR SHARES ARE
VOTED IN ACCORDANCE WITH YOUR WISHES.
<PAGE>
LABORATORY CORPORATION OF AMERICA HOLDINGS
358 SOUTH MAIN STREET
BURLINGTON, NORTH CAROLINA 27215
----------------
PROXY STATEMENT
----------------
This Proxy Statement is being furnished in connection with the solicitation
by the Board of Directors of Laboratory Corporation of America Holdings, a
Delaware corporation (the "Company"), of proxies to be voted at the 1998
annual meeting of stockholders to be held at The Paramount Theater, 128 East
Front Street, Burlington, NC 27215, on Wednesday, June 17, 1998 at 9:00 a.m.,
Eastern Daylight time and at any adjournments thereof (the "Annual Meeting").
The Notice of Annual Meeting, this Proxy Statement, and the accompanying proxy
card are first being mailed to stockholders on or about May 1, 1998.
At the Annual Meeting, the Company's stockholders will be asked (i) to elect
the following persons as directors of the Company to serve until the Company's
next annual meeting and until such directors' successors are elected and shall
have qualified: Thomas P. Mac Mahon, Jean-Luc Belingard, Wendy E. Lane, Robert
E. Mittelstaedt, Jr., James B. Powell, M.D., David B. Skinner, M.D. and Andrew
G. Wallace, M.D., (ii) to ratify the appointment of Price Waterhouse LLP as
the Company's independent accountants for the fiscal year ending December 31,
1998, and (iii) to take such other action as may properly come before the
Annual Meeting or any adjournments thereof.
GENERAL INFORMATION
SOLICITATION AND VOTING OF PROXIES; REVOCATION; RECORD DATE
All proxies duly executed and received by the Company will be voted on all
matters presented at the Annual Meeting in accordance with the instructions
given therein by the person executing such proxy or, in the absence of such
instructions, will be voted in favor of the election to the Company's Board of
Directors of the seven nominees for director identified in this Proxy
Statement and the ratification of the appointment of Price Waterhouse LLP as
the Company's independent auditors for 1998. Any stockholder may revoke his
proxy at any time prior to the Annual Meeting before it is voted by written
notice to such effect delivered to the Company at 358 South Main Street,
Burlington, North Carolina 27215, Attention: Bradford T. Smith, Secretary, by
delivery prior to the Annual Meeting of a subsequently dated proxy or by
attending the Annual Meeting and voting in person.
Solicitation of proxies may be made by mail and may also be made by personal
interview, telephone and facsimile transmission, and by directors, officers,
and regular employees of the Company without special compensation therefor.
The expenses of the preparation of proxy materials and the solicitation of
proxies for the Annual Meeting will be paid by the Company. The Company
expects to reimburse banks, brokers, and other persons for their reasonable,
out-of-pocket expense in handling proxy materials for beneficial owners.
Only holders of record of the common stock, par value $0.01 per share, of
the Company ("Common Stock") at the close of business on April 17, 1998 (the
"Record Date") will be entitled to notice of and to vote at the Annual
Meeting. At the close of business on the Record Date, there were issued and
outstanding 124,506,673 shares of Common Stock.
A quorum for the Annual Meeting consists of a majority of the total number
of shares of Common Stock outstanding on the Record Date and entitled to vote,
present in person or represented by proxy. Directors of the Company will be
elected by a plurality vote of the shares of Common Stock represented at the
Annual Meeting and entitled to vote. Accordingly, abstentions and broker non-
votes will not affect the outcome of the election.
1
<PAGE>
The affirmative vote of a majority of the shares of Common Stock represented
at the Annual Meeting and entitled to vote is required for the ratification of
the appointment of Price Waterhouse LLP as the Company's independent auditors
for the fiscal year ending December 31, 1998. On such item, an abstention or
broker non-vote will have no effect on the vote to ratify the appointment of
independent auditors. As of April 20, 1998, the directors and executive
officers of the Company beneficially owned an aggregate of 1,302,887 shares of
Common Stock, representing approximately 1% of the total number of shares of
Common Stock outstanding on the Record Date and entitled to vote.
BENEFICIAL OWNERSHIP
On April 28, 1995 (the "Effective Date"), Roche Biomedical Laboratories,
Inc. ("RBL"), then a wholly owned subsidiary of HLR Holdings Inc. ("HLR"),
merged with and into the Company (the "Merger") pursuant to an Agreement and
Plan of Merger (the "Merger Agreement") dated as of December 13, 1994, among
the Company, RBL, HLR and Hoffmann-La Roche Inc., a New Jersey corporation
("Hoffmann-La Roche"). In the Merger, HLR was issued 49,008,538 shares of
Common Stock, and Roche Holdings, Inc., a Delaware corporation ("Holdings")
was issued 12,320,718 shares of Common Stock, representing in the aggregate
approximately 49.3% of the outstanding shares of Common Stock as of the Record
Date, in exchange for all of the outstanding shares of common stock of RBL and
$135,651,100 in cash. At the time, HLR was a wholly owned subsidiary of
Hoffmann-La Roche. Hoffmann-La Roche is a wholly owned subsidiary of Holdings
which is in turn an indirect wholly owned subsidiary of Roche Holding Ltd, a
Swiss Corporation ("Roche Holding"). Holdings and its affiliates (other than
the Company and its subsidiaries) are collectively referred to herein as
"Roche." Subsequent to the Merger, all of the Common Stock owned by HLR was
transferred to Holdings. The Merger Agreement was included as an exhibit to
the annual report on Form 10-K of the Company for the year ended December 31,
1994 filed with the Securities and Exchange Commission (the "Commission").
In connection with the Merger, the Company distributed a dividend consisting
of warrants to purchase an aggregate of 13,285,368 shares of Common Stock for
$22.00 (subject to adjustments) on April 28, 2000 to stockholders of record of
shares of Common Stock as of April 21, 1995, (each such warrant a "Warrant"
and, together with the Roche Warrants, as defined below, the "Warrants"). In
addition, pursuant to the Merger Agreement, on April 28, 1995, Hoffmann-La
Roche purchased Warrants to purchase 8,325,000 shares of Common Stock (the
"Roche Warrants") from the Company for an aggregate purchase price of
$51,048,900.
In connection with the Merger, the Company, HLR, Hoffmann-La Roche and
Holdings entered into a stockholder agreement dated as of April 28, 1995 (the
"Stockholder Agreement"). In December 1996, HLR was merged with and into
Hoffmann-La Roche and the shares of Common Stock owned by HLR subsequently
transferred from Hoffmann-La Roche to Holdings. The Stockholder Agreement
contains certain provisions relating to (i) the governance of the Company
following the Merger, including but not limited to the composition of the
Board of Directors, (ii) the issuance, sale, and transfer of the Company's
Equity Securities (as defined in the Stockholder Agreement) by the Company and
Roche, (iii) the acquisition of additional Equity Securities of the Company by
Roche, and (iv) the registration rights granted by the Company to Roche with
respect to the Company's Equity Securities. A copy of the Stockholder
Agreement dated April 28, 1995 was included as an exhibit to the Company's
report on Form 8-K filed with the Commission on May 12, 1995 in connection
with the consummation of the Merger.
Roche has informed the Company that it will vote for the election of each of
the nominees to the Board of Directors identified herein and the ratification
of the appointment of Price Waterhouse LLP as the Company's independent
accountants for 1998.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" THE ELECTION OF EACH OF THE NOMINEES FOR DIRECTOR OF THE COMPANY (AS
SPECIFIED BELOW) AND THE RATIFICATION OF THE APPOINTMENT OF PRICE WATERHOUSE
LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR 1998.
2
<PAGE>
ITEM 1: ELECTION OF DIRECTORS
All of the Company's directors will be elected at the Annual Meeting to
serve until the next succeeding annual meeting of the Company and until their
successors are elected and shall have qualified. All of the nominees listed
below are currently serving as members of the Board of Directors. Except as
herein stated, the proxies solicited hereby will be voted FOR the election of
such nominees unless the completed proxy card directs otherwise.
The governance provisions of the Stockholder Agreement provide, among other
things, that the Board of Directors of the Company will (subject to specified
exceptions) be comprised of seven members, consisting of three designees of
Holdings (the "Roche Directors") and four Independent Directors (as defined
therein) nominated by the Nominating Committee of the Board of Directors. The
persons nominated to serve as Roche Directors are Mr. Mac Mahon, Dr. Powell
and Mr. Belingard. The persons nominated to serve as Independent Directors are
Ms. Lane, Mr. Mittelstaedt, Dr. Skinner, and Dr. Wallace.
The Stockholder Agreement provides that, among other things, certain actions
by the Company will require approval by a majority of the entire Board of
Directors of the Company, which majority must include at least a majority of
the Roche Directors and at least one Independent Director (a "Special Majority
Vote"). Included in these items is any change in the size or composition of
the Board of Directors or any committee thereof and the establishment of a new
committee of the Board of Directors.
The Board of Directors has been informed that all of the nominees listed
below are willing to serve as directors, but if any of them should decline or
be unable to act as a director, the individuals named in the proxies may vote
for a substitute designated by the Board of Directors. The Company has no
reason to believe that any nominee will be unable or unwilling to serve.
NOMINEES FOR ELECTION AS DIRECTORS
The name, age, principal occupation for the last five years, selected
biographical information, and period of service as a director of the Company
of each nominee are set forth below:
THOMAS P. MAC MAHON (51) has served as Chairman of the Board and Director
since April 28, 1996. Prior to such date and since April 28, 1995, the Merger,
he served as Vice Chairman and Director. Mr. Mac Mahon has been President and
Chief Executive Officer since January 1997. Mr. Mac Mahon was Senior Vice
President of Hoffmann-La Roche Inc. from 1993 to January 1997 and President of
Roche Diagnostics Group and a Director and member of the Executive Committee
of Hoffmann-La Roche from 1988 to January 1997. Mr. Mac Mahon was also a
Director of HLR until December 1996. As Senior Vice President of Hoffmann-La
Roche Inc. and President of Roche Diagnostics Group, Mr. Mac Mahon was
responsible for the management of all United States operations of the
diagnostic business of Hoffmann-La Roche. Mr. Mac Mahon is also a Director on
the Board of AutoCyte, Inc. ("AutoCyte"). Mr. Mac Mahon is a member of the
Executive and Management Committees of the Company.
JEAN-LUC BELINGARD (49) has served as a Director of the Company since the
Merger. Mr. Belingard is Director General of the Diagnostics Division and
member of the Executive Committee of F. Hoffmann-La Roche Ltd ("F. Hoffmann-La
Roche"), Basel, Switzerland, a subsidiary of Roche Holding. He joined F.
Hoffmann-La Roche in 1982, and held various positions prior to being named to
his current positions in 1990. His current responsibilities include the
management of the worldwide diagnostic business of F. Hoffmann-La Roche.
Mr. Belingard is also a Director of Perkin-Elmer Corporation, Norwalk,
Connecticut and a Foreign Trade Advisor to the French Government.
WENDY E. LANE (47) has been a Director of the Company since November 1996.
Ms. Lane has been Chairman of Lane Holdings, Inc., an investment firm, since
1992. Prior to forming Lane Holdings, Inc., Ms. Lane was a Principal and
Managing Director of Donaldson, Lufkin & Jenrette, an investment banking firm,
serving in these and other positions from 1980 to 1992. Ms. Lane also serves
as a Director of Watts Industries, Inc.
ROBERT E. MITTELSTAEDT, JR. (54) has been a Director of the Company since
November 1996. Mr. Mittlestaedt is Vice Dean of The Wharton School of the
University of Pennsylvania and Director of the
3
<PAGE>
Aresty Institute of Executive Education. Mr. Mittelstaedt has held these and
other positions with the Wharton school since 1973, with the exception of the
period from 1985 to 1989 when he founded, served as President and Chief
Executive Officer, and sold Intellego, Inc., a company engaged in practice
management, systems development, and service bureau billing operations in the
medical industry.
JAMES B. POWELL, M.D. (59) has served as a Director of the Company since the
Merger. From the Merger to January 1997, Dr. Powell served as President and
Chief Executive Officer. Previously, Dr. Powell was President of RBL from 1982
until the Merger. Dr. Powell has been President and Chief Executive Officer of
AutoCyte, Inc. since January 1997. Dr. Powell is Chairman of the Board of
Directors and a principal investor in AutoCyte. He is a medical doctor and
became certified in anatomic and clinical pathology in 1969.
DAVID B. SKINNER, M.D. (63) has served as a Director of the Company since
the Merger. Dr. Skinner has been President and Chief Executive Officer of New
York Hospital and Professor of Surgery at Cornell Medical School since 1987.
He was the Chairman of the Department of Surgery and Professor of Surgery at
the University of Chicago Hospitals and Clinics from 1972 to 1987.
ANDREW G. WALLACE, M.D. (63) has served as a Director of the Company since
the Merger. Dr. Wallace has served as both the Dean of Dartmouth Medical
School and Vice President for Health Affairs at Dartmouth College since 1990.
He was the Vice Chancellor for Health Affairs at Duke University and the Chief
Executive Officer of Duke Hospital from 1981 to 1990.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" THE ELECTION OF EACH OF THE NOMINEES FOR DIRECTOR LISTED ABOVE.
BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors has an Audit Committee, an Employee Benefits
Committee, an Ethics and Quality Assurance Committee, and a Nominating
Committee.
The Audit Committee, currently consisting of Dr. Skinner, Dr. Wallace, and
Mr. Mittelstaedt, makes recommendations, among other things, to the Board
regarding the engagement of the Company's independent accountants, reviews the
plan, scope and results of the audit, reviews with the auditors and management
the Company's policies and procedures with respect to internal accounting and
financial controls, and reviews changes in accounting policy and the scope of
the non-audit services which may be performed by the Company's independent
accountants. Pursuant to the Stockholder Agreement, the Audit Committee is
comprised entirely of Independent Directors.
The Ethics and Quality Assurance Committee, currently consisting of Mr. Mac
Mahon, Ms. Lane, Dr. Powell, Dr. Wallace, and Dr. Skinner, is responsible for
ensuring that the Company adopts and implements procedures that require the
Company's employees to act in accordance with high ethical standards and to
deliver high quality services.
The Employee Benefits Committee, currently consisting of Mr. Belingard, Ms.
Lane, and Dr. Skinner, makes recommendations to the Board regarding
compensation and benefit policies and practices and incentive arrangements for
the Executive Officers and key managerial employees of the Company. The
Employee Benefits Committee also considers and grants awards under the
Company's incentive plans, subject to a Special Majority Vote of the Board as
described above. Pursuant to the Stockholder Agreement, the Employee Benefits
Committee is comprised of a majority of Independent Directors.
The Nominating Committee, currently consisting of Mr. Mac Mahon, Ms. Lane,
and Dr. Wallace, is responsible for recommending the nomination of directors.
Pursuant to the Stockholder Agreement, the Nominating Committee is comprised
of one Roche Director and two Independent Directors and acts by a majority
vote of the entire committee.
4
<PAGE>
The Nominating Committee will consider suggestions for Board nominees made
by stockholders. A stockholder may recommend a person for nomination to the
Board at the 1999 annual meeting of stockholders by giving notice thereof and
providing certain information set forth in the Company's By-Laws, in writing,
to the Secretary of the Company at 358 S. Main Street, Burlington, NC 27215.
Such nominations must be received no later than January 4, 1999.
During 1997, the Board of Directors held nine meetings and acted once by
unanimous written consent of all members thereof, each in accordance with the
Company's By-Laws and applicable Delaware corporation law. The Employee
Benefits Committee held four meetings; the Audit Committee held five meetings;
and the Ethics and Quality Assurance Committee held two meetings in 1997. The
Nominating Committee held no meetings in 1997. During 1997, none of the
directors attended fewer than 89% of the meetings of the Board and the
committees of which he or she was a member with the exception of Dr. Wallace
who attended six of nine meetings of the Board of Directors in 1997, Mr.
Belingard who attended five of nine meetings of the Board of Directors and did
not attend two of the four Employee Benefits Committee meetings held in 1997,
and Ms. Lane did not attend one of the two Ethics and Quality Assurance
Committee meetings held in 1997.
COMPENSATION OF DIRECTORS
Directors who are currently not receiving compensation as officers or
employees of the Company are paid an annual retainer of $30,000, payable in
monthly installments, and a fee of $1,000 for each meeting of the Board of
Directors or of any Committee thereof that they attend, and receive
reimbursement of expenses they incur for attending any meeting. Pursuant to
the Non-Employee Director Stock Plan (the "Director Stock Plan") approved by
the stockholders of the Company, 50% of such annual retainer shall be payable
in cash and 50% shall be payable in Common Stock of the Company. In 1997,
Messrs. Mittelstaedt and Belingard, Drs. Skinner and Wallace, and Ms. Lane
earned 5,213 shares of Common Stock under the Director Stock Plan. Dr. Powell
was an employee of the Company until January 6, 1997 and therefore received
4,797 shares and Mr. MacMahon received 416 shares under the Director Stock
Plan in 1997.
EXECUTIVE OFFICERS
The following table sets forth as of the date hereof the Executive Officers
of the Company.
<TABLE>
<CAPTION>
NAME AGE OFFICE
---- --- ------
<C> <C> <S>
Thomas P. Mac Mahon......... 51 Chairman of the Board, President, and Chief
Executive Officer
Wesley R. Elingburg......... 41 Executive Vice President, Chief Financial
Officer, and Treasurer
Myla P. Lai-Goldman, M.D. .. 40 Executive Vice President, Chief Scientific
Officer, and Medical Director
Larry L. Leonard............ 57 Executive Vice President--Western Operations
Richard L. Novak............ 57 Executive Vice President--Eastern Operations
Bradford T. Smith........... 44 Executive Vice President, General Counsel,
Compliance Officer, and Secretary
Stevan R. Stark............. 50 Executive Vice President--Sales and
Marketing
</TABLE>
THOMAS P. MAC MAHON has served as Chairman of the Board and a Director since
April 28, 1996. Prior to such date and since April 28, 1995, the Merger, he
served as Vice Chairman and a Director. Mr. Mac Mahon has been President and
Chief Executive Officer of the Company since January 1997. Mr. Mac Mahon was
Senior Vice President of Hoffmann-La Roche Inc. from 1993 to January 1997 and
President of Roche Diagnostics Group and a Director and member of the
Executive Committee of Hoffmann-La Roche from 1988 to December 1996. Mr. Mac
Mahon was also a Director of HLR until December 1996. As Senior Vice President
of Hoffmann-La Roche Inc. and President of Roche Diagnostics Group, Mr. Mac
Mahon was responsible for the management
5
<PAGE>
of all United States operations of the diagnostic business of Hoffmann-La
Roche. Mr. Mac Mahon is also a Director on the Board of AutoCyte, Inc. Mr. Mac
Mahon is a member of the Executive and Management Committees of the Company.
WESLEY R. ELINGBURG has served as Executive Vice President, Chief Financial
Officer, and Treasurer since October 1996. Prior to this date and since the
Merger, Mr. Elingburg was Senior Vice President--Finance. Mr. Elingburg is
responsible for the day to day supervision of the finance function of the
Company, including treasury functions. Previously, Mr. Elingburg served as
Senior Vice President--Finance and Treasurer of RBL from 1988 through April
1995 and Assistant Vice President of Hoffmann-La Roche from 1989 until the
Merger in April 1995. Mr. Elingburg is a member of the Executive and
Management Committees of the Company.
LARRY L. LEONARD, PH.D. has served as Executive Vice President of the
Company since 1993. He joined the Company in 1978. Dr. Leonard, who holds a
Ph.D. degree in microbiology, was named Senior Vice President of the Company
in 1991 and previously was Vice President--Division Manager. Dr. Leonard
oversees Western Operations of the Company which includes the Central, Great
Lakes, Midlands, Southwest, and West Divisions. Dr. Leonard is a member of the
Executive and Management Committees of the Company.
RICHARD L. NOVAK has served as Executive Vice President of the Company since
March 1997. Prior to joining the Company, Mr. Novak was employed by SmithKline
Beecham Clinical Laboratories serving in a variety of senior management
positions including Senior Vice President, U.S. Operations and most recently
President, International. Mr. Novak oversees operations of the Company's
Eastern Operations which includes the Mid-Atlantic, Northeast, South, Florida,
and South Atlantic Divisions. Mr. Novak is a member of the Executive and
Management Committees of the Company.
BRADFORD T. SMITH has served as Executive Vice President, General Counsel,
and Secretary since the Merger. He was appointed Compliance Officer in August
1996. Previously, Mr. Smith served as Assistant General Counsel of Hoffmann-La
Roche, Division Counsel of RBL and Assistant Secretary and member of RBL's
Senior Management Committee from 1988 until April 1995. Mr. Smith served as
Assistant Secretary of Hoffmann-La Roche from 1989 until the Merger and as an
Assistant Vice President of Hoffmann- La Roche during 1992 and 1993. Mr. Smith
is a member of the Executive and Management Committees of the Company.
STEVAN R. STARK has served as Executive Vice President since October 1996
and was Senior Vice President, New York Division, Cranford Region, and
Alliance/Hospital Division since the Merger in April 1995. Mr. Stark oversees
the Company's sales and marketing operations including business alliances,
managed care, and new business development. Previously, Mr. Stark was a Vice
President and Division Manager from 1991 to 1995 and a Division Manager from
1986 to 1991. He joined the Company in 1983. Mr. Stark is a member of the
Executive and Management Committees of the Company.
MYLA P. LAI-GOLDMAN, M.D. was appointed Executive Vice President, Chief
Scientific Officer, and Medical Director in April 1998. She joined RBL in
1990. Dr. Goldman, who holds a medical degree from Columbia University, was
named Senior Vice President of the Company in 1997 and has held the position
of Medical Director for the Center for Molecular Biology and Pathology since
1991 (with RBL and subsequently the Company). Dr. Goldman manages the Center
for Molecular Biology and Pathology at the Company's Research Triangle Park,
N.C. facility. Dr. Goldman is Board Certified in Anatomic and Clinical
Pathology and serves as a member of the Executive and Management Committees of
the Company.
6
<PAGE>
EXECUTIVE COMPENSATION AND BENEFIT PLANS
EXECUTIVE COMPENSATION
The compensation paid by the Company during the year ended December 31, 1997
to certain Executive Officers is set forth below. The Executive Officers named
are the Chief Executive Officer during the year, the four other most highly
compensated Executive Officers serving at year end, the former CEO who would
have been included in the table had he not resigned before year end, and one
officer no longer serving as an Executive Officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------ ---------------
SECURITIES
NAME AND PRINCIPAL UNDERLYING ALL OTHER
POSITION YEAR SALARY(1)($) BONUS(2)($) OPTIONS/SARS(#) COMPENSATION(3)($)
------------------ ---- ------------ ----------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
Thomas P. Mac Mahon..... 1997 $600,000 $355,040 500,000 $ 8,604
President and Chief 1996 -- -- -- --
Executive
Officer(4) 1995 -- -- -- --
Wesley R. Elingburg..... 1997 225,000 99,563 210,000 6,446
Executive Vice 1996 187,500 -- -- 5,928
President, Chief
Financial Officer, and 1995 110,212 50,000 25,000 --
Treasurer(5)
Larry L. Leonard........ 1997 325,000 223,349 210,000 14,013
Executive Vice 1996 331,250 162,500 -- 13,050
President--
Western Operations 1995 325,000 162,500 30,000 651,958
Bradford T. Smith....... 1997 225,000 214,388 210,000 6,399
Executive Vice 1996 210,227 -- -- 6,098
President, General
Counsel, Corporate 1995 116,667 61,250 30,000 --
Compliance
Officer, and
Secretary(5)
Stevan R. Stark......... 1997 225,000 219,045 210,000 220,193
Executive Vice 1996 190,865 -- -- 13,711
President--Sales and
Marketing(6) 1995 -- -- -- --
James B. Powell......... 1997 43,750 600,000 -- 2,025
Former President and 1996 525,000 -- -- 13,050
Chief
Executive Officer(7) 1995 350,000 367,500 100,000 --
Ronald B. Sturgill...... 1997 225,000 176,652 70,000 16,684
Executive Vice 1996 187,500 70,000 -- 14,328
President(8)
1995 -- -- 30,000 --
</TABLE>
- --------
(1) Includes salary paid or accrued for each indicated year.
(2) Includes bonus accrued or paid for each indicated year and other payments,
excluding severance, made pursuant to employment agreements.
(3) Reflects the following: (i) payment of cash and the fair value of shares
of Common Stock of the Company issued for NHL employee stock options
canceled in connection with the Merger at the election of Dr. Leonard in
1995 of $640,258; (ii) life insurance premiums of $4,104 in 1997 for Mr.
Mac Mahon, $1,696 in 1997 and $1,428 in 1996 for Mr. Elingburg, $9,263,
$8,550, and $7,200 in 1997, 1996, and 1995 respectively for Dr. Leonard,
$1,649 in 1997 and $1,598 in 1996 for Mr. Smith, $4,896 in 1997 and $2,436
in 1996 for Mr. Stark, $713 in 1997 and $8,550 in 1996 for Dr. Powell, and
$11,934 in 1997 and $9,828 in 1996 for Mr. Sturgill; (iii) 401(a) and (k)
contributions in 1997 of $4,750 for Messrs. Elingburg, Leonard, Smith,
Stark, and Sturgill, $4,500 for Mr. Mac Mahon, and $1,312 for Dr. Powell,
contributions in 1996 of
7
<PAGE>
$4,500 for each individual named in the table except for Mr. Mac Mahon and
Mr. Stark, and contributions in 1995 of $4,500 for Dr. Leonard; and (iv)
relocation expenses of $210,547 in 1997 and $11,275 in 1996 for Mr. Stark.
(4) Mr. Mac Mahon was appointed President and Chief Executive Officer
effective January 7, 1997. Dr. Powell resigned his position as President
and Chief Executive Officer as of January 6, 1997.
(5) Messrs. Elingburg, Smith, and Sturgill began employment with the Company
effective with the Merger on April 28, 1995. The salary information for
these individuals from the date of Merger is included herein.
(6) Mr. Stark was appointed an Executive Officer of the Company in October
1996.
(7) Dr. Powell was appointed President and Chief Executive Officer effective
with the Merger on April 28, 1995. Dr. Powell's salary information from
the date of the Merger is included herein. Dr. Powell resigned his
position as President and Chief Executive Officer effective as of January
6, 1997.
(8) Mr. Sturgill's Executive Officer status ended effective December 17, 1997.
STOCK OPTION TRANSACTIONS IN 1997
During 1997, the following grants were made under the 1994 Stock Option Plan
(1988 Stock Option Plan for Mr. Sturgill) for the Executive Officers named in
the Summary Compensation Table:
OPTION/SAR GRANTS IN 1997
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS/SARS EMPLOYEES BASE PRICE EXPIRATION PRESENT
NAME GRANTED(1) IN 1997 ($/SH) DATE VALUE($)(2)
- ---- ------------ ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Thomas P. Mac Mahon..... 500,000 12% $2.63 1/7/07 $687,649
Wesley R. Elingburg..... 210,000 5% $3.13 4/16/07 $343,825
Larry L. Leonard........ 210,000 5% $3.13 4/16/07 $343,825
Bradford T. Smith....... 210,000 5% $3.13 4/16/07 $343,825
Stevan R. Stark......... 210,000 5% $3.13 4/16/07 $343,825
Ronald B. Sturgill...... 70,000 2% $3.13 4/16/07 $114,608
</TABLE>
- --------
(1) For each grant of non-qualified options made in 1997, the exercise price
is equivalent to the fair market price per share on the date of the grant.
The options vested with respect to one third of the shares covered hereby
on the date of grant and an additional one third will vest on each of the
first and second anniversaries of such date, subject to their earlier
termination.
(2) Valuation based upon the Black-Scholes option pricing model with the
following assumptions: expected dividend yield 0.0%, volatility of 0.4689,
risk-free interest rate of 5.55%, and an expected life of five years.
8
<PAGE>
The following chart shows, for 1997, the number of stock options exercised
and the 1997 year-end value of the options held by the Executive Officers
named in the Summary Compensation Table:
AGGREGATED OPTION/SAR EXERCISES IN 1997
AND YEAR-END 1997 OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT YEAR-END AT YEAR-END ($)(1)
SHARES ------------- ------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- ----------- ----------- ------------- ------------------
<S> <C> <C> <C> <C>
Thomas P. Mac Mahon... 0 $ 0 166,667 $0
333,333 0
Wesley R. Elingburg... 0 0 95,000 0
140,000 0
Larry L. Leonard...... 0 0 114,130 0
140,000 0
Bradford T. Smith..... 0 0 100,000 0
140,000 0
Stevan R. Stark....... 0 0 103,000 0
140,000 0
Ronald B. Sturgill.... 0 0 53,334 0
46,666 0
</TABLE>
- --------
(1) Calculated using actual December 31, 1997 closing price per common share
on the NYSE Composite Tape of $1.688.
9
<PAGE>
RETIREMENT BENEFITS AND SAVINGS PLAN
The following tables set forth the estimated annual retirement benefits
payable at age 65 to persons retiring with the indicated average direct
compensation and years of credited service, on a straight life annuity basis
after Social Security offset, under the Company's Employees' Retirement Plan,
as supplemented by the Company's Pension Equalization Plan.
PENSION PLAN TABLE(1)
JAMES B. POWELL, WESLEY R. ELINGBURG, BRADFORD T. SMITH AND RONALD B. STUGILL
<TABLE>
<CAPTION>
FIVE-YEAR
AVERAGE 10 15 20 25 30
COMPENSATION(2) YEARS(3) YEARS(3) YEARS(3) YEARS(3) YEARS(3)
--------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$50,000........................ $ 7,212 $10,666 $ 14,121 $ 17,575 $ 17,575
100,000........................ 17,121 25,529 33,938 42,347 42,347
150,000........................ 27,121 40,529 53,938 67,347 67,347
200,000........................ 37,121 55,529 73,938 92,347 92,347
250,000........................ 47,121 70,529 93,938 117,347 117,347
300,000........................ 57,121 85,529 113,938 142,347 142,347
308,840........................ 58,889 88,181 117,474 146,767 146,767
PENSION PLAN TABLE(4)
LARRY L. LEONARD AND STEVAN R. STARK
<CAPTION>
FIVE-YEAR
AVERAGE 10 15 20 25 30
COMPENSATION(2) YEARS(3) YEARS(3) YEARS(3) YEARS(3) YEARS(3)
--------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$50,000........................ $ 6,578 $ 9,867 $ 13,156 $ 16,445 $ 19,734
100,000........................ 15,856 23,784 31,712 39,640 47,568
150,000........................ 25,216 37,824 50,432 63,040 79,648
200,000........................ 34,576 51,864 69,152 86,440 103,728
250,000........................ 43,936 65,904 87,872 109,840 131,808
300,000........................ 53,296 79,944 106,592 133,240 159,888
308,840........................ 54,951 82,426 109,901 137,377 164,852
</TABLE>
- --------
(1) The Retirement Plan, as supplemented by the Pension Equalization Plan, is
a defined benefit pension plan designed, in conjunction with the Company's
Pension Equalization Plan, to provide an employee having 25 years of
credited service with an annuity equal to 50% of final average
compensation less 50% of estimated individual Social Security benefits.
The benefit is then converted from a life annuity to an actuarially
equivalent life annuity with a ten year guarantee. In addition, following
retirement from active service, an additional benefit is paid from the
Pension Equalization Plan designed to provide for a portion of their
postretirement medical benefit. For 1997, this additional benefit amounted
to $303.
(2) Highest consecutive five-year average base compensation during final ten
years. Compensation considered for this five year average is reflected in
the Summary Compensation Table under the heading "salary." Under the
Equalization Plan, a maximum of $300,000 final average compensation is
considered for benefit calculation indexed beginning in 1997 based on the
percentage change in the unrounded compensation limit under IRC Section
401 (a)(17) of the Code. For 1997, this limit is $308,840. No bonuses are
considered.
(3) Under the plans, the normal form of benefit for an unmarried participant
is a life annuity with a guaranteed minimum payment for ten years. For an
unmarried participant, the normal form is a 50% joint and survivor
annuity, which is actuarially equivalent to the normal form for an
unmarried participant. The above tables are determined with regard to a
life only form of payment; thus, payment using a ten year guarantee would
produce a lower annual benefit.
(4) The Retirement Plan, as supplemented by the Pension Equalization Plan, is
a defined benefit pension plan designed, in conjunction with the Company's
Pension Equalization Plan, to provide an employee having 30 years of
credited service with an annuity equal to 52% of final average
compensation less 50% of estimated individual Social Security benefits.
Credited service is defined generally as all periods of employment with the
Company, a participating subsidiary or with Revlon prior to 1992, or RBL or an
affiliate, after attainment of age 21 and completion of one year of service
(age 25 and completion of one year of service if hired before January 1,
1985). Final average compensation is defined as average annual base salary
during the five consecutive years in which base salary was highest out of the
last ten years prior to normal retirement age or earlier termination. The
Employee Retirement Income Security Act of 1974, as amended, places certain
maximum limitations upon the annual
10
<PAGE>
benefit payable under all qualified plans of an employer to any one
individual. Such limitation for defined benefit pension plans was $125,000 for
1997 and will be subject to cost of living adjustments for future years. In
addition, the Tax Reform Act of 1986 limits the amount of compensation that
can be considered in determining the level of benefits under qualified plans.
The applicable limit for 1997 was $160,000. The Company believes that, with
respect to certain employees, annual retirement benefits computed in
accordance with the Retirement Plan's benefit formula may be greater than
those which would be provided with regard to such qualified plan limitation.
The Company's non-qualified, unfunded, Equalization and Supplemental Plans are
designed to provide for the payment of the difference, if any, between the
amount of such maximum limitation and the annual benefit that would be payable
under the Retirement Plans but for such limitation, subject to the allowed
maximum compensation limit under the Equalization Plan.
As of December 31, 1997, credited years of service under the retirement
plans for the following individuals are for Dr. Powell--26.7 years, Mr.
Elingburg--16.4 years, Dr. Leonard--26.8 years, Mr. Smith--14.9 years, Mr.
Stark--13 years, and Mr. Sturgill--26.6 years.
COMPENSATION PLANS AND ARRANGEMENTS
On April 17, 1996, the Board of Directors approved the Master Senior
Executive Severance Plan (the "Severance Plan") which provides severance to
certain key employees. The Severance Plan provides for severance payments of
two times annual salary and targeted bonus then in effect for the President
and Chief Executive Officer and the Executive Vice Presidents of the Company
and severance payments of one times annual salary and targeted bonus then in
effect for Senior Vice Presidents upon the occurrence of a qualifying
termination. Qualifying termination is generally defined as involuntary
termination without cause or voluntary termination with Good Reason, as
defined. Good reason ("Good Reason") is defined as a reduction in base salary
or targeted bonus as a percentage of salary, relocation to an office location
more than seventy-five (75) miles from the employee's current office without
consent of the employee, or a material reduction in job responsibilities or
transfer to another job without the consent of the employee. Good Reason shall
not include a reduction in base salary or targeted bonus where such reduction
is pursuant to a Company-wide reduction of base salaries and/or targeted
bonuses. In addition, the Severance Plan may not be amended or terminated
within thirty-six (36) months of a change in control, as defined. A copy of
the Severance Plan was included as an exhibit to the report on Form 8-K of the
Company filed with the Commission on October 24, 1996.
EMPLOYEE BENEFITS COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Employee Benefits Committee of the Board of Directors (for the purposes
of this section, the "Committee") makes recommendations to the Board of
Directors regarding compensation and benefit policies and practices and
incentive arrangements for Executive Officers and key managerial employees of
the Company. The Committee also considers and grants awards under the
Company's incentive plans, subject to a Special Majority Vote of the Board as
described above under "Item 1: Election of Directors."
The Committee is comprised of a majority of Independent Directors. During
1997, the Committee met four times to review and evaluate executive
compensation and benefit programs, including information provided to the
Company by independent compensation and benefit consultants.
Executive Officer Compensation Policies. The Committee's executive
compensation policies are designed to (a) attract and retain the best
individuals critical to the success of the Company, (b) motivate and reward
such individuals based on corporate business unit and individual performance,
and (c) align executives' and stockholders' interests through equity-based
incentives.
Compensation for executives is based on the following principles: variable
compensation should comprise a significant part of an executive's
compensation, with the percentage at-risk increasing at increased levels of
responsibility; employee stock ownership aligns the interest of employees and
stockholders; compensation must be competitive with that offered by companies
that compete with the Company for executive talent; and differences in
executive compensation within the Company should reflect differing levels of
responsibility and/or performance.
11
<PAGE>
In addition, the Committee adopted policies in 1995 relating to the
integration of the compensation programs of the two companies in the Merger,
which it continues to implement. The Committee determined that salaries would
not be reduced as a result of the Merger. The Committee also decided that
rather than renewing existing employment contracts, it would continue RBL's
policy of motivating and retaining key employees with awards of incentive
compensation and the adoption of a severance program (see "Compensation Plans
and Arrangements" above for a description of the severance program). Moreover,
consummation of the Merger and achievement of planned Merger synergies were
designated as and continue to be important bases for incentive awards.
A key determinant of overall levels of compensation is the pay practices of
ten public companies in the medical supply and medical service industry with
revenue comparable to the Company's (the "peer group"). The peer group was
chosen by the Company's independent compensation and benefit consultants and
includes some, but not all, of the members of the Peer Group used for stock
price comparisons (see "--Common Stock Performance" below).
There are three components to the Company's executive compensation program:
base salary, annual incentive compensation, and long-term incentive
compensation. The more senior the position, the greater the portion of
compensation that varies with performance.
Base salaries are set by the Committee and are designed to be competitive
with the peer group companies described above. Generally, the Committee
targets salary levels in the second and third quartile of the peer group,
adjusted to reflect the individual's job experience and responsibility.
Changes in base salaries are based on the peer group's practices, the
Company's performance, the individual's performance, and increases in cost of
living indexes. The corporate performance measures used in determining
adjustments to Executive Officers' base salaries are the same performance
measures used to determine annual and long-term incentive compensation
discussed below. Base salaries are reviewed and adjusted annually.
Under the Company's annual Bonus Incentive Plan, adopted by the stockholders
in 1995, annual incentive compensation is paid in the form of a cash bonus and
is generally based on the attainment of specified corporate performance
measures, which are established by the Committee at the beginning of the year.
The measures used are EBITDA, return on capital, return on equity, earnings
per share, and net income. Approximately $5.3 million in benefits were earned
under the plan for 1997 (see "Summary Compensation Table" for amounts paid to
certain Executive Officers under the plan in 1997).
Long-term incentive compensation is paid in part in the form of stock
options granted under the Company's Stock Option Plans. The Committee believes
that grants of stock options align stockholder value and Executive Officer
interests. Stock options are granted in amounts that are directly related to
the level of responsibility of the grantees as compared with their peer group
counterparts. The number of options granted is established after determining
the projected value of such options as derived from the Black-Scholes option
pricing model. The size of previous grants and the number of shares held by an
executive are not considered in determining annual award levels.
As provided in the Company's Stock Option Plans, stock options are granted
with an exercise price equal to the fair market value per share on the date of
grant or other appropriate date as determined by the Board of Directors. Of
the options granted to the Executive Officers in 1997, one-third of the
options granted vest on the date of grant, with the remainder vesting in
annual equal increments through the second anniversary of the date of grant.
No stock option awards are made in the absence of satisfactory performance
which is evaluated by the Committee based on the executive's individual
contribution to the long-term health and growth of the Company. A total of
1,410,000 options were granted to certain Executive Officers in 1997 (see
"Option/SAR Grants in 1997").
Long-term incentive compensation was paid in cash under the Company's
Performance Unit Plan, which was adopted by the stockholders in 1995. The
Performance Unit Plan was designed to motivate senior executives to achieve
the planned synergies of the Merger over the period from May 1, 1995 to April
30, 1997. Payments under the plan totaled $2,937,000 and were made during
1997.
12
<PAGE>
Chief Executive Officer Compensation. Thomas P. Mac Mahon served as
President and Chief Executive Officer for most of the year ended December 31,
1997, with the exception of the period from January 1 to January 6, 1997 when
Dr. Powell served in that capacity. He was paid $600,000 in base salary. Mr.
Mac Mahon's base salary, annual incentive compensation and long-term incentive
compensation were determined in the same manner as described above for other
Executive Officers. Mr. Mac Mahon will not be eligible to participate in the
Company's Retirement Benefits and Savings Plan until 1998.
Limit on Deductibility of Compensation. The Omnibus Budget Reconciliation
Act of 1993 ("OBRA") limits the deductibility of compensation paid to the
chief executive officer and each of the four highest paid employees of public
companies to $1 million for fiscal years beginning on or after January 1,
1994. Certain types of compensation arrangements entered into prior to
February 17, 1993 are excluded from the limitation. The Company's general
policy is to preserve the tax deductibility of compensation paid to its
Executive Officers. OBRA recognizes stock option plans as performance-based if
such plans meet certain requirements. The Company's Option Plans are
structured to meet the requirements of OBRA. In future years, the Committee
will consider taking such steps as it deems necessary to qualify compensation
so as to not be subject to the limit on deductibility.
The Employee Benefits Committee
Jean-Luc Belingard
Wendy E. Lane
David B. Skinner, M.D.
13
<PAGE>
COMMON STOCK PERFORMANCE
The Commission requires a five-year comparison of stock performance for the
Company with stock performance of appropriate similar companies. The Common
Stock is traded on the New York Stock Exchange, Inc. (the "NYSE"). Set forth
below is a line graph comparing the yearly percentage change in the cumulative
total stockholder return on the Common Stock and the cumulative total return
on the Standard & Poor's Composite-500 Stock Index and the weighted average
cumulative total return (based on stock market capitalization) on the stock of
each of the members of a peer group of companies. The Peer Group includes six
publicly traded medical service and medical supply companies with sales
ranging from approximately $1.1 billion to $3.9 billion. Direct competitors of
the Company are either substantially smaller than the Company or are
subsidiaries of much larger diversified corporations and are therefore not
believed to be appropriate peer companies. The Peer Group includes: Allergan,
Inc., C.R. Bard Inc., Magellan Health Services Inc., Fisher Scientific
International Inc., Thermo Electron Corporation, and Bausch & Lomb Inc.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
Company S&P 500 Peer Group
- -----------------------------------------------------------------------------
12/31/92 100 100 100
- -----------------------------------------------------------------------------
1993 81 103 110
- -----------------------------------------------------------------------------
1994 76 97 112
- -----------------------------------------------------------------------------
1995 54 153 131
- -----------------------------------------------------------------------------
1996 17 188 140
- -----------------------------------------------------------------------------
1997 10 251 149
- -----------------------------------------------------------------------------
14
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND MANAGEMENT
The following table sets forth as of April 20, 1998, the total number of
shares of Common and Preferred Stock beneficially owned, and the percent so
owned, by (i) each director of the Company who is a beneficial owner of any
shares of Common or Preferred Stock, (ii) each person known to the Company to
be the beneficial owner of more than 5% of the outstanding Common or Preferred
Stock, (iii) the officers named in the "Summary Compensation Table" set forth
above, and (iv) all current directors and Executive Officers as a group. The
number of shares owned are those "beneficially owned," as determined under the
rules of the Commission, and such information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which a person has sole or shared voting
power or investment power and any shares of Common or Preferred Stock which
the person has the right to acquire within 60 days through the exercise of any
option, warrant or right, through conversion of any security, or pursuant to
the automatic termination of power of attorney or revocation of trust,
discretionary account or similar arrangement.
<TABLE>
<CAPTION>
AMOUNT AND NATURE AMOUNT AND NATURE
OF BENEFICIAL OF BENEFICIAL
OWNERSHIP OF PERCENT OWNERSHIP OF PERCENT
BENEFICIAL OWNER COMMON STOCK OF CLASS PREFERRED STOCK OF CLASS
---------------- ----------------- -------- ----------------- --------
<S> <C> <C> <C> <C>
Roche Holdings, Inc. ... 61,329,256(1) 49.3% 5,325,625 51.3%
15 East North Street
Dover, DE 19901
Ronald O. Perelman...... 11,943,544(2) 9.6% -- (4) * (4)
35 East 62nd Street
New York, NY 10021
Thomas P. Mac Mahon..... 387,330 * 372 *
Jean-Luc Belingard...... 10,713 * 347 *
Wendy E. Lane........... 7,663 * 82 *
Robert E. Mittelstaedt,
Jr. ................... 7,663 * 79 *
James B. Powell......... 6,717 * 450 *
David B. Skinner........ 10,713 * 346 *
Andrew G. Wallace....... 10,713 * -- *
Larry L Leonard......... 196,630(3) * -- *
Bradford T. Smith....... 170,000(3) * -- *
Stevan R. Stark......... 175,270(3) * -- *
Wesley R. Elingburg..... 167,750(3) * -- *
Ronald B. Sturgill...... 80,497(3) * -- *
All current directors
and Executive Officers
as a group (13
persons)............... 1,302,887 1.0% 1,676 *
</TABLE>
- --------
* Less than 1%
(1) As reported on the Schedule 13D filed with the Commission on May 8, 1995,
on behalf of Roche Holdings, Inc. Roche Holdings Inc. is an indirect
wholly owned subsidiary of Roche Holding. Dr. h.c. Paul Sacher, an
individual and citizen of Switzerland has, pursuant to an agreement, the
power to vote a majority of the voting shares of Roche Holding.
(2) As reported in the Schedule 13G/A filed with the Commission on February
12, 1998, on behalf of Mafco Holdings Inc. ("Mafco"), all shares are owned
by National Health Care Group, Inc. ("NHCG"), an indirect wholly-owned
subsidiary of Mafco. All of the capital stock of Mafco is owned by Mr.
Ronald O. Perelman.
(3) Beneficial ownership by officers of the Company includes shares of Common
Stock which such officers have the right to acquire upon the exercise of
options which either are vested or which may vest within 60 days. The
number of shares of Common Stock included in the table as beneficially
owned which are subject to such options is as follows: Mr. Mac Mahon--
333,334; Dr. Leonard--184,130; Mr. Smith--170,000, Mr. Stark--173,601, Mr.
Elingburg--165,000, all directors and Executive Officers as a group (not
including Mr. Sturgill who is no longer an Executive Officer)--1,173,565.
(4) The Company is unaware of any Preferred Stock held either directly or
indirectly by Mr. Perelman.
15
<PAGE>
ITEM 2: RATIFICATION OF INDEPENDENT ACCOUNTANTS
Upon the recommendation of the Audit Committee, the Board of Directors has
appointed Price Waterhouse LLP ("Price Waterhouse") to audit the accounts of
the Company for the fiscal year ending December 31, 1998. For the year ended
December 31, 1997 the Company's accounts were audited by Price Waterhouse.
Price Waterhouse's report on the financial statements of the Company for the
year ended December 31, 1997 did not contain an adverse opinion or a
disclaimer of opinion and was not qualified or modified as to uncertainty,
audit scope, or accounting principles.
To the knowledge of management and the Audit Committee of the Board of
Directors of the Company, in connection with the audit of the Company's
financial statements for the year ended December 31, 1997, there were no
disagreements with Price Waterhouse on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope and procedure
which, if not resolved to the satisfaction of Price Waterhouse, would have
caused Price Waterhouse to make reference to the matter in its reports.
Representatives of Price Waterhouse will be present at the Annual Meeting
with the opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions.
Stockholder ratification of the appointment of Price Waterhouse as the
Company's independent accountants is not required by the Company's bylaws or
otherwise. The Board of Directors has elected to seek such ratification as a
matter of good corporate practice. Should the stockholders fail to ratify the
appointment of Price Waterhouse as the Company's independent accountants for
the year ending December 31, 1998, the Board of Directors will consider
whether to retain that firm for such year.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" THE RATIFICATION OF THE APPOINTMENT OF PRICE WATERHOUSE AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS FOR 1998.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE STOCKHOLDER AGREEMENT
In connection with the Merger, the Company, HLR, Holdings and Hoffmann-La
Roche entered into the Stockholder Agreement dated as of April 28, 1995. In
December 1996, HLR was merged with and into Hoffmann-La Roche and the shares
of Common Stock owned by HLR subsequently transferred from Hoffmann-La Roche
to Holdings. The Stockholder Agreement contains certain provisions relating to
(i) the governance of the Company following the Merger, including but not
limited to the composition of the Board of Directors, (ii) the issuance, sale,
and transfer of the Company's Equity Securities (as defined therein) by the
Company and Hoffmann-La Roche, (iii) the acquisition of additional Equity
Securities, and (iv) the registration rights granted by the Company to
Holdings and Hoffmann-La Roche with respect to the Company's Equity
Securities.
Pursuant to the Stockholder Agreement, the Board of Directors of the Company
will (subject to specified exceptions) be comprised of seven members,
consisting of three "Roche Directors" and four Independent Directors nominated
by the Nominating Committee of the Board of Directors.
The Stockholder Agreement also provides that, among other things, certain
actions by the Company will require approval by a majority of the Roche
Directors and at least one Independent Director (a "Special Majority Vote").
Included in these items is any change in the size or composition of the Board
of Directors or any committee thereof and the establishment of a new committee
of the Board of Directors, and with certain exceptions, the issuance of
securities by the Company.
The Stockholder Agreement also provides that, except under certain
circumstances, which include the issuance of Common Stock pursuant to a public
offering, the Company may not issue any equity securities unless Holdings is
offered the opportunity to purchase an amount of such stock necessary to
maintain its interest.
16
<PAGE>
Pursuant to the Stockholder Agreement, Holdings and its affiliates (other
than the Company and its subsidiaries) have the right to acquire Equity
Securities (as defined therein) to the extent that, after giving effect
thereto, their Total Voting Power would not exceed 75%. Moreover, Holdings and
its affiliates (other than the Company and its subsidiaries) may acquire
additional Equity Securities notwithstanding the fact that after giving effect
thereto, their Total Voting Power would exceed 75%, if Holdings and its
affiliates (other than the Company and its subsidiaries) or any one of them
offers, prior to consummation of such purchase, to purchase all outstanding
Equity Securities and holders of Equity Securities totaling more than 50% of
the outstanding Equity Securities (excluding Equity Securities held by
Holdings and its affiliates (other than the Company and its subsidiaries))
accept such offer. After the third anniversary of the Merger, the Stockholder
Agreement does not restrict purchases by Holdings or its affiliates of Equity
Securities.
In addition, the Stockholder Agreement contains a Demand Registration
provision pursuant to which the Company is obligated, upon the request of
Holdings, or Hoffmann-La Roche, to file registration statements with the
Commission covering any shares of Common Stock owned by those parties which
are restricted securities within the meaning of Rule 144(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act"). Holdings and
Hoffmann-La Roche will also have the right to include such securities in any
registration statement filed by the Company offering securities for its own
account or for the account of any holder other than Mafco or any of its
affiliates, subject to certain reductions if the managing underwriter
determines that the size of the offering or the combination of securities
offered would materially interfere with the offering.
THE SHARING AND CALL OPTION AGREEMENT
In connection with the Merger Agreement, HLR, Mafco Holdings, Inc.
("Mafco"), a Delaware corporation and indirect wholly-owned subsidiary of M&F
Holdings, National Health Care Group, Inc. ("NHCG"), and the Company entered
into the Sharing and Call Option Agreement dated as of December 13, 1994 (the
"Sharing and Call Option Agreement"). The Sharing and Call Option Agreement
provides, among other things, that at any time after the third anniversary of
the Merger, Hoffmann-La Roche (the successor to HLR as discussed above) or one
of its affiliates (such party, a "Purchaser") (other than the Company) may
exercise the right, which right may only be exercised once, to purchase all,
but not less than all, the shares of Common Stock then owned by NHCG, Mafco or
any of their controlled affiliates. The Sharing and Call Option Agreement
provides that the Purchaser, will, if it elects to exercise this purchase
right, pay a price per share for the shares to be purchased equal to 102% of
the average closing price per share of such security as reported on the
principal national securities exchange on which such shares are listed, or if
not so listed, as reported on the National Association of Securities Dealers,
Inc. Automated Quotation System--National Market System, for the 30 trading
days before the date of such exercise.
In addition, in accordance with the Sharing and Call Option Agreement, the
Company has filed with the Commission a registration statement on Form S-3
(the "Registration Statement") which has been declared effective by the
Commission and includes a resale prospectus that permits NHCG (or any of its
pledgees) to sell shares of Common Stock and Warrants received by NHCG in the
Merger without restriction. The Company has agreed to use its best efforts to
prepare and file with the Commission such post-effective amendments to the
Registration Statement or other filings as may be necessary to keep such
Registration Statement continuously effective for a period ending on the third
anniversary of the date of the Sharing and Call Option Agreement and during
such period to use its best efforts to cause the resale prospectus to be
supplemented by any required prospectus supplement. The Company has also
agreed to pay all of the Registration Expenses (as defined therein) arising
from exercise of the registration rights set forth in the Sharing and Call
Option Agreement. A copy of the Sharing and Call Option Agreement was filed
with the Commission by the Company as an exhibit to the 1994 10-K.
REGISTRATION RIGHTS AGREEMENT
In addition to those registration rights granted to NHCG under the Sharing
and Call Option Agreement, the Company and NHCG also are parties to a
registration rights agreement dated as of April 30, 1991 (the "Registration
Rights Agreement") pursuant to which the Company is obligated, upon the
request of NHCG, to
17
<PAGE>
file registration statements ("Demand Registration Statements") from time to
time with the Commission covering the sale of any shares of Common Stock owned
by NHCG upon the completion of certain public offerings by the Company of
shares of Common Stock in 1991. Such Demand Registration Statements may also
cover the resale from time to time of any shares of Common Stock that NHCG may
purchase in the open market at a time when it is deemed to be an affiliate (as
such term is defined under Rule 144 under the Securities Act of 1933, as
amended), and certain securities issued in connection with a combination of
shares, recapitalization, reclassification, merger or consolidation, or other
pro rata distribution. NHCG will also have the right to include such Common
Stock and other securities in any registration statement filed by the Company
for the underwritten public offering of shares of Common Stock (whether or not
for the Company's account), subject to certain reductions in the amount of
such Common Stock and securities if the managing underwriters of such offering
determine that the inclusion thereof would materially interfere with the
offering. The Company agreed not to effect any public or private sale,
distribution or purchase of any of its securities which are the same as or
similar to the securities covered by any Demand Registration Statement during
the 15-day period prior to, and during the 45-day period beginning on, the
closing date of each underwritten offering under such registration statement
and NHCG agreed to a similar restriction with respect to underwritten
offerings by the Company. NHCG's rights under the Registration Rights
Agreement are transferable as provided therein.
Until the third anniversary of the Sharing and Call Option Agreement, when
the Company's obligation to keep the Registration Statement effective expires,
the registration rights granted to NHCG pursuant to the Registration Rights
Agreement are substantially duplicative of those granted pursuant to the
Sharing and Call Option Agreement. After such date and only to the extent that
NHCG still holds shares of Common Stock or Warrants that it held as of or
received in the Merger, NHCG will continue to be entitled to the registration
rights described in the preceding paragraph, unless the Registration Rights
Agreement has been otherwise amended or terminated.
TAX ALLOCATION ARRANGEMENT
Until May 7, 1991, the Company was included in the consolidated federal
income tax returns, and in certain state income tax returns, of Mafco, M&F
Holdings, Revlon Group, and Revlon. As a result of the reduction of M&F
Holdings' indirect ownership interest in the Company on May 7, 1991, the
Company is no longer a member of the Mafco consolidated tax group. For periods
subsequent to May 7, 1991, the Company files its own separate federal, state,
and local income tax returns. Nevertheless, the Company will remain obligated
to pay to M&F Holdings (or other members of the consolidated group of which
M&F Holdings is a member) any income taxes the Company would have had to pay
(in excess of those which it has already paid) if it had filed separate income
tax returns for taxable periods beginning on or after January 1, 1985 (but
computed without regard to (i) the effect of timing differences (i.e., the
liability or benefit that otherwise could be deferred will be, instead,
includible in the determination of current taxable income) and (ii) any gain
recognized on the sale of any asset not in the ordinary course of business).
In addition, despite the reduction of M&F Holdings' indirect ownership of the
Company, the Company will continue to be subject under existing federal
regulations to several liability for the consolidated federal income taxes for
any consolidated return year in which it was a member of any consolidated
group of which Mafco, M&F Holdings, Revlon Group, or Revlon was the common
parent. However, Mafco, M&F Holdings, Revlon Group, and Revlon have agreed to
indemnify the Company for any federal income tax liability (or any similar
state or local income tax liability) of Mafco, M&F Holdings, Revlon Group,
Revlon, or any of their subsidiaries (other than that which is attributable to
the Company or any of its subsidiaries) that the Company would be required to
pay.
CERTAIN OTHER TRANSACTIONS WITH ROCHE
In December 1996, the Company received a loan from Roche Holdings of $187.0
million to fund the 1996 Government Settlement Payment in the form of a
promissory note which bears interest at 6.625% per annum. The 1996 Government
Settlement is described in full in the Company's 1997 Form 10-K. In March
1997, the original maturity of March 31, 1997 of such note was extended to
March 31, 1998. In June 1997, the Company repaid the note and all accrued
interest with proceeds from the Preferred Stock Offering as described below.
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<PAGE>
On May 19, 1997 the Board of Directors of the Company declared a dividend of
10,000,000 transferable subscription rights which were then issued pro rata to
holders of its common stock on May 29, 1997 entitling them to purchase up to
an aggregate of $500.0 million of redeemable convertible preferred stock
issuable in two series at a subscription price of $50 per share (the
"Preferred Stock Offering"). The subscription period ended on June 16, 1997.
On that date, rights were exercised to purchase 4,363,202 shares of Series A 8
1/2% Convertible Exchangeable Preferred Stock ("Series A") and 5,636,798
shares of Series B 8 1/2% Convertible Pay-in-Kind Preferred Stock ("Series
B"), each at a subscription price of $50 per share. Roche exercised its basic
subscription privilege in full for 4,988,751 share of Series B and other
rights holders purchased the remaining 5,011,249 shares.
The Series A is convertible at the option of the holder after September 30,
1997 into common stock, will pay cash dividends and will be exchangeable on or
after June 30, 2000 at the Company's option for 8 1/2% Convertible
Subordinated Notes due June 30, 2012. The Series B will be convertible at the
option of the holder after June 30, 2000 into common stock, will pay dividends
in-kind until June 30, 2003, and in cash thereafter, and will not be
exchangeable for notes. The conversion rate for both series of preferred stock
is 18.1818 shares of common stock per share of preferred stock. Each series of
preferred stock will be mandatorily redeemable after June 30, 2012 at $50 per
share and will be redeemable at the option of the Company after July 7, 2000
at prices declining from $52.83 to $50.00 in 2006 and thereafter. Neither
series of preferred stock entitles the holder to any voting rights in the
Company.
At December 31, 1997, 61,329,256 shares of the Company's outstanding common
stock, or approximately 49.6% at December 31, 1997, were owned by Roche. In
addition, Roche owned 5,214,810 shares of the Company's redeemable convertible
preferred stock at December 31, 1997, or approximately 50.8%. No voting rights
are associated with the redeemable preferred shares.
As of December 31, 1997, the number of warrants outstanding to purchase the
Company's common stock was 22,151,308, of which 8,325,000 warrants were held
by an affiliate of Roche. These warrants are exercisable at a price of $22.00
per share and expire on April 28, 2000.
The Company has certain on-going arrangements with Roche for the purchase by
the Company of certain products and the licensing by the Company from Roche of
certain diagnostic technologies, with an aggregate value of approximately
$25.2 million in 1997. The Company provides certain diagnostic testing and
support services to Roche in connection with Roche's clinical pharmaceutical
trials, with an aggregate value of approximately $1.6 million in 1997. Each of
these arrangements was entered into in the ordinary course of business, on an
arm's-length basis, and on terms which the Company believes are no less
favorable to it than those obtainable from unaffiliated third parties.
CERTAIN TRANSACTIONS WITH AUTOCYTE, INC.
Dr. Powell is President, Chief Executive Officer and Chairman of AutoCyte,
Inc. and has a beneficial ownership of 16.9% of AutoCyte's common stock. Mr.
MacMahon serves on the Board of AutoCyte and has a beneficial ownership of
less than 1% of AutoCyte's common stock.
The Company has certain on-going arrangements with AutoCyte for the purchase
by the Company of certain products with an aggregate value of less than $0.1
million in 1997.
In 1997, AutoCyte (i) leased a portion of the Company's facility in Elon
College, North Carolina and (ii) purchased cytology services for total
payments of $0.1 million to the Company.
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<PAGE>
STOCKHOLDER PROPOSALS
Under the rules and regulations of the Commission as currently in effect,
any holder of at least $1,000 in market value of Common Stock who desires to
have a proposal presented in the Company's proxy material for use in
connection with the annual meeting of stockholders to be held in 1999 must
transmit that proposal (along with his name, address, the number of shares of
Common Stock that he holds of record or beneficially, the dates upon which the
securities were acquired and documentary support for a claim of beneficial
ownership) in writing as set forth below. Proposals of stockholders intended
to be presented at the next annual meeting must be received by Bradford T.
Smith, Secretary, Laboratory Corporation of America Holdings, 358 South Main
Street, Burlington, North Carolina 27215, no later than January 4, 1999. This
date was calculated based on a planned meeting date in early June 1999.
Holders of Common Stock who want to have proposals submitted for
consideration at future meetings of stockholders should consult the applicable
rules and regulations of the Commission with respect to such proposals,
including the permissible number and length of proposals and other matters
governed by such rules and regulations.
ADDITIONAL INFORMATION
The Company will make available a copy of the 1997 Form 10-K and any
quarterly reports on Form 10-Q filed thereafter, without charge, upon written
request to the Secretary, Laboratory Corporation of America Holdings, 358
South Main Street, Burlington, North Carolina 27215. Each such request must
set forth a good faith representation that, as of the Record Date (April 17,
1998) the person making the request was a beneficial owner of Common Stock
entitled to vote.
In order to ensure timely delivery of such document prior to the annual
meeting, any request should be received by the Company promptly.
OTHER BUSINESS
The Company knows of no other matters which may come before the Annual
Meeting. However, if any such matters properly come before the Annual Meeting,
the individuals named in the proxies will vote on such matters in accordance
with their best judgment.
By Order of the Board of Directors
/s/ Bradford T. Smith
Bradford T. Smith
Secretary
April 30, 1998
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<PAGE>
STOCKHOLDERS' PROXY SOLICITED BY THE BOARD OF DIRECTORS OF
LABORATORY CORPORATION OF AMERICA HOLDINGS
To: Laboratory Corporation of America Holdings
I/WE appoint Bradford T. Smith and Wesley R. Elingburg individually and
together, as my proxies, with power of substitution, to vote all of my
LABORATORY CORPORATION OF AMERICA HOLDINGS common stock at the Annual Meeting of
stockholders of LABORATORY CORPORATION OF AMERICA HOLDINGS to be held at The
Paramount Theater, 128 East Front Street, Burlington, N.C., 27215 on Wednesday,
June 17, 1998, at 9:00 a.m., Eastern Daylight time, and at any adjournment or
postponement of the meeting.
MY PROXIES WILL VOTE THE SHARES REPRESENTED BY THIS PROXY AS DIRECTED ON
THE OTHER SIDE OF THIS CARD, BUT IN THE ABSENCE OF ANY INSTRUCTIONS FROM ME, MY
PROXIES WILL VOTE "FOR" THE ELECTION OF ALL THE NOMINEES LISTED UNDER ITEM 1 AND
"FOR" ITEM 2. MY PROXIES MAY VOTE ACCORDING TO THEIR DISCRETION ON ANY OTHER
MATTER WHICH MAY PROPERLY COME BEFORE THE MEETING. I MAY REVOKE THIS PROXY PRIOR
TO ITS EXERCISE.
PLEASE SIGN AND DATE THE OTHER SIDE OF THE CARD.
(Please fill in the appropriate boxes on the other side.)
<PAGE>
WHEN OK PRINT - REMOVE ALL RED ITEMS
[X] Please mark your
votes as in this
example. DO NOT PRINT IN THIS AREA
- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" ALL THE NOMINEES LISTED
UNDER ITEM NO. 1 AND "FOR" ITEM NO. 2.
FOR ALL WITHHOLD AUTHORITY
1. Election of all NOMINEES FOR ALL NOMINEES
the members [_] [_]
of the
Company's
Board of
Directors.
For, except vote withheld from the following nominee(s).
NOMINEES: Thomas P. Mac Mahon, James B.
Powell, M.D., Jean-Luc Belingard,
Wendy E. Lane, Robert E.
Mittelstaedt, Jr., David B. Skinner,
M.D. and Andrew G. Wallace, M.D.
2. Ratification of the appointment of Price FOR AGAINST ABSTAIN
Waterhouse LLP as Laboratory Corporation [_] [_] [_]
of America Holdings' independent
accountants for 1998.
- ----------
[ SHARE HOLDERS NAME AND ADDRESS ]
[ DO NOT PRINT IN THIS AREA ]
Signature(s)_______________________________________________ Date:______________
Signature(s)_______________________________________________ Date:______________
NOTE: Please sign exactly as name(s) appear(s) above. Date and promptly return
the card in the envelope provided. If acting as an executor,
administrator, trustee, guardian, etc. you should so indicate in signing.
If the stockholder is a corporation, please sign the full corporate name,
by duly authorized officer and indicate title. If shares are held jointly,
each stockholder should sign.
